Dr Shanahan v Jatese Pty Ltd

1. [1]

   BATHURST CJ: This is an appeal from a decision of a judge of the Equity Division of the Supreme Court (the primary judge) dismissing a claim made by the appellants for relief under s 233 of the Corporations Act 2001 (Cth) (the Act), as a consequence of the affairs of a company, Canberra Eye Hospital Pty Ltd (the company or CEH), being carried on in a manner oppressive to and unfairly prejudicial to them.

2. [2]

   The appellants claimed that as a consequence of the oppressive conduct, they were forced to sell their shares in the company to interests associated with the respondents at less than their fair value. They sought an order that the respondents pay them compensation, representing the difference between the fair value of the shares and what they had in fact received for them.

3. [3]

   The primary judge found that the affairs of the company had been carried on in a manner oppressive to the appellants. However, he concluded that the fair value of the appellants’ former shareholding in the company was less than they had received for the shares and thus, the appellants had suffered no loss. As a consequence, the appellants’ claim was dismissed.

4. [4]

   The appellants have appealed against that decision.

5. [5]

   The factual circumstances giving rise to the claim are adequately set out in the judgment of the primary judge, to which I have referred below. It is not necessary to refer to the evidence of the oppressive conduct in great detail, as there is no challenge to the primary judge’s finding that oppressive conduct in fact occurred.

The primary judgment

1. [6]

   The primary judge noted that two of the appellants, Dr Leo Shanahan and Dr Stuart Saunders, were ophthalmologists, the other appellants being associated with them. The appellants held 43% of the shares in the company which operated an eye hospital.

2. [7]

   The respondents, Dr Iain Dunlop, Dr Martin Duncan and Dr Gagan Khannah, were also ophthalmologists and in particular, cataract specialists. The other respondents were associated with them. Together, the respondents held 57% of the shares in the company.

3. [8]

   From about 1992, Dr Shanahan, Dr Saunders and Dr Dunlop carried on practice at premises which they jointly owned. In 1999 it was decided the day surgery should be incorporated and named Canberra Eye Hospital. The company was formed in May 1999, with each of Drs Shanahan, Saunders and Dunlop holding equal shares.

4. [9]

   In 2001, Dr Shanahan stopped performing surgery, although he continued to consult until about 2005. In December 2001, Dr Saunders stopped performing surgery. He continued to consult until December 2015, when he too retired from practice.

5. [10]

   On 30 October 2002, the respondent Dr Khannah bought 19% of the shares in the company, whilst on 1 July 2003 Dr Duncan bought 19% of the shares. On 1 July 2004 the shareholding structure of the company was altered so as to compromise issued capital of 300 shares, 43% of which were held by Dr Shanahan, Dr Saunders, their wives and Mr Michael Shanahan, Dr Shanahan’s son, whilst as I have pointed out, Dr Dunlop, Dr Duncan, Dr Khannah and companies associated with them, held 57% of the shares.

6. [11]

   In mid-2005, the company commenced to operate as “Canberra Eye Hospital” (the hospital) at premises at North Symonston, Canberra. The hospital consisted of a day surgery, consulting rooms and a laser centre. On 18 July 2005, the company took a lease of the hospital which with options, extended to 2027. The primary judge recorded that about 60% of the lease area of the hospital was taken up by consulting rooms, 30% by the day surgery and 10% by the laser centre. The company derived income from charging patients for services associated with the preparation of patients for surgery, for provision of an operating theatre and nursing and support staff, and from providing after surgery care and medication.

7. [12]

   The surgery performed at the hospital fell into three categories, cataract surgery, ocular plastic surgery and intravitreal injections. It was common ground that cataract surgery was the most profitable to the company.

8. [13]

   In addition to the shareholder doctors, other ophthalmologists used the consulting space in the hospital. They included Dr Rohan Essex, Dr Phil Larkin, Dr Salim Okera, Dr Christiane Lawin-Bruessel and Dr Andrew Chang.

9. [14]

   It should be noted, although it ultimately did not loom large in the proceedings, that a shelf company, Canberra Eye Hospital Management Pty Ltd (CEHM) was acquired to be the management company for CEH. CEHM provided rooms, office staff, orthoptists, a practice manager, furniture and some equipment to doctors who consulted and performed surgery at the hospital. CEHM paid rent monthly in arrears to CEH for the use of the consulting rooms under an undocumented arrangement.

10. [15]

    The company was profitable at least up to June 2013. The financial statements for the year ended 30 June 2013 showed that for that year the company earned income of $5,489,418 and incurred expenses of $3,743,603, resulting in an operating profit of $1,745,815. The financial statements showed that it had retained profits at the end of that year of $1,650,145 and net assets of $1,650,742.

11. [16]

    In contrast, the financial statements for the year ended 30 June 2014 disclosed total income of $1,167,802 and total expenses of $1,356,625, resulting in an operating loss of $188,823. Its retained profits at the end of the year were $978,974.

12. [17]

    The genesis of the dispute between the parties arose from the fact that after Dr Shanahan ceased to practice and Dr Saunders was no longer doing surgery and had reduced his consulting time significantly, the appellants were contributing little to the income of the hospital, but their entitlement as shareholders to share in the profits remained unchanged.

13. [18]

    The majority shareholders were discontented with the position and in 2006 and 2007 proposed various exit strategies.

14. [19]

    In 2009, the majority shareholders sought to pass resolutions which would have the effect of requiring profits to be distributed in a manner favourable to the majority shareholders. That led to the minority shareholders instituting proceedings in the Federal Court of Australia alleging oppressive conduct and claiming certain relief. Those proceedings ultimately were resolved.

15. [20]

    As the primary judge recorded, notwithstanding the resolution of those proceedings, the underlying grievance remained. As a consequence, Drs Dunlop, Duncan and Khannah resolved to establish a new hospital. They established Canberra Micro-Surgery Pty Ltd (CMS) in which they became shareholders and directors. In early November 2010, Drs Duncan and Khannah resigned as directors of CEH.

16. [21]

    The primary judge noted that by the end of 2012 it was anticipated that the hospital operated by CMS would be ready to start in July 2013. Dr Dunlop offered employment at CMS to the company’s hospital manager who accepted, resigning from the company with effect from 21 December 2012.

17. [22]

    On 6 February 2013, the majority gave written notice to the company that from 1 July 2013 they intended to perform the majority of their cataract surgery at CMS and that they expected that their other surgery and intravitreal injections would be performed for the foreseeable future at both the hospitals operated by the company and CMS.

18. [23]

    The primary judge recorded that from that time Dr Saunders attempted to find new doctors to perform cataract surgery at the hospital. In that context he made the following finding:

19. [24]

    In June 2013, the majority procured the appointment of a Ms Tegen and Mr Chynoweth as directors of the company. The primary judge found that the motivation for Dr Dunlop selecting them was that “he anticipated they would favour the interests of the majority over the minority”. He found that that was what in fact they did. It is not necessary to deal with their activities as directors save to say that the evidence recorded by his Honour amply justified his conclusion.

20. [25]

    In August 2013, Drs Dunlop, Duncan and Khannah ceased cataract surgery at the hospital. At the same time Drs Okera, Lawin-Bruessel, Larkin and Essex also stopped surgery at the hospital and started doing it at CMS or Calvary Clinic.

21. [26]

    The primary judge recorded that on about 29 November 2013, Dr Benjamin Burt, an ophthalmologist based in Bendigo, Victoria, specialising in ocular plastic surgery, applied to CEH for accreditation. Dr Burt who was identified by Dr Saunders, did have experience in cataract surgery but proposed to practice predominately in extraocular surgery at CEH. His appointment was confirmed in writing on 6 February 2014.

22. [27]

    On about 21 February 2014, a Dr Angelo Tsirbas applied to the company for accreditation as a Visiting Medical Officer. The primary judge noted that he was not a cataract surgeon, his predominant interest being ocular plastic surgery.

23. [28]

    On 1 February 2014, a Dr Kim Frumar submitted an application to the company for appointment as a Visiting Medical Officer. It is not disputed that Dr Frumar was a highly qualified and a highly regarded ophthalmic surgeon who had had over 30 years of experience in various aspects of eye surgery.

24. [29]

    It is unnecessary to go through the detail, but the evidence established, as his Honour found, that Dr Dunlop with the assistance of Ms Tegen and Mr Chynoweth actively frustrated the accreditation of Dr Frumar.

25. [30]

    On 18 August 2014, the majority doctors gave notice to the company of their intention to relocate their intravitreal injections procedures to CMS with effect from 20 October 2014.

26. [31]

    Thereafter, without the knowledge of Dr Saunders or any other members of the minority, Ms Tegen and Mr Chynoweth and their solicitor discussed with Dr Dunlop and the other members of the majority options for the company including the transfer of the Head Lease from the company to CEHM and the appointment of an administrator to the company.

27. [32]

    On 16 October 2014, the Medical Advisory Credential Committee of the hospital recommended delaying Dr Frumar’s appointment because of current workplace shortages at the hospital. On 19 October 2014, Dr Frumar wrote to Ms Carruthers, the then hospital manager, and the majority requesting that his application be dealt with as a matter of urgency. On 21 October 2014, Dr Saunders called for an immediate meeting of the board to approve the credentialing of Dr Frumar and on 30 October 2014, Dr Frumar was informed that he had been appointed a Visiting Medical Officer to the hospital. However, he did not commence work at the hospital as the directors of the company, against the wishes of the minority, resolved to put the company into voluntary administration. The company was solvent at that particular point of time.

28. [33]

    On 23 February 2015, the administrator published its report to creditors which revealed the company had an estimated surplus of $359,625. The administrator indicated that “he intended to sell the business as a going concern”. Ultimately the minority entered into the Share Sale Agreement under which they sold their shares in CEH to the majority for $1,776,000 plus 43% of the value of the stock. The primary judge accepted the evidence of Dr Saunders that the minority were essentially forced into this action on the basis that they had received no clarification from either the administrator or the majority as to how the proceeds of the sale of the assets would be distributed to the shareholders of CEH, there was no certainty that the minority would receive any of the sale proceeds and the minority had an obligation to mitigate their loss.

29. [34]

    Dr Frumar died on 10 April 2016.

30. [35]

    In those circumstances, the primary judge reached the following conclusions on the oppression claim:

31. [36]

    So far as relief was concerned, the primary judge found that the exercise required was to ascertain, ignoring the oppressive conduct, the extent, if any, to which the value of the shares which the minority sold to the majority on 11 June 2015 under the Share Sale Agreement exceeded the amount of $1,776,000 paid for those shares. In that context, he described the oppressive conduct as “the unjustified delay in accrediting Dr Frumar and the appointment of the voluntary administrator”. He stated that the minority shares were “to be valued on the footing that Dr Frumar had started when he could and would have, and the voluntary administrator had not been appointed”.

32. [37]

    His Honour noted that the experts called by each party agreed that the appropriate manner to value the shares was by the application of the capitalised maintainable earnings (CME) method. He described this correctly as entailing an assessment, as at the appropriate date, of what the maintainable annual earnings before interest and tax (EBIT) was and applying to the figure a capitalisation multiple to which was added the value of surplus net assets. He stated that the application of the method required “a determination of the annual maintainable earnings of CEH on the basis that Dr Frumar would have started when he could and would have, in other words, a determination of the profits that would have been earned directly and indirectly as a result of Dr Frumar’s work at the hospital”. However, the primary judge considered that the Court must take account of the fact that the direct benefit of Dr Frumar’s exertions would not have extended past 10 April 2016. He said that was consistent with the approach in Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4 at 293 and HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [40]. He concluded that irrespective of those cases, it was an appropriate exercise of his discretion to take into account the death of Dr Frumar.

33. [38]

    The primary judge also rejected the proposition that the Court should take into account the potential profit that might have emanated from other surgeons, in circumstances where proof of such hypothetical events was necessarily unattainable. He stated that “[t]his approach would entail taking the full amount of revenue which each notional additional surgeon would earn and discounting it to reflect the degree of probability” that the surgeon would have generated the income.

34. [39]

    The primary judge rejected this approach. He stated that the Court was “not assessing damages or a lost opportunity, but the value of shares in CEH derived on a maintainable earnings basis”. He stated that “[e]arnings were not earnings, let alone maintainable earnings, if on the probabilities they would not have been earned.

35. [40]

    He stated that in any event he was not satisfied that the evidence extended to establishing any meaningful likelihood that Dr Frumar’s presence would have attracted other surgeons who would have contributed to the revenue of the hospital. He pointed to the fact that efforts to attract other surgeons by Dr Saunders had very limited success. He stated that he was not satisfied that Dr Burt was likely to start doing any significant cataract work, or that there was any realistic possibility that the non-shareholder surgeons, who formerly operated at the company’s hospital, would have returned. As a consequence he concluded that he was “not satisfied that any revenue equivalent to that which Dr Frumar (or some replacement doctor) would have generated would have continued, in effect, in perpetuity that is maintainable for the conventional application of the CME method”.

36. [41]

    In those circumstances he noted that the experts agreed that the business would become unprofitable after Dr Frumar’s death and the appropriate valuation method was therefore, to assume that the business would operate for two years until Dr Frumar’s death and then be liquidated and the proceeds distributed to shareholders. He noted that the experts agreed that given Dr Frumar’s death, the proposed capitalisation rate should be adjusted from the multiple of 4x for an annuity in perpetuity to a multiple of 1.62x to take account of his death after a limited period.

37. [42]

    The primary judge also expressed the view that he was satisfied that Dr Frumar would have been likely to have a list once a week in Canberra but that there was not a sound evidentiary basis for finding that he would have operated more than two lists per week. He stated that “[t]wo (perhaps a little generously)” is the number that he considered should be adopted.

38. [43]

    His Honour concluded that the valuation which resulted from those findings was as follows:

“VALUATION USING MODIFIED CME METHOD

1. [44]

   He therefore concluded that the CME method resulted in the valuation of the minority shares of $700,000, stating that even if it was assumed that Dr Frumar’s earnings would have lasted in perpetuity (derived from another practitioner after his passing), the value of the company based on the CME method plus the value of surplus net assets, was $3,093,816 of which the minority share would be $1,330,341, which was less than the amount that they were paid.

2. [45]

   In those circumstances, the primary judge concluded that the appellants did not suffer any loss and the claim should be dismissed.

The principles to be applied in the assessment of compensation

1. [46]

   It was not in dispute between the parties that the appellants were to be compensated for the loss (if any) caused by the oppressive conduct. In determining that question in the present case, the method of compensation is arrived at by comparing the value of the shares at the time that they were disposed of and the value that they would have had at that date had the oppressive conduct not taken place: Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 369; Rankine v Rankine (1995) 18 ACSR 725 at 727; Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (2004) 207 ALR 136; [2004] FCAFC 153 at [70]-[74].

2. [47]

   Further, the requirement to assess a fair price is not constrained by ordinary valuation principles, nor does it require the price to be the market value of the shares: United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWSC 910 at [34]-[38]. The Court has a wide discretion in fixing a fair price. In Re Bird Precision Bellows Ltd [1986] Ch 658, Oliver LJ at 669, described “the ‘proper’ price” as “the price which the court in its discretion determines to be proper having regard to all the circumstances of the case”.

3. [48]

   However, as McPherson JA pointed out in Rankine v Rankine at 727, the price is not to be determined in a manner which provides punitive or exemplary damages. Nor, in my opinion, is it to be determined by making allowances in favour of the oppressed party for conduct carried on by the other shareholders which, whilst resulting in a diminution of the value of the shares, was conduct which they were entitled to undertake irrespective of whether it resulted in such a diminution.

4. [49]

   There was some debate between the parties as to what precisely constituted the oppressive conduct. The appellants contended that the oppressive conduct was that summarised in those passages of the judgment of the primary judge which I have set out at [35] above, in particular that referred to in [308] of the judgment. The respondents, by contrast, submitted that it was the conduct summarised at [327] of the judgment, namely the delay in the accreditation of Dr Frumar and the appointment of the voluntary administrator.

5. [50]

   It seems to me that the relevant oppressive conduct found by the trial judge was that referred to in [327] of his judgment. Paragraph [308] of the judgment set out what the respondents sought to achieve by that conduct. Whatever their motivation, the question is whether the conduct was oppressive. In particular, it was not suggested that the respondents had an obligation to fund the business, or for that matter to attract other surgeons. There was no finding that the offering of employment to the hospital manager to work for CMS constituted oppressive conduct, whilst the respondents’ attempt to seek an assignment of the company’s Head Lease was unsuccessful. The primary judge recognised this in his more limited finding of oppressive conduct.

6. [51]

   Importantly, it was not suggested that the establishment of CMS, the decision of the respondent directors to carry on their practice at that hospital, or the decision of the non-shareholder doctors to move from the hospital to CMS or other hospitals, in any way constituted oppressive conduct.

7. [52]

   In that context it was an important element of the appellants’ case that one matter the Court should take into account in determining a fair price for the shares was the prospect of further surgeons, in particular cataract surgeons, being attracted to the hospital along with Dr Frumar. The appellants submitted that in considering that issue the Court should adopt what senior counsel for the appellant described as “a robust approach”, citing Giles JA in McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [159] (Macfarlan and Young JJA agreeing) referring to the principle derived from Armory v Delamirie (1722) 1 Stra 505; 93 ER 664. The principle was stated by Handley JA in Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 in the following terms (at 59), (Mason P and Beazley JA agreeing):

8. [53]

   That passage was cited with approval by the High Court in Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3 at [74]; see also LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) (1990) 24 NSWLR 499 at 508.

9. [54]

   An analogous approach has been taken in oppression cases. Thus, in ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536, Young J stated at 540, that “[t]he flavour of the judgments in the company oppression cases is that in looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppressive conduct, erring, if there is to be any erring, on the side of the oppressed”.

10. [55]

    Whilst the principle is well established, it cannot be taken too far. It does not permit findings to be made which are contrary to the evidence before the court. Nor does it, in my view, entitle the court to engage in speculation. What it can do is to enable the court, where there is a doubt as to what can be concluded from the evidence before it, and where that doubt is a consequence of the conduct of the defaulting party, to be robust in resolving the doubt in favour of the non-defaulting party. I do not think that the principle extends any further.

The grounds of appeal

1. [56]

   The appellants relied upon the following grounds of appeal:

2. [57]

   By Notice of Contention, the respondents contended that the primary judge should have concluded that Dr Frumar would have operated for no more than one day per week at the hospital, which would have resulted in the value of the appellants’ shares, on the assumption that Dr Frumar ceased operating on 1 April 2016, of $381,591 (not $700,000) and if the valuation was carried out on the assumption that Dr Frumar’s income would have lasted in perpetuity, $544,886 (not $1,330,341).

3. [58]

   As the submissions developed, the appellants essentially raised three issues. First, the primary judge erred in failing to apply what was described at the hearing as the “simple method” of valuation (the simple method). The simple method essentially involved first, assuming that the sale price received by the appellants for their shares reflected the value of their shares as affected by the oppressive conduct, and second, adding to that price an amount said to represent the contribution that Dr Frumar and possibly other doctors would have made to the profits and underlying assets of the company, had the oppressive conduct not occurred, together with the funds expended by the company consequent upon the appointment of the administrator which would not have been incurred but for the oppressive conduct.

4. [59]

   The second issue was the contention that the primary judge erred by failing to make any allowance in his valuation for the possibility that had the oppressive conduct not occurred, the non-shareholder directors may have returned to the hospital, or that the presence of Dr Frumar would have attracted other doctors to carry out their practice at the hospital premises.

5. [60]

   The third issue essentially was that the primary judge erred in taking into account the untimely death of Dr Frumar in his assessment of capitalised maintainable earnings.

6. [61]

   I have summarised the approach adopted in the simple method (see [58] above). During the course of the hearing, senior counsel for the appellants handed-up a document which set out the methodology and the result of applying the simple method. I have attached it as a Schedule to the judgment.

7. [62]

   It will be seen that the approach calculates the net amount of income derived from Dr Frumar’s practice at the hospital over a period of 15.3 months on the assumptions set out in steps 1 and 2. Although that is assumed to be income derived by the company, the methodology proceeds on the basis that the whole of the net income derived from the activities of Dr Frumar would lead to an equivalent increase in the value of the company’s shares. To this is added revenue from an additional surgeon (step 6) and revenue from non-shareholder surgeons (step 7).

8. [63]

   Step B of the analysis simply adds to the value of the shares 43% of the administration costs.

9. [64]

   The net result is that, excluding any additional surgeons, it is assumed that the increase in the value of the appellants’ shares from the activities of Dr Frumar and the saving of administration costs amounted to $650,981.28, whilst making the robust assumptions as to the likelihood of other surgeons, the increase in value was $1,569,267.46.

10. [65]

    With respect, there are a number of significant difficulties with this analysis. The first is that it was not the subject of any consideration at the trial.

11. [66]

    Senior counsel for the appellants, whilst submitting that it was open to agitate this approach on appeal, accepted that it was not the focus in the Court below whose focus “primarily was to do with the CME (Capitalised Maintainable Earnings) method and whether or not one took into account Dr Frumar’s death and the Armory v Delamirie principle insofar as it related to other surgeons” (T 20).

12. [67]

    Senior counsel for the appellants submitted that the submission was adequately put in the appellants’ closing submissions in the Court below. He referred to the following submissions:

13. [68]

    He also referred to the following closing submissions in reply:

14. [69]

    These submissions were all made at the conclusion of the hearing. To the extent that they could be said to suggest the simple method should be adopted, it was not put to the experts who were called, nor was a calculation of the nature set out in the simple method document (see Schedule) ever suggested to be an appropriate method of valuing the shares either to the primary judge or the experts.

15. [70]

    For this reason alone it is not open to the appellants to now rely on the simple method particularly where, as I point out below, there are a number of significant problems with it which, unsurprisingly, were not advanced at the hearing.

16. [71]

    The first and most fundamental difficulty is that the simple method assumes that the appellants were prepared to sell their shares for the sum of $1.776 million on the basis that that represented 43% of the value of the business or the company (it is unclear which) without the income derived from Dr Frumar, the non-shareholder doctors, or any doctors who may in future practice at the surgery. It is not going too far to say that that involved the proposition that the value of the remaining 12 years in a lease of a loss-making hospital without any doctors using it was approximately $4.1 million (of which $1.776 million is 43%), a proposition which on its face seems absurd and was a matter that was not investigated during the hearing.

17. [72]

    Senior counsel for the appellants, in fairness, did not advance that proposition. Rather, he stated that the appellants in bidding $3.5 million for the business recognised that it had the lease, the prospect of attracting doctors to operate at the hospital and the potential for other uses, which had been discussed by Ms Tegen and Mr Chynoweth during the period they were directors. However, once it is accepted that these potentialities were taken into account, it undermines the assumption on which the simple method is based because the appointment of Dr Frumar was simply a realisation of these possibilities.

18. [73]

    The evidence of Dr Saunders clearly demonstrated that the amount that the appellants offered for the business ($3.55 million) was made in recognition of these potentials. He gave the following answers in cross-examination:

19. [74]

    There also appears to be what might be described as further technical difficulties in the approach. It assumes that the net gain to the company from the activities of Dr Frumar and the other hypothetical surgeons would automatically lead to an increase in the value of the shares of the company, without giving any consideration of the tax payable in respect of such income or on distribution. Senior counsel for the appellants acknowledged that the calculation had to be adjusted to take into account the fact that the company would be liable to pay tax at the rate of 30% on the net income received from the activities of Dr Frumar. This would reduce the net gain from $1,164,483 to $815,138.10 and the appellants’ share to $350,509.38.

20. [75]

    None of these issues were explored at the trial or raised with the experts who each agreed that the appropriate valuation methodology was the capitalisation of maintainable earnings method. Whilst it is correct that the task of the trial judge was to fix a fair price for the shares and that he or she is not constrained by any particular valuation methodology, the parties and their experts should have been able to consider any methodology proposed at the trial and to the extent necessary, lead evidence or cross-examine in respect to it. In these circumstances, it is not appropriate for the approach to be raised on appeal: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35; Coulton v Holcombe (1986) 162 CLR 1 at 7-9; [1986] HCA 33. Further, given that the methodology was not raised before the primary judge, he could not be said to have fallen into error in not applying it.

21. [76]

    It follows that there was no error in the primary judge failing to adopt the “simple method” of valuation.

22. [77]

    It was common ground in the Court below that the appropriate method of valuation was the use of the capitalisation of maintainable earnings methodology. Apart from the simple method with which I have dealt above, the appellants did not contend for any other method of valuation either in the Court below or on appeal. Further, the capitalisation rates used by the experts and adopted by the primary judge were not said to be erroneous.

23. [78]

    Rather, the issue was whether the primary judge erred in his assessment of future maintainable earnings, by failing to include in the estimate monies received from practitioners other than Dr Frumar using the facilities of the hospital.

24. [79]

    Future maintainable earnings (or profits) are the level of profits which, on average, the business being valued can be expected to maintain in real terms, notwithstanding the vagaries of the economic cycle: Wayne Lonergan, The Valuation of Business, Shares and Other Equity (4th ed, 2003, Allen & Unwin) at 34; Commissioner of Succession Duties (SA) v Executor Trustee and Agency Company of South Australia Ltd (1947) 74 CLR 358 at 362; [1947] HCA 10; Gregory v Commissioner of Taxation (Cth) (1971) 123 CLR 547 at 565; [1971] HCA 2.

25. [80]

    The primary judge correctly adopted this approach in concluding at [388] that “[e]arnings are not earnings” for the purpose of the methodology if, as a matter of probability, they would not have been made. In particular, he was correct to reject the approach taken to the assessment of damages for a loss of a commercial opportunity.

26. [81]

    The appellants submitted that the primary judge erred in failing to take into account earnings which could have been derived from the activities of Dr Burt and other non-shareholder surgeons who might have used the premises.

27. [82]

    In senior counsel for the appellant’s simple method calculation, it was assumed that other surgeons, “Burt etc”, would generate the same income for the company as Dr Frumar (simple method step 6) and that revenue from non-shareholder surgeons based on 2013 revenue, discounted by 50% being “the assumed percentage of non-shareholder surgeon revenue staying with CEH” (simple method step 7) should also be taken into account.

28. [83]

    In their written submissions, the appellants contended that the correct context in which the matter was to be considered was that if there was no oppression, the members of the board of the company would be working together to attract replacement cataract surgeons, and that Dr Frumar was accredited and had commenced cataract surgery.

29. [84]

    The written submissions also stated that in dealing with Dr Burt, the primary judge erred in taking into account the fact that “the respondents were never going to assist Dr Saunders in his quest to find replacement surgeons”. It was submitted that “[t]heir assistance was not necessary” and that absent the oppression, the other directors would have been seeking to encourage other doctors to operate at the hospital.

30. [85]

    In relation to Dr Burt, it was contended that he was “an experienced cataract surgeon, having undertaken over 4,000 cataract cases”. This was shown on his CV which, however, described him as an ophthalmologist specialising in oculoplastic surgery.

31. [86]

    The appellants also referred to the evidence of Dr Saunders and Mr Michael Shanahan to the effect that Dr Burt told them that if there were other surgeons performing cataract surgery, he would consider doing so but he would not do so until Dr Frumar commenced practice at the hospital.

32. [87]

    The appellants referred to the evidence of the hospital manager, Ms Carruthers that Drs Burt and Tsirbas had indicated that they would not perform cataract surgery at the hospital, but stated that this was contrary to what Drs Burt and Tsirbas had told Dr Saunders.

33. [88]

    The appellants also referred to the evidence of Mr Michael Shanahan, that Dr Burt had commenced cataract surgery at Barton Private Hospital. The evidence from Mr Shanahan was that sometime in early 2015 Dr Burt said to him, “I conducted my first cataract in Canberra at Barton Private Hospital”. The appellants also pointed to the website of Barton Private Hospital, which they stated said Dr Burt had a special interest in cataract surgery. Whilst it is true that the website stated that Dr Burt had that special interest in cataract surgery, along with special interests in 11 other procedures ranging from orbital fractures to liposuction, it stated that he practiced oculoplastics in Canberra and Victoria, This hardly provides significant support for the appellants’ contentions.

34. [89]

    In relation to the non-shareholder surgeons, the appellants in their written submissions referred to the evidence of Dr Khannah to the effect that Dr Okera had told him that he did not want to be involved in any dispute, whilst Dr Lawin-Bruessel had told him that she did not want to be “the only surgeon left behind with no support from colleagues, in an aged facility”. It should be noted that Dr Khannah also pointed out that “the CMS facilities were significantly newer and more advanced” than the facility at the company’s hospital.

35. [90]

    Senior counsel for the respondents emphasised the unsuccessful attempts by Dr Saunders and Ms Carruthers, the hospital manager, to obtain alternative surgeons. He referred to the evidence of Dr Saunders of his unsuccessful attempts to attract Canberra surgeons and a Sydney based group of surgeons to the hospital and to his cross-examination to the following effect:

36. [91]

    Ms Carruthers gave unchallenged evidence of her unsuccessful attempts to attract other doctors to the hospital and her conversation with Dr Burt in which he told her he did not come to Canberra to perform cataract surgery.

37. [92]

    Senior counsel for the respondents also pointed to the fact that the estimated income that the simple method said would be derived from the assumed activity of Dr Frumar and Dr Burt, was well in excess of any income derived from the activity of any of the individual respondents or non-shareholding surgeons during the period that they operated at the hospital.

Consideration

1. [93]

   I have already indicated my opinion that it was appropriate for the primary judge to only include hypothetical income from Dr Burt and the non-shareholder surgeons, if he was satisfied, on the balance of probabilities, that it would be achieved. I also concluded that it was not an appropriate application of the methodology to include in the capitalised maintainable earnings, income which it was possible that the company might receive but discounting the amount to take account of the fact that it was merely a possibility.

2. [94]

   I am prepared to accept in the present case that if it could be established that the difficulty in proving the future maintainable earnings was due to the oppressive conduct, the Court would be justified in taking a robust approach to the issue. However, as I have indicated, that approach does not permit mere speculation.

3. [95]

   In the present case it was asserted in step 6 of the simple method, that either Dr Burt or some other unidentified surgeon would generate revenue equivalent to that of Dr Frumar, presumably by performing 20 cataract operations per week over 40 weeks of the year. There was not the slightest evidence to support that assertion.

4. [96]

   Dr Burt, as I have pointed out, was a specialist in oculoplastic surgery. Whilst he was plainly capable of performing cataract surgery and said to Dr Shanahan and Mr Michael Shanahan that he would consider performing it but would not do so until Dr Frumar commenced practice, there was no evidence to suggest that he had determined to do so and even if he had, there was no evidence to suggest the extent to which he would undertake that surgery or for that matter, the number of referrals he would have received to enable him to do so.

5. [97]

   The most that can be said was that Dr Burt, following his accreditation with the hospital and the arrival of Dr Frumar, might have performed some indeterminate amount of cataract surgery which might have produced some income. In my view this does not provide any basis for including some arbitrary additional amount in the estimate of maintainable earnings, particularly having regard to the evidence of Ms Carruthers that Dr Burt told her that he would not perform cataract surgery at the hospital.

6. [98]

   Further, there is no evidence to suggest that any unidentified surgeon would come to the hospital and perform 20 cataract surgeries per week, or for that matter, any such surgery at all. I have referred to the evidence of the unsuccessful attempts of Dr Saunders and Ms Carruthers to obtain further surgeons at the hospital, and in light of that evidence, it would be quite erroneous to increase maintainable earnings based on the projected revenue from an unknown practitioner.

7. [99]

   The appellants submitted that the presence of Dr Frumar, a world-renowned ophthalmic surgeon as a Visiting Medical Officer, would have attracted additional surgeons to the hospital. Accepting that this was a possibility, there was no material from which the primary judge could conclude on the balance of probabilities that this would occur, much less make an estimate of the amount of income that would result from this occurrence.

8. [100]

   So far as the non-shareholder surgeons were concerned, whilst it may be correct that they left the hospital because of the disputes which had occurred between the shareholders in circumstances where they had found alternative premises at which to carry out their practices, there was no evidence from which the primary judge could infer that upon resolution of the dispute, they would return.

9. [101]

   It follows that the primary judge was correct in not including in his assessment of capitalised maintainable earnings an amount referable to income from cataract surgery conducted by Dr Burt or some other surgeon, or from the possible return of some or all of the non-shareholder surgeons.

10. [102]

    Dr Frumar died on 10 April 2016. As I pointed out, the primary judge concluded that this should be taken into account and the appropriate methodology was to assume that the hospital would “operate for two years until Dr Frumar’s death and then be liquidated and the proceeds distributed to shareholders”.

11. [103]

    The appellants contended that Dr Frumar’s death should not be taken into account.

12. [104]

    The difficulty with this submission is that having regard to the conclusion I have reached concerning the inclusion of income received as a result of the activities of Dr Burt and the non-shareholder surgeons, the capitalised maintainable earnings achieved through Dr Frumar, even ignoring his death, would not result in a valuation which had the effect of valuing the appellants’ shares in a greater amount than what they were paid for them.

13. [105]

    The experts retained by each of the parties in the Court below produced a model which valued the shares on the basis of 12 scenarios, some of them having the valuation date of 1 March 2014 and the others the valuation date of 27 January 2015. The date of 1 March 2014 is the date most favourable to the appellants. The scenarios took the annualised operating EBIT of -$321,903 being the annualised EBIT for the 8 months from March to December 2014, and assuming an income received from Dr Frumar in perpetuity after some relatively minor adjustments arrived at an amended EBIT of $590,729. This was capitalised by a multiple of 4 providing a business value of $2,362,914 to which was added surplus net assets of $730,900, producing a business value of $3,093,816. The experts concluded that a pro rata value of a 43% interest without any application of a minority discount amounted to $1,330,341 which is some $400,000 less than the appellants received for the shares. The primary judge accepted this analysis at [358].

14. [106]

    Thus, ignoring the fact of Dr Frumar’s death makes no difference to the ultimate result in the proceedings. However, in my opinion the primary judge was correct in the approach which he took to this issue.

15. [107]

    In Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4, a case involving a claim for damages for a contravention of s 52 of the then Trade Practices Act 1974 (Cth), the Court summarised the relevant principles in the following terms:

16. [108]

    Similarly, in HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54, the principle was stated as follows:

17. [109]

    Once it is established that the sole basis of the claim for compensation is based on the loss of income which could have been derived from the activities of Dr Frumar personally, as distinct from the activities of a hypothetical surgeon performing cataract surgery, then the death of Dr Frumar, without any disrespect, was inherent in that which produced the income and was a matter which the primary judge properly took into account in reaching his conclusion on the value of the shares.

18. [110]

    In these circumstances, the primary judge was correct in his conclusion that the appellants suffered no loss as a result of the oppressive conduct of the respondents. The appeal should be dismissed.

19. [111]

    In these circumstances it is unnecessary to deal with the Notice of Contention.

Conclusion

1. [112]

   I would make the following orders:

   1. (1)

      Appeal dismissed.

   2. (2)

      Appellants to pay the respondents’ costs of the appeal.

2. [113]

   BELL P: I, too, would dismiss the appeal with costs and agree with the reasons of the Chief Justice.

3. [114]

   These short, supplementary reasons adopt the Chief Justice’s description of the background to and nature of the various issues in dispute between the parties.

4. [115]

   This case was a somewhat unusual oppression case in that the Appellants (the minority) had sold their shares to the Respondents (the majority) after the commencement of proceedings but before the hearing. In the Share Sale Agreement (SSA), both groups of shareholders were astute to preserve their forensic positions. In the case of the minority, cl 3.9(c) of the SSA recorded that:

5. [116]

   In the case of the majority, cl 3.9(e) recorded that they were:

6. [117]

   As the Chief Justice has recorded at [33], the SSA resulted in the majority acquiring the shares of the minority for a sum of $1.776 million plus 43% of the value of their stock. Accordingly, by the time the case came on for trial, the minority needed to establish not only oppression but also that the value of their shares exceeded that for which they sold them to the majority pursuant to the SSA. Otherwise, the oppressive conduct could not be said to have caused any loss or damage.

7. [118]

   Both sides called expert forensic accountants and, as the primary judge recorded (at [330]), there was “consensus as to the appropriate valuation methodology for th[e] case.” At [334], his Honour went on to record that:

8. [119]

   The minority’s principal complaint as to the use of this methodology was not that the methodology was wrong or inappropriate but rather that, in factoring in the earnings that it was assumed that Dr Frumar would have earned for the business from 1 March 2014 when it was assumed he would have started conducting cataract surgery at the hospital, the primary judge erred in taking into account that Dr Frumar died unexpectedly in April 2016. The judge had held that:

9. [120]

   I agree both with the primary judge’s analysis and the Chief Justice’s reasons for rejecting this aspect of the attack on the primary judge’s approach. The relevant discretion is a wide one, both as to the appropriate remedy and, if a compulsory acquisition of shares is ordered, as to the mode of valuation of those shares: Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd [2004] FCAFC 153; 207 ALR 136 at [7]. In the present case, of course, there was no need to order a compulsory acquisition of shares as they had already been acquired as a consequence of the SSA. The primary judge applied the CME method as a means of assessing whether or not the minority was entitled to any compensation additional to that which they had secured for the sale of their shares pursuant to the SSA.

10. [121]

    Dr Frumar’s death was an important integer in “all of the circumstances” of the case, which authorities in this area of discourse insist must be taken into account: see, for example, Sanford v Sanford Courier Service Pty Ltd (1986) 10 ACLR 549 at 562; Rankine v Rankine (1995) 124 FLR 340 at 345; ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 at 540.

11. [122]

    The fact that it would, on the authorities identified below, have been open to the primary judge to make an assessment of the value of the minority’s shareholding as at the date of the hearing, which was well after Dr Frumar’s death (and which would necessarily have taken his death into account) also lends support to the approach taken by the primary judge.

12. [123]

    In this context, there is no hard rule as to when valuation of shares in an oppression case must occur: see Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 144 where the Full Court of the Federal Court said that “[t]he date at which shares are to be valued in oppression cases varies having regard to all the relevant circumstances.” The court has a “wide and absolute” discretion, subject to the requirement that the valuation date chosen effect “fairness and justice to both parties in all the relevant circumstances of the case”: Foody v Horewood [2007] VSCA 130 at [35] and [37].

13. [124]

    In Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153, the relevant company had lost a significant profit outlet as at the date of the order. This loss was beyond the control of the company, and would have occurred regardless of the oppressive conduct. As a result, Brereton J (as his Honour then was) rejected the minority shareholders’ submission that the shares should be valued at the date on which the oppressive conduct occurred. His Honour noted that, just as the minority shareholders should be no worse off by reason of the oppressive conduct, they also should be no better off: at [96]. In the circumstances of the case it was held that justice was best achieved by adopting a valuation “as close to the present as possible”: at [96].

14. [125]

    A similar concern not to undertake an assessment of the value of a shareholding on a basis that did not accord with the facts as they had emerged also underpinned the reasoning of the primary judge in the present case, as illustrated by [332] of his Honour’s reasons which I have reproduced in [119] above.

15. [126]

    In any event, as the primary judge recorded (at [358]):

16. [127]

    This figure of $1,330,341 was based upon a joint calculation by both forensic experts based upon the Court’s instructed assumptions. That particular figure involved assumptions highly favourable to the minority including no minority discount, and an assumption that, even though he had no prior presence in Canberra, Dr Frumar would have conducted two days of surgery per week for 40 weeks of the year with each surgical list comprising 10 surgeries, from the very first day of his association with the business which was taken, for the purposes of the case, as 1 March 2014.

17. [128]

    For the reasons advanced in support of the majority’s Notice of Contention to which the Chief Justice refers at [57] of his reasons, those assumptions were extremely favourable to the minority and the evidence, carefully analysed in the course of oral submissions by senior counsel for the majority, demonstrated that, in all likelihood, Dr Frumar would have conducted far fewer operations and, moreover, would only have been able to build up a practice over time as opposed to starting with a sufficient complement of patients (and referrals) to allow the business to produce an income figure of $3,093,816. All of this points to a capitalised maintainable earnings figure of significantly less than that figure, and a lower pro rata figure than $1,330,341 as the minority share of that amount.

18. [129]

    The key point for present purposes is that, even on the assumptions most favourable to the minority and even assuming that Dr Frumar’s death should not have been taken into account, the pro-rated agreed value of the shares in the business which the figure of $1,330,341 represents was considerably less than that which the minority in fact received pursuant to the SSA.

19. [130]

    I also agree with the Chief Justice’s reasons at [93]–[101] for rejecting the attack on the primary judge’s finding (at [339]) that:

20. [131]

    No doubt in partial anticipation of the weakness of the arguments in relation to the primary judge’s assessment of the value of the minority’s shares, senior counsel for the minority advanced an alternative argument based upon what he described as a “simple method” of assessment. As the Chief Justice has noted at [58] of his reasons, this involved taking the price paid to the minority by the majority for the minority’s shares, namely $1,776,000, assuming that that figure was what those shares were worth in the company’s oppressed state, and then submitting that that amount represented a valuation “floor” to which needed to be added a series of figures for the actual costs of the company’s administration, the fact that Dr Frumar had been prevented from commencing work from 1 March 2014 until the time at which the company went into administration, and that other doctors may have commenced working at the hospital in that period and thus earned revenue for the business.

21. [132]

    There were a number of difficulties with the “simple method” approach, as has been pointed out in the Chief Justice’s reasons. The starting point, namely that the price paid for the minority shares was a true or reliable indication of their value, is highly debatable in my view (and was not the subject of any debate or consideration by the experts or the primary judge). Given the prolonged and fraught relationship between the minority and majority, which had manifested itself in the commencement of the litigation in this Court and which followed earlier Federal Court proceedings between the parties, I do not consider that either the minority or the majority could be described as willing but not anxious vendors and purchasers. Indeed, at various points in his argument, senior counsel for the minority said that the sale was “induced by” the oppressive conduct, and implied, if not expressly stating, that the majority’s intention was to “kill the company at all costs". In other words, the “floor” or platform on which the “simple method” calculation rested could not, in my opinion, be treated as a valid or reliable base for a larger valuation exercise.

22. [133]

    More fundamental than this, however, was that this method of assessing compensation had simply not been advanced at first instance in any meaningful way. Senior counsel for the minority (who had not appeared at the trial) sought to identify what at best could be described as germs of such an argument in his predecessor’s oral submissions in reply on the 11th and final day of the trial. In that portion of the transcript to which he referred, this argument was said to constitute an “alternative approach” which “wouldn’t require your Honour to go into the intricacies of valuing the business as a whole or dealing with all of the other hypotheses that we put forward”.

23. [134]

    No submission was made at the time that this alternative approach was superior to or should be preferred to the CME method or that it would be erroneous to follow the CME method which had, after all, been the focal point of the experts’ various reports and joint reports, and cross-examination by the parties and questioning by the primary judge.

24. [135]

    Senior counsel for the majority protested at the time the so-called “alternative approach” was first raised in the Court below that it was neither in reply nor the subject of written submissions nor of any pleading. These complaints were entirely justified and could not be gainsaid. That senior counsel for the majority sought to deal with the “alternative approach” in the Court below on the run and briefly in the context of his opposition to it being raised at all did not, in my opinion, carry the consequence that the argument should be treated as having been squarely before the Court at first instance.

25. [136]

    It seems to me to be extremely difficult, not to say most unfair (both to the primary judge and the majority), to criticise the primary judge’s decision not to assess the compensation on the basis of an alternative approach that had been sought to be introduced at the heel of the hunt, over the protest of the majority and which was not pressed as either the correct or a superior way of assessing damages or compensation.

26. [137]

    It is equally problematic and unfair to seek to mount an appeal by reference to such an argument which, at its highest, was raised for the first time in oral reply submissions, and had not been explored either in the evidence nor considered by the experts when it is quite clear that it would have been, had it featured in any meaningful way in the minority’s case at first instance. From an appellate court’s perspective, there is little if any difference in my opinion between such an argument sought to be raised so belatedly at trial and one not raised at all, at least in circumstances where a protest has been properly made in response to its attempted introduction.

27. [138]

    From the broader perspective of the administration of justice, this course is also most unsatisfactory and should be deprecated in emphatic terms. Subject to the well-known and narrow qualifications associated with cases such as Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 at 497 (Water Board v Moustakas) and Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33 (Coulton v Holcombe) involving pure questions of law, or the construction of a document, or where all the facts have been established beyond controversy, an appeal is not the occasion to mount for the first time an argument that either did not form or had not formed any meaningful part of the case presented at trial.

28. [139]

    Seeking to advance such an argument would almost inevitably be bound to fail on procedural fairness grounds but also entails a waste of valuable court time and of clients’ resources. The value of finality of litigation upon which cases such as Water Board v Moustakas and Coulton v Holcombe are ultimately predicated has both public and private interests underpinning it, as Chief Justice Gleeson observed in his 2013 Sir Maurice Byers Lecture on the topic of finality: see “Finality” Bar News (2013, Winter Edition) 33 at 35.

29. [140]

    Nor is it an appropriate course to suggest, as was done in the present case, that the matter could, if necessary, be remitted to the primary judge for an assessment of damages or compensation or value on a basis that had not been advanced or explored in any meaningful way at trial. Trials at first instance do not constitute a “preliminary skirmish”: Coulton v Holcombe at 7.

30. [141]

    Nothing I have said in the previous paragraphs has the least bit of novelty to it. Appellate and intermediate appellate courts have been making the same point with great clarity for many years, nowhere perhaps more eloquently than in the majority judgment of the High Court in Whisprun Pty Ltd v Dixon [2003] HCA 48; 200 ALR 447 at [51] (Whisprun) in which it was observed that:

31. [142]

    The course which this appeal took with its principal focus on the so-called “simple method” of assessment illustrates that clear statements such as that made in Whisprun bear repeating, and it is to be expected that practitioners advising and appearing in appeals not only be acutely aware of these statements but abide by them when settling grounds of appeal and formulating and making appeal submissions.

32. [143]

    EMMETT AJA:

Introduction

1. [144]

   The question in this appeal is whether the appellants, as shareholders in Canberra Eye Hospital Pty Ltd (CEH) and Canberra Eye Hospital Management (CEHM), suffered loss or damage as a consequence of conduct engaged in by the respondents in relation to the affairs of CEH and CEHM. In proceedings brought in the Commercial List of the Equity Division by the appellants (the Minority Shareholders) against the respondents (the Majority Shareholders), a judge of the Equity Division (the primary judge) concluded that identified conduct of the Majority Shareholders was not in the interest of the shareholders as a whole and was oppressive and unfairly prejudicial to and unfairly discriminate against the Minority Shareholders. However, the primary judge also concluded that the Minority Shareholders had failed to establish that, had that conduct not occurred, they would have been in a better position than they are now. His Honour therefore ordered that the proceedings be dismissed and ordered the Minority Shareholders to pay the costs of the Majority Shareholders.

2. [145]

   By notice of appeal filed on 15 October 2018, the Minority Shareholders appealed from the orders made by the primary judge. The Majority Shareholders filed a notice of contention on 14 November 2018 seeking to uphold the orders made by his Honour on grounds other than those relied upon by his Honour.

Background

1. [146]

   From about 1 July 2004, the Minority Shareholders held 43% of the issued share capital of CEH and the Majority Shareholders held the remaining 57%. CEH conducted an eye hospital in Canberra and derived its income from services associated with the preparation of patients for surgery, from the provision of an operating theatre and nursing and support staff during the surgery, and for providing after surgery care and medication.

2. [147]

   Surgery at CEH was undertaken by two groups of surgeons. The first (the Respondent Surgeons) held shares in CEH. The second (the Non-Shareholder Surgeons) did not hold shares in CEH. Two of the Minority Shareholders, Drs Shanahan and Saunders, who had founded the practice from which CEH evolved, ceased to perform surgery by about 2001. The Respondent Surgeons resented the fact that Drs Shanahan and Saunders and the other Minority Shareholders enjoyed a passive dividend income from their shareholdings in CEH, to which the Respondent Surgeons contributed through their surgery at CEH. That resentment lead to various attempts by the Majority Shareholders between 2006 and 2010 to restructure the distribution of income generated by CEH.

3. [148]

   The Respondent Surgeons resigned as directors of CEH in late 2010 with the result that Drs Shanahan and Saunders were the only directors of CEH. In February 2013, the Respondent Surgeons notified CEH that from 1 July 2013 they would perform the majority of their surgery at another hospital. As a result, it became necessary for CEH to find replacement surgeons. In June 2013, the Majority Shareholders voted to remove Drs Shanahan and Saunders as the directors of CEH and to replace them with Ms Tegen and Mr Chynoweth. There was no rational or legitimate reason for the removal of Dr Saunders and the purported removal of Dr Saunders was ineffective. From July 2013, the directors of CEH were Ms Tegen, Mr Chynoweth and Dr Saunders, with Dr Shanahan appointed as his alternative.

4. [149]

   From no later than the time that Ms Tegen and Mr Chynoweth were directors of CEH, its affairs were conducted in a sustained and deliberate way both contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to and unfairly discriminatory against, the Minority Shareholders. They acted in concert with the Majority Shareholders first to prefer the interests of the Majority Shareholders over those of the Minority Shareholders. The Minority Shareholders complained about three matters in particular. The first was the appointment by the directors of an administrator of CEH. The primary judge found that the appointment of the administrator was in bad faith and for improper purposes. The second matter concerned the manner in which the directors dealt with the accreditation of Dr Frumar, a world-renowned eye surgeon. Dr Saunders proposed that Dr Frumar undertake surgery at CEH’s hospital. However, Ms Tegen and Mr Chynoweth frustrated the accrediting of Dr Frumar, who would have been in a position to commence in generating revenue for CEH by 1 March 2014. It is relevant that Dr Frumar in fact died in April 2016.

5. [150]

   The primary judge held that the conduct of the Majority Shareholders, in the manner in which they dealt with Dr Frumar, was not in the interests of the shareholders as a whole and was oppressive and unfairly prejudicial to and unfairly discriminatory against the Minority Shareholders. The third matter about which the Minority Shareholders complained, which was not accepted by the primary judge, was that, but for the conduct of the Majority Shareholders about which complaint was made, other surgeons would have commenced working at CEH’s hospital. Thus, they say, the unexpected death of Dr Frumar would not have frustrated the carrying on of the business of CEH’s hospital on as profitable a basis as prior to the departure of the Respondent Surgeons and other Non-Shareholder Surgeons to a competing hospital.

6. [151]

   The Minority Shareholders formulated their claim on the basis that on 11 June 2015 they sold their shares in CEH to the Majority Shareholders for $1,776,000. They contended that that was the value of their shares at that time but that, but for the conduct complained of, their shares would have been worth substantially more than that sum.

The Appeal

1. [152]

   The grounds of appeal upon which the Minority Shareholders rely may be stated as follows:

   1. (1)

      Having found that the affairs of CEH had been conducted in a manner that was contrary to the interests of its members as a whole and oppressive to, unfairly prejudicial to or unfairly discriminatory against the Minority Shareholders, and that the Minority Shareholders sold their shares in CEH to the Majority Shareholders as a result of such conduct, the primary judge erred in holding that the Minority Shareholders had not suffered any loss.

   2. (2)

      The primary judge mistook the facts or failed to take into account material considerations in:

   3. (3)

      The primary judge mistook the facts or failed to take into account material considerations, by not taking into account that the oppressive conduct caused CEH to pay fees to the improperly appointed voluntary administrator, and caused CEH to forego the income that would have been generated by Dr Frumar and other surgeons.

   4. (4)

      The primary judge erred at law or failed to take into account a material consideration in failing to resolve doubtful questions against the Majority Shareholders in favour of the Minority Shareholders and in failing to infer that surgeons in addition to Dr Frumar would have operated at CEH.

   5. (5)

      The primary judge erred in taking into account in the calculation of the value of the Minority Shareholders shares in CEH as at the date of sale the fact of the death of Dr Frumar in April 2016.

2. [153]

   In the course of address, it became apparent that the contentions of the Minority Shareholders could be summarised as follows:

   1. (1)

      The primary judge erred in failing to apply a “simple method” of assessing loss, involving the assumption that the sale price received by the Minority Shareholders for their shares reflected the value of their shares as effected by the oppressive conduct, and adding to that price an amount representing the contribution that Dr Frumar and possibly other doctors would have made to the profits and underlying assets of CEH had the oppressive conduct not occurred, together with the funds expended by CEH consequent upon the appointment of the administrator which would not have occurred but for the oppressive conduct.

   2. (2)

      The primary judge erred by failing to make any allowance in his valuation for the possibility that had the oppressive conduct not occurred the non-shareholder directors may have returned to the hospital, or the presence of Dr Frumar would have attracted other doctors to carry out their practice at the hospital premises.

   3. (3)

      The primary judge erred in taking into account the untimely death of Dr Frumar in his Honour’s assessment of damages.

3. [154]

   I have had the advantage of reading in draft form the proposed reasons of the Chief Justice and the President for concluding that the appeal should be dismissed with costs. I agree with their Honours’ reasons. In particular, there was no error on the part of the primary judge in failing to adopt the “simple method” outlined above, and the primary judge made no error in failing to include in the assessment an amount referrable to income from other surgeons. I also agree that the death of Dr Frumar was a matter that the primary judge properly took into account in reaching a conclusion as to the value of the shares. It follows that the appeal must be dismissed with costs.