In the matter of Scientific Management Associates Pty Ltd

1. [1]

   HER HONOUR: In the 1980s, two gentlemen experienced in the defence industry began to work together: they were an American businessman, George Glatis Snr, whose company provided consultancy services to the US Department of Defence, and Keith Snell, who had worked for the Australian Department of Defence for many years. Over almost 20 years, they formed a prosperous group of companies called the SMA Group. Mr Glatis Snr held 51% of the shares but they ran the companies as if they were equal shareholders. Mr Snell had the main responsibility for Australian operations. Mr Snell also had a particular interest in real estate and accumulated a substantial property portfolio for the SMA Group — today some 70 pieces of real estate worth roughly $178 million — albeit accompanied by significant debt.

2. [2]

   Mr Glatis Snr passed away in 2003. None of Mr Glatis Snr’s family is involved in the defence industry, but the family have endeavoured through a Shareholders Agreement to ensure that they are fully apprised of the group’s activities; the real estate portfolio is sold down and debt retired; and a regular stream of dividends is paid. In this endeavour, the Glatis family have been represented by Mr Glatis Snr’s son, Christopher Glatis, assisted by Sydney-based accountant, Andrew Skyring. This has proved a most difficult task as Mr Snell has resisted their efforts, including in respect of queries raised about a number of investments and transactions entered into by Mr Snell on behalf of the SMA Group, both before Mr Glatis Snr died and more recently. Mr Snell has also raised a number of long-standing issues from his perspective: that he was to get a 50% shareholding in two US companies owned by Mr Glatis Snr; that Mr Glatis Snr owed him money when he died; and that the SMA Group would be nothing without him.

3. [3]

   In 2016, Mr Glatis and the Glatis Family Limited Partnership (which holds Mr Glatis Snr’s shares in the SMA Group) commenced an oppression suit under sections 232 and 233 of the Corporations Act 2001 (Cth). Mr Snell is the first defendant. The companies in which the plaintiffs have shares are the third to sixth defendants, being Scientific Management Associates Pty Limited (SMA), Scientific Management Associates (Australia) Pty Limited (SMA Australia), Scientific Management Associates (Victoria) Pty Limited (SMA Victoria) and Scientific Management Associates Operations (SMA Operations). Owen Culley, managing director and a shareholder of SMA Operations, is the second defendant but was not actively involved in the proceedings.

4. [4]

   By the end of an eight-day hearing, the defendants agreed to pay the plaintiffs unpaid dividends dating from 2008, but disputed any obligation to pay interest. The defendants accepted that some, but not most, of the conduct complained of was oppressive. The defendants agreed that the Glatis family and Mr Snell should now both extract their investments in the SMA Group. The corporate defendants proposed to appoint attorneys to sell the assets of the SMA Group together with an order enjoining Mr Snell from interfering with that process. The proposed orders reflected an acceptance on the defendants’ part that Mr Snell had dealt with the Glatis family in an uncooperative and obstructive manner. The plaintiffs, however, are not interested in this proposal and want their shares in the SMA Group bought out for $66 million.

5. [5]

   The plaintiffs’ witnesses were Mr Glatis, Mr Skyring and Jonathon Moore, a US attorney who holds a small portion of shares in the SMA Group on trust for the Glatis Estate Employee Trust. Mr Moore was not required for cross‑examination.

6. [6]

   Mr Glatis was cross-examined for three days and gave evidence in a careful, considered, fair, consistent and accurate manner. He readily made proper concessions, for example, that he wanted Mr Snell to buy the Glatis family out, and that his desire to become a director was not motivated by a wish to become actively involved with the conduct of the business activities of the SMA Group. It was repeatedly put to Mr Glatis that he had sought to create circumstances to justify a claim of oppression, and he repeatedly and credibly denied any such intention. Nor was there any contemporaneous evidence pointing to such a contrivance on his part. Mr Glatis was an impressive witness who appeared thoroughly honest and I accept his evidence. Mr Skyring was a fair, reasonable, careful, precise, although at times unnecessarily anxious, witness. Mr Skyring appeared to me to be a very decent, honest and conscientious professional and I accept his evidence.

7. [7]

   The defendants relied on evidence from Mr Snell, Margaret Vincent (accountant for the SMA Group) and Robert Pottenger (Group Financial Manager of the SMA Group). Mr Pottenger was not required for cross-examination and the plaintiffs agree that he is a conscientious and honest man. Ms Vincent has worked for Mr Snell for many years and appeared most devoted to him. Ms Vincent was very quick to provide unsolicited information in answer to questions and to advance Mr Snell’s position if possible. Her evidence had a partisan quality and I am hesitant to rely upon it in the absence of contemporaneous corroborative material.

8. [8]

   Mr Snell was a most unsatisfactory witness. Mr Snell’s answers were replete with unsolicited responses and irrelevancies, and were often non-responsive and inconsistent. He was argumentative, combative and prone to speeches. His answers were frequently starkly at odds with contemporaneous documents, for example, loan agreements which he had signed. Mr Snell blamed others wherever possible including Ms Vincent, Mr Skyring, the global financial crisis, the banks and his solicitors. His answers were, on occasion, improbable. For example, he was not worried that his personal loans to property developer, Gregory Walker, might not be able to be repaid, being a person to whom he had already lost considerable sums.

9. [9]

   Mr Snell said whatever he thought would assist him regardless of whether it was true or false. To avoid replication, examples are at [72], [79], [86], [158] to [159] and [163]. Mr Snell’s answers were sometimes incredible and I paused at the time to wonder how he could have thought that anyone would accept what he was saying was likely, plausible or remotely possible. It was surprising that Mr Snell persisted in his answers nonetheless.

10. [10]

    The plaintiffs submitted that Mr Snell was a dishonest witness, whose evidence was not credible or reliable, and whose evidence should not be accepted except to the extent that it is evidence against his interests or is corroborated by contemporaneous documents or other reliable evidence. The defendants’ counsel did not submit otherwise. I agree with the plaintiffs’ submission. That is not to say that Mr Snell is dishonest in his dealings with the world at large but, in his evidence in these proceedings, he was.

11. [11]

    Andrew Ross of KordaMentha was the plaintiffs’ expert accountant and valuer and Matthew Gwynne of PKF (NS) Forensic Accountants Pty Ltd was the defendants’ expert. Mr Gwynne’s report was largely based upon inadmissible evidence of Mr Snell and thus the foundation of his report ‘fell away’. He nonetheless assisted the Court by participating in a joint report and conclave with Mr Ross. Overall, I found Mr Ross’ methods and reasoning to be more conventional, comprehensive and robust, and they were generally better supported by available accounting records.

12. [12]

    In 1981, SMA was incorporated to act as consultant engineers and to provide design services. The directors were three American gentlemen, Thomas Bowe, William Hare and Robert J Wells. The idea was to build on a relationship established by an American company, Scientific Management Associates Inc (SMA Inc) as a support contractor for the US Navy in providing services to support an Australian program. The general manager of SMA was Mr Snell, who had many years’ experience with the Australian Department of Defence.

13. [13]

    By 1984, Mr Snell and two other American gentlemen, Mr Glatis Snr and Louis Donatelli, had become directors of SMA. Mr Glatis Snr and Mr Snell formed a strong working relationship. Its ultimate holding company was SMA Inc, which owned 85% of SMA’s shares. SMA Inc continued to perform consultancy services for the US Department of Defence.

14. [14]

    In 1988, SMA Australia was incorporated to provide integrated logistics support for the Collins Class submarine project with the Australian Department of Defence. Mr Glatis Snr and Mr Snell became directors. Mr Glatis Snr was the majority shareholder. The company went on to win a number of other integrated logistics support contracts and was also involved in training naval personnel.

15. [15]

    In 1989, SMA Victoria was incorporated to provide integrated logistics support to the Anzac ship project for the Australian Department of Defence. Mr Glatis Snr and Mr Snell became directors. Mr Glatis Snr was the majority shareholder. Mr Snell later described acquiring this contract as a “major watershed” for the SMA Group with eventual earnings exceeding $100 million. The company went on to win a number of other contracts to provide support functions for the Command Helicopter Project and was given responsibility to construct and manage the Command Aerospace International Support Centre adjacent to HMAS Albatross.

Intercompany payments and loans

1. [16]

   By 1989, another US company, Gladon International Inc (the name was a combination of the names of directors Mr Glatis Snr and Mr Donatelli), acquired a majority interest in SMA Inc and thus SMA. The relationships between these companies can be seen in the financial statements of that year.

2. [17]

   In March 1991, SMA Inc sent a facsimile to Ms Vincent and Mr Snell regarding payments to Gladon and the 1990 financial statements:

3. [18]

   The defendants point to a number of funds transfers from SMA Australia and SMA Victoria to Gladon and Mr Glatis Snr from 1990 to 1994, said to be loans similar to those supporting accounting entries made by Mr Snell after these proceedings commenced to reduce his indebtedness to SMA Victoria. However, the documents supporting the funds transfers do not suggest that the transfers were loans. Nor is there reliable evidence that these were loans to Mr Glatis Snr. Rather, it appears that Mr Glatis Snr and Gladon were regularly paid monies by reason of their shareholding in the Australian companies and thus their entitlement to share in the fruits of those companies’ endeavours. Loans to the US companies disappear from the financial statements after 1992.

Governing Director and control of SMA Victoria

1. [19]

   In 1992, the articles of association of SMA Victoria were amended. The share capital was divided into one million $1 shares including one “A” class special share allotted to Mr Snell, which entitled him to four times the total number of votes to which all other members were entitled. Article 69A of the company’s constitution provided for Mr Snell to be the “Governing Director” as long as he held that share and:

2. [20]

   Thus, although Mr Glatis Snr held 51% of the ordinary capital of SMA Victoria, Mr Snell had control of it. Mr Glatis Snr, either individually or together with SMA Inc, continued to control SMA and SMA Australia. SMA Victoria held no shares in either SMA or SMA Australia at the time, and so Mr Snell’s control of SMA Victoria added nothing to his effective shareholding in SMA or SMA Australia of 49%. Today, SMA Victoria holds the bulk of the real estate assets of the SMA Group.

SMA Operations and the Glatis shareholding

1. [21]

   In 2000, SMA Operations was incorporated to consolidate the expanded employment base of the SMA Group on a single payroll; ensure the longevity of the SMA Group by making available equity positions for key senior staff; and to isolate risk factors with ongoing defence business away from the asset base of SMA Australia and SMA Victoria. SMA Operations had two ordinary shares held by Mr Snell but, as explained by Mr Snell to Mr Skyring after Mr Glatis Snr passed away:

A loan to Mr Glatis Snr?

1. [22]

   In October 2002, Mr Snell transferred US $200,000 to Mr Glatis Snr. The relevance of this transaction is that, in 2017, an accounting entry was made by Mr Snell to reduce the amount he owed to SMA Victoria by an ‘adjustment’ of $219,577 (the equivalent in Australian dollars of US $200,000) on account of ‘historic amounts owed by George Glatis’. I have considered this ‘adjustment’ at [181], [183] and [244] to [250].

2. [23]

   The contemporaneous documents do not indicate what the payment was for, or suggest that the payment was a loan. If the payment was a loan, it would appear to have been a loan by Mr Snell to Mr Glatis Snr. It was not a loan by SMA Victoria. Nor was such a loan recorded in financial statements of SMA Victoria at the time, although the financial statements do not contain the level of detail which would have revealed it.

The Estate of Mr Glatis Snr

1. [24]

   On 27 June 2003, Mr Glatis Snr passed away.

2. [25]

   In November 2003, Mr Skyring was engaged to value the interest of the Estate of Mr Glatis Snr in the SMA Group to assist the Glatis family to file a US tax return and obtain probate. Of the sources of information on which Mr Skyring relied in preparing his report, three warrant particular mention. First, Mr Skyring reviewed the financial statements of the SMA Group, which contained no detail of the investments and transactions which gained prominence in these proceedings. Second, Mr Skyring met with Mr Snell, who explained the operations of the SMA Group. The SMA Group had annual revenue exceeding $25 million. The group employed over 360 professional and support staff in offices in Canberra, Sydney, Melbourne, Adelaide, Perth, Cairns and Newcastle and in the USA, UK and New Zealand. The group’s business involved providing integrated logistics support services to major defence contractors, primarily in Australia, but also included providing integrated logistics support to other suppliers of submarines, helicopters and other vessels to the defence force as well as to industry. The SMA Group had also diversified its activities and held a significant commercial and residential property portfolio with gross rental receipts of some $1.3 million. SMA, SMA Australia and SMA Victoria were then servicing existing contracts but were not tendering for new contracts: SMA Operations had taken over the employment of all defence training and integrated logistics support personnel within the SMA Group, provided all labour and expertise to service existing contracts and tendered for new contracts.

3. [26]

   Third, Mr Skyring relied on a spreadsheet which Mr Snell maintained in respect of the properties and shares owned by the SMA Group. According to a March 2004 version of the spreadsheet, the group owned over 100 properties in Australia, New Zealand, the UK, the US, France and the Cayman Islands as well as interests in other companies and a share portfolio. The estimated value of the assets in the spreadsheet was some $88 million. Mr Snell’s spreadsheets gained considerable prominence in these proceedings, in particular, in respect of the value of the plaintiffs’ shares in the SMA Group.

4. [27]

   In September 2004, Mr Skyring valued the shares held by the Estate of Mr Glatis Snr in the SMA Group to be worth some $33 million. By this time, SMA Victoria had become a shareholder in SMA and SMA Australia. By reason of Mr Snell’s ability to control SMA Victoria by virtue of the “A” class special share, Mr Snell could now also control SMA. Thus, whilst the Estate of Mr Glatis Snr held the largest individual direct shareholding in SMA, Mr Skyring considered the Estate’s interest to be a minority holding due to an inability to exercise control. Mr Glatis Snr continued to hold 50.95% in SMA Australia.

5. [28]

   Through the course of preparing the valuation report, Mr Skyring developed an understanding of the operations of the key entities in the SMA Group. Mr Snell suggested that Mr Skyring become involved in assisting the Glatis family and its representative, Christopher Glatis, to understand the affairs of the companies, relay any inquiries or concerns of Mr Glatis and obtain information for the Glatis family.

Mr Snell’s other business interests

1. [29]

   A recurring theme in the allegations of oppression is the extent to which Mr Snell lent money or made investments in other businesses, in particular, property development, car dealerships and boats, either in his own name or via the SMA Group, and the extent to which personal transactions came ‘onto the books’ of the SMA Group by way of accounting entries when the loan or investment proved to have been a bad one. It is thus necessary to introduce the following companies, people and businesses.

2. [30]

   Jim Ireland was a business colleague of Mr Snell who operated a Ford car dealership. Mr Snell referred to Mr Ireland as a “partner”.

3. [31]

   In 1995, Mr Snell became a director of Car Care Clinic Systems Pty Limited (later called Car Care Clinic Pty Limited), a company of which James (Jim) Ireland was also a director. SMA Victoria was a shareholder. In 1996, Mr Snell became a director of CCC Investments Pty Limited, another company of which Mr Ireland was a director. SMA Victoria became a shareholder. In Mr Snell’s spreadsheet of November 2004, that is, prepared at the time of Mr Skyring’s valuation, SMA Victoria’s shares in Car Care Clinic (33%) and CCC Investments (50%) were together estimated by Mr Snell to be worth $350,000. In April 2002, Mr Snell became a director of Cat Club Pty Limited, another company of which Mr Ireland was a director. Mr Snell and Mr Ireland owned one share each. These investments were disclosed in management accounts of SMA Victoria for the year ended 30 June 2007, the first management accounts circulated to the Glatis family.

4. [32]

   Mr Snell was in the thrall of property developer Greg Walker and, from time to time, lent money to Mr Walker for his developments, including from Mr Snell’s personal superannuation account. Mr Snell agreed that Mr Walker was a friend of his, to whom he lent personal funds to complete projects and to help Mr Walker get out of his financial dilemmas: “I treated Mr Walker as a partner … and loaned him money”.

5. [33]

   One of Mr Walker’s many corporate vehicles was Greatest Ever Pty Limited, a company of which Mr Snell was both a director and shareholder. Mr Snell had a personal overdraft with ANZ Bank. From December 2003 to September 2004, Mr Snell paid a total of $500,000 from his personal overdraft to “Greatest Ever”, in payments sometimes described in Ms Vincent’s working papers as loans and otherwise with no narration. A general journal entry was made on 30 June 2005 crediting Mr Snell’s loan account with SMA Victoria for $400,000 of the payments made to Greatest Ever, and thus effectively repaying Mr Snell for these loans. It is not clear why this was done, nor is there reference to a loan from SMA Victoria to Greatest Ever in the financial statements for SMA Victoria for the year ended 30 June 2005 but nor are the financial statements of sufficient detail to have revealed such a loan.

6. [34]

   On 21 June 2005, Mr Snell paid $600,000 from his personal overdraft to “GWalker Holdings” in respect of a development on Ryde Road, Pymble. There is no reference to an investment by either Mr Snell or the SMA Group in Greatest Ever, Greg Walker Holdings or a development on Ryde Road, Pymble in Mr Snell’s spreadsheets prepared in 2005, although an investment by SMA Victoria in “Greatest Ever” is referred to in the management accounts for SMA Victoria for the year ended 30 June 2007.

7. [35]

   The relevance of these transactions is that, after these proceedings were commenced, accounting entries were made on the instructions of Mr Snell to adjust his loan account with SMA Victoria on the basis that these were loans by SMA Victoria. I have considered this alleged oppressive conduct at [181]–[182] and [243]–[250].

Heads of Agreement

1. [36]

   In December 2006, representatives of the Estate of Mr Glatis Snr, Mr Snell, the SMA Group, SMA Inc and Gladon entered into Heads of Agreement pending resolution of a shareholders agreement, addressing matters set out in a “Memorandum Concerning Future Operations and Relationship between the Shareholders”. The memorandum stated that, following the death of Mr Glatis Snr, there was a need to set out a future method of operation and management parameters, recognising that the beneficiaries of Mr Glatis Snr’s Estate needed to have input into, and information about, the operations of the SMA Group; Mr Snell and senior staff had been a unique factor in the success of the SMA Group; the relationship between Mr Snell and Mr Glatis Snr was one of mutual trust “but where arrangements between them for the restructuring of American companies ha[d] not been implemented”; and the ongoing success of the SMA Group relied upon the skills and contacts of Mr Snell and senior staff who needed flexibility and independence to pursue these activities subject to reasonable accountability to the Estate of Mr Glatis Snr including access to company accounts, participation in general and board meetings and consultation on matters requiring explanation.

2. [37]

   The memorandum recognised that, since Mr Glatis Snr’s passing, there was no one in the Glatis family with equivalent knowledge of the defence industry and consultancy business. It was thus agreed that control of ongoing operations of the SMA Group should continue with Mr Snell, who recognised that the Glatis Estate and the Glatis family had a proper interest in the assets and future success of the SMA Group. Each party committed as a matter of good faith to continuing the previous successful and harmonious relationship that had existed between Mr Snell and Mr Glatis Snr. In respect of directorships, it was proposed that Mr Glatis or another nominee of the Estate would be a director of each of SMA, SMA Australia, SMA Victoria and SMA Operations. Mr Snell would continue with the powers of Governing Director. Clause 5.6 provided that Mr Snell would remain as the group managing director whilst Mr Culley would be managing director of SMA Operations and responsible for all new business.

3. [38]

   In respect of the shareholdings in the SMA Group, the memorandum recognised that for historical reasons the Estate had held 51% of the SMA Group whilst Mr Snell had held 49%. During the lifetime of Mr Glatis Snr, it was said that this was not an issue because of the relationship between Mr Glatis Snr and Mr Snell, but the intention was that they were to be equal partners in the Australian and US companies, including SMA Inc and Gladon. The memorandum provided that the current shareholding in each company in the SMA Group was to be formalised with the intention that the Estate and Mr Snell would each have a 50% interest in the group, including SMA Inc and Gladon.

4. [39]

   In respect of SMA Operations, the memorandum provided in clause 4.2(e) that the current shareholding would be formalised as follows:

5. [40]

   In clause 8, Mr Snell recognised the rights of the Estate as shareholder, and Mr Glatis, to all information about the affairs of the SMA Group and agreed to operate as group managing director to ensure that this happened. Full accounts would be provided each year, and a summary each quarter. The Estate could have the accounts examined by an independent accountant from time to time and the reasonable costs would be borne by the SMA Group.

6. [41]

   The Heads of Agreement provided that, so far as possible, dividends of at least $600,000 would be paid to Mr Snell and the Estate each year and, pending declaration of dividends, advanced to shareholders during the year.

SMA Operations dividends

1. [42]

   On 31 March 2007, SMA Operations paid a dividend of $1.375 million to Mr Snell. According to the general journal of SMA Operations, this was for “extra dividends to compensate for past company payments from own funds”. The details in the accounts were:

2. [43]

   There were no contemporaneous documents to support $500,000 in loans to Mr Glatis Snr. There was a spreadsheet maintained by Ms Vincent for a Wells Fargo Bank cheque account from 1999 to 2002 which recorded a payment to Mr Glatis Snr of US $200,000 in 2000 and US $17,500 “repayments” by Mr Glatis Snr. I note the payment to Mr Glatis Snr of US $200,000 in October 2002, referred to at [22]. It may be that the $500,000 is effectively both of these transfers with a bit more thrown in. What the general journal does clarify is that the monies were paid “from KES funds”, that is, by Mr Snell and appears to have been a payment from him personally to Mr Glatis Snr. Retrospectively treating such loans, if loans they were, as a dividend paid by SMA Operations to Mr Glatis Snr, with a matching dividend paid to Mr Snell, was an odd accounting treatment, to say the least.

3. [44]

   There is no contemporaneous record of Mr Snell having paid $375,000 to Mr King. Nor is it clear why Mr Snell would declare a dividend in his favour to repay money paid by him on behalf of SMA Operations and therefore a debt owed to him by SMA Operations. There is no suggestion that Mr Snell discussed the payment of this large dividend with Mr Glatis before making the payment. This was a portent of things to come: large payments made by Mr Snell to himself without consultation, unsupported by contemporaneous records and at odds with basic accounting principles or, on occasion, common sense.

4. [45]

   Apparently in support of this accounting entry, in February 2017 Ms Vincent swore an affidavit in which she described conversations with Mr Glatis Snr in the late 1990s, that is, some 20 years earlier, in which Mr Glatis Snr apparently agreed that he had been taking excessive funds out of the SMA Group for some years in a manner grossly unfair to Mr Snell, and agreed to make it up to him. Mr Glatis Snr had apparently also agreed that he and Mr Snell were discussing a new company and Mr Snell could “use that company to make up the difference of the excess funds that I have taken”. Mr Glatis Snr had apparently also accepted that the excess funds which he had taken for his own personal purposes amounted to some millions of dollars. The only specific payment that Ms Vincent referred to in her affidavit was a payment of $300,000 made at the request of Robert Fillmore of SMA Inc. However, the document referred to by Ms Vincent does not support her description of the payment: it was the facsimile referred to at [17] where SMA Inc requested that payments from the SMA Group to Gladon be classified, where possible, as loans for the purposes of US tax law. I attach little weight to Ms Vincent’s evidence of conversations with Mr Glatis Snr given how long has passed since those conversations were said to have taken place, its inconsistency with contemporaneous documents and the partisan quality of her evidence in general.

5. [46]

   For the year ended 30 June 2007, SMA Operations declared dividends to Mr Snell of $1,742,500. This was at odds with the Heads of Agreement which envisaged $600,000 per year and equality between Mr Snell and the Glatis family. No dividend was paid to the Glatis family, even though it held an equitable interest in 20% of SMA Operations.

6. [47]

   In part, this was because the wish to secure a tax-effective means of reallocating the shares of SMA Operations led to a long delay in issuing these shares until 2014 and then as ‘dividend only’ shares. Mr Skyring recalled that the tax issue arose because transferring the shares might “cause Mr Snell a very large tax problem”. In the meantime, however, both Mr Glatis and Mr Skyring understood from Mr Snell that, until shares were allocated in SMA Operations, dividends from SMA Operations would be paid through SMA Victoria on top of whatever dividends SMA Victoria was obliged to pay the Glatis family. According to Mr Skyring, “Mr Snell had said to me that he transferred the dividend from [SMA] Op[eration]s to [SMA] Victoria and paid Mr Glatis from that entity. I do recall Mr Snell saying that to me.” Mr Skyring did not accept that it was apparent from the accounts for SMA Victoria for 2007 that no credit was made in those accounts in respect of any allowance for dividends for SMA Operations. “I don't agree with that. I was never provided with the detailed transactions going through the Glatis loan account, so I had no way of appreciating whether that was the case or not.” Mr Glatis added,

7. [48]

   In June 2007, perhaps more consistently with the Heads of Agreement, SMA Victoria declared dividends to Mr Snell and Mr Glatis of $598,000 each. Also at this time, management accounts began to be produced for, at least, SMA Victoria and SMA Operations. These contained substantially more detail than the financial statements had. However, Mr Skyring said that management accounts were always late – sometimes nine months late – and irregularly provided. He also usually had to request financial statements several times “and they were often very much later than six months after the end of the financial year”. Mr Glatis agreed that the management accounts “would always be unbelievably late” and, by the time the accounts were received, Mr Skyring and he were frustrated as by then they were seeking information in respect of more recent matters.

Bank guarantee to Mr Ireland

1. [49]

   In 2008, Mr Ireland told Mr Snell that his business was experiencing financial hardship as a result of the global financial crisis, and Mr Snell arranged for SMA Victoria to provide a $1.5 million bank guarantee for the benefit of Mr Ireland’s Ford dealership. Mr Snell agreed that, although Mr Ireland owned many properties, he did not seek any security over those properties.

Shareholders Agreement

1. [50]

   On 24 February 2009, representatives of the Estate, Mr and Mrs Snell, the SMA Group, Gladon and SMA Inc entered into a Shareholders Agreement. After repeating many of the sentiments expressed in the Heads of Agreement, the parties agreed to take steps within two months to ensure that the shareholdings were as set out in Schedule 2, including that the shareholders of SMA Inc and Gladon were also to become the Estate and Mr Snell in equal shares: clause 3.4(b). In respect of SMA Operations, the shareholding to be attained was that envisaged in the Heads of Agreement. More precisely:

2. [51]

   In respect of A class shares, clause 3.5(a)(i) provided that shareholders would have the following rights: (emphasis added)

3. [52]

   Clause 3.5(f) provided that the rates of dividend between each class of shares may be different but the total amount of dividends declared for B and C class shares might not exceed 20% each of the total dividend pool of SMA Operations. Clause 3.5(g) provided:

4. [53]

   As to the Board of Directors, the Estate and Mr Snell were entitled to appoint a director to a company where they owned shares in that company: clause 6.2. In respect of the Estate, Mr Glatis was appointed as its nominee and the parties agreed that he had the right to access information and documents concerning the business of the companies: clause 6.3. The parties agreed to take all reasonable steps necessary within two months to ensure that the officeholders of the SMA Group companies were as described in Schedule 3: clause 6.5. Schedule 3 noted that Mr Glatis or a nominee of the Estate was entitled to be a director of each of the companies in the SMA Group.

5. [54]

   Clause 6.14 provided that board meetings were to happen at least once a year, with ten days’ notice supported by an agenda and, unless notice had been given in the agenda of a particular matter, a resolution of the board had to be unanimously agreed: sub-clause (g). A quorum was constituted by the Estate’s nominee and Mr Snell, or alternatively a minimum of two directors: clause 6.17. Clause 8.3 provided that certain decisions could only be made by the unanimous decision of both the Estate and Mr Snell including certain decisions — generally over $10 million — in respect of a Joint Venture Interest, being those set out in Schedule 7. Amongst those listed in Schedule 7 were:

6. [55]

   Under clause 9, the parties agreed that Mr Snell was Group Managing Director and would manage the business conducted by the SMA Group on a day-to-day basis in accordance with sound business and budgeting practice: clauses 9.1, 23.1. Further, clause 9.9 provided:

7. [56]

   Clause 10, “Investment Disposal Plan and Accelerated Asset Sale Plan”, attached an Investment Disposal Plan for the period ending 31 December 2007 and obliged the parties to ensure that the board of each of the SMA Group companies updated the plan annually to maximise returns for shareholders and increase the level of dividends and (clause 10.1(c)(iii)):

8. [57]

   Under clause 11, “Accounts and audit”, Mr Snell was obliged to ensure that the accounts of the SMA Group companies reflected accounting standards, and to provide the board and the Estate with all information and reports about the business and its operations: clauses 11.1, 11.2.

9. [58]

   In respect of dividend and reinvestment policy, clause 12.2(b) obliged the board to ensure that dividends of at least $600,000 were paid to each of the Estate and Mr Snell each year.

10. [59]

    As to related party transactions, clause 13 provided:

11. [60]

    Clause 22.1 provided that the Shareholders Agreement prevailed over any inconsistent provisions in the constitution of any SMA Group company and the parties were obliged to amend the constitutions to ensure consistency. In fact, the constitutions of the SMA Group companies were not amended, in particular, the constitution of SMA Victoria was not amended to bring Mr Snell’s plenary powers as Governing Director into line with the Shareholders Agreement. As will become apparent, notwithstanding the provisions of the Shareholders Agreement to which I have referred, Mr Snell considered that he had a wide range of powers and did not have to consult the Glatis family, other than perhaps in relation to the sale of the business: at [123] and [131].

Greg Walker and SMA Systems

1. [61]

   On 20 August 2003, that is, two months after Mr Glatis Snr passed away, SMA Systems was incorporated. Mr Snell was its sole director and shareholder. Mr Snell gave evidence that he held the share for the benefit of the SMA Group, but the records held by the Australian Securities and Investments Commission (ASIC) and contemporaneous documents indicate that he considered at the time of these events that he held the share beneficially: he told Mr Skying this in May 2011, August 2012 and September 2012 (see [79], [85] and [91]). I do not accept Mr Snell’s evidence to the contrary. SMA Systems became the corporate vehicle through which Mr Snell participated in property developments with Mr Walker and acquired property directly.

2. [62]

   In June 2006, Mr Walker established the Lot 3 The Esplanade Trust, which held property at Garners Beach. Greg Walker Holdings Pty Limited was trustee and Mr Walker was the specified beneficiary. In August 2007, Mr Walker established The Tura Beach Trust with the same trustee and beneficiary. In 2008, Mr Walker and Mr Snell executed a deed which noted that Mr Walker and Mr Snell were engaged in a property development at Tura Beach and, notwithstanding any provision of the trust deed, Mr Walker and Mr Snell each owned 50% of the Tura Beach Trust.

3. [63]

   In about March 2008, Mr Snell executed a deed with Mr Walker in relation to loans to develop a luxury house on Minkara Road, Bayview. The deed recorded that, in November 2007, Mr Snell had lent Mr Walker approximately $300,000 and proposed to lend him a further $900,000 or $1.2 million (depending which version of the deed one looks at) for the project. The deed recorded an agreement by Mr Walker that interest would be payable on the loan at 20% per annum. Mr Snell agreed that he had personally lent substantial sums of money to Mr Walker to assist him with the Minkara Road project, as Mr Walker was starting to have financial difficulties as a result of the global financial crisis.

4. [64]

   In March 2008, Mr Snell and Mr Walker bought a property at Mission Beach in Queensland and obtained a loan from a bank in relation to the property. According to the management accounts for SMA Victoria for the year ended 30 June 2008, in March 2008, SMA Victoria lent some $1.2 million to Mr Walker in respect of a development in Mission Parade and by 30 June 2008 had advanced him $1,327,272. Indeed, by 30 June 2008, SMA Victoria had apparently lent Mr Walker and the Greatest Ever companies some $4.65 million.

5. [65]

   In April 2008, Mr Walker established The Church Point Trust. Again, Greg Walker Holdings Pty Limited was a trustee and Mr Walker was the beneficiary.

6. [66]

   In July 2008, Mr Walker asked if he could borrow $1 million to finish a project at Avalon, and Mr Snell agreed to “a short term loan”. Mr Walker’s projects were then badly affected by the global financial crisis. Mr Snell agreed that he caused SMA Victoria to advance $1 million to Mr Walker: there was no written agreement, the loan was unsecured and there was no discussion about interest. The loan was never repaid.

7. [67]

   On 6 March 2009, that is, about a week after the Shareholders Agreement, Mr Snell and Mr Walker signed an amendment deed in respect of The Church Point Trust and The Tura Beach Trust. Greg Walker Holdings Pty Limited was removed as trustee and SMA Systems was appointed in its stead. A like amendment deed was made in respect of the Lot 3 The Esplanade Trust (which concerned property at Garners Beach), although it is not known when that trust was originally established. Mr Snell said that SMA Systems became the trustee for the purpose of getting Mr Walker out of financial difficulty and to take control away from the Walker family. In August 2009, The Minkara Road Trust was established: SMA Systems was the trustee and Mr Walker was the beneficiary.

8. [68]

   Mr Snell said that he caused SMA Systems to become the trustee of these trusts on the advice of Mr Skyring. His evidence in this regard was unsolicited and improbable as it is apparent from contemporaneous documents that Mr Skyring first learnt of SMA Systems more than a year later in June 2010: see [74]. Mr Snell said it was necessary to amend the trust deeds to make SMA Systems the appointer of each of the trusts in order to add SMA Victoria as a beneficiary of the trusts, but this was never done, and it is not clear why a change of appointer was necessary in order to add a beneficiary. Mr Snell agreed that the sole beneficiaries of each of the trusts were Mr Walker and his family.

9. [69]

   In April 2009, Mr Walker asked to borrow a further $1 million from Mr Snell to enable him to complete a project at Pentecost Avenue, Pymble, and Mr Snell agreed. Despite the first $1 million “short term loan” not having been repaid, Mr Snell caused SMA Victoria to lend a further $1 million to Mr Walker as “a short term loan”. The loan was not in writing, was interest free and unsecured. When challenged as to whether this loan was in the best interests of SMA Victoria, Mr Snell gave the following revealing evidence:

10. [70]

    On 9 July 2009, SMA Victoria purchased Unit 1 in the Avalon development from Greg Walker Holdings for $1.82 million even though, at the time, the first $1 million loan advanced by SMA Victoria to complete this development had not been repaid.

11. [71]

    On completion of the Pentecost Avenue development, partially funded by the second $1 million loan from SMA Victoria, three units were purchased by SMA Australia and one by SMA Systems. The unit purchased by SMA Systems, Unit 6, was acquired in January 2010 for a discounted price of $1.2 million as against the sale price of $1.84 million. Mr Snell was cross‑examined as to why Unit 6 was acquired by SMA Systems at a discount whilst three units were purchased by SMA Australia at full price in circumstances where Mr Walker and his companies owed so much money to the SMA Group. It was suggested that Mr Snell caused SMA Systems to buy Unit 6, rather than SMA Australia, as he wanted to keep the discount for himself.

12. [72]

    This was a particularly concerning part of Mr Snell’s evidence. Whilst Mr Snell initially agreed that SMA Systems paid only $1.2 million of the $1.84 million sale price of Unit 6 — recorded in Mr Snell’s spreadsheet at the time as “(Paid $1,200,000 only)” — he then said that the reference to a purchase price of $1.84 million in his spreadsheet was a typographical error. When presented with the transfer of the property signed by Mr Walker for the vendor, Pentecost Developments Pty Limited, which recorded $1.84 million as the consideration, Mr Snell maintained, “if it wasn’t a typographical error, it was an error of — of transformation”.

13. [73]

    What this evidence demonstrated was that Mr Snell put his own interests before those of the SMA Group whenever it came to his personal forays into property development with Mr Walker. He provided loans by SMA Victoria to Mr Walker’s developments — undocumented, interest-free and unsecured — and then entrenched rather than reduced SMA Group’s exposure to Mr Walker’s developments by buying units in the completed developments without first obtaining repayment of the loans advanced for those developments. To add insult to injury, any benefits conferred by Mr Walker in recognition of the financial support which had been provided to him at a time of financial stress, in the form of a discount on the sale price of a unit, was secured by Mr Snell for a company in which he was the sole shareholder – SMA Systems — rather than for SMA Victoria which had provided the funding, and in which the Glatis family held an interest. Nor is there any evidence that Mr Snell at any point consulted Mr Glatis before making these loans or buying these units. The requirements of the Shareholders Agreement in respect of financial benefits to directors (clause 9.9) and related party transactions (clause 13) were ignored.

Enquiries begin

1. [74]

   In June 2010, Mr Skyring sent Mr Glatis a review of management accounts for March 2010 for the SMA Group. Mr Glatis enquired about a loan given to Mr Walker, and Mr Skyring said he did not have many details but understood it was made by a new company, SMA Systems.

2. [75]

   Mr Skyring also provided a summary of dividends for 30 June 2010:

3. [76]

   Mr Glatis replied:

4. [77]

   In May 2011, Mr Skyring attended a meeting with Mr Snell. In preparation for the meeting, Mr Skyring and Mr Glatis compiled a list of topics for discussion which included, from Mr Glatis:

5. [78]

   Mr Skyring’s notes of the meeting with Mr Snell record that the cash flow difficulties of the SMA Group continued under the weight of large bank debt levels:

6. [79]

   In respect of Mr Walker and SMA Systems, Mr Skyring’s note records:

7. [80]

   According to Mr Skyring’s note of the meeting, Mr Snell outlined dividend allocations from SMA Operations, including to staff, in respect of which Mr Skyring reported to Mr Glatis:

8. [81]

   In December 2011, Mr Snell, Mr Glatis and Mr Skyring participated in a telephone conference call. Mr Glatis’ solicitors, including Ian Clarke of Gadens Lawyers, joined the conference for a short time. In respect of dividends, Mr Skyring’s note of the call concluded by noting that cashflow was tight, Mr Snell was contributing funds to the company to stay within banking limits and properties were being sold. In respect of Church Point and SMA Systems, the note recorded that SMA Victoria had lent about $1 million which it would get back with interest plus 6.5% and would also get a 25% profit share. At the hearing, Mr Snell disavowed this note, saying that, if anything had been said about interest, any agreement was later changed to envisage a 50% profit share in the projects.

9. [82]

   In June 2012, Mr Skyring signed the accounts for SMA Victoria for the year ended 30 June 2011. Mr Skyring explained that from 2011 to 2014, he was the external accountant for the SMA Group, assisting with statutory matters only. He was responsible for converting the accounts prepared by the SMA Group’s internal accounting group into statutory format. Where necessary, he called for supporting records or working papers from the internal accounting group, but he did not audit the accounts. The accounts for SMA Victoria for the year ended 30 June 2011 included a director’s revaluation of land and buildings, increasing the value of those assets by $43.7 million, or more than double the book value. No deferred tax liability was recorded in the accounts at the time to reflect this revaluation and the experts agreed that, in this respect at least, the accounts did not comply with accounting standards.

10. [83]

    In July 2012, Mr Skyring provided an updated valuation of the Estate’s shares in the SMA Group. Overall, the value of the Estate’s shares in the SMA Group was estimated to be $44 million. In respect of SMA Victoria, some $8.7 million in loans were considered to be irrecoverable, including Greatest Ever ($6.2 million) and Tura Beach ($876,000). Further loans to Mr Walker in respect of developments in Pentecost Avenue, Pymble ($1.66 million) and Ryde Road, Pymble ($1.215 million) were discounted by 15% to reflect recoverability. A provision for impairment was made of 40% on loans in relation to Mission Beach and Church Point (some $415,000) and a provision of 50% on other loans to Mr Walker’s company, GW Productions, of $1 million and Car Care Clinic ($1.18 million).

11. [84]

    In August 2012, Mr Snell, Mr Glatis, Mr Skyring and Mr Glatis’ solicitor, Mr Clarke, met. An agenda for the meeting evidenced impatience on the part of Mr Glatis, with some issues noted to have been the subject of discussion for more than two years, including establishment of the Employee Trust, “documentation of $$ going from [SMA] Op[eration]s to employees”, Church Point and Greg Walker “documentation that states that SMA Systems is a sub of [SMA] VIC. KEITH MENTIONED HE WOULD DO THIS BACK IN SEPT. 2001”. Mr Glatis said that he continually brought up the loans to Greg Walker at shareholder meetings.

12. [85]

    According to the notes of the August 2012 meeting, discussion also took place about efforts to refinance with the National Australia Bank (NAB). In respect of loans to Mr Walker, Mr Skying noted:

13. [86]

    Again, Mr Snell distanced himself from the record that SMA Systems was to pay 6.5% interest on its loans from SMA Victoria. Mr Snell denied ever seeing the meeting notes before and, when it was pointed out it was exhibited to his affidavit, said:

14. [87]

    Returning to the note of the August 2012 meeting, Mr Snell advised that he expected to recover $2.4 million from the Church Point property, sufficient to repay monies lent by SMA Victoria to Mr Walker in respect of the Pymble development and the GW Production loan and thus recover its losses. Mr Snell advised that further funds had been lent to Mr Walker for Tura Beach and Mission Beach and agreed to prepare a summary of all monies lent to Mr Walker and all ‘deal’ details by 7 September 2012. This was never provided.

15. [88]

    Mr Snell also agreed to provide a ‘bonus’ list paid to employees from 2011 and 2012 dividends. This was never provided. Mr Snell advised that he intended to increase the dividends payable to the Glatis family, cashflow permitting, to $50,000 a month. The notes confirm that the Glatis family was considered to be a 20% shareholder of SMA Operations.

16. [89]

    It is reasonably apparent from Mr Skyring’s notes of the August 2012 meeting that Mr Glatis and Mr Skyring did not know, or understand, the complex structure of the SMA Group and each of its investments. Mr Snell, according to the notes of the meeting, agreed to provide details of the structure and investments by the SMA Group.

17. [90]

    In September 2012, Mr Snell and Mr Skyring met again in Canberra. Mr Skyring’s note of this meeting is extensive. Mr Snell tabled an historical summary of the SMA Group going back to the 1980s as he felt it important to note the development of the group. He tabled an SMA business group structure and raised the fact that he was supposed to have a share in each of SMA Inc and Gladon, but this had never happened: “KES advised on 2 separate occasions SMA Vic paid $1m + to execute a share trfr that has not yet occurred”. I note that such a suggestion was not repeated in any other contemporaneous documents or evidence in these proceedings. Mr Snell gave a description of the various entities and joint ventures in the group, including CCC Investments (“closed down several years ago due to unsatisfactory performance, losses mitigated following successful property sale … intention is to close down CCC asap”, Cat Club (“has been decided to sell”) and Greatest Ever.

18. [91]

    In respect of SMA Systems, Mr Snell advised that he personally controlled this entity, which was established to provide a vehicle to manage various joint venture projects. The company was set up due to Mr Walker’s dire financial situation and to protect the properties from repossession. Mr Skyring’s note records that SMA Victoria was entitled to recover its costs plus 6% interest on loan funds.

19. [92]

    Mr Snell also outlined his dealings with NAB and ANZ Bank, who was said to be being patient with him. Mr Snell also agreed to provide a summary of the dividends paid by SMA Operations.

Banks lose patience

1. [93]

   In November 2012, ANZ Bank required payment of all facilities by 31 January 2013 and advised that, in light of continuing default by the SMA Group, the bank intended to appoint an investigative accountant and increase the interest margin charged in respect of all facilities by 2% per annum. Mr Skyring became aware of this soon afterwards.

2. [94]

   On 19 December 2012, Mr Skyring met with representatives from ANZ Bank and potential refinancier, NAB, and reported to Mr Snell and Mr Glatis. According to Mr Skyring’s note, NAB was keen to refinance the SMA Group but was frustrated that, after several months of considering the proposal, it remained unable to complete a submission to credit due to a lack of financial information. A condition of any refinance would be an active asset sale program and the reduction of debt from its current level of $100 million to something in the order of $40 million. NAB required a complete organisational chart and financial statements and indicated that, if it could not be satisfied as to the transparency of the group inter-relationships and financial position, it would require a large accounting firm to conduct pre‑lending due diligence. NAB subsequently appointed Deloittes.

3. [95]

   Mr Skyring described his subsequent meeting with ANZ Bank as “less positive”. ANZ Bank required a full refinance by 31 January 2013 and, in the absence of “positive traction” on a refinance, they would seek to take possession of SMA assets in the short term. “ANZ made it clear they did not wish to communicate directly with SMA or its directors”. As to how the relationship with SMA had deteriorated, Mr Skyring was told:

4. [96]

   On receiving Mr Skyring’s report on his meetings with NAB and ANZ Bank, Mr Glatis replied that it looked like the banks “want the same things we’ve wanted for years”. His comment reflects the frustrations which it is apparent were being experienced by Mr Glatis in getting information from Mr Snell in respect of the SMA Group. Mr Glatis said that he “barely got any documentation” in relation to the ANZ Bank. Mr Snell’s response was, perhaps surprisingly, to consider legal action against ANZ and to make a complaint to the Ombudsman. Mr Glatis wrote to Mr and Mrs Snell counselling against this course, suggesting diplomacy and a willingness to work with the banks:

5. [97]

   On 30 May 2013, Mr Skyring spoke with Mr Snell, having had no update from him for two weeks. Mr Snell advised that, whilst the ANZ Bank was insisting that he correspond on all matters with the bank’s solicitor, Mr Snell refused to do so as he considered that banking matters should be dealt with by the bank. Whilst Mr Snell had endeavoured to sell a property of CCC Investments, the ANZ Bank required all of the proceeds of sale. The sale fell over as it was not entirely at arm’s length, but was to an associate of Mr Ireland, and Mr Ireland did not receive any of the proceeds of sale. Mr Snell advised that he had provided ANZ Bank with a sale program for $20 million in property. Mr Skyring reported to Mr Glatis:

6. [98]

   On 4 June 2013, Mr Glatis wrote to Mr and Mrs Snell expressing deep concern as he had been unable to get in touch with Mr Snell for more than three weeks. Mr Glatis said he did not understand why Mr Snell was not willing to provide ANZ Bank with a concrete sell-off plan, as this might cause the bank to take matters into its own hands. Mr Glatis followed up Mr and Mrs Snell on 8 July 2013 and 16 July 2013: “I have had no luck reaching Keith on his phone and he is not responding to my texts”. Mrs Snell replied that Mr Snell was trying to get a summary to Mr Glatis and Mr Skyring sometime the next day. On 17 July 2013, Mr Glatis continued to press Mrs Snell: “However, periodically, I need to speak to him one on one. I’ve spoken to him once since I was in Australia back in May. Considering the magnitude of what is going on right now I hope he understands my position.”

Discovery of non-payment of dividends by SMA Operations

1. [99]

   In August 2013, Mr Skyring sent Mr Glatis a summary of dividends paid from 2005 to 2012. Mr Glatis asked for a breakdown of the dividends paid, because “these numbers seem very high”. Mr Skyring advised that the amounts were those appearing in the accounts.

2. [100]

   On 12 September 2013, Mr Skyring replied noting that, in the past, he had reviewed SMA, SMA Australia and SMA Victoria management accounts but had relied to a degree on Mr Snell’s representations as to SMA Operations. It had been difficult to keep track of SMA Operations due to the employee ‘bonuses’ that Mr Snell paid and signed off on 5 May 2011 (“remember we had to keep chasing this a number of times”). Further:

3. [101]

   Separately, Mr Skyring sent an email to Mr Pottenger noting:

4. [102]

   Mr Glatis replied, “So are you saying $2.1 million is owed to my family? … I am really not happy about this”. Mr Skyring agreed that the issues were “potentially explosive” and agreed that Mr Glatis should come to Australia to meet with Mr Snell.

5. [103]

   On 13 September 2013, Mr Skyring wrote to Mr and Mrs Snell requesting an update in respect of efforts to refinance with NAB. Mr Skyring provided a reconciliation of dividends declared as against cash payments noting that $1.3 million remained owing to the Glatis family.

6. [104]

   On 17 October 2013 Mr Skyring spent the day in SMA Group’s offices in Canberra. He met with Mr Snell but was unable to spend a lot of time with him as he was subject to a personal tax audit.

7. [105]

   In or about late 2013, the bank guarantee given by SMA Victoria in respect of Mr Ireland’s car dealership was called on, and $1.5 million of SMA Victoria’s funds were taken by the Bank, resulting in a $1.5 million loan account payable by Mr Ireland to SMA Victoria.

8. [106]

   On 30 January 2014, SMA Operations entered into a Facility Agreement with NAB, thereby refinancing the liabilities owed to the ANZ Bank. As I understand the expert evidence, SMA Operations owes some $38 million to banks, principally to NAB but also some $7 million to Macquarie Bank.

9. [107]

   In February 2014, Mr Glatis and Mr Skyring met with Mr Snell. Following the meeting, Mr Skyring sent Ms Vincent the query raised with Mr Snell in respect of non-payment of dividends declared by SMA Operations.

10. [108]

    Ms Vincent promptly replied, confirming that Mr Snell had made considerable payments to SMA related entities from 2004 to 2007, apparently because he was embarrassed about the amounts SMA was being called upon to contribute. Whilst Mr Snell expected the various entities to get bank funding and then repay him directly without involving SMA, this did not happen. None of the ventures progressed as he expected and, when the global financial crisis hit, there was no chance of obtaining funding. The amounts paid by Mr Snell were said to total $1.86 million, most of which was funded by his overdraft “but he took a bank loan of $600,000 to pay some of the amount to GE Properties. SMA has never paid him any interest for these loans”. The $600,000 loan referred to by Ms Vincent appears to be Mr Snell’s personal overdraft from which he paid monies to “GWalker Holdings”, referred to at [34]. Mr Skyring asked for more details.

11. [109]

    On 1 April 2014, Ms Vincent emailed a spreadsheet setting out dividends declared by SMA Operations and those paid. Of $2.365 million in dividends paid by SMA Operations from 30 June 2003 to 30 June 2013, Mr Snell was said to have received only $920,000 with $1,283,625 paid to Management and $2,187,019 to Staff. No dividends had been paid to the Glatis family but Ms Vincent’s spreadsheet recognised that the family was entitled to 20%. Ms Vincent’s spreadsheet is hard to understand. For example, for dividends paid for the year ended 30 June 2007, Ms Vincent’s spreadsheet suggested that none had gone to Mr Snell, $991,625 had been paid to Management and $750,875 to Staff. This is not consistent with the accounting records already canvassed at [42] and [46], which recorded that $1,742,500 was paid to Mr Snell. Ms Vincent noted:

SMA Boats

1. [110]

   On 14 March 2014, Scientific Management Associates (Boats) Pty Limited was incorporated (SMA Boats). Mr Snell was the sole director. The shareholder was SMA Operations. On 4 April 2014, Mr Snell provided an update on various matters and Mr Skyring forwarded it to Mr Glatis, noting that Mr Skyring had not been able to discuss it with Mr Snell in any great detail.

2. [111]

   In his update, Mr Snell noted problems with selling property in which Mr Ireland had an interest:

3. [112]

   In respect of Mr Snell’s update, Mr Skyring advised Mr Glatis:

4. [113]

   Mr Skyring also noted that he had not heard further from Ms Vincent regarding the dividends declared by SMA Operations or the loan adjustments sought by Mr Snell.

5. [114]

   On 30 April 2014, Mr Skyring received a telephone call from Mrs Snell. Mrs Snell said that Mr Snell was unavailable to have a conference call with Mr Glatis, was extremely busy, his health was “not great” and he had nothing further to say to Mr Glatis. Mr Skyring explained to Mrs Snell that Mr Snell had agreed to hold a regular telephone conference, even if it only went for 10 minutes, so that Mr Glatis was kept updated, given the significant issues that had arisen over the past couple of years. Further, the update supplied by Mr Snell raised further questions that needed explanation.

6. [115]

   Mrs Snell then put Mr Snell on the phone. Mr Skyring explained that Mr Glatis wished to have a telephone conference regularly to keep informed. Ms Vincent was not responding quickly enough and the information sent about the payment of SMA Operations dividends made no mention of significant dividends paid to Mr Snell in 2007 to “equalise amounts paid to George Glatis in the past”. Although Mr Skyring had requested financial statements showing the loans made by Mr Snell to various entities, those had not been provided. Mr Snell said he was happy to answer and direct questions but Mr Skyring’s note concluded:

7. [116]

   On 19 May 2014, Mr Glatis wrote to Mr and Mrs Snell saying he had decided to exercise his right to be appointed as a director of SMA Group and attached his Consent to Act as Director. Mr Glatis sent further emails following up this matter on 26 May and 2 June 2014.

8. [117]

   On 3 June 2014, Mr Glatis was issued with one E Class share in SMA Operations, amounting to 20% of the issued share capital. In May 2014, the Shareholders Agreement was varied based on tax advice to the effect that in lieu of issuing A class shares in SMA Operations, Mr Glatis would be allocated an E class share, Mr Snell would be allocated an F class share and Mr Culley would be allocated a G class share. Each class represented ‘dividend only’ shares.

9. [118]

   In 12 June 2014, Mr Glatis, Mr Snell and Mr Skyring met. Mr Snell updated the meeting on the bank refinance, property sales and further loans by SMA Victoria to SMA Systems for investment in Mr Walker’s developments. In respect of SMA Systems, Mr Skyring’s note records, “SMA Vic interest ‘costs’ to be repaid and then + share of profits (if any) on developments”. In respect of Mr Ireland, Mr Snell said he was keen to ‘manage’ him rather than bankrupt him and would negotiate a deal in the next three months. Questions were asked about SMA Inc, referred to in Mr Skyring’s notes as “shut down”. Mr Glatis was asked to advise “what loan accounts written off in relation to George”.

10. [119]

    According to Mr Skyring’s note of the meeting, Mr Snell proposed two meetings, in August and February, and said that Mr Glatis should speak to Mr Skyring going forward, not to Mr Snell. Mr Snell said he was worn out and did not have the energy. Mr Snell also said that he had not informed ASIC about Mr Glatis’ appointment as a director, as the Government had issues with foreign control. Mr Snell suggested that the Glatis family already had access to information via Mr Skyring. He advised that Mr Glatis would be required by the bank to sign unlimited guarantees, and Mr Skyring’s note records “Mr Glatis still wants to be director of companies other than [SMA] Op[eration]s”.

11. [120]

    When asked why he did not pursue appointment as director of SMA Operations, Mr Glatis agreed that his decision was in response to concerns raised in relation to foreign control.

Sale of Hawthorn property at undervalue to related parties

1. [121]

   In mid-2014, Mr Snell proposed that SMA Victoria sell a property in Hawthorn, Victoria to Mrs Snell and Mr Culley for $3.9 million, being the value assessed by NAB in October 2013. In July 2014, Mr Glatis retained Savills to provide an independent review of the market valuation of the property: Savills considered that NAB’s valuation was below current market value, which was instead estimated to be between $5 million and $6 million. On 4 July 2014, Mr Skyring forwarded Savills’ valuation to Mrs Snell and Mr Culley, noting the material variance with NAB’s valuation and advising that it was not considered appropriate to sell the property until a further valuation could be obtained: “Any new valuation should properly consider the valuation on an ‘arm’s length’ sale basis and not for refinancing purposes”. Shortly afterwards, Mr Skyring sent an email to Mr Glatis advising that Mr Snell had,

2. [122]

   In the version of Mr Snell’s spreadsheets in evidence prepared the closest to this date, being November 2005, the Hawthorn property had an estimated value of $3.8 million. That value was estimated by Mr Snell almost a decade earlier and thus acquiring the property for $3.9 million would likely have appeared very good value in his eyes, particularly in light of the valuation obtained by Mr Glatis from Savills.

3. [123]

   On 8 July 2014, Mr Snell sent a very long email strongly criticising the Savills valuation, suggesting that the valuation had been requested without proper authority and was a serious breach of confidentiality in respect of the NAB valuation. Mr Snell expressed concern that his authority as Governing Director was being challenged.

4. [124]

   Mr Snell did not budge. He pressed for the sale to proceed at the price he had nominated, together with the sale of three adjacent units also owned by SMA Operations in a complex revised proposal which had many opaque and speculative elements. This was typical of Mr Snell, from the numerous documents I have now reviewed emanating from him. It was now proposed that a quarter of the properties would be sold to Mr Culley and another employee, Mr Fernandez. Mr Skyring replied expressing confusion as to why it was necessary to sell a portion to Mr Fernandez and Mr Culley and noted that Mr Glatis, with others, was prepared to purchase half of the property for $1.95 million, being 50% of $3.9 million. A number of perfectly reasonable questions were raised about the proposed transaction, and Mr Skyring repeated his earlier request for information about the Glatis loan account, “you indicated you have been unable to locate all historical records relating to Glatis/Snell loans”, and the appointment of Mr Glatis as a director of the SMA Group.

5. [125]

   A further lengthy email from Mr Snell ensued. Mr Snell insisted that the Savills valuation was “invalid bordering on unconscionable conduct” and pressed for the sale of the Hawthorn transaction to proceed on the basis of the NAB valuation and to related parties but not to Mr Glatis. “I will control the future sale and rental of Hawthorn exclusively for SMA protection”. Mr Snell appeared unable or unwilling to recognise that his insistence on selling a property owned by SMA Operations to related parties at an undervalue whilst excluding his fellow director from either being satisfied by an independent valuation that the sale was proper or, alternatively, letting his fellow director buy the property at the price he was insisting that it should be bought, was not in breach of his obligations as a director. In respect of the loans to Mr Glatis Snr, Mr Snell advised:

6. [126]

   In his email, Mr Snell also gave some information in respect of monies advanced to Mr Walker but objected to providing the level of detail sought,

7. [127]

   Mr Skyring forwarded the email to Mr Glatis noting, “Keith doesn’t take our concerns seriously which is very frustrating”. Mr Skyring noted that Mr Snell was not used to scrutiny of his actions or accountability to shareholders; that corporate governance was an issue for SMA Group and may have contributed to its poor financial position and the number of disastrous investments. It was apparent that the proposed deal was to use property owned by SMA Victoria to remunerate employees of SMA Operations — Mr Culley and Mr Fernandez — and this was not equitable as the Glatis family’s shareholdings in SMA Victoria and SMA Operations were different. Mr Skyring pointed to “an enormous conflict of interest” in Mr Snell, Mr Culley and Mr Fernandez owning the adjacent units and dismissing the Savills valuation of a crucial asset in any redevelopment of the area. Mr Skyring suggested that they should consider him resigning from his role and Mr Glatis insisting on appointing an audit firm to fully audit the group instead. Mr Glatis agreed: “Sole governorship was granted by my father under VERY different circumstances” and his father was no longer Mr Snell’s partner. In respect of Mr Snell’s explanation of monies owed by Mr Glatis Snr and the 31 March 2017 dividend of $1.375 million, Mr Glatis noted that there was no mention to them at any time that extra funds were being taken out by Mr Snell to satisfy this discrepancy.

8. [128]

   On 26 August 2014, Mr Skyring replied to Mr Snell, standing his ground in respect of the proposed sale of the Hawthorn property. Mr Snell did not budge either, insisting on selling the Hawthorn property to himself and the two senior employees at, according to the Savills valuation, a substantial undervalue. Mr Snell refused to enter into a debate on the subject, referring to his powers as Governing Director. Mr Snell’s refusal to obtain an independent valuation could only be consistent with an appreciation on his part that such a valuation would likely indicate that the property was worth more than he and his employees were proposing to buy it for from SMA Operations. Mr Skyring requested a meeting.

9. [129]

   In early September 2014, Mr Skyring met with Mr Snell. Mr Snell offered to increase the price for the Hawthorn property to $4.2 million but Mr Glatis did not agree in the absence of an independent valuation prepared on the basis of market value rather than for the purpose of refinancing. Mr Skyring expressed disappointment that “concerns about conflict of interest are not being taken seriously” and that Mr Glatis’ request to be appointed as a director of the SMA Group companies under the Shareholders Agreement had also been denied. In respect of dividends by SMA Operations and monies said to have been lent to Mr Glatis Snr, Mr Skyring’s note records:

10. [130]

    Mr Snell replied in a long discursive email noting that the Savills valuation was “in no way a legitimate or legal valuation [and] does not sway my views one bit. … I reject the Savills submission as a scam and absolutely worthless”. Mr Snell’s insistence on rejecting a valuation obtained by a qualified valuer was irrational, stubborn and insightless, putting his personal interests before his obligations as a director of the company.

11. [131]

    Mr Snell proposed to “move forward under my Governing Directorship authority”. He rejected any need to seek approval on financial matters relating to the SMA Group and suggested that Mr Skyring and Mr Glatis “have no real knowledge of the Hawthorn value or the seriousness of the situation. I will act in the best interests of the SMA Group under the authority I hold”. Mr Snell appears to have considered his powers as a Governing Director of SMA Victoria to extend to the SMA Group. He also rejected Mr Glatis being appointed as a director “as it will not help in the effective and critical management of the SMA Group”, pointing to the need for them to give personal guarantees to support the existing borrowings of the group “with all the predatory risks that the ATO can impose on directors”. Mr Snell certainly did not want Mr Glatis to become a director and discouraged him by emphasising the risks to which he may be exposed. Mr Skyring recalled that the guarantees was “one of the reasons that Mr Glatis was continually reminded by Mr Snell” when Mr Glatis sought to become a director, “and I recall Mr Glatis accepting that liability if it was required”.

12. [132]

    On 7 October 2014, Mr Skyring advised that Mr Glatis was proceeding to obtain a further valuation of the Hawthorn property at his expense. Mr Glatis also wished to exercise his right to be appointed a director of SMA, SMA Australia and SMA Victoria but not SMA Operations and expressed a willingness to give whatever guarantees NAB needed. In respect of drawings said to have been made by Mr Glatis Snr, it was noted that Mr Snell had drawn $1.375 million from SMA Operations in 2007 to compensate him for past drawings by Mr Glatis Snr and, as Mr Snell had said that Mr Glatis Snr had drawn millions of dollars each week or month, Mr Snell was asked to provide details to support his claim of such large private drawings.

13. [133]

    On 27 November 2014, Mr Glatis obtained a detailed valuation from Jones Lang LaSalle in respect of the Hawthorn property at $5.47 million. The sale of the Hawthorn property was completed nonetheless in September 2015, apparently on the terms proposed by Mr Snell, although the sale price was not disclosed in his email: see [166].

Mission Beach

1. [134]

   In May 2013, Mr Walker was declared bankrupt. It will be recalled that Mr Snell and Mr Walker bought a property in Mission Beach and obtained a loan in respect of the property. When Mr Walker became bankrupt, Mr Snell was exposed to the whole of the monies owed to the bank in respect of the property. In late 2014, SMA Victoria’s loan to Mr Walker increased by some $815,000 when SMA Victoria paid Mr Walker’s component of a loan in respect of the Mission Beach property. Of this, Mr Snell said, “You’d have to ask my accountant that”.

2. [135]

   Mr Snell said, initially, that the Mission Beach property had been transferred to SMA Victoria, but eventually conceded he had not transferred any interest in the property to SMA Victoria. Mr Walker and Mr Snell continue to own the Mission Beach property. The amounts advanced by SMA Victoria stand at $797,960.

Vaucluse Development Company

1. [136]

   On 26 June 2014, Mr Pottenger sent Mr Skyring management accounts for 31 March 2014 but advised:

2. [137]

   On 8 October 2014, The Vaucluse Development Company Pty Limited was incorporated. The sole director and shareholder was Mr Snell. In November 2014, a financier obtained a valuation on a property in Vaucluse for the purposes of finance to The Vaucluse Development Company Pty Limited (Vaucluse Development Co). The value of the property was $15 million. Mr Snell agreed that Prudential Capital agreed to advance funds to purchase the Vaucluse property and charged about 8% interest per annum.

3. [138]

   On 22 November 2014, SMA Operations held a directors’ meeting attended by Mr Snell and Mr Culley. The board approved Mr Snell’s recommendation to invest up to $1.5 million in the Vaucluse property. It is odd that, at a time when the NAB was insisting upon the SMA Group selling down its real estate portfolio that Mr Snell through SMA Operations should invest in the acquisition of another expensive property, and through a corporate vehicle of which Mr Snell was the only shareholder. This was not in the interests of SMA Operations. Mr Snell agreed that Mr Walker had an involvement in the Vaucluse development although it was not clear what that involvement was. Although Mr Snell “had no specific arrangement” with Mr Walker, Mr Walker introduced Mr Snell to the owner of the property and it appears that Mr Snell had in mind to give Mr Walker a percentage share in the profits of the project at his discretion.

4. [139]

   On 24 November 2014, SMA Operations and Vaucluse Development Co entered into a loan agreement, signed by Mr Snell and witnessed by Ms Vincent. SMA Operations agreed to lend $1.3 million to Vaucluse Development Co to assist with the purchase of the Vaucluse property. Interest was payable at 3% per annum, with a further provision that SMA Operations would receive a 15% share of any profits generated by the Vaucluse Development Company. Mr Snell conducted no enquiries as to whether the interest rate, or the terms of the loan, were commercial. He defended it as a good deal for SMA Operations notwithstanding the difference between the interest rate charged by Prudential Capital and that payable to SMA Operations.

5. [140]

   Mr Snell agreed that he did not discuss this arrangement with Mr Glatis before entering into the transaction, but said that he did not need to, because he had the flexibility to run the business the way he saw fit and this was a condition of the Heads of Agreement. He considered that he had a virtually unlimited amount of discretion in respect of acquisitions and did not need to consult the Glatis family, other than perhaps in relation to the sale of the business. “I bought and sold everything within the company … without seeking Glatis’ approval. I believe that’s … well within my authority”.

6. [141]

   SMA Operations general ledger included an asset account “Vaucluse – 2015 – development co” which, by 30 June 2015, had a balance of $1,528,649, suggesting that SMA Operations had been expending substantial sums during the course of the financial year in the development of the Vaucluse property.

7. [142]

   On 26 November 2014, SMA Australia also bought an apartment in Fyshwick for $535,000. Why the company was buying property at this time is unclear but it would appear that Mr Snell was doing so contrary to the wishes of NAB and without consultation with Mr Glatis.

Mr Glatis loses patience

1. [143]

   On 21 December 2014, Mr Glatis wrote to Mr Snell proposing that, once the sell down of assets to meet the NAB’s requirements had been completed, the parties should implement a staged exit plan so that the Glatis family could separate from the SMA Group.

2. [144]

   Mr Glatis noted the haphazard dividend schedule, the failure to stick to the financial reporting schedule which meant that when accounts were received, they were usually missing pertinent information or were out-dated. Further, documents in respect of the Employee Trust for SMA Operations had still not been provided.

3. [145]

   In March 2015, Mr Skyring wrote to Mr Snell attaching a summary of the balance sheets of Gladon from 1999 to 2002 noting that, as at 31 December 2002, the balance of the account “Loan to Shareholders” was US $751,073, which Mr Skyring surmised may be a loan to Mr Glatis Snr, and “Loans Payable Non-consolidated Affiliates” was US $4,118,122, which Mr Skyring surmised may have represented a loan to SMA Victoria. Importantly, as at 31 December 2002, Gladon had negative shareholders’ equity of US $3,946,993. Mr Skyring noted that the accounts indicated significant trading losses and investments written off by the company. Mr Skyring requested details of all dividends declared by Australian entities during the years ended 30 June 1998 to 30 June 2003, presumably to make sense of Gladon’s accounts. What this indicates is that a half-share in Gladon, to which Mr Snell was entitled under the Shareholders Agreement, was likely of no value.

The last meeting

1. [146]

   The parties met on 21 and 22 April 2015 for a shareholders’ meeting. The agenda included a number of recurring points of contention between the parties, including investments by the SMA Group in relation to Mr Walker, Mr Glatis’ appointment as a director, the Hawthorn property and loans to Mr Glatis Snr. Mr Skyring’s note of the meeting, circulated to Mr Snell and Mr Glatis on 23 April 2015, noted that Mr Snell provided a summary of payments for Mr Glatis Snr and Mr Snell from 1990 to 1996, which Mr Snell said was between $1 million and $4 million. Mr Skyring provided a summary of US accounts for the period from 1999 to 2002. Minimal information was said to be available from SMA, or the Glatis family, on SMA Inc’s financial statements for the period 1990 to 2002.

2. [147]

   According to the note, Mr Skyring suggested a proposal to resolve the issue of Mr Glatis Snr’s loan “once and for all”. The proposal had seven components. First, the balance of SMA Inc’s bank account, then standing at US $220,000, would be transferred to Mr Glatis. Second, any loan owing by Mr Glatis Snr to any US entity would be forgiven by the SMA Group and Mr Snell. Third, in consideration for this, Mr Glatis agreed to:

3. [148]

   At the meeting, Mr Snell acknowledged that joint ventures and investments made with Mr Walker of some $10 million “had been a disaster, but SMA was now faced with recovering as best it can”. Mr Snell undertook not to advance any further funds to Mr Walker using SMA funds.

4. [149]

   Mr Snell advised that Mr Ireland remained “feral” and owed SMA $1.5 million in respect of the bank guarantee together with the deficiency on a joint venture with Mr Ireland in respect of boats estimated to be $800,000 and debts associated with a restaurant as well as debts to the Australian Taxation Office (ATO) that had been garnisheed from Mr Snell’s tax refunds. Mr Snell gave evidence that, in 2015, he caused the SMA Group to meet all of the financial obligations of Car Care Clinic, with its two major creditors being the Las Vegas Hotel and the ATO.

5. [150]

   Returning to the meeting, which was the last time that the shareholders met, financial statements for SMA Victoria for 30 June 2014 were tabled, which contained a number of recent adjustments made by Ms Vincent. Mr Snell gave an explanation for the adjustments, including in respect of his contribution to funding SMA Boats. It was noted that Mr Glatis was to be appointed as a director to SMA, SMA Australia and SMA Victoria after obtaining legal advice about any consequence in respect of loan documents such as guarantees.

SMA Operations pay dividend to Mr Culley

1. [151]

   On 1 June 2015, Mr Snell held a directors’ meeting with Mr Culley in respect of SMA Operations, approving a dividend to Mr Culley equivalent to the balance of his loan account. The minutes recorded:

2. [152]

   What this reflected is that, whilst Mr Glatis was not paid any amounts on account of any dividends declared by SMA Operations until the E class share was issued to him on 3 June 2014, Mr Culley was paid amounts by SMA Operations (by way of interest-free loans) pending the formal issue of shares to him. These amounts were repaid by the payment of a large dividend to Mr Culley once the SMA Operations shares were formally allotted in 2014. Mr Snell was also paid dividends throughout this period, even though he only held a 20% beneficial interest in the company and the remaining 80% on trust for others. It was only Mr Glatis who was not paid at all.

3. [153]

   On 14 July 2015, the Estate notified SMA, SMA Victoria and SMA Australia that it appointed Mr Glatis as a director of those companies under the Shareholders Agreement with effect from the date of the notice. Mr Skyring asked Mr Pottenger to notify ASIC of the appointment. There was no response. Instead, on 20 July 2015, Mr Snell sent an email to Mr Skyring and Mr Glatis, said to be a “Progress Update” but suggesting that Mr Snell was very busy and “let’s try for a phone call”. On 4 August 2015, Mr Glatis’ appointment as a director was notified to ASIC.

4. [154]

   On 27 July 2015, SMA Operations established a new asset account in its general ledger, “Vaucluse – 2016 – development funding” to which a series of entries were made in respect of council’s fees, stamp duty, solicitor’s fees and consultants. That is, although SMA Operations had no interest in the Vaucluse property, it continued to fund expenses in relation to the development. As the loan from SMA Operations to Vaucluse Development Co was to complete the purchase of the property, these monies appear to have been advanced in addition to the loan.

Aborted meeting

1. [155]

   A draft agenda was circulated for a meeting on 10 August 2015, although it appears to be a working document between Mr Skyring and Mr Glatis. The items indicate the level of mistrust between the directors, referring to a breakdown in communications over time, a resistance to meet or have telephone discussions, hostile reactions to matters raised, and that Mr Snell only communicated via Mr Skyring and not directly with Mr Glatis. Matters involving a conflict of interest were noted, including the sale of the Hawthorn property, that Mr Snell was recovering his loans to Mr Walker whilst SMA Victoria was still waiting, that Mr Culley apparently had a 10% interest in the Vaucluse property, unsubstantiated adjustments to Mr Snell’s loan accounts for “past payments”, irregular dividend payments, a refusal to appoint Mr Glatis as a director and using NAB as a barrier, poor company management including “massive exposure” to Mr Walker’s ventures, “use by Mr Walker of boat for no charge but Mr Glatis now has indirect ownership but no compensation”, no documentation of debts owed by Mr Ireland, total loans to Mr Walker and Mr Ireland of some $19.7 million, a loan account disparity between Mr Snell (overdrawn by $1.2 million) and Mr Glatis (owed more than $1 million) with no interest paid on loans, loans to Mr Glatis Snr being raised after 12 years “but only when loan accounts became out of sync” and problems with SMA Operations dividends.

2. [156]

   On 14 August 2015, an email from Mr Skyring to Mr Pottenger referred to Mr Glatis’ dissatisfaction reaching “a climax this week with the failed meetings” between Mr Glatis and Mr Snell, apparently because Mr Glatis wished to hold the meeting at the offices of Gadens and Mr Snell took great exception to this. Given that Mr Clarke had participated in previous telephone conferences and meetings, it is not clear why Mr Snell objected to his presence on this occasion, save that matters between Mr Snell and Mr Glatis were coming to a head. Mr Skyring advised that he would cease to act as the group’s accountant to avoid any actual or perceived conflict of interest but would continue to work in relation to shareholder matters.

Sale of Church Point

1. [157]

   On 21 August 2015, a week after the aborted meeting, SMA Systems completed the sale of a property at Church Point, being a property held by The Church Point Trust. The sale of this property had been long awaited, referred to frequently in notes of meetings and emails between Mr Skyring, Mr Glatis and Mr Snell as a means by which monies lent by SMA Victoria to Mr Walker’s developments might be repaid. According to the settlement adjustment sheet, the property was sold for $6.1 million plus GST. The bulk of the proceeds, $5.1 million, was paid to NAB to discharge the mortgage. SMA Systems was paid $610,000 for GST and $822,353.14 was paid to Macarthur Projects Pty Limited, a company associated with Mr Walker. On 27 August 2015, the solicitor for SMA Systems wrote to Mr Snell reporting on completion of the sale, advising that a cheque in favour of Macarthur Projects Pty Limited was:

2. [158]

   Mr Snell told Mr Glatis that the property had sold for $5.1 million with all proceeds paid to NAB. Mr Snell also recorded that the property had sold for $5.1 million in his spreadsheet, which he provided to Mr Glatis and Mr Skyring from time to time. Mr Snell told Mr Glatis and Mr Skyring that he had told Mr Walker that Mr Walker would not receive any of the proceeds of sale. Mr Snell insisted that this was the case in the face of the letter from his solicitor to the contrary. Mr Snell gave evidence, variously, that the cheque to Mr Walker's company was not, in fact, paid as part of the sale proceeds, and that the settlement statement was “designed to make the loan benefit for the purchaser more attractive”. Mr Snell’s evidence in respect of this was most unsatisfactory.

3. [159]

   Mr Snell agreed that SMA Systems did not repay its loan to SMA Victoria from the proceeds of sale of the Church Point property because “there was insufficient funds at the sale” but denied that this was because he had allowed Mr Walker’s company to take some $820,000 from the proceeds of sale. “I didn’t agree to Mr Walker getting any money out of that deal at all”. Although Mr Snell said that the funds were paid to NAB for the benefit of SMA Victoria, this was not consistent with the management accounts of SMA Victoria. In fact, in the financial quarter during which the property was sold, the debt owed by SMA Systems as trustee of the Church Point Trust increased by approximately $1 million.

4. [160]

   On 25 August 2015, a notice of appointment as director was signed by Mr Glatis in respect of SMA Operations. It would appear that whatever hesitation Mr Glatis had had in respect of being appointed as a director to this company had been overcome by events as they were unfolding. Mr Glatis said he became a director as, "I was deeply concerned about the direction that the company was going in, and I figured I could get more information by becoming a director of [SMA] Operations." He agreed that he sought to utilise the position as director to look after his interests as a shareholder and for the purposes of obtaining information. Mr Glatis said by then there was “a further breakdown of relations with me and Keith … and more concern growing … around the direction of the company and our breakdown. … I guess the breakdown had reached a pinnacle at that point and there was really not much more communication”.

5. [161]

   On 31 August 2015, Gadens wrote to Mr Snell on behalf of Mr Glatis requesting access to company records of SMA, SMA Australia, SMA Victoria and SMA Operations. A comprehensive request for documents was made, and a response sought within three weeks.

SMA Boats returns

1. [162]

   On 3 September 2015, a directors meeting was held for SMA Operations, attended by Mr Snell and Mr Culley. According to the minute, signed by Mr Snell, the board resolved to purchase the interests of Mr Snell and Mr Ireland in two boats for $3.5 million. This decision was said to have been taken following detailed discussions with PricewaterhouseCoopers, although there is no contemporaneous record of such discussions. The minutes of meeting are not particularly coherent. The sale price was said to have been established “after a serious market review” although there was no contemporaneous evidence of such a review. The minutes record:

2. [163]

   When cross-examined about the transaction, by which $3.5 million of boats were transferred to the SMA Group, debt associated with boats of $3.6 million was assumed and Mr Snell was paid $450,000, Mr Snell said, “I’m not too certain what you’re trying to say”. Mr Snell denied that, by this transaction, the SMA Group took over the whole of a debt in respect of an asset which Mr Snell jointly owned with Mr Ireland, who was in financial difficulty and in respect of which Mr Snell was exposed as a co-borrower. Mr Snell explained, “It was a direct, deliberate NAB direction that that’s the only way we could go forward. SMA Operations had to get their loan repaid. They had to absorb all of that and manage … the money themselves”. Mr Snell described it as a genuine and valuable sale as the company could use the boats to entertain “international players” and “win major defence contracts”. The net loss to the SMA Group as a result of the transaction was $550,000, which was recorded as a debt payable by Mr Ireland. Mr Snell said, “I did that on the basis that if he came good, he would have had to pay the $550,000, in which I still got the opportunity to — to sue him”. Mr Snell denied that he gained $550,000 from the transaction and insisted, “it saved SMA the potential disaster of losing $2.3 million”.

3. [164]

   The emails and minutes to this point in time are littered with references to Mr Snell’s loans to Mr Ireland, which he was having enormously difficulty recovering. This transaction was nothing more than Mr Snell making his bad debt into bad debts of the SMA Group. The fact that Mr Snell thought it was appropriate to enter into such an imprudent transaction at a time when Mr Glatis had retained solicitors who had requested access to the books of the SMA Group indicates a startling lack of judgement on Mr Snell’s part.

Refusal to appoint director

1. [165]

   On 15 September 2015, Mr Snell wrote to Mr Skyring and Mr Glatis advising that he did not support the proposed appointment of Mr Glatis as a director to SMA Operations as “the risk of a business loss is too great”. Mr Snell explained that he was consumed with attending to the obligations of the SMA Group in respect of its defence contracts and blamed a recent loss of success in business on Australian economic conditions as well as the actions of ANZ Bank and NAB. He repeated his historical review of his essential role in the development of the SMA Group and his extensive efforts over the years, concluding:

2. [166]

   On 25 September 2015, Mr Snell advised Mr Skyring and Mr Glatis that the sale of the Hawthorn property had completed on 22 September 2015, apparently on the terms proposed by Mr Snell and strenuously opposed by Mr Glatis, although the sale price was not disclosed in the email. On 2 October 2015, Mr Snell finally wrote to Gadens advising that the existing arrangements with Mr Glatis and Mr Skyring to obtain information in respect of the SMA Group were satisfactory and it was “simply inappropriate” to have two different channels of information being used by Mr Glatis. On 12 October 2015, Gadens valiantly sought to engage with Mr Snell with what they had requested.

3. [167]

   On 12 October 2015, Mr Walker’s bankruptcy was discharged. Apparently, his debts had been settled, but whether this was from the proceeds of sale of the Church Point property or not is unknown.

4. [168]

   On 21 October 2015, Mr Skyring wrote to Mr Snell confirming that Mr Glatis had engaged Gadens Lawyers and Mr Snell should deal with that firm’s requests. On 23 October 2015, Gadens sent Mr Snell a Notice of Dispute under the Shareholders Agreement in respect of a failure to provide information, failure to provide copies of documents or access to documents, failure to appoint Mr Glatis as director of SMA Operations, outstanding loans owed by SMA Victoria to the Glatis family of some $910,000 and unpaid dividends by SMA Operations to the Glatis family thought to be some $850,000.

5. [169]

   On 26 October 2015, Mr Snell’s loan account with SMA Victoria increased by $520,000, apparently in connection with the refinance of the Vaucluse development. It would appear that Mr Snell continued to use the SMA Group bank account to fund his personal property developments.

6. [170]

   On 29 October 2015, Mr Snell replied to Gadens, and I use that term loosely, essentially saying that Mr Skyring had been the means through which the Glatis family had, and should continue to, obtain its information and that Mr Glatis could not be appointed a director of SMA Operations because, as a foreigner, it would be prejudicial to its longstanding relationship with the Commonwealth of Australia given high secrecy and for ‘Australian eyes only’ information. Mr Snell advised that further communication should be sent to the company’s solicitor and, on 6 November 2015, Gadens communicated with that firm pressing its previous requests which remained unanswered.

7. [171]

   On 26 November 2015, notwithstanding the retainer of legal representatives by either side, Mr Snell wrote directly to Mr Skyring and Mr Glatis advising that he expected to be admitted to hospital shortly for tests and a medical procedure. He attributed this to the general pressure of business. He generally objected to the requests from Gadens and repeated his complaints about the role of ANZ Bank and NAB in the difficulties being experienced, unfairness in relation to Mr Glatis Snr’s loans and the unknown status of the SMA Inc and Gladon loan accounts. In respect of the contents of this letter, Mr Glatis said that although he had put of lot of faith and trust in Mr Snell for a long time,

8. [172]

   On 25 January 2016, the SMA Group’s solicitor wrote to Gadens, providing some information but advising that Mr Snell had limited capacity to respond to all queries but would do so at his first available opportunity. Further information was supplied by Mr Snell directly, being an updated version of Mr Snell’s spreadsheet although, as Mr Glatis pointed out, “for it to be of any use to me I will need dates of settlement and how much each property was sold for”.

9. [173]

   On 4 March 2016, SMA Victoria paid $170,000 to a Canberra property developer, Benjamin Potter, in relation to a property development in Waramanga in the Australian Capital Territory. It would appear that Mr Snell was continuing to use the funds of SMA Group to make loans or investments in property development projects unimpeded by agitation from Mr Glatis’ lawyers and without consulting Mr Glatis.

10. [174]

    Further emails from Mr Snell followed in March 2016 in relation to various aspects of the business of the SMA Group, although not particularly responsive to what had been asked for by Gadens. On 7 April 2016, Gadens wrote to the SMA Group’s solicitor noting that the information provided in January 2016 did not address the vast majority of the requests made and was manifestly inadequate, in breach of the Shareholders Agreement and Mr Glatis’ rights as a director under the Corporations Act. Failure to effect the appointment of Mr Glatis as a director of SMA Operations, and to pay the Glatis family 20% of all dividends declared in SMA Operations, being some $1.44 million, were further breaches of the Shareholders Agreement. Numerous concerns were raised about the accounts, including accounting for dividends declared by SMA Operations, loans owed to the Glatis family by SMA Victoria and a large number of transactions thought to be questionable in nature. Mr Snell was said to have acted in a manner which was oppressive or unfairly prejudicial to and unfairly discriminatory against Mr Glatis in breach of the Corporations Act. Proceedings were threatened if a satisfactory response was not received promptly. Unpaid dividends in SMA Victoria of $720,101 were demanded.

11. [175]

    Mr Snell’s response, on 22 April 2016, was to forward two papers submitted by him to the Prime Minister and the Minister for Defence in respect of a submarine project. The day before, Mr Snell and Mr Culley held a directors’ meeting for SMA Operations, at which they agreed that Mr Glatis should not be appointed as a director as it was thought that he would not be acceptable to the defence industry.

12. [176]

    On 10 May 2016, SMA Victoria lent a further $102,097 to Mr Potter, the Canberra property developer. On 24 May 2016, the SMA Group’s solicitor wrote to Gadens, repeating the themes of earlier correspondence, declining to provide information other than as had been done in the past through Mr Skyring and refusing to appoint Mr Glatis as a director of SMA Operations.

Proceedings commenced

1. [177]

   On 16 June 2016, these proceedings were commenced. In an affidavit in support, Mr Glatis set out the history of his difficulties in obtaining information in relation to the SMA Group from Mr Snell, or being appointed as a director of SMA Operations. He also described the failure of SMA Operations to pay dividends to the Glatis family and the fact that, despite requests, he had never been provided with any documents evidencing the existence of the SMA Operations’ Management Trust or Employee Trust. The differing treatment of director’s loans by SMA Victoria was also referred to, noting that the Estate was owed substantial sums, apparently arising as a result of underpayment of dividends declared in his favour whilst SMA Victoria had lent some $1.7 million to Mr Snell. Issue was also taken with a number of transactions entered into by Mr Snell on behalf of the SMA Group without Mr Glatis’ approval or participation including the loans by SMA Victoria to SMA Systems of some $7 million in relation to the Church Point Trust ($2.6 million), the Minkara Road Trust (some $1.4 million) and the Tura Beach Trust (some $1.2 million). Further complained of were the loans by SMA Victoria to Mr Walker of some $2.8 million, to Car Care Clinic of some $11.7 million (including loans payable by Mr Ireland of some $1.7 million) and further funds to Cat Club Pty Limited. Some $1.5 million was owed to SMA Operations by Vaucluse Development Co.

2. [178]

   On 30 June 2016, Mr Snell signed a loan agreement on behalf of SMA Victoria, lending an additional $513,000 to Mr Potter to assist with the property development at Waramanga. Shortly after 30 June 2016, the loan to SMA Systems in respect of the Church Point Trust was written off by SMA Victoria as, Mr Snell explained, “there was no … place for that money to come from”.

Adjustments to Mr Snell’s loan account with SMA Victoria

1. [179]

   Since commencement of these proceedings, adjustments have been made to Mr Snell’s loan account with SMA Victoria, which have had the effect of reducing his indebtedness to that company. In the June 2016 quarter, Mr Pottenger reduced Mr Snell’s loan account by $272,097.33 in respect of monies lent by Mr Snell to Mr Potter. This had the result of changing the character of the loan, being one from SMA Victoria to Mr Snell to a loan from SMA Victoria to Mr Potter. Whilst it was no doubt in Mr Snell’s interests to no longer be obliged to repay the monies to SMA Victoria, the credit risk of recovering that loan shifted, effectively, to SMA Victoria.

2. [180]

   On about 4 July 2016, Mr Pottenger transferred $552,000 of indebtedness from Mr Snell’s loan account in respect of the finance of the Vaucluse development (see [169]) to the loan account of Vaucluse Development Co with SMA Operations. This replaced Mr Snell’s debt to SMA Victoria with a debt by Vaucluse Development Co to SMA Operations. Mr Snell denied that he instructed Mr Pottenger to transfer this loan in order to reduce the balance of his personal loan account with SMA Victoria.

3. [181]

   On about 30 June 2017, Ms Vincent made an adjustment to Mr Snell’s loan account with SMA Victoria, reducing the balance by $919,557 by reason of:

4. [182]

   When asked whether he had caused the ‘adjustment’ to be made in respect of loans to “Greatest Ever” and “GW Holdings”, Mr Snell denied that he had, and then said the entry should have been in respect of a loan to Greatest Ever Properties Pty Ltd (a company which was not incorporated until November 2007, two years after the monies were lent). Further, between when the monies were advanced and when the adjustments were made in 2017, Mr Walker had become bankrupt and also been discharged from bankruptcy. Mr Snell was asked whether the ‘adjustment’ was in SMA Victoria’s interests, as it replaced a debt owed by Mr Snell to SMA Victoria with a debt owed by Mr Walker to SMA Victoria.

5. [183]

   In respect of the US $200,000 transferred to Mr Glatis Snr in 2002, as already mentioned, the contemporaneous documents do not indicate what the payment was for, nor do they suggest that the payment was a loan. I am not prepared to rely on Mr Snell’s evidence alone, contained in his third affidavit served shortly before the hearing, the proceedings have then been on foot for three years. If the payment was a loan, it would appear to have been a loan by Mr Snell to Mr Glatis Snr, not a loan by SMA Victoria.

More loans and asset revaluations

1. [184]

   In November 2018, Mr Pottenger sent Mr Skyring the management accounts for SMA Operations for the September 2018 quarter. The accounts revealed that Mr Snell had drawn $1,581,971 in personal funds from the company in that quarter, being $270,000 on-lent by Mr Snell to Mr Potter, $100,000 for personal use and the balance to buy a property in Kangaroo Valley where he wished to run a bed and breakfast. It seems remarkable that Mr Snell thought it was appropriate to do this in circumstances where an oppression suit was on foot.

2. [185]

   In December 2018, Mr Snell swore his second affidavit in these proceedings, essentially responding to the plaintiffs’ expert report by Mr Ross in which the SMA Group was valued at some $160 million based on the financial statements of the companies and Mr Snell’s spreadsheet of 5 March 2018. In his second affidavit, Mr Snell revised the property values in his spreadsheet down by 50% from $179 million to $90 million. The management accounts for SMA Victoria for the period ended 31 December 2018, that is, prepared after service of Mr Ross’ expert report, also reduced the amount of the director’s revaluation made in June 2011 of $43.7 million down to $16.9 million. The experts agreed that the reduction in the director’s revaluation broadly corresponded with Mr Snell’s revised spreadsheet attached to his December 2018 affidavit, although the bulk of the reduction reflected properties that had been sold since 2011 and should have been removed from the financial statements.

3. [186]

   The primary relief sought by the plaintiffs is an order under section 233(1)(d) of the Corporations Act for the purchase of their shares in the SMA Group by Mr Snell. Section 232 of the Act provides that the Court may make such an order if:

4. [187]

   As Brennan J noted in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68, in respect of the statutory predecessor to section 232, it is not oppressive for the directors of a company to make a decision which is manifestly prejudicial to and discriminatory against a member. To amount to oppression, it must also be unfair, that is, so unfair that reasonable directors who considered the disability the decision placed on the member would not have thought it fair to impose it: at 472. In an oft-cited passage of Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222, Young J explained the position post-Wayde as follows, at ACLR 704; ACLC 233 (some citations omitted):

5. [188]

   More recently, the High Court has continued to extol a broad approach to the words of the statute. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, French CJ said of the present oppression provisions, at [72]:

6. [189]

   The oppression provisions are now well-trodden ground. The defendant submitted, and I accept, that the following principles emerge from the cases:

   1. (1)

      Commercial decisions are best left to those managing the affairs of the company and a court should be hesitant in attempting to evaluate the competing merits of divergent commercial judgments: Zephyr Holdings Pty Ltd v Jack Chia (Australia) Ltd (1988) 14 ACLR 30 at 37; Re G Jeffrey (Mens Store) Pty Ltd (1984) 9 ACLR 193 at 198.

   2. (2)

      Transactions must be reviewed in context and the history of trading of the company and in the context of the purpose of the company: Re G Jeffrey (Mens Store) Pty Ltd at 198; In the matter of Ledir Enterprises Pty Ltd (2013) 96 ACSR 1; [2013] NSWSC 1332 at [178].

   3. (3)

      It important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 739.

   4. (4)

      The court’s power should not be lightly exercised especially where lack of probity or want of good faith is not established, because the courts must respect the traditional roles of directors and shareholders in relation to corporate management: Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517; [2001] WASC 8 at [14] per Owen J.

7. [190]

   The defendants submitted that a Court may take into account the plaintiffs’ conduct and any delay. Thus, as Nourse J said in Re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] BCLC 273 at 279 in relation to the English oppression provision (footnotes omitted):

8. [191]

   The case law also recognises that a closely-held company or quasi-partnership has features that form a species of oppression claims. In Re a company (No 00709 of 1992); O’Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24, Lord Hoffman, with whom Lords Jauncey of Tullichettle, Clyde, Hutton and Hobhouse of Woodborough agreed, referred to, at 970:

9. [192]

   In Fexuto, Spigelman CJ considered that irreconcilable differences in a quasi-partnership company do not of themselves constitute oppression or unfair prejudice but “the destruction of the personal relationship establishes a basis for granting relief in the usual case” unless the person excluded from participation in management as a consequence of the breakdown was also responsible for it: at [89]–[90], [104]. In Tomanovic, Campbell JA took a similar approach, noting that the emergence of irreconcilable differences may be one of several factors that together lead to a conclusion that oppression is made out: at [199].

10. [193]

    It is also noteworthy that an action validly taken may nevertheless constitute oppression in all the circumstances. As Brennan J put it succinctly in Wayde at 470:

11. [194]

    Finally, in Tomanovic, Young JA, in his concurring judgment, agreed that “the maxims that have come into use in this area of the law are of limited assistance” and “every case has to be looked at on its own facts and circumstances and that, while the proposition in each of the maxims is correct, cumulative conduct may produce a different result”: at [331].

Failure to provide information

1. [195]

   The Originating Process sought the provision of information requested by Gadens on 31 August 2015 and 7 April 2016. By the conclusion of the hearing, the information had become available via discovery and evidence such that the plaintiffs sought no final orders, but they continued to rely on the historic non-provision of information — contrary to their entitlements under clauses 2.3(c), 6.3(b) and 11.3 of the Shareholders Agreement and section 290 of the Corporations Act — as evidence of oppression.

2. [196]

   The defendants denied there was any failure to provide information, for a number of reasons:

3. [197]

   The plaintiffs only responded to the first of these arguments, likely because the defendants’ submissions were not provided until after the plaintiffs’ final submissions had been completed.

4. [198]

   As to the first argument, the defendants submitted that it responded to Gadens’ letter in various communications between 15 September 2015 and 21 September 2016 and all of the information sought was provided. To the extent it was not provided sooner, this was said to be because Mr Snell was very busy in relation to defence projects and also unwell. It was suggested that the timing of the letters — when it was said that Mr Glatis knew that Mr Snell was busy with important work for SMA Operations, that there was a system in place for information to be provided via Mr Skyring and where the information had largely already been provided — should cause the Court to “carefully review” the actions of Mr Glatis in circumstances where he wanted to be bought out and could only achieve this through an oppression suit.

5. [199]

   The plaintiffs submitted that it was clear that Mr Glatis was not provided with much of the information sought in the letters from Gadens. He was not provided with any accurate information as to:

6. [200]

   Further, the plaintiffs submitted that the suggestion that Mr Snell provided information requested in meetings with Mr Glatis and Mr Skyring was contradicted by the evidence of Mr Glatis and Mr Skyring. The manner in which Mr Snell gave evidence was said to lend credence to Mr Skyring’s observation that Mr Snell would not provide sufficient financial information to enable Mr Glatis to understand the affairs of the SMA Group, would not answer questions directly but often responded by raising historical matters of no apparent relevance, and would not provide supporting documentation to verify entries in the management accounts. Having heard Mr Snell’s evidence and read his emails, Mr Skyring’s evidence certainly ‘rang true’.

7. [201]

   As to the suggestion in the cross-examination of Mr Glatis that Mr Snell and the SMA Group were not able to comply with Gadens’ request of 31 August 2015 due to Mr Snell’s existing business commitments and that Mr Glatis knew this but pressed for a response in order to manufacture oppressive conduct, the plaintiffs submitted that Mr Glatis gave credible and reasonable evidence that he believed that the staff of the SMA Group could compile the information and documents he had requested, even if Mr Snell could not personally attend to the task. The business commitments of Mr Snell referred to in correspondence by Mr Snell and put to Mr Glatis ended in early November 2015. On 26 November 2015, after those commitments had been met, Mr Snell wrote to Mr Glatis, “I have committed to answering all of Gadens questions but find this to be a demanding and unnecessary action…” A partial response was provided on behalf of Mr Snell on 25 January 2016 and on 24 May 2016 before proceedings were commenced. In sum, the plaintiffs submitted that Mr Snell and the SMA Group failed to comply with the requests for information in breach of their obligations under the Shareholders Agreement, and that this failure constituted oppressive conduct.

8. [202]

   It seems to me that, whilst Mr Snell asserted at the time that, variously, he was very busy attending to other important matters for SMA Operations and was unwell, there is no reliable contemporaneous evidence that either of these matters were so. Given the extensive history of Mr Glatis’ requests to Mr Snell for information in respect of the SMA Group described at [74]–[176], I do not think it can fairly be said that Mr Glatis knew, at the time that the Gadens letter was sent, that the information which he was seeking had already largely been provided. In fact, it rather seems to be the case that despite repeated, clear requests from Mr Skyring and Mr Glatis, the information had not been provided. The correspondence evidences a clear pattern of Mr Snell refusing to squarely answer the questions put to him or to provide any primary records to support his assertions. The suggestion that the Gadens letters were sent as a contrivance to create the perception of oppressive conduct was without factual foundation.

9. [203]

   Much of the key information sought by Mr Glatis was not provided until shortly before or during the hearing itself. Information as to the payment of SMA Operations’ dividends was described in an affidavit of Mr Pottenger of 1 May 2019. Deeds amending the Church Point Trust, Minkara Road Trust and Tura Beach Trust were referred to in Mr Snell’s affidavit of 30 April 2019 but only tendered, signed, during the course of the hearing. A loan agreement between SMA Victoria and Mr Snell in respect of a loan of $1 million to allow purchase of a property in Kangaroo Valley was called for during the trial and produced during the evidence of Mr Snell on the sixth day of the final hearing. The overall impression I gained was that the investments and transactions entered into by Mr Snell, about which Mr Glatis was concerned, were either undocumented, poorly documented or, if documented, Mr Snell on occasion denied that the document correctly recorded the transaction.

10. [204]

    Having regard to the notes of meetings attended by Mr Snell, emails from Mr Snell and Mr Snell’s evidence, it is readily apparent that Mr Snell seemed unable to give a straight answer in respect of transaction where he had, in essence, used the financial resources of the SMA Group to pursue his own business and personal interests, for example, with Mr Walker or Mr Ireland, or unsuccessful investments including with the same gentlemen. Ms Vincent prepared accounting entries, spreadsheets and emails to convey Mr Snell’s instructions as to the payment of dividends and Mr Snell’s advances of personal funds said to be for the SMA Group in circumstances where, under close scrutiny during the hearing, Ms Vincent’s communications — no doubt based on Mr Snell’s instructions — were inaccurate or wrong. Ms Vincent also appears to have presented something of an obstacle to Mr Glatis obtaining information. Thus the defendants’ first argument fails for lack of factual support.

11. [205]

    As to the defendants’ second argument, clause 2.3(c) of the Shareholders Agreement provided:

12. [206]

    Gadens’ letter was addressed to SMA, SMA Australia, SMA Victoria and SMA Operations and headed “Attention: Keith Snell, Director”. The letter squarely set out the content of clause 2.3(c) and requested information pursuant to that clause. There could be no doubt on reading the letter that the Glatis family sought to exercise their right under clause 2.3(c) and the letter was marked to the attention of Mr Snell. Whether it was also addressed to the companies is of no moment. Whether the letter referred to Mr Snell in his capacity as a director of those companies is of no moment. The import of the letter was clear.

13. [207]

    Further, “Second Shareholder” was a defined term in the Shareholders Agreement. The defendants’ submission places too much significance on the defined term itself rather than how it was deployed in the agreement where the “Second Shareholder” was used in clauses relating to Mr Snell as a shareholder, but also in clauses referring to other capacities such as director. For example, clause 11.3 itself required Mr Snell to take steps as Group Managing Director, not as shareholder: (emphasis added)

14. [208]

    Clause 6.3(b) provided that Mr Glatis, as nominee for the Glatis family and its appointed director:

15. [209]

    Of course, an applicant under section 232 does not have to show a breach of a promise to establish oppression. Conduct undertaken in accordance with a company’s constitution may nevertheless be unfairly prejudicial, where the conduct is not in accordance with the legitimate expectations of members: Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 395, [2007] NSWSC 153 at [45] (Brereton J); Austin & Black’s Annotations to the Corporations Act (2019, LexisNexis, looseleaf) at [2F.232] citing Re Posgate & Denby (Agencies) Ltd (1986) 2 BCC 99,352; Sutherland v NRMA Ltd (2003) 47 ACSR 428; [2003] NSWSC 829. Even if the defendants’ submissions as to the proper construction of these clauses was correct, it would not exclude the provision of information from consideration as oppressive conduct against the backdrop of the legitimate expectations of the plaintiffs to be provided with information in respect of the SMA Group, having regard to the history and structure of control of the companies.

16. [210]

    The defendants submitted that there was no breach of section 290 of the Corporations Act as Gadens’ letter did not call for “financial records” as that term is defined in section 9 of the Act, being:

17. [211]

    Aside from section 290, the plaintiffs’ right to information under the Shareholders Agreement were otherwise not observed by the defendants, as described at [74]–[176]. The plaintiffs, since 2010, conducted a sustained campaign for information in respect of the SMA Group, through their locally appointed accountant and lawyers. A characteristic feature of Mr Snell’s communications, when he actually communicated with Mr Glatis and Mr Skyring, was a stubborn refusal to engage with the precise issue before him and, instead, to respond by adding superfluous detail and elaborations, apparently designed to distract, confuse and delay. Mr Snell regularly called in longstanding grievances, complaints and injustices done to him which appear to have had little foundation in reality. Mr Snell relied heavily on the fact that the only person who could challenge him comprehensively on these matters had now passed away and the only other person remaining, Ms Vincent, was a deeply loyal employee who facilitated his narratives without demur. What Mr Snell’s emails also reveal is that, when Mr Snell wanted to, he was able to pen or dictate extensive emails. It would appear, thus, that his general reluctance to communicate with Mr Glatis was not because he was too busy, too tired or too unwell but because Mr Snell did not wish to engage with him.

18. [212]

    The plaintiffs’ efforts were persistent but largely unrewarded and the Shareholders Agreement was thereby breached. The Glatis family was not given “full information” in relation to the affairs and activities of the SMA Group, nor did Mr Snell “as Group Managing Director” ensure that their entitlement to full information was fulfilled in accordance with his obligations under clause 11.3. In circumstances were the plaintiffs were dependent upon their rights to information being observed to enable them to monitor their shareholding and the performance of the SMA Group in circumstances where Mr Snell had such extensive powers over the activities of the SMA Group, Mr Snell’s refusal to answer the plaintiffs’ requests for information was unfair, unsupported by any commercial justification, and would have been considered by reasonable directors to have placed an unfair disability upon a member of the company.

19. [213]

    The defendants’ third argument was that the obligations under the Shareholders Agreement to provide documents and information were wholly satisfied through the engagement of Mr Skyring as an external independent accountant and a convention whereby Mr Snell, Mr Glatis and Mr Skyring met approximately three times a year to discuss the business and provide financial disclosure. The plaintiffs are thus estopped from enforcing their contractual rights under the Shareholders Agreement by their conduct, relying on an estoppel by convention: Grundt v Great Boulder Gold Mines (1937) 59 CLR 641; [1937] HCA 58.

20. [214]

    The defendants pointed to Mr Skyring’s evidence that, from 2007, he and Mr Glatis received quarterly management accounts and financial statements for the SMA Group, albeit late. Mr Skyring accepted that, between 2011 and 2014, he was involved in preparing the statutory financial statements and, in doing so, requested information that he considered necessary for the purposes of preparing the accounts. Mr Glatis also accepted that Mr Skyring was, from time to time, attending SMA’s offices to obtain information from Mr Pottenger. It was said that this pattern continued over five years undisturbed, in contravention of clauses 2.3, 6.3 and 11 of the Shareholders Agreement. Notwithstanding this possible breach of the Shareholders Agreement, the plaintiffs continued with the ‘information meetings’, even though the plaintiffs had knowledge of the material facts giving rise to the alleged breach. It would now be unjust to allow the plaintiffs to resile from that convention.

21. [215]

    The defendants submitted that it was never put to Mr Snell in cross‑examination that the convention did not exist, citing Browne v Dunn (1893) 6 R 67. I do not understand the plaintiffs to contend that there were no meetings, or that information was not provided to Mr Skyring or by Mr Pottenger. It is a matter for the Court to determine whether the legal characterisation of a “convention” arises, namely that there is a mutual assumption on which the parties conducted their affairs. It was not necessary to put the non-existence of the convention to Mr Snell as a matter of fairness. That characterisation is independent of the acceptance, or otherwise, of the underlying facts.

22. [216]

    In Moratic Pty Ltd v Gordon (2007) 13 BPR 24,213; [2007] NSWSC 5 at [32], Brereton J set out the elements of conventional estoppel as follows:

23. [217]

    The defendants submitted that the mere entry into the relevant relationship creating the convention is a change of position, the departure from which is a relevant detriment suffered by the defendants for the purposes of the fifth element set out by Brereton J. In support of this proposition, the defendants relied on an extract from the judgment of Gaudron J in Commonwealth v Verwayen (1990) 170 CLR 394 at 484–5; [1990] HCA 39, which it is necessary to set out in full:

24. [218]

    The defendants also relied on Amalgamated Investment & Property Co ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84. Although no passage was identified, the defendants may have been referring to the judgment of Brandon LJ at 131. In any case, the New South Wales Court of Appeal has reconciled this decision with Australian authorities which do require detriment: Miller Heiman Pty Ltd v Sales Principles Pty Ltd per Macfarlan JA, with whom McColl JA and Sackville AJA agreed, at [45]–[48]. Detriment is a separate element to be proved when relying on a defence of conventional estoppel.

25. [219]

    To the extent that a convention existed, the evidence does not support the frequency of meetings described by Mr Snell. I have already described all meetings and correspondence in evidence, not merely a selection. While there were relatively frequent meetings in 2012 and 2013, some were attended by Mr Skyring and Mr Snell only, and some by Mr Glatis as well. On one occasion a solicitor attended. Interspersed were some telephone conferences. But only three meetings were held in 2014, and one in 2015. While there was a further telephone call in 2014, it did not go to any matters of substance. Further, whatever the pattern was, the evidence indicates that it broke down in about late 2014 when Mr Glatis experienced considerable difficulty meeting with, talking to or receiving a written response from Mr Snell, which difficulties worsened over time. The evidence rather supports an ad hoc arrangement which does not go so high as an assumption as to the terms of the legal arrangement between the parties (to use the language employed in Moratic).

26. [220]

    Nor do I agree that the pattern established for the provision of information was in contravention of the Shareholders Agreement thus providing a basis for the defence of estoppel. Each of clauses 2.3, 6.3 and 11.3 provided a right to access information, but said nothing as to the manner in which the right was to be exercised. The rights were not expressed as being in any way limitative. The way in which Mr Glatis, Mr Skyring and Mr Snell met for the provision of information was entirely consistent with Mr Glatis exercising his rights as shareholder and director as provided for in the agreement. That he chose to do so in a particular way cannot, without more, limit his right to ask for more information, or for it to be provided in a different manner, in the future.

27. [221]

    The conduct of the parties was consistent with the exercise of a right under clause 11.4 (Inspection of Accounts by Independent Accountant), which provided:

28. [222]

    Thus, I find that Mr Snell breached his obligations under the Shareholders Agreement to provide information to the plaintiffs. As already described at [74]–[176], this failure was significant and sustained in circumstances where the plaintiffs were not involved in the day-to-day operations of the SMA Group, nor resident in Australia, and were heavily dependent upon their rights to information — recognised throughout the Shareholders Agreement — being honoured. The failure to provide information to the plaintiffs was oppressive conduct.

Refusal to appoint director of SMA Operations

1. [223]

   The plaintiffs sought an order that SMA Operations notify ASIC of the appointment of Mr Glatis as a director, although this relief is not sought if the Court orders a buyout. The plaintiffs contend that, on 25 August 2015, Mr Glatis was appointed as a director of SMA Operations in accordance with clause 6.2 and 6.3 of the Shareholders Agreement and, in breach of clauses 2.3(f), 2.3(g) and 6.6 of the agreement, Mr Snell refused to acknowledge the validity of his appointment, refused to notify ASIC of Mr Glatis’ appointment, unreasonably withheld his consent to the appointment and refused to vote his shares to ensure that Mr Glatis was so appointed.

2. [224]

   The defendants contend that it was an implied term of the Shareholders Agreement that the plaintiffs would not exercise any rights to appoint a director if it would detrimentally affect the ability of the SMA Group to carry on business and that the appointment of a non-Australian director would inhibit the ability of SMA Operations to secure contracts and work from the Department of Defence. Further, it was said that Mr Glatis agreed on 12 April 2015 that he would not seek to be appointed as a director of SMA Operations and that the Shareholders Agreement was varied accordingly, or alternatively, Mr Glatis is estopped from asserting an entitlement to be appointed as a director as to do so would cause detriment to Mr Snell by placing him in breach of the Shareholders Agreement and liable for the consequences of such breach.

3. [225]

   The plaintiffs submitted that the evidence did not support any of the grounds asserted by Mr Snell in resisting the appointment of Mr Glatis as a director of SMA Operations. Whilst the defendants adduced some evidence that SMA Operations may have been required to supply information to a government agency in respect of Mr Glatis’ appointment, Mr Snell conceded that no enquiries had been made in respect of whether Mr Glatis’ appointment as a director would present any concern. Rather, Mr Snell’s failure to give effect to the appointment of Mr Glatis as a director of SMA Operations constituted oppressive conduct, being contrary to the reasonable expectations of Mr Glatis.

4. [226]

   The defendants pointed to Mr Snell’s expression of concern that the appointment of Mr Glatis as a director would give rise to difficulties with the Department of Defence, that Mr Glatis and Mr Skyring agreed that Mr Snell expressed such a concern, and that they understood that it was important that SMA Operations be able to address the security concerns of the Department of Defence. The defendants pointed to discussion of this topic in 2014, said to culminate in an agreement by Mr Glatis on 21 April 2015 not to become a director of SMA Operations. It was said that it was never put to Mr Snell that the agreement did not exist. Again, I do not think it was necessary to put this to Mr Snell as a matter of fairness because it is a matter for the Court to determine whether, based on the evidence, there was an agreement or not.

5. [227]

   The defendants submitted that the plaintiffs’ conduct amounted to an unequivocal representation that was inconsistent with clause 6.3 of the Shareholder Agreement. It was suggested that Mr Glatis’ request to become a director was a contrivance to support an allegation of oppression. Perhaps churlishly, the defendants submitted that Mr Glatis asserted that he was a director of SMA Operations, nothing that Mr Snell did prevented that from occurring and, if Mr Glatis’ assertion was correct, then ASIC simply needed to be informed. I think the point of the plaintiffs’ claim is that, ordinarily, ASIC does not enter the appointment of a director on its register unless the notification is authorised by the company, and SMA Operations has declined to give its authorisation.

6. [228]

   I do not doubt that Mr Snell opposed the appointment of Mr Glatis as a director on the ground inter alia that it would pose problems for SMA Operations in its dealings with the Department of Defence. Whether that was true or not is another matter. Apart from Mr Snell’s evidence, the only reliable evidence pointed to by the defendants was a defence security manual which noted that, when applying for membership of the Australian Government’s Defence Industry Security Program, businesses were obliged to provided information in respect of any foreign person serving as members of the board of directors. The manual does not suggest that the existence of such persons precluded a company from becoming a member. It is worth noting that the plaintiffs’ shareholding was already sufficient for this policy to be enlivened, even without Mr Glatis’ appointment as a director. There was no evidence that the company would be unable to obtain contracts with the Department of Defence, nor any evidence of how onerous, or otherwise, the requirements for security clearance might be.

7. [229]

   There are contemporaneous documents which record that Mr Glatis agreed to only press to be appointed as a director of SMA, SMA Australia and SMA Victoria at the time, likely partly because Mr Glatis was reluctant to be exposed to personal liability for loans provided by NAB to SMA Operations, a risk often emphasised by Mr Snell in his efforts to dissuade Mr Glatis from becoming a director. But I have no reason to doubt Mr Glatis’ evidence that the main reason he initially pressed only to be a director of companies other than SMA Operations was because it was a compromise — something that Mr Snell would accept — and, thus, ‘a foot in the door’.

8. [230]

   But even if one accepted Mr Snell’s evidence about security concerns in toto, a variation of the Shareholders Agreement was not made out, nor addressed in the defendants’ submissions. Clauses 6.2 and 6.3 provided:

9. [231]

   As to the existence of the implied term, the defendants relied on Castlemaine Tooheys Ltd v Carlton and United Breweries Ltd (1987) 10 NSWLR 468; Byrne v Australian Airlines Ltd (1995) 185 CLR 411; [1995] HCA 24; New South Wales v Banabelle Electrical Pty Limited (2002) 54 NSWLR 503; [2002] NSWSC 178 and BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266. The principles governing the implication of terms are uncontroversial, and are conveniently set out in BP Refinery at 282–3:

10. [232]

    It was pleaded that, in light of the overriding objectives and purposes set out at the beginning of the Shareholders Agreement, the implied terms were necessary to give effect to the intention of the parties. This seems to be less an argument that an term should be implied, but rather that one express term (the right to appoint a director) should be construed as subject to another (the objectives in clause 2.2). In the face of the clear and more specific language of clause 6.3, I do not think that this defence can be sustained, nor was it addressed in the defendants’ written submissions. Similarly, the argument for an implied term is precluded by the generous language of clause 6.3. It represents the grant of a broad right to appoint a director. It is subject to limitations (clause 6.8), but they are narrow, and irrelevant for present purposes. Any further implied limitation would be inconsistent with this language, and such an implication is therefore impermissible. The fact that this term may have a deleterious effect on the company (if that be so) is beside the point when this is the bargain that the parties struck.

11. [233]

    Thus, the defendants’ refusal to appoint Mr Glatis as a director of SMA Operations was in breach of clause 6.3 of the Shareholders Agreement which had not been varied and did not contain an implied term which restricted Mr Glatis’ right to become a director of that company. In circumstances where the plaintiffs had a right to appoint a director and that right was refused without a commercial justification which bore close scrutiny, Mr Snell’s refusal to acknowledge the appointment denied the legitimate expectations of the Glatis family to have a representative on the board of the company in circumstances where that company, SMA Operations, continued to run the business of the SMA Group and where Mr Snell’s performance as director had been seriously called into question over a substantial period of time. The Glatis family was entitled to, and needed to, have a representative on the board to represent their interests and ensure that the transactions about which real questions had been raised were properly investigated and actioned. Mr Snell’s resistance to this course was, it seems to me, guided by self-interest in avoiding further scrutiny and the consequences for his actions. It was unfair in the circumstances I have described and amounted to oppression.

Unequal treatment in dividends — SMA Victoria

1. [234]

   The plaintiffs, in the Originating Process, sought an order requiring SMA Victoria to pay unpaid dividends of some $720,000. By the conclusion of the hearing, the parties agreed that the amount owing was $620,101.38, and SMA Victoria agreed to pay it. I made orders to that effect at the conclusion of the hearing. The defendants did not agree that SMA Victoria was obliged to pay interest, or how any interest should be calculated. I will deal with this issue at [337]–[350].

2. [235]

   SMA Victoria’s failure to pay dividends remained relevant to the question of oppression. The plaintiffs contended that, instead of paying dividends to the Glatis Family Limited Partnership, the defendants unilaterally withheld payment of dividends declared and created a loan account in favour of Mr Glatis to which the dividends were credited. As at 31 March 2016, the management accounts for SMA Victoria recorded a loan owing by that company in the sum of $720,101. At the same time as withholding the payment of dividends to the Glatis Family Limited Partnership, the financial statements of SMA Victoria record that it lent money to Mr Snell such that the balance of his loan account stood at $1,694,012 in favour of the company. On 7 April 2016, Mr Glatis demanded that SMA Victoria repay the loan owed by that company to him, but SMA Victoria failed to do so. SMA Victoria proceeded to lend further monies to Mr Snell such that, as at 31 March 2019, Mr Snell owed $1,362,709.99 to SMA Victoria. This was said to be conduct of the affairs of SMA Victoria in a manner that was oppressive to and unfairly discriminatory against the Glatis Family Limited Partnership as a member of SMA Victoria.

3. [236]

   The defendants denied that Mr Glatis’ loan account with SMA Victoria was created unilaterally but said it was pursuant to an oral agreement between Mr Glatis and Mr Snell that declared but unpaid dividends would be recorded as a loan with the loan to be paid when the SMA Group, and in particular SMA Victoria, had sufficient cash flow to repay it, with Mr Snell to determine when and how the loan would be repaid, and with the loan being reduced with equivalent payments also being made in reduction of the loan accounts owned by Mr Snell.

4. [237]

   The plaintiffs submitted that there was no evidence that Mr Glatis, at any time, agreed to SMA Victoria withholding payment of dividends declared. Further, Mr Snell was not owed any amounts by SMA Victoria or the SMA Group during the relevant period, but rather owed money to the SMA Group and thus Mr Snell’s assertion that both he and the Glatis Family Limited Partnership had amounts owing to them, and that there was an agreement that they both be repaid at the same rate, was false. Mr Pottenger’s evidence made clear that Mr Snell’s dividends from SMA Victoria were paid in full — indeed he was paid more than the amount of the declared dividends — whilst the Glatis Family Limited Partnership’s dividends were withheld.

5. [238]

   When asked why SMA Victoria had withheld dividends declared in favour of the Glatis Family Limited Partnership, Mr Snell variously denied he made any decisions regarding whether declared dividends were actually paid, then advanced an explanation which was not contained in any of the voluminous affidavits he had filed in the proceedings, being that the reason he was paid all of his dividends was to ensure he could meet his personal financial obligations with respect to loans over properties used to guarantee the financial obligations of the SMA Group. When challenged on the late appearance of this explanation, Mr Snell said:

6. [239]

   The plaintiffs submitted that the manner in which Mr Snell withheld dividends declared in favour of the Glatis Family Limited Partnership whilst paying to himself the entirety of the dividends declared in his favour, in addition to drawing further substantial money from SMA Victoria by way of loan, constituted oppressive conduct. If the reason for the non-payment of the SMA Victoria dividends was cashflow difficulties, Mr Snell made sure those difficulties were visited upon the SMA Victoria shareholders in an unfairly discriminatory manner. They affected only the payment of dividends to the Glatis Family Limited Partnership and did not affect the payment of dividends to Mr Snell.

7. [240]

   In the defendants’ final submissions, the defendants accepted that unpaid SMA Victoria dividends were required to be paid. It was said that this had never been disputed, although I understood that was the import of the defence. The defendants made no submissions in support of the pleaded oral agreement between Mr Snell and Mr Glatis in respect of non-payment of dividends, nor the oppressive characteristics of the differing treatment of dividends relied upon by the plaintiffs.

8. [241]

   The way in which dividends were paid by SMA Victoria marked a strong difference between how Mr Snell ensured that dividends were paid to himself and how dividends were paid to the other 50% shareholder. The manner in which dividends payable to the Glatis Family Limited Partnership were credited to a loan account in the name of Mr Glatis was not communicated with Mr Glatis beforehand, nor was it readily apparent from the management accounts or financial statements when they were provided to Mr Skyring. This uncommunicated method of crediting dividends to a loan account in Mr Glatis’ name did not become apparent to Mr Skyring or Mr Glatis for some time, but when it did, it is also clear that Mr Skyring and Mr Glatis promptly took the matter up with Mr Snell and Mr Pottenger and consistently pressed for the Glatis family to be paid dividends declared in their favour. Despite significant effort, they were unable to achieve any material change in the discriminatory approach taken by Mr Snell. To add insult to injury, Mr Snell did continue, not only to be paid all of the dividends declared in his favour, but to borrow substantial sums from SMA Victoria without, at any time, consulting with Mr Skyring or Mr Glatis in circumstances where the monies were being borrowed to fund Mr Snell’s personal property development pursuits and against a backdrop of clear disputation with the other 50% shareholder. To deprive a shareholder of their fundamental right to be paid dividends in this discriminatory fashion was not supported by any commercial justification, or at least none which bore close scrutiny. It was unfair and would be considered by reasonable directors to be so. This amounted to oppressive conduct.

Adjustments to Mr Snell’s loan account with SMA Victoria

1. [242]

   The adjustments to Mr Snell’s loan account with SMA Victoria, made in about July 2016 by Mr Pottenger and June 2017 by Ms Vincent, are described at [179]–[183].

2. [243]

   In respect of the 2017 adjustments in respect of payments to Greg Walker Holdings, the plaintiffs submitted that, if Mr Snell paid $600,000 to Greg Walker Holdings in June 2005, then Mr Snell should seek to recover that payment from Greg Walker Holdings. There was no basis to treat that payment as a payment made by Mr Snell on behalf of SMA Victoria. The elimination in the 2017 financial year of $600,000 of Mr Snell’s indebtedness to SMA Victoria was unjustified. It was in Mr Snell’s personal interest but contrary to the interests of the other member of SMA Victoria. Further, the indebtedness of Mr Snell to SMA Victoria was replaced by debts payable to SMA Victoria that were statute barred, arising out of a payment made to Mr Walker 14 years earlier in June 2005. I agree.

3. [244]

   The plaintiffs submitted that, if Mr Snell lent US $200,000 to Mr Glatis Snr and if he had not been repaid the loan (as to which there is no reliable evidence), then Mr Snell may have a claim against the Estate but not the Glatis Family Limited Partnership. Accordingly, adjusting the amount of the loan payable by SMA Victoria to Glatis Family Limited Partnership by reference to 15 year old dealings between Mr Snell and Mr Glatis Snr was unjustified. I agree.

4. [245]

   The plaintiffs submitted that Mr Snell offered no explanation as to why the transactions giving rise to the 2017 adjustments had not been recorded in the management accounts or financial statements of the SMA Group long before, noting Mr Snell’s assurance in his email of 15 September 2015 to Mr Glatis that “all loan accounts are strictly listed to keep the accounts correct”. Further, the primary records said to support the adjustments were not definitive, for example, the contemporaneous documents in respect of the alleged loan to Mr Glatis Snr of US $200,000 did not suggest that the money was a loan. Nor could the adjustments for monies paid to Mr Walker be said to give rise to any indebtedness by SMA Victoria such that Mr Snell’s loan account should be reduced.

5. [246]

   The plaintiffs submitted that, faced with the allegations made by Mr Glatis in the proceedings, Mr Snell set about instructing his staff to record the adjustments in the 2017 financial year as a means of reducing the amount recorded as owing by Mr Snell to SMA Victoria without Mr Snell having to actually repay any of the money owed. Causing those adjustments to be made was improper, wholly contrary to the interests of the members of SMA Victoria as a whole and only for the benefit of Mr Snell. In doing so, Mr Snell acted in a manner which was oppressive to the plaintiffs.

6. [247]

   The defendants pleaded that the loan accounts as at 31 March 2016 had not been reconciled and did not include monies transferred to other entities or paid by Mr Snell on behalf of the SMA Group. It was said that Mr Snell’s loan account balance as at 31 March 2016 was recorded “as a holding entry only” in management accounts “drafted on an interim basis only” but did not include amounts paid by Mr Snell on behalf of the SMA Group which had not been reconciled. Mr Snell’s indebtedness to repay his loan account to SMA Victoria was denied. The defendants denied that the adjustments to Mr Snell’s loan account were contrary to the interests of the members of SMA Victoria as a whole.

7. [248]

   The defendants submitted that, having regard to the history of the SMA Group and the integral involvement of Mr Snell and Mr Glatis Snr, the treatment of the finances of the SMA Group as a whole was understandable and not oppressive. That the parties treated SMA Group’s finances as a whole was said to be apparent from the agreement concerning the transfer of funds from SMA Operations to SMA Victoria to pay for extra dividends from SMA Victoria. The defendants submitted that the adjustments were properly made, but accepted that making such adjustments in the circumstances of litigation without prior explanation was inappropriate. It was accepted that no adjustment for $219,557 should be made Mr Snell’s loan account, as I understand it, not because it was an inappropriate entry or oppressive conduct but because it would involve double-counting.

8. [249]

   The defendants contended that, in consideration of SMA Victoria lending monies to Greatest Ever Property to enable it to purchase the property at Ryde Road, Pymble, Mr Snell as director of Greatest Ever Property agreed for Greatest Ever Property to hold the beneficial interest of that property on trust for SMA Victoria. I note that Greatest Ever Property did not exist at the time the loans were made but was incorporated two years later. The evidentiary basis for the suggestion that Mr Snell caused that company to hold its interest in the property on trust for SMA Victoria is not apparent.

9. [250]

   It does seem to me that Mr Snell had a long-standing habit of using the funds of the SMA Group to advance his personal interests and accumulated significant loan balances accordingly. When the Glatis family began agitating for payment of dividends and questioning the commitment of the companies’ resources in this manner and, more particularly, when these proceedings commenced, Mr Snell instructed the accounting staff of the SMA Group to make adjustments in order to bring down the balance of his loan account and thus the monies he was recorded as owing to SMA Victoria. This was entirely in Mr Snell’s interests and not in the interests of the company. He did so without consultation with his fellow director, Mr Glatis. He did so in respect of transactions which were so long ago that Mr Snell’s personal loans now effectively assigned to SMA Victoria were, for practical purposes, irrecoverable. The accounting adjustments were not supported by primary records but, rather, hazy memories and old grudges. The actions taken by Mr Snell in this regard were self-interested and unfair to the other shareholder of the company who, in most cases, was not aware that the adjustments had been made until shortly before the hearing commenced. This amounted to oppressive conduct.

Non-payment of dividends for SMA Operations

1. [251]

   The plaintiffs sought an order that Mr Snell pay 20% of the dividends declared by SMA Operations from 30 June 2007 to 30 June 2014, with interest. The defendants agreed that SMA Operations was obliged to pay dividends declared since 30 June 2014, of which $300,000 had not been paid, and I made orders by consent at the conclusion of the hearing that those monies be paid. Any obligation to pay interest on either sum was disputed, and I will consider that question at [337]–[350].

2. [252]

   It was said by the plaintiffs that, when Mr Glatis Snr died, Mr Snell had held the shares of SMA Operations as to 20% on trust for the Estate and as much was recognised in the Heads of Agreement and Shareholders Agreement. Contrary to the Shareholders Agreement, dividends declared for SMA Operations were not in equal amounts to Mr Snell, Mr Glatis and Mr Culley. Although Mr Glatis had requested evidence of the existence of the SMA Management Trust and SMA Employment Trust, the establishment of which was referred to in the Shareholders Agreement, Mr Snell had refused to provide any evidence and, in fact, had never established either trust and all dividends declared by SMA Operations from 30 June 2007 to 30 June 2014 were paid to him in breach of the Shareholders Agreements.

3. [253]

   The plaintiffs submitted that it did not appear to be seriously disputed that, prior to being issued with share in SMA Operations in June 2014, Mr Glatis Snr had a beneficial interest in 20% of the shares of the company. As much was recorded in Mr Skyring’s valuation of 2004 and acknowledged in the Heads of Agreement. Mr Snell accepted it in unequivocally in cross‑examination. The dealings between the parties proceeded on that basis, with reference made to the Glatis’ 20% shareholding in numerous contemporaneous records. In fact, Mr Glatis was not paid any amounts on account of any dividends declared by SMA Operations prior to 2014. This was in contrast to Mr Culley, who was paid amounts by SMA Operations (by way of interest-free loans) pending the formal issue of shares to him, which amounts were repaid by the payment of a large dividend to Mr Culley once the SMA Operations shares were formally allotted in 2014.

4. [254]

   Whilst Mr Snell gave evidence that he put in place arrangements to ensure Mr Glatis received his entitlement to 20% of the dividends declared in SMA Operations, by transferring funds from SMA Operations to SMA Victoria and issuing dividends from SMA Victoria which “amalgamated” the SMA Victoria and SMA Operations dividends, and not issuing any dividends to himself from SMA Operations other than in respect of the “staff trusts”, his evidence was not credible. Firstly, the dividends declared by SMA Victoria in favour of Mr Snell and the Glatis Family Limited Partnership were equal: Mr Glatis did not receive any additional amounts from SMA Victoria on account of any SMA Operations dividends. Secondly, Mr Snell on his own evidence received and retained for his own benefit $2,075,000 in dividends from SMA Operations during the period 2007 to 2014. In fact, he received virtually all of the $3,980,644 dividends declared by SMA Operations in that period according to the evidence of Mr Pottenger and accounting records. It was submitted that Mr Snell’s affidavit evidence that he only received $900,000 in dividends from SMA Operations from 30 June 2007 to 30 June 2015 was plainly false and deliberately misleading, put forward to seek to minimise the apparent differential in the dividend payments received by Mr Snell and the Glatis interests.

5. [255]

   The plaintiffs submitted that, to the extent that Mr Snell said he made payments directly to staff from dividends declared and paid to him by SMA Operations, that evidence should not be accepted, because there was no primary financial records (such as account statements, EFT records or receipts) which supported that any amounts were “on-paid” by Mr Snell to staff of SMA Operations. Nor was his claim to have “on-paid” the dividends to staff consistent with the objective probabilities, in circumstances where Mr Snell has already given false evidence, in his 20 February 2017 affidavit, as to the ultimate recipients of dividends declared by SMA Operations and where the ledgers indicate that the dividends were paid to Mr Snell apart from $45,375.40 identified in the ledgers as being paid to or for the benefit of staff members. The balance, being $3,935,268.60, was paid to Mr Snell and retained for his benefit. The plaintiffs sought an order requiring Mr Snell to pay to Mr Glatis 20% of the dividends declared by SMA Operations from 2007 to 2014, being $796,128.80.

6. [256]

   In their defence, the defendants contended that the only shareholder of SMA Operations entitled to receive a dividend until 2014 was Mr Snell and denied that he held 20% of the shares on trust for the Estate. The obligation to establish the SMA Management Trust and SMA Employee Trust or to allocate 20% of the A class shares to the Estate was said to have been abandoned for tax reasons by an oral agreement between Mr Snell and Mr Glatis, and Mr Glatis was estopped from insisting on compliance with the Shareholders Agreement in this regard. In 2015, dividends of $2,565,000 were declared in favour of Mr Culley in accordance with his employment contract; dividends of $464,106 were declared in favour of Mr Snell on the condition that $264,106 would be paid by him to management and staff, said to have been satisfied; and dividends of $200,000 were declared in favour of Mr Glatis and paid.

7. [257]

   The defendants denied that Mr Snell was obliged to provide the information requested by Gadens in respect of the establishment of the Management Trust and Employee Trust, for the reasons already canvassed in respect of the failure to provide information at [205]–[222]. Whilst the defendants admitted that the trusts had not been established, Mr Snell nonetheless was said to have had a discretion to make payments to employees and management of the SMA Group and some dividends were paid by SMA Operations from 2008 to 2013 either directly to employees and management or to Mr Snell and then on-paid to employees and management, and the plaintiffs were said to be estopped from suggesting that Mr Snell was not entitled to do so.

8. [258]

   The submissions that the defendants ultimately put do not readily correlate with the pleaded defence. First, it was said to be incorrect to assert that Mr Snell retained all the dividends declared in his favour by SMA Operations from 2007 when the plaintiffs’ pleading was that the financial records of SMA Operations showed that many of the payments were made as dividends to staff and management. But that is the point: the plaintiffs were relying on the financial statements prepared by the defendants which were wrong. If the evidence ultimately proved that Mr Snell took all the dividends for himself, then it is not clear why the plaintiffs are precluded from relying on the large discrepancy between the financial records and reality.

9. [259]

   Second, the plaintiffs were said to have accepted that the dividend payment of $1.375 million in 2007 was a reimbursement of payments made and therefore not a dividend in truth. This was one of the seven components of the proposal put forward by Mr Skyring on 21 April 2015, being:

10. [260]

    Third, it was submitted that Ms Vincent’s calculations in her email of 1 April 2014, set out at [109], should be accepted as correct as she maintained the records, was not cross-examined on her calculations, and Browne v Dunn required that such matters be put. I suspect I may not have fully understood this submission. Ms Vincent’s calculations were quite wrong, and she did not suggest at the time that her spreadsheet or explanations were foolproof given the difficulties involved in piecing together what had happened so many years ago, and Mr Snell’s apparently chaotic approach to transactions and record-keeping. Mr Skyring challenged her calculations at the time, and Ms Vincent never responded. Ms Vincent’s non-response, including on the important matter of the missing $1.375 million dividend paid in 2007, is what prompted Mr Skyring to seek an acknowledgement by Mr Snell that he had received this amount in the proposal put at the meeting on 21 April 2015.

11. [261]

    Browne v Dunn does not require it to be suggested to a witness that a business record which they drafted contained errors. Browne v Dunn is a rule which relates to oral evidence, not to documents. As Hunt J expressed the principle in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1:

12. [262]

    Fourth, it was submitted that, by the agreement of 21 April 2015, Mr Glatis waived his entitlement to dividends for 30 June 2007 to 30 June 2012. Again, this was one component of a seven-part proposal put forward by Mr Skyring which was not accepted by the defendants and thus there was no such agreement.

13. [263]

    The non-payment by Mr Snell of the Glatis family’s entitlement to 20% of dividends of SMA Operations was inexplicable having regard to the consistent recognition of the Glatis family’s beneficial interest in the company since Mr Skyring first spoke to Mr Snell in 2004, confirmed in the Heads of Agreement in 2006, the Shareholders Agreement in 2009 and numerous contemporaneous documents since. The fact that Mr Snell — for seven years — proceeded to ignore the beneficial interests of other shareholders in SMA Operations, apart from himself and valued employee Mr Culley, was a discriminatory pattern of behaviour directed against the Glatis family. The fact that he was doing this did not become apparent for some time given the accounting treatment it received, as the dividends were supposed to be paid by SMA Victoria and it was not readily apparent from the management accounts of both companies that this was not in fact happening. When it did become apparent, Mr Snell resisted all efforts on the part of the Glatis family to redress matters and, when these proceedings were commenced, denied that the Glatis family was a 20% beneficial shareholder. Mr Snell proved evasive in respect of Mr Skyring and Mr Glatis’ efforts to obtain confirmation that the SMA Operations Management Trust and Employee Trust had in fact been established and what amounts were actually being paid to these trusts. The conduct engaged in by Mr Snell was unconscientious, unfair, unsupported by any commercial reason and oppressive.

Other transactions

1. [264]

   As further evidence of oppressive conduct, the plaintiffs pointed to six types of transactions entered into by the SMA Group at the direction of Mr Snell for his personal benefit and to the detriment of the members of the SMA Group. First, the transactions entered into with SMA Systems, being:

2. [265]

   Second, in respect of two $1 million interest-free, unsecured loans from SMA Victoria to Mr Walker in 2008 and 2009, the plaintiffs submitted that it was impossible to understand how any reasonable director could genuinely have believed the loans were in the interests of SMA Victoria. The fact that Mr Snell had advanced personal loans to Mr Walker gave rise to an obvious conflict of interests. He caused SMA Victoria to advance loans to his business colleague and friend who was in financial trouble and owed money to Mr Snell personally. The same submission was made in respect of SMA Victoria assuming Mr Snell and Mr Walker’s bank loan in respect of the Mission Beach property when Mr Walker became bankrupt.

3. [266]

   Other than the conduct alleged in respect of the sale of the Church Point property, the defendants did not accept there was any oppressive conduct in relation to Mr Walker, SMA Systems and the associated trusts. In respect of the loans to Mr Walker, the defendant submitted that judging these loans with the benefit of hindsight should be avoided; the loans had been on the books for a significant period of time and not questioned; and Mr Snell had not made the decision to lend money to Mr Walker lightly.

4. [267]

   In respect of Unit 6, Pentecost Avenue, the defendants submitted that the property was held for the SMA Group and the discount at which the property was obtained was ultimately for the benefit of SMA Victoria. Further, the Pentecost Avenue property was said to not form part of the pleaded case and thus no evidence could be led in relation to it and it would be unfair to make any adverse findings in respect of it.

5. [268]

   It is true that this transaction is not referred to in the plaintiffs’ pleadings. The genesis of evidence in respect of this transaction is Mr Snell’s affidavit of February 2017, where he deposed in some detail to his loans to Mr Walker in respect of this development, the purchase of three units by SMA Australia and that SMA Systems sold Unit 6 for a significant profit which was said to be retained inter alia “to reduce the burden on SMA Victoria”. The purpose of pleadings is to put a party on notice of the case they have to meet so that they are not surprised and can properly defend themselves. If the defendant, however, brings forward the evidence in respect of a transaction said to indicate that the allegations made against him are untrue and, when closely examined, the transaction was other than as described by the defendant and in fact amounted to oppressive conduct, it is difficult to see why the defendant is prejudiced if the plaintiffs ultimately submit that the Court should make a finding to this effect.

6. [269]

   The defendants’ submissions in this regard were heavily dependent upon an acceptance of Mr Snell’s evidence, which I am not prepared to do. Nor is the suggestion that these loans had been on the books for years and unchallenged well-founded. It is apparent from communications between the parties that the existence of these loans and investments only became apparent once management accounts began to be circulated in 2007. From 2010 on, Mr Glatis and Mr Skyring routinely sought information from Mr Snell in relation to many of these transactions and were either given no response or an incorrect response. It is not correct to say that they never complained — they did, and often.

7. [270]

   Third, in respect of SMA Victoria’s payment of debts owed by Car Care Clinic to the Las Vegas Hotel and the ATO, the plaintiffs submitted that Mr Snell caused SMA Victoria to pay amounts to satisfy debts for which Car Care Clinic, and potentially Mr Snell personally, were liable. Such payments involved no commercial benefit to the SMA Group and were oppressive, and the defendants conceded that this was so.

8. [271]

   Fourth, the plaintiffs submitted that the funding by SMA Victoria of a $1.5 million bank guarantee for the benefit of Mr Ireland’s Ford dealership was not a transaction that any reasonable director could possibly regard as being in the interests of the members of SMA Victoria.

9. [272]

   Fifth, in respect of SMA Boats, the plaintiffs submitted that Mr Snell caused SMA Operations to acquire two boats (and the debt associated with those boats) that were co-owned personally by Mr Snell and Mr Ireland at a time when Mr Ireland was suffering financial hardship which had the effect that Mr Snell was paying (and would be required to continue to pay) Mr Ireland’s portion of the joint debt. Mr Snell solved that problem by transferring the boats and debt to SMA Operations and causing SMA Operations to repay Mr Snell the part of the debt that he had paid that was attributable to Mr Ireland. In effect, Mr Snell’s problem of owing debt jointly with an insolvent co-debtor was passed to SMA Operations. The transaction resulted in a gain to Mr Snell personally and a loss to SMA Operations. It was a transaction in the personal interests of Mr Snell but contrary to the interests of SMA Operations.

10. [273]

    The defendants said this was not a pleaded part of the plaintiffs’ case and evidence on this issue was not led and it would be unfair to draw any conclusions in respect of it. Again, the genesis of evidence in respect of this transaction is Mr Snell’s affidavit of February 2017, where he deposed in some detail to SMA Boats, his dealings with Mr Ireland, “long and deliberate consultation” with PricewaterhouseCoopers, and why Mr Snell thought it was a “good deal” for SMA Operations to pay $3.4 million to buy the boats, take responsibility for Mr Ireland’s indebtedness and credit Mr Snell with $400,000. Mr Snell’s affidavits of December 2018 and April 2019 contained further evidence and attached accounting information in respect of SMA Boats. The defendants’ expert spent some time analysing the financial position of SMA Boats and putting its parlous financial state forward as a reason why SMA Operations was worth less than indicated by its financial statements. It is difficult to see why the defendants were prejudiced if their evidence on this subject did not in fact support their defence but was another instance of oppressive conduct.

11. [274]

    Sixth, in respect of the loan from SMA Operations to Vaucluse Development Co in 2015, the plaintiffs submitted that there was an obvious conflict between the interests of Mr Snell (as the sole beneficial owner of the borrower, Vaucluse Development Co) and the interests of SMA Operations (the lender) in relation to the loan.

12. [275]

    The defendants noted that, in January 2018, the Vaucluse property was sold and SMA Operations received some $3.16 million from The Vaucluse Development Company Pty and the loans were repaid. Thus it would appear that the SMA Group did not suffer in respect of this property development. Whilst that is good news, it does not detract from the quality of the loan when advanced, which was in the interests of Mr Snell and not SMA Operations or its members as a whole.

13. [276]

    Nor is it easy to accept Mr Snell’s explanation that these investments were well-considered at the time but had failed due to unforeseen circumstances such as the global financial crisis. It seems, rather, that Mr Snell had something of a blind spot when it came to both Mr Walker and Mr Ireland, and proceeded to fund their various ventures, initially using his own funds and then reimbursing himself by transferring the loans to the SMA Group. When his dealings with Mr Walker and Mr Ireland proved financially disastrous, Mr Snell transferred the risks associated with those investments to the SMA Group in circumstances where it must have been apparent to him that it was not in the interests of the SMA Group to take on these bad loans. Mr Snell’s persistence in this course of conduct, in the face of sustained inquiry and objection by the other major shareholder of the company, did amount to oppressive conduct. It was unreasonable, unsupported by any commercial sensibility and effectively transferred half of the adverse consequences of these poor investments onto the company and therefore his fellow shareholder. This was most unfair.

In conclusion

1. [277]

   The plaintiffs submitted that the conduct of Mr Snell constituted oppressive conduct as, viewed objectively, Mr Snell has acted in a manner so unfair that reasonable directors who considered the matter would not have thought his actions fair. Mr Snell has acted inconsistently with the legitimate expectations of Mr Glatis, including the expectation that Mr Snell would abide by the terms of the Shareholders Agreement. Mr Snell has caused the SMA Group to enter into transactions in circumstances where Mr Snell did not act in good faith, in that he preferred his personal interests to the interests of the SMA Group and where no reasonable board would have caused the SMA Group to enter into those transactions. The oppressive conduct of Mr Snell was continuing as Mr Snell remained in control of the SMA Group but refused to accept that he had engaged in any such conduct.

2. [278]

   The defendants accepted that conduct did occur that could fall within conduct proscribed by section 232 — being payment of part of the proceeds of the Church Point property to Mr Walker’s company and payments by SMA Victoria on behalf of CCC Investments (then in liquidation) — but the oppressive conduct did not extend as far as was contended. It was also said that the informality of legal and accounting records and relationships, including late adjustments to Mr Snell’s loan account, made it difficult to ascertain the true position and caused difficulties in the relationship, although the adjustments were said to have been warranted. It was not accepted that such conduct constituted oppressive conduct. It was said that the impugned transactions had been disclosed to the plaintiffs at the time without criticism and that the plaintiffs’ numerous criticisms of Mr Snell were only made when the transactions failed and with the benefit of hindsight.

3. [279]

   The defendants submitted that the Court should not lose sight of the fact that the SMA Group and its value was said to be largely due to the efforts of Mr Snell over 40 years, from which the Glatis family had received significant benefits. In contrast, no dividends have ever been provided by SMA Inc or Gladon although this was contemplated by the Shareholders Agreement and Mr Glatis had retained for his own benefit a New Jersey property understood to be worth approximately $1.5 million, which he belatedly accepted belonged to SMA Victoria and should be transferred to it.

4. [280]

   The defendants submitted that the fact that some of the transactions were unsuccessful is not the point. Oppression should not be found where a company has merely been mismanaged and Mr Snell’s evidence was that he did everything to benefit the group as a whole. No allegation of oppressive conduct was made from 2003 to 2009 and only then after the global financial crisis and ensuing cash flow difficulties. Mr Glatis has never had any involvement of the running of the businesses and, as in In re R.A. Noble & Sons (Clothing) Ltd [1983] BCLC 273, Mr Snell’s conduct was not unfair because Mr Glatis had not shown any interest in being involved in management or decision making. In R.A. Noble & Sons, the prejudicial conduct consisted in one director running a quasi-partnership company virtually as his own. The principal complaints were that the alleged oppressor continually failed to provided stock records, refused to execute a loan agreement; failed to provide financial accounts and failed to agree to a 50% share split. Nourse J held that the conduct was not unfair because the applicant had not shown any interest in being involved in management or decision making: at 292. It was submitted that the plaintiff’s conduct in that case resembled the informal steps taken by Mr Glatis.

5. [281]

   It was submitted by the defendants that there were no real issues between the parties until about April 2014, and not seriously until Mr Glatis’ lawyers were involved, and that the allegation of oppression was an attempt by Mr Glatis to free his capital from the venture in which it is otherwise locked away: McWilliam v L J R McWilliam Estates Pty Ltd (1990) 20 NSWLR 703 at 712. Despite Mr Glatis’ complaints about lack of information, it was submitted that he was provided with financial statements, access to other financial information through three annual meetings and other meetings between Mr Skyring and SMA Group employees, relying on In the Matter of Ledir Enterprises Pty Ltd at [195]ff.

6. [282]

   The defendants submitted that, from at least June 2009, Mr Glatis and Mr Skyring were aware of many of the facts which were alleged to be oppressive. Even if the conduct was oppressive, it was submitted that the plaintiffs were be prevented from relying on it as they had thereby acquiesced in the violation of their rights and were likely precluded from relief under section 233. If a person strongly suspects that there has been unconscionable conduct perpetrated against him or her and does nothing either to obtain more detail nor to prevent the defendant going ahead on the basis that there is no challenge to his or her rights, then one is in the very territory that delay or laches was designed to govern: Crawley v Short (2009) 76 ACSR 286; [2009] NSWCA 410 at [182]; Falkington v Peninsula Kingswood Country Golf Club (2015) 104 ACSR 481; [2015] VSCA 16 at [86]–[87]. I accept that the same considerations which found the equitable defences of delay, acquiescence and laches are relevant to the statutory cause of action, even if the equitable doctrines themselves are not directly relevant.

7. [283]

   It will be apparent from the reasons I have already given in respect of the specific acts relied upon by the plaintiffs that, on the whole, I also consider that oppression is made out. The operation of the SMA Group by Mr Snell was conducted in a way that was so unfair to the other shareholder that reasonable directors would not have thought it fair to conduct the companies’ affairs in that manner: refusing to provide information and documents to a major shareholder where there was an agreement to do so; refusing to give effect to that shareholder’s right to appoint a director to the company; failing to pay dividends to the shareholder, either at all or by unilaterally creating a loan account in the shareholder’s name and crediting declared dividends to that account in a manner which was different to how other shareholders were treated; and, embarking upon a series of transactions which were in the personal interests of Mr Snell but not in the interests of the companies, particularly at a time when the major shareholder was agitating for this to stop.

8. [284]

   It was readily apparent that Mr Snell did not accept that his actions should be curtailed, either in the years preceding the commencement of litigation or, even, during cross-examination. As “Governing Director” of SMA Victoria, Mr Snell was given plenary powers and, rightly or wrongly, perceived that he had such powers across the SMA Group notwithstanding the Shareholders Agreement. I have no reason to think that Mr Snell will conduct himself any differently going forward. He has engaged in a sustained and wilful departure from the requirements of the Shareholders Agreement, in particular, clauses 9.9 and clause 13.

9. [285]

   In a closely-held company such as this, the personal relationship between Mr Glatis and Mr Snell has been destroyed. In these circumstances, Mr Snell ought not to be permitted to use his powers as Governing Director of SMA Victoria or Group Managing Director of the SMA Group to exclude the Glatis family from participation in the management of the SMA Group without also giving the Glatis family the opportunity to remove their capital upon reasonable terms.

10. [286]

    It does not seem to me that the plaintiffs have contributed to this state of affairs. Nor does it seem to me that Mr Glatis can be considered to have delayed or acquiesced in the violation of the Glatis family’s rights. Rather, Mr Glatis and Mr Skyring have endeavoured, with little success, to redress these wrongs as they discovered them. I have set out in some detail their efforts to do so. I do not think it can be fairly said that Mr Glatis had not shown any interest in being involved in management or decision making as in R.A. Noble & Sons. Rather, Mr Glatis has endeavoured to become a director and to be involved but has been largely rebuffed by Mr Snell and excluded from decision making for practical purposes. For these reasons, the plaintiffs are entitled to the declaratory relief they seek in relation to the defendants’ conduct.

11. [287]

    Although the plaintiffs sought by the Originating Process that the defendants be wound up, this was only sought in the alternative and not pressed at trial. Rather, the plaintiffs wanted a buyout order. The plaintiffs noted that the Court has a broad discretion as to what relief (if any) ought to be granted, observing the caution expressed by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 in ordering buy-outs at [44]:

12. [288]

    In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413, Young J also emphasised the need for proportionality in framing relief to eliminate the oppression found. At [742]:

13. [289]

    That passage was cited with approval by White J in Short v Crawley (No 30) [2007] NSWCA 1322 at [1220], where his Honour also considered the application of section 467 of the Corporations Act in a case where a winding up order was sought. His Honour continued:

14. [290]

    The Queensland Court of Appeal has recently considered the question of the relevance of the defendant’s means in deciding between a buy-out order and a winding up. In Allways Resources Holdings Pty Ltd v Samgris Resources Pty Ltd (2017) 121 ACSR 1; [2017] QSC 74 Bond J said, at [383(d)]:

15. [291]

    On appeal, in Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] 3 Qd R 520; [2018] QCA 48, McMurdo JA, with whom Gotterson JA and Jackson J relevantly agreed, quoted that passage with approval at [68], and continued:

16. [292]

    The plaintiffs submitted that the defendants have not produced any evidence that a buyout order would not be a viable option by reason of the financial capacity of Mr Snell or otherwise. That being so, there is no reason not to make a buyout order on any such grounds: see In the matter of OTS (Australia) Pty Limited [2017] NSWSC 175 at [64] per Brereton J. In any event, an order that a person whose conduct has been unfairly prejudicial should purchase the plaintiff’s shares is in the nature of compensation for a wrong, rather than an adjustment of the rights of equally meritorious parties. Hence, difficulty in complying with the order, whether through lack of funds or other cause, is no reason why judgment in the form of a purchase order should not be made: Re Hollen Australia Pty Limited (2009) 27 ACLC 199; [2009] VSC 95 at [88], applying Re a Company (1986) 2 BCC 99,453 at 99,483.

17. [293]

    The defendants accepted that given the circumstances, the Glatis family and Mr Snell should recover the value of their interests in the SMA Group and the SMA Group should thereafter cease to operate, but submitted that the parties should be given the opportunity to frame an appropriate mechanism as to how this could occur. No buyout should be ordered as the valuation evidence was said to be wholly inadequate to enable any valuation of the interests of the parties in the SMA Group. Rather, a voluntary sell-down of the SMA Group’s assets should occur to enable the Glatis family and Mr Snell to realise their value in the SMA Group.

18. [294]

    There was no evidence that a buyout would impose any hardship on Mr Snell. Instead, the defendants submitted it was not possible to determine whether Mr Snell could pay for a buyout as there was no valuation evidence as to what the Glatis family’s interests were. I understood this submission to be an oblique reference to the fact that the plaintiffs’ shares in SMA Operations were “dividend only” shares. The plaintiffs submitted that the fact that the shares ultimately allotted by SMA Operations to Mr Glatis (and to Mr Snell and Mr Culley) in 2014 were “dividend only” did not justify any discount being applied to the value of the shares. Both experts valued the shares on the basis that the SMA Operations is a going concern. The hypothetical purchaser of shares in a company which is a going concern is looking, not to a winding up, but to the profits which will ensue from the company continuing to trade: see Tomanovic v One Australia Pty Limited (2015) 104 ACSR 596; [2015] NSWCA 11 at [179]–[189] per Bathurst CJ.

19. [295]

    In circumstances where both experts agreed that the value of the shares of SMA Operations should be determined using the same, conventionally accepted, methodology, and Mr Gwynne did not suggest that the value of the Glatis family’s shares in SMA Operations should be discounted by reference to being “dividend only”, I do not propose to approach the matter other than how the experts agreed was the appropriate way to value the shares.

20. [296]

    The plaintiffs having succeeded after a long and arduous legal proceedings and lengthy trial should have, it seems to me, their preferred remedy, there being no good reason put forward by the defendants, supported by evidence, that it should not be granted. Even assuming that Mr Snell is a man of considerable means, finding the sums sought by the plaintiffs to buyout their shares may well not be easy. There was some evidence in the contemporaneous documents that Mr Snell had a great appetite for funds, and at one point Mr Skyring mused whether Mr Snell was short of money. I do not know whether Mr Snell’s conduct was motivated by financial need, an unwillingness to incur losses himself when he could ‘sheet’ them home to the SMA Group, an inability to delineate between his personal transactions and the SMA Group, a sense of entitlement or the desire to get as much money out of the SMA Group as he could while he was still in charge. I cannot speculate as to which of these potential factors explain his behaviour. The question is what order will ensure that there is no further oppression going forward while being least intrusive to the management of the affairs of the company. In circumstances where Mr Snell is Governing Director of SMA Victoria and Group Managing Director under the Shareholders Agreement, and where, as the plaintiffs submit, I have no basis for thinking that he recognises that his conduct was wrong or that he will conduct himself differently going forward, it seems to me that nothing short of a buyout order will suffice to prevent further unfairness. A buyout order is appropriate relief to cease the oppression going forward.

21. [297]

    The plaintiffs submitted that a valuation of the plaintiffs’ shares under sections 232 and 233 should attempt to place the oppressed plaintiff in the position it would have been in had there been no oppression: ES Gordon Pty Limited v Idameneo (No 123) Pty Limited (1995) 15 ACSR 536 at 539; Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 369 per Lord Denning. It is generally inappropriate to apply any discount to the value of the shares of a minority shareholder, where the shares are ordered to be purchased as a result of oppression of the shareholder: Dynasty Pty Limited v Coombs (1995) 59 FCR 122; (1995) 13 ACLC 1,290; Re DG Brims & Sons Pty Limited (1995) 16 ACSR 559 at 594–5; Smith Martis Cork & Rajan Pty Limited v Benjamin Corp Pty Limited (2004) 207 ALR 136; [2004] FCAFC 153 at [78]; Mopeke Pty Limited v Airport Fine Foods Pty Limited at [109]. The approach adopted in those cases has been to follow the principle stated by Nourse J in In re Bird Precision Bellows Ltd [1984] Ch 419 at 430:

22. [298]

    The plaintiffs’ expert, Mr Ross, calculated the value of the SMA Group at $151.9 million and Glatis parties’ shareholdings at $66 million as follows:

23. [299]

    In doing so, Mr Ross valued each company as if certain transactions had not been recorded in the company’s accounts: loans from SMA Victoria to SMA Systems; adjustments to Mr Snell’s loan account with SMA Victoria after 31 March 2016; and, dividends declared in SMA Operations and said to have been paid to ‘SMA Management’ in the financial year ended 30 June 2007 but in fact not so paid. Whilst the defendants submitted that no adjustments should be made to the accounts in respect of these transactions, given that I have found that each amounted to oppressive conduct, it is consistent with the authorities to value the companies as if these transactions had not occurred and been entered in the accounts.

24. [300]

    The defendants’ expert, Mr Gwynne, agreed with the valuation methodology adopted by Mr Ross for each company but did not agree with the application of that methodology in particular respects. He calculated the value of the SMA Group at $66 million. The difference of $85.9 million between the experts was attributable to three main factors.

Value of property and investments

1. [301]

   The largest difference between the valuers was the approach taken to fixing a value for the real property and investment assets of the SMA Group. This accounted for $33.1 million of the $85.9 million difference between the experts. A tension emerged in the cases of both parties at this point: instead of having each property independently valued, the plaintiffs, having decimated Mr Snell’s credibility, continued to rely on estimated values of the properties contained in one of his spreadsheets. The defendants having tried but failed to have admitted a revised spreadsheet prepared by Mr Snell in December 2018 — which wrote down the estimated value of these assets by some 50% — now suggested that Mr Snell’s spreadsheets prepared in the course of business were not a reliable indicator of value.

2. [302]

   Mr Ross proceeded on the basis that the estimated value for properties set out in Mr Snell’s spreadsheet dated 5 March 2018 represented market value. He did this because the financial statements of three of the four companies (SMA Operations, SMA Australia and SMA) reported the real property assets “at cost” in their balance sheets, although the real estate assets were recorded in the balance sheet of SMA Victoria in accordance with the director’s revaluation done in 2011. Mr Ross was unable to determine whether adopting the estimated values in Mr Snell’s spreadsheet overstated or understated the value of the companies but considered, in his experience, that using book values for property would likely understate the value of equity in the companies: assets may not have reduced in value as reflected by depreciated amounts at all but may have appreciated in value; some assets may have been depreciated for tax purposes and have market values higher than book value. Where an asset was identified in the financial statements but not listed in Mr Snell’s spreadsheet, then the market value of the asset was assumed to be equal to its book value. The experts endeavoured to compare Mr Snell’s spreadsheet with the financial statements but both agreed it was not easy to do so: property assets were either reported in a global sum in the financial statements, or the description of the real estate was sufficiently different that they could not be confident that they were comparing the same property.

3. [303]

   In respect of other investments, Mr Ross’ approach was to adopt the estimated value ascribed to the investment in Mr Snell’s spreadsheet of 5 March 2018, and, where the investment was not in the spreadsheet, to adopt the book value. The rationale for this approach was that investments were recorded at cost in the financial statements, whereas Mr Snell’s spreadsheet gave an estimated current value of (some of) the investments. To avoid double counting, Mr Ross did not start with the value of investments in the financial statements before making adjustments to that number, but took all the value for investments out and then replaced it with new values. Mr Ross also deducted any loans payable by the relevant subsidiaries to avoid overstating the value of the investments.

4. [304]

   In July 2018, the plaintiffs served Mr Ross’ report valuing the companies on this basis. In December 2018, Mr Snell put on an affidavit attaching a revised schedule. The schedule was similar to earlier versions of the asset schedule which were in evidence, which dated from 2003 to 2005 and also 2016, but had significant differences: the file name was different; the columns in the spreadsheet were almost entirely different with new columns added headed “Revised Estimated Value” and “Remarks”. It was not suggested the revised schedule was a business record, and the defendants accepted that Mr Snell did not meet the requirements of section 79 of the Evidence Act 1995 (NSW) in that he did not have specialised knowledge by reason of training, study or experience which would have the result that the “Revised Estimated Values” were admissible opinion evidence. Mr Snell’s revised spreadsheet was not admitted into evidence. Mr Gwynne had adopted the values in the revised spreadsheet and thus, the assumption on which Mr Gwynne proceeded having not been established, his conclusion as to the value of the real property and investments was not established.

5. [305]

   The question remained whether Mr Ross’ approach could be relied upon as evidence of the value of the real property and investment assets on the balance of probabilities. Mr Gwynne noted that Mr Ross had not made an allowance for the transaction costs incurred in realising assets and capital gains tax. Mr Ross did not agree that any allowance needed to be made for these costs as the companies were valued on a going concern basis.

6. [306]

   The plaintiffs submitted that Mr Ross’ reliance on the 5 March 2018 spreadsheet was appropriate as it was a financial record kept by the SMA Group that provided financial information with respect to the companies’ financial position and performance. Accordingly, the spreadsheet was a financial record kept under a requirement of the Corporations Act (namely, section 286 of the Corporations Act): see Australian Securities and Investments Commission v Rich (2005) 53 ACSR 752; [2005] NSWSC 417 at [233]–[312]. It therefore followed that section 1305 of the Corporations Act applied to Mr Snell’s spreadsheet of 5 March 2018, with the consequence that it was prima facie evidence of the matters stated in or recorded in that schedule, including being prima facie evidence that the “estimated value at present” of the property and investments was as stated in the spreadsheet. Further, Mr Snell’s evidence was that the estimated values recorded in the property schedules were used to guide the change of valuation in the accounts of the SMA companies from time to time; the spreadsheet was used from time to time as a reference during discussions with NAB and occasionally referred to when updating the balance sheet of the SMA companies. The values recorded in the spreadsheet were genuine estimates of the values of the property and investment assets.

7. [307]

   The defendants submitted that Mr Snell’s spreadsheet did not record market value, nor did it pretend to. Mr Snell was not an expert property valuer. The director’s revaluation to SMA Victoria’s financial statements was not incorporated into the spreadsheet, and section 1305 of the Corporation Act equally applied to the revaluation. The plaintiffs had failed to obtain market valuations of the properties. To rely on target values ascribed by a director who was not an expert in the valuation of properties, particularly in a broad range of markets, did not accord with the fairness required in valuation.

8. [308]

   It is true that the plaintiffs could have established the value of the properties and investments owned by the SMA Group by obtaining valuations for each of the 70 assets of real property — residential, commercial, industrial and development sites — as well as various aircraft, boats and other investments. The defendants could then have obtained other valuations if they did not agree with the plaintiffs’ valuations. The Court could have considered the competing valuations and the evidence of the valuers — likely a great number of them — and ascertained the value of each property and investment with greater specificity. The length and cost of the trial to both parties would have been substantially greater.

9. [309]

   But in an oppression suit, it is not necessary to value shares with this level of specificity. The basic requirement is that the valuation must be fair on the facts of the particular case: Re Quest Exploration Pty Limited (1992) 6 ACSR 659; Dynasty Pty Limited v Coombs; Short v Crawley (No 30) at [1246]. The Court has a broad discretion as to the mode of valuation. The Court’s task is to fix a price that is fair in all the circumstances having regard to the value that the shares would have had, but for the oppressive conduct. The price to be paid is compensatory in nature, aimed at redressing the wrong done, so the price is not confined to ordinary valuation principles and will not always reflect the real worth of the shares: Smith Martis Cork & Rajan Pty Limited v Benjamin Corp Pty Limited; Shirim Pty Limited v Fesena Pty Limited [2002] NSWSC 10; In the matter Cheal Industries Pty Limited [2012] NSWSC 595. In In the matter of Optimisation Australia Pty Ltd (2018) 362 ALR 374; [2018] NSWSC 31, Brereton J said, at [372]:

10. [310]

    As to the reliability or otherwise of Mr Snell’s spreadsheets, it is clear that the spreadsheets were a business record. Mr Snell first prepared his spreadsheet in the 1990s and updated it regularly to provide a current record of purchases and sales and to show the real property assets at a given point in time. There are some 24 versions of the spreadsheet in evidence from November 2003 to December 2016, of which 20 pre-date the commencement of proceedings. The bulk of the spreadsheets date from 2003 to 2005 and there is then a gap of about a decade before another one appears in evidence. However, I note that the emails and meeting notes record that Mr Snell agreed from time to time to update the spreadsheet and so it appears that the spreadsheet continued to be in use as a business tool throughout the period in question. In cross-examination, Mr Glatis agreed that Mr Snell’s spreadsheets were discussed at shareholder meetings, “there usually was … the most present version there”.

11. [311]

    The question is what the spreadsheet recorded and whether it provides a reliable basis on which to value the companies for the purpose of a buyout order in an oppression suit. According to Mr Snell, the spreadsheet recorded his estimate of the value of each property, being the price that he would accept if a sale opportunity arose. This estimate allowed Mr Snell to give instructions to staff when a potential buyer or real estate agent made an enquiry about a particular property. About a third of sales of SMA Group’s property came about from such enquiries. The spreadsheet can be taken to record Mr Snell’s genuine estimate of the value of a property at a given point in time based on what he knew about that property since it had been acquired, but not necessarily market value.

12. [312]

    I note that, in September 2013, Mr Skyring referred to Mr Snell as having “unrealistic price expectations” and “high valuation expectations” in the context of efforts then being undertaken to sell down assets at the insistence of the bank. Whether these unrealistic or high expectations made their way into Mr Snell’s spreadsheets is not known as there is no version of the spreadsheet dating from November 2005 until December 2015 in evidence.

13. [313]

    Three matters lead me to conclude that using the 5 March 2018 spreadsheet is a fair way to approach assessing an appropriate price to be paid for the plaintiffs’ shares in the SMA Group. First, book value will substantially undervalue the property and investments as these items are recorded at cost for three of the four companies. Second, the experts agreed that the values of assets adopted by Mr Ross based on the 5 March 2018 spreadsheet were substantially less than the directors’ valuation of real property assets in the SMA Victoria accounts by some $17.3 million, before SMA Victoria reduced its directors revaluation in December 2018 conformably with Mr Snell’s revised schedule as described at [185]. This suggests that relying on the estimated value of properties in the 5 March 2018 spreadsheet did not use values which exceeded the directors’ revaluation of properties, in SMA Victoria’s accounts at least.

14. [314]

    Third, at my request, a comparison was undertaken by the experts of the last of Mr Snell’s spreadsheets which pre-dated the proceedings, being 1 December 2015, and the 5 March 2018 spreadsheet. That comparison indicated that the sales prices in fact achieved after 1 December 2015 were generally higher than the estimated values of the properties recorded in the 1 December 2015 spreadsheet. This tended to indicate that the estimated values in the 1 December 2015 spreadsheet did not overstate the market value of the properties. The comparison also indicated that many of the estimated values in the 1 December 2015 spreadsheet were revised downwards in the 5 March 2018 spreadsheet, while the values of some of the properties were revised upwards but only by relatively modest amounts. That is, there is nothing to indicate that the changes in the estimated values between 1 December 2015 and 5 March 2018 were anything other than changes reflecting genuine perceived changes in the estimated value of the relevant properties. For these reasons, it seems to me that the estimated values of property and investments in Mr Snell’s spreadsheet of 5 March 2018 are a reasonable indication of the market value of those assets. I accept Mr Ross’ approach to fixing a value for the property and investments of the SMA Group as being fair in the context of valuing shares in an oppression suit.

Value of receivables

1. [315]

   The value of receivables accounted for $51.2 million of the $85.9 million difference between the experts but, as $35 million was referable to Mr Snell’s inadmissible evidence, the real gap was some $16 million. Again, a tension emerged in the cases of both parties at this point. The plaintiffs had pleaded that the financial statements of the SMA Group had not been prepared in accordance with accounting standards in breach of the Shareholders Agreement, but then sought to rely on those statements as to the value of loans made by the companies. On the other hand, the defendants maintained that those loans were not recoverable contrary to the financial statements, being by and large bad investments made at the instigation of Mr Snell but supported to this point of the defendants’ case as being reasonable and considered business decisions.

2. [316]

   Mr Ross proceeded on the basis that the value of receivables was as recorded in the financial statements of the SMA Group. Accounting standards and generally accepted accounting principles require that an asset cannot have a carrying amount higher than its recoverable amount. In the case of loans, this means that loans must be assessed for recoverability and valued in the accounts accordingly. Mr Ross noted that, in general, it is value-destructive to shareholders for a company to lend money to entities who are not likely to be able to repay the loans.

3. [317]

   Against this, although Mr Gwynne was instructed to assume that the financial statements of the SMA Group were prepared in accordance with accounting standards, his review of the financial information suggested that they were not, and thus he considered it was not appropriate to proceed on the basis that the loans in the accounts were recoverable in full. As to why he formed the view that the financial statements did not comply with accounting standards, Mr Gwynne noted that SMA Operations’ 2017 financial statements stated that the company did not have a statutory requirement to prepare financial statements in accordance with accounting standards. He also noted that, when the assets of SMA Victoria were revalued by directors in 2011, no deferred tax liability was raised.

4. [318]

   Mr Gwynne proceeded to undertake his own assessment of the recoverability of loans from four borrowers based upon an assessment of the financial statements of those borrowers, they being SMA Boats, the Minkara Road Trust, the Tura Beach Trust and Church Point Trust. Special purpose financial statements for the year ended 30 June 2017 were prepared for the company and trusts by PricewaterhouseCoopers and signed by Mr Snell in May 2018.

5. [319]

   In respect of SMA Operations’ loan to SMA Boats of $6.8 million, Mr Gwynne had regard to the financial statements of SMA Boats which recorded a deficiency in net assets at 30 June 2017 of $4.2 million and indicated that the loan was not recoverable in full and should have been reviewed for impairment. Similarly, financial statements for the Minkara Road Trust, the Tura Beach Trust and the Church Point Trust suggested that loans to SMA Systems in respect of those trusts may not be recoverable in full. The fact that these loans continued to be recorded in the financial accounts of SMA Operations on an unimpaired basis suggested to Mr Gwynne that the financial statements were not prepared in accordance with accounting standards.

6. [320]

   In respect of the loan from SMA Victoria to SMA Systems as the owner of the property “Tide 2”, Mr Gwynne incorrectly assumed that SMA Systems owned the property as trustee of the Church Point Trust, and considered the recoverability of the loan based on the financial statements of the Church Point Trust. As Tide 2 was owned by SMA Systems in its own right, Mr Gwynne agreed that his comments on the recoverability of that loan were incorrect.

7. [321]

   Mr Ross considered that Mr Gwynne’s analysis in respect of the recoverability of loans was inconsistent and circular as Mr Gwynne relied on financial statements of entities related to Mr Snell to suggest that the financial statements of the SMA Group were unreliable. It was not clear to Mr Ross why it should be assumed that the financial statements of the former entities would be more reliable than those of the latter given that they were each apparently under the control of Mr Snell. Mr Gwynne’s reliance on the net asset deficiency in the financial statements was also said to be, in and of itself, overly simplistic as whether a loan is recoverable depends on a variety of factors, not just the reported net asset position of the borrower. Mr Ross said that, even if the financial statements were not prepared in compliance with the Australian accounting standards, there remained a fundamental requirement to present financial statements that are representative of what is happening, such as if there are loans that are recorded as assets then they are required to be reviewed for impairment on an annual basis.

8. [322]

   In respect of the loans to SMA Boats, the Minkara Road Trust and the Tura Beach Trust, the plaintiffs submitted that Mr Gwynne did not pay attention to the ‘going concern note’ contained in the financial statements of each of the borrowers, which indicated that the director of the borrowers regarded the borrower as being able to pay all of its debts as and when they fell due as a result of financial support being provided to the borrower company. Further, the primary asset of each of the borrowers was property which was recorded at cost in the financial statements which may be significantly lower than its current value. As such, a net asset deficiency in the financial statements of these borrowers was not sufficient evidence that loans to the borrowers should to be impaired.

9. [323]

   The plaintiffs submitted, again relying on section 1305 of the Corporations Act, that Mr Ross’ approach should be accepted as the management accounts and financial statements are “financial records” kept by a body corporate under a requirement of the Corporations Act. It was a requirement of the Shareholders Agreement that the Group Managing Director ensure that the accounts, records and accounting information of each of the companies reflect the Australian accounting standards (clause 11.1); and the accounting standards required that loans receivable be reviewed each year for impairment, and the assessed present recoverable value be recorded in the financial statements. SMA Operations was a large proprietary company and thus the financial statements are required to “give a true and fair view” of the financial position and performance of the company under sections 292 and 297 of the Corporations Act, (even if ASIC Corporations (Non-Reporting Entities) Instrument 2015/841 applied). The note in SMA Operations’ financial statements did identify that the accounting policies adopted included a policy relating to receivables, which would require the directors to make a determination of the amount of receivables expected to be collected within 12 months of the end of the relevant financial year.

10. [324]

    The defendants submitted that no independent test has been undertaken of the recoverability of loans. Rather, an assumption was made that they are recoverable. Neither expert had sufficient information to independently assess their recoverability. The reliance on section 1305 was misplaced as the financial statements were not prepared in accordance with accounting standards and no allowance for loan recoverability was made.

11. [325]

    There was an inherent absurdity in Mr Gwynne declining to rely on the financial statements of the SMA Group because other financial statements prepared for borrowers related to Mr Snell — which statements noted that the reporting entity was not under a requirement to prepare financial statements in accordance with Australian accounting standards and the financial statements were compiled without audit, review or independent verification — reliably indicated that the value of the loans was less than book value.

12. [326]

    When a director’s revaluation of land and buildings was included in the accounts for SMA Victoria for the year ended 30 June 2011, no deferred tax liability was recorded in the accounts at the time and the experts agreed that, in this respect at least, the accounts did not comply with accounting standards. But beyond this, there was no evidence that generally accepted accounting principles were not followed by the SMA Group’s in-house accounting staff or its external accountant. Further, a note in a company’s financial statements that the company “does not have a statutory requirement to prepare financial statements in accordance with the accounting standards” does not mean that the company has not in fact prepared the financial statements in accordance with the accounting standards.

13. [327]

    Mr Snell deposed in his third affidavit that the treatment of loans and investments in the accounts was the subject of regular discussion with Mr Skyring and Mr Glatis at quarterly meetings. On many occasions, Mr Snell says that Mr Skyring gave advice about the treatment of loans in the financial statements, suggesting that loans or investments should be written off, and this was actioned. This would suggest that the recoverability of loans and investments was regularly reviewed and write-downs and write-offs made in a timely manner. End-of-year journal entries for the financial years ending June 2015, 2016, 2018 and 2018 showed loans being written off consistently with such a process.

14. [328]

    In about mid-2013, according to Mr Pottenger, he and Mr Skyring reviewed loans owing to SMA Victoria and investments made by SMA Victoria thought to be irrecoverable. Adjustments were made to the accounts reflecting the results of that review: some $14 million in loans and investments were written off, including loans to Mr Walker and his companies, Car Care Clinic, Greatest Ever Ventures and Potter Design & Construct Pty Ltd (presumably a company related to Canberra property developer Mr Potter).

15. [329]

    It was put to Mr Skyring in cross-examination that he reviewed the recoverability of loans with Mr Pottenger, and Mr Skyring agreed that he did. I note also that in July 2012 Mr Skyring gave advice to the Glatis family on appropriate provisions for impairment of loans (at [83]). The recoverability of loans is also a recurring theme in the emails and meeting notes between Mr Skyring and Mr Snell during the period in which the Glatis family endeavoured to investigate the affairs of the SMA Group.

16. [330]

    Accordingly, the evidence suggests that the recoverability of loans was a matter of some focus by the SMA Group’s internal accounting staff and also Mr Skyring. The value of receivables was reviewed in a timely manner and appropriate write-offs or write-downs made, also in a timely manner. As such, on the balance of probabilities, the value of receivables is as recorded in the financial statements of the SMA Group. I am not satisfied on the evidence that I should adopt a different value, and certainly not in respect of the four borrowers reviewed by Mr Gwynne. Whilst it is true that the SMA Group is owed monies by some reasonably colourful companies and people, these loans are essentially those advanced as part of Mr Snell’s oppressive conduct and I am loathe to reduce the value of receivables on that score alone, having regard to the consideration of fairness when fixing a share price in oppression suits. I consider that Mr Ross’ approach to fixing a value for the receivables of the SMA Group is appropriate and fair and supported by the evidence on the balance of probabilities.

Calculation of EBITDA

1. [331]

   In respect of SMA Operations, both experts agreed that capitalisation of maintainable earnings was the appropriate methodology where earnings before interest, taxation, depreciation and amortisation (EBITDA) was used as a measure of earnings. Mr Ross assessed maintainable EBITDA as $2.1 million whilst Mr Gwynne assessed it as $1.8 million. Mr Ross excluded the income which SMA Operations received from other SMA companies from its maintainable earnings, which reduced the value he attributed to the equity of SMA Operations. He was not able to exclude the costs incurred by SMA Operations in providing services to other SMA companies and thus made no adjustment for this, which had the result of understating the value he derived for the equity of SMA Operations.

2. [332]

   Mr Gwynne agreed with Mr Ross’ approach to calculating the equity value of SMA Operations by adding surplus assets to and subtracting debts from his calculation of the enterprise value. Mr Gwynne disagreed with Mr Ross’ calculation of adjusted EBITDA in his treatment of interest income, service fees income, the profit on the sale of property or the gain on sale of an asset and rental income, borrowing costs, rental property expenses and “partnership income, other income and foreign exchange gains”.

3. [333]

   Having considered Mr Gwynne’s report, Mr Ross revised his valuation of SMA Operations but considered that Mr Gwynne’s values were too low because he neglected to annualise the reported EBITDA for the business for one of the periods he considered and, as a result, understated maintainable EBITDA. Mr Ross accepted each of Mr Gwynne’s criticisms in respect of the calculation of adjusted EBITDA save in respect of “partnership income, other income and foreign exchange gains”.

4. [334]

   The main reason for the difference between the experts was that Mr Gwynne did not annualise the EBITDA of SMA Operations for the 9 months ended 31 March 2018 and did not give any greater weight to the more recent EBITDA results of SMA Operations and lesser weight to the older EBITDA results. Mr Gwynne gave equal weighting to earnings from each of the financial years earnings from 2014 to 2018. Mr Gwynne accepted that the purpose of determining maintainable EBITDA, for the purpose of a valuation, was to identify likely earnings going forward. Mr Ross expressed the view that it is appropriate to give some weight to the recent trend of significantly better EBITDA results. Mr Gwynne appeared unwilling to accept that using such an approach was also a valid approach, but the plaintiffs submitted that Mr Gwynne did not have any coherent explanation for not regarding the more recent earnings of the business as more important to determining maintainable EBITDA than the more historical earnings. I agree: Mr Gwynne’s evidence on this topic was far from convincing. Annualising the financial results for the last reporting period (being 9 months) would have enabled the performance in previous years to be compared on the same footing with the most recent financial results. Trends in more recent years should have been acknowledged and considered and, if appropriate, weight given to such trends to better predict maintainable future earnings.

5. [335]

   Another matter that contributed to the difference between the valuers as to the maintainable EBITDA of SMA Operations was whether income described as “partnership, other and FX income” should be removed from the EBITDA, being some $68,000 a year of the $400,000 a year difference between them. Mr Gwynne removed that income on the basis that “these revenue items do not appear to have any relationship to the contracting business”, but Mr Ross’ view was that there was no basis for that statement. The plaintiffs submitted that there was no evidentiary basis for Mr Gwynne’s assertion and Mr Ross’ approach should be accepted. Mr Ross’ analysis of the financial results of SMA Operations was comprehensive and, beyond assertion, Mr Gwynne’s contention did not appear to be based on anything specific in the financial results and thus I consider Mr Ross’ approach to be appropriate.

6. [336]

   Consequently, I consider the assumptions on which Mr Ross based his valuation to have been proved, his methodology to be sound and his conclusions established. There was no compelling reason founded in evidence to reduce the figures he arrived at.

7. [337]

   On the last day of the hearing, the defendants agreed to pay the plaintiffs unpaid dividends declared by SMA Victoria and SMA Operations, being $620,101.38 and $300,000 respectively, and orders were made to that effect. The defendants did not accept that interest was owing on unpaid dividends.

8. [338]

   The defendants submitted that there was an agreement reached in April 2015 that no interest would be paid on unpaid dividends. As described at [146]–[147], the proposal put forward by Mr Skyring, at the meeting on 21 April 2015, to resolve the issue of Mr Glatis Snr’s loan “once and for all”, had seven components of which one component was that “No interest be applied to either Mr Snell or Glatis loan accounts at this time”. In circumstances where the proposal was not accepted, it does not seem to me that the defendants can select one component of the proposal as giving rise to a binding agreement that any entitlement to interest on unpaid dividends owed by SMA Victoria or SMA Operations was waived. Nor was the ability to do this explained in the defendants’ final submissions.

9. [339]

   As to how interest should be calculated, the defendants submitted that interest ought to be calculated on a “first in, first out” basis, or as a running account, rather than on the basis that the debts accrued and have been owing since the time that dividends were declared by the companies, relying on Devaynes v Noble (“Clayton’s Case”) (1816) 1 Mer 572; (1816) 35 ER 781 per Sir William Grant MR. As the High Court explained, this is “the ordinary rule of appropriation of debits against credits (and vice versa) in a single running account between banker and customer”: Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662; [1988] HCA 17 at 676, per curiam; see also Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361; [2003] NSWSC 1008 per Campbell J at [20]–[34].

10. [340]

    The plaintiffs accepted the defendants’ submission with respect to the dividends declared by SMA Operations but unpaid. The total interest owed on these dividends was $52,547.94 as at 4 June 2019. I have brought those calculations up to date in Annexure A to this judgment. The defendants made no submissions in respect of interest payable on any dividends declared by SMA Operations until 2014 but paid to Mr Snell alone, of which the plaintiffs are entitled to 20%. I take it, thus, that the defendants do not suggest that Clayton’s Case has any application to those unpaid dividends. I have attempted to calculate this interest in Annexure B to this judgment, but welcome the parties’ corrections.

11. [341]

    As to unpaid dividends of SMA Victoria, the plaintiffs claimed interest in their pleading on the sum owed by SMA Victoria as at the commencement of proceedings, being $720,101. The defendants submitted that, applying the rule in Clayton’s Case to that figure and taking into account dividends paid since proceedings commenced, the interest payable is $212,789.90 as at 4 June 2019.

12. [342]

    There are three problems with this from the plaintiffs’ perspective. First, the defendants’ approach misunderstands the nature of the plaintiffs’ claim for unpaid dividends of SMA Victoria. The proceedings were for the recovery of money, being recovery of the loan created by the unilateral withholding of declared dividends. Section 100 of the Civil Procedure Act 2005 (NSW) provides that, in proceedings for the recovery of money, the Court may award interest on the amount for which judgment is given for the whole or any part of the period from the time the cause of action arose until judgment takes effect. The amount of the loan payable to the Glatis Family Limited Partnership when proceedings were commenced on 16 June 2016 was $1,320,101.38 as recorded in the general ledger of SMA Victoria. This loan arose, in part, on 1 July 2008 when a declared dividend was first unilaterally withheld and the cause of action to sue for payment of the declared dividends arose at that time. The balance of the loan account, as recorded in the general ledgers of SMA Victoria, rose and fell ever since. The balance of the loan account did not first ‘spring to life’ when the proceedings were instituted but was the balance of a loan account first created in July 2008 and the result of the cumulative effect of transactions that had taken place on the loan account ever since. The loan that was payable over the period of time commencing on 1 July 2008 was part of the money sought to be recovered when proceedings were commenced and the Court has power to award interest on the amount of the loan payable from the time the cause of action arose in July 2008.

13. [343]

    Although partial repayments of the loan were made by SMA Victoria after the proceedings commenced, reducing the balance of the loan account to $620,101.38 at the date consent orders were made for the dividends to be paid, the Court has power under section 100(2) to award interest on the amount payable before the partial repayments were made. The plaintiffs submitted that, in order to do justice between the parties, the Court should exercise its discretion to award interest on the amounts owing by SMA Victoria to the Glatis Family Limited Partnership from time to time as recorded in the general ledgers of SMA Victoria, from when SMA Victoria first unilaterally withheld payment of declared dividends to it. Interest calculated on that basis as at 14 June 2019 was $777,290.56.

14. [344]

    Second, the starting point of the defendants’ interest calculations was said to be incorrect. Although, in the originating process, the plaintiffs sought an order that SMA Victoria pay $720,101, being the amount recorded in Mr Glatis’ loan account in the management accounts of SMA Victoria as payable as at 31 March 2016, the balance of Mr Glatis’ loan account was in fact $1,320,101.38 according to the general ledger until an adjusting entry was made on 30 June 2016 reducing the balance of the loan account by $600,000 in respect of payments made to Mr Glatis during the financial year for “anticipated dividends”. In those circumstances, and given the usual accounting methods described by Mr Pottenger in respect of the dividends and loan accounts, the balance of the loan account was in fact the higher $1,320,101.38 throughout the relevant year. The fact that the two accounts were set off against each other in the management accounts should not be taken to affect the relevant balances.

15. [345]

    Third, the plaintiffs argue that Clayton’s Case does not apply where there is no running account between the parties or, alternatively, that any presumption which arises from the application of the rule in Clayton’s Case is displaced on the evidence. I agree that the rule in Clayton’s Case only applies to running accounts (sometimes also referred to as current accounts: Airservices Australia v Ferrier (1996) 185 CLR 483; [1996] HCA 54 at 504, footnote 72, per Dawson, Gaudron & McHugh JJ). So much emerges from the judgment of Sir William in Clayton’s Case and Australian authorities which have followed it. The rule does not apply where there are separate debits and credits which are not a running account: Cory Brothers & Co Ltd v Owners of the Turkish Steamship Mecca (The Mecca) [1897] AC 286 at 290–1 (Lord Halsbury LC); at 295 (Lord Macnaghten); Re French Caledonia Travel at [27] ff. As to whether there is a running account in a particular case, in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 286, Barwick CJ said:

16. [346]

    And in Airservices Australia, Dawson, Gaudron and McHugh JJ said, at 504–5:

17. [347]

    An application of that principle in the context of the rule in Clayton’s Case is found in Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109. Chernov JA, with whom Warren CJ agreed, after setting out the principle that the rule does not apply where there is no running account, continued:

18. [348]

    The plaintiffs submitted that this was not a running account. Rather, there were two accounts and most of the payments made to the Glatis Family Limited Partnership from 1 July 2008 to 16 June 2016 were not loan repayments nor intended by SMA Victoria to be loan repayments. The majority of payments were recorded in the accounts as “anticipated dividends” and, at the end of each financial year, a dividend was declared by SMA Victoria and the difference between the dividend declared at the end of the financial year and the anticipated dividends paid during the financial year was then applied to the loan account as between SMA Victoria and the Glatis Family Limited Partnership. The accounting records make plain the manner in which the companies’ intended payments to be appropriated and, it was submitted, it was not open to the defendants to recharacterise all of the payments made to the Glatis Family Limited Partnership as loan repayments. Thus, even if the rule in Clayton’s Case applied to the amounts treated in the accounts as loan repayments, the defendants’ calculation of interest was incorrect, and should be $566,241.46.

19. [349]

    There are three features of the loan account which appear different from the trading relationships described in the authorities to which I have referred. First, the shareholder did not agree that its dividends could be credited to a loan account in the name of Mr Glatis, nor that SMA Victoria should keep track of what it owed its shareholder in this way: it was an arrangement unilaterally imposed by the company. Second, the relationship between a company and its shareholder is somewhat different to that of a money lender and borrower (Yarra Capital), travel agent and client (French Caledonia Travel) or trade supplier and customer (Airservices Australia). The shareholder and the company were not doing business together: the shareholder was entitled to be paid dividends and the company was withholding payment by unilaterally crediting declared dividends to a loan account, not in the name of the shareholder, but in the name of Mr Glatis. Third, there was no “running account” but, rather, two separate accounts which performed different functions, and in respect of which adjusting entries were made at the end of the financial year to offset the balance of one against the balance of the other. Because of these differences, I consider that this case is outside the operation of the rule in Clayton’s Case.

20. [350]

    In any event, I consider that the plaintiffs’ primary submission as to interest is more aligned with the nature of the plaintiffs’ claim and does justice between the parties by compensating the Glatis Family Limited Partnership for the loss of the use of the monies sitting in the loan account from time to time since the cause of action arose in July 2008. The methodology used is to take the balance of the loan account as recorded in the general ledger each financial year, and to apply loan repayments (on the day that the payments were made), and the dividend adjustments at the end of each financial year. While the defendants complain that the payments are not taken into account until the end of the financial year, the plaintiffs’ calculations do not proceed in that way. The plaintiffs’ interest calculations appeared to me to contain a series of errors and I have calculated interest in Annexure C.

21. [351]

    For the reasons given, I make the following orders: