Allways Resources Holdings Pty Ltd v Samgris Resources Pty Ltd - [2017] QSC 74

SUPREME COURT OF QUEENSLAND

CITATION:

Allways Resources Holdings Pty Ltd & Anor v Samgris Resources Pty Ltd & Anor [2017] QSC 74

PARTIES:

ALLWAYS RESOURCES HOLDINGS PTY LTD
ACN 154 218 256

(first plaintiff)

MCKAY BROOKE RESOURCES LIMITED

(second plaintiff)

v

SAMGRIS RESOURCES PTY LTD
ACN 147 457 181

(first defendant)

ASIA PACIFIC JOINT MINING PTY LTD
ACN 156 619 484

(second defendant)

FILE NO/S:

SC No 11618 of 2014

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

8 May 2017

DELIVERED AT:

Brisbane

HEARING DATE:

1 – 2, 5 – 8, 15 September 2016

JUDGE:

Bond J

ORDERS:

The orders of the Court are that:

1.          The first defendant be wound up.

2.          Mr W.J. Harris and Mr A.N. Connolly be appointed as liquidators of the first defendant, jointly and severally.

3.          The orders made in (1) and (2) be stayed until 4:00pm on 15 May 2017.

4.          The parties have liberty to apply to vary the length of the stay ordered in (3).

CATCHWORDS:

CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – JUST AND EQUITABLE – OTHER CASES – where the company was said to be in the nature of a “quasi-partnership” – whether the company should be wound up on the just and equitable ground

CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – CONDUCT OF DIRECTORS – OTHER CASES – whether the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members – whether the company should be wound up

CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – CONDUCT OF DIRECTORS – OPPRESSIVE, UNFAIRLY PREJUDICIAL OR UNFAIRLY DISCRIMINATORY CONDUCT – whether the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs or in a manner that is contrary to the interests of the members as a whole – whether an act or omission by or on behalf of the company was oppressive or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs or was contrary to the interests of the members as a whole – whether the company should be wound up

CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS’ REMEDIES AND INTERNAL DISPUTES – OPPRESSIVE OR UNFAIR CONDUCT – WHAT CONSTITUTES – GENERALLY – whether the affairs of the company were being conducted in a manner which was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs – whether the affairs of the company were being conducted in a manner which was contrary to the interests of the members as a whole

CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS’ REMEDIES AND INTERNAL DISPUTES – OPPRESSIVE OR UNFAIR CONDUCT – RELIEF – whether an order should be made requiring the second defendant to purchase the plaintiffs’ shares – whether the company should be wound up

Corporations Act 2001 (Cth), s 232, s 233, s 461, s 467

Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325
Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 3) [2015] NSWSC 1639
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95
Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450
Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561
Dodrill v The Irish Restaurant & Bar Co Pty Ltd & Ors [2009] QSC 317
Doughty v Abboud [2010] NSWSC 721
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Exton v Extons Pty Ltd [2017] VSC 14
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534
Gregor v British-Israel World Federation (NSW) (2002) 41 ACSR 641
Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336
HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228
Ian Allan Byrne v A J Byrne Pty Limited [2012] NSWSC 667
International Hospitality Concepts v National Marketing Concepts (No 2) (1994) 13 ACSR 369
Jankar v Dellmain [2009] NSWSC 766
John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63
Joint v Stephens [2008] VSCA 210
Jones v Dunkel (1959) 101 CLR 298
Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144
Loch v John Blackwood Ltd [1924] AC 783
MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343
O’Neill v Phillips [1999] 1 WLR 1092
Pearl Link International Ltd v Recruit Co Ltd [2005] HKCFI 366
Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568
Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368
Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247
Re Day (2017) 91 ALJR 262
Re London School of Electronics Ltd [1986] Ch D 211
Re Spargos Mining NL (1990) 3 WAR 166
Re Tivoli Freeholds Ltd [1972] VR 445
Re William Brooks & Co Ltd [1962] NSWR 142
Registrar of Titles (WA) v Franzon (1975) 132 CLR 611
Ruut v Head (1996) 20 ACSR 160
Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294
Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1

Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459

Justice Barrett, Robson's Annotated Corporations Legislation (Looseleaf service, Thomson Reuters)

COUNSEL:

K E Downes QC, with R Schulte, for the plaintiffs
No appearance for the first defendant

S Couper QC, with J Baartz, for the second defendant

SOLICITORS:

Holding Redlich for the plaintiffs
No appearance for the first defendant
Corrs Chambers Westgarth for the second defendant

Table of Contents

INTRODUCTION

THE SUBSTANTIVE LAW

Winding up under the just and equitable ground
Relief for oppressive conduct of a company’s affairs
Other bases for winding up under s 461

THE FACTS

Preliminary observations
Events leading to the establishment of the association between the members of Samgris

Introduction
The Cooperation Framework Agreement dated 9 March 2011
The Investment Agreement dated 15 October 2011
The events which occurred on the Closing on 20 April 2012
The Amendment Agreement dated 20 April 2012
The Constitution adopted 20 April 2012
The Side Agreement dated 20 April 2012
Conclusion concerning the nature of the association between the members of Samgris

Relevant actors after the restructure of Samgris

The natural persons representing the minority shareholders
The natural persons representing APJM
The board and executive management of Samgris

The first board meeting - 18 May 2012
Events between the first and second board meetings

Meeting of Samgris in China on 31 August 2012
Dr Huang’s concerns as at October 2012
Delayed response to Dr Huang’s request for holding of second board meeting
Meeting of Samgris in China on 4 January 2013
Some but not all issues brought to the second board meeting

The second board meeting - 17 March 2013
Events between the second and third board meetings

Dispute concerning the $22 million installment
The first general meeting – 14 June 2013

The third board meeting - 6 December 2013
The fourth board meeting and second general meeting - 22 April 2014
Events between the fourth and fifth board meetings

Staff appointments made without board involvement
De facto cessation or reduction of mining activities
Litigation commences in December 2014
Accounting treatment of the alleged $33 million APJM debt

The fifth board meeting – 30 March 2015

Adopting the 2014 Financial Report
Adopting the Samgris HR and Remuneration Plan

Events between the fifth and sixth board meetings

2015 decisions concerning irregular payments to Mr Zhang
Continued complaints by directors appointed by minority shareholders

The sixth board meeting - 10 November 2015
The seventh board meeting - 31 May 2016
Events after the seventh board meeting.
Other issues: the regularity of board meetings
Other issues: alleged incompetence of Mr Zhang

EVALUATION

Is it just and equitable that Samgris be wound up?
Have the affairs of Samgris been conducted in a way which is commercially unfair to the minority shareholders?
Has there been conduct ‘contrary to the interests of members as a whole’?

RELIEF

Introduction

The two protagonists in this proceeding are –
(a)the first and second plaintiffs,[1] Allways Resources Holdings Pty Ltd (ARH) and McKay Brooke Resources Limited (MBR), which are the minority shareholders of the first defendant, Samgris Resources Pty Ltd (Samgris); and
(b)the second defendant (APJM), which is the majority shareholder of Samgris.
[1]The two minority shareholders have the same representation and have acted in concert throughout this proceeding. No relevant distinction needs to be drawn between them.
Although it is a party to the proceeding, Samgris has not itself taken an active part in it.
The principal relief sought by the minority shareholders is an order that Samgris be wound up pursuant to either ss 233 or 461 of the Corporations Act 2001 (Cth). Alternatively, they seek orders pursuant to s 233 that APJM purchase their Samgris shares at a price to be determined by the Court on a date to be fixed after the culmination of a further judicial process. They submit that if the alternative relief were to be granted the Court should formulate an order which would keep open the option of making a winding up order if APJM failed to effect a purchase of their shares in Samgris at the ordered value.[2]
[2]Cf Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310 per Young JA at [337] (with whom Campbell JA at [313] and Macfarlan JA at [314] agreed) where the Court concluded in relation to a buy-out order as oppression relief that the orders should reserve liberty to apply in relation to the valuation process and generally, should the valuation process be unduly delayed or prove to be impracticable.
As to s 233, the minority shareholders contend that –
(a)the affairs of Samgris were being conducted in a manner which was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs within the meaning of s 232(e); and
(b)further or alternatively, the affairs of Samgris were being conducted in a manner which was contrary to the interests of the members as a whole within the meaning of s 232(d).
As to s 461, the minority shareholders rely, first, on the just and equitable ground pursuant to s 461(1)(k) and, second, on those subparagraphs of ss 461(1)(e), 461(1)(f) and 461(1)(g) which use similar language to ss 232(d) and (e). In the latter regard, they contend –
(a)the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members (s 461(1)(e));
(b)the affairs of the company were being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole (s 461(1)(f));
(c)an act or omission by or on behalf of the company was oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was contrary to the interests of the members as a whole (s 461(1)(g)).
These contentions are said to be justified by an evaluation of events which occurred over a 4½ year period in the life of Samgris, commencing on about 20 April 2012 when the plaintiffs and second defendant became the shareholders of Samgris. The minority shareholders say that from that time until the time this proceeding started in December 2014, APJM caused the business and operations of Samgris to be managed as if APJM was the sole shareholder or, at the least, in a manner that failed to pay any real regard to the views and concerns of the directors appointed to Samgris by the minority shareholders. Further, they say that the position became worse once this proceeding started. The position has been reached, they say, in which there has been an irretrievable breakdown in the relationship between APJM and the minority shareholders such that the minority shareholders can have no trust and confidence in the proper management of Samgris in the future.
The structure of this judgment will be as follows:
(a)First, I will identify the relevant principles of the substantive law.
(b)Second, I will express my findings as to the relevant facts.
(c)Third, I will express my evaluation of the significance of the relevant events in terms of the issues made relevant by the substantive law.
(d)Finally, I will consider the question of the relief which is called for by the evaluations which I have made.

The substantive law

Winding up under the just and equitable ground

Section 461(k) is, relevantly, in these terms:
Part 5.4A—Winding up by the Court on other grounds
461 General grounds on which company may be wound up by Court
(1) The Court may order the winding up of a company if:
…
(k) the Court is of opinion that it is just and equitable that the company be wound up.
In the present proceeding, the minority shareholders suggest that winding up under the just and equitable ground is justified because –
(a)Samgris was a company formed on the basis of mutual trust, confidence and cooperation between its corporate shareholders and the individuals who represented those corporate members; and
(b)the relationship of mutual trust, confidence and cooperation has irretrievably broken down.
For present purposes, the following summary of general principle may be made.
First, Lord Wilberforce observed in Ebrahimi v Westbourne Galleries Ltd[3] that in most companies and in most contexts, the rights, expectations and obligations inter se of the people standing behind a company are sufficiently and exhaustively stated in the relevant companies legislation[4] and in the company’s constitution. In such cases, the association between those people is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively stated in the legislation and in the constitution.[5] That a minority shareholder does not trust or have confidence in a majority shareholder may, and often will, be a matter of irrelevance to the question of the continuation of such a company.[6]
[3] [1973] AC 360 at 379.
[4] Here, the Corporations Act 2001 (Cth).
[5] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 per Lord Wilberforce at 379.
[6] If such a company is to be wound up on the just and equitable ground, some other justification may have to be found. In this regard, see the discussion of the broad categories into which the cases fall in Gregor v British-Israel World Federation (NSW) (2002) 41 ACSR 641 at [136], citing International Hospitality Concepts v National Marketing Concepts (No 2) (1994) 13 ACSR 369 per Young J at 371.
Second, Lord Wilberforce explained that the “just and equitable” ground enables the court to subject the exercise of legal rights so stated to equitable considerations, namely considerations of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights so stated, or to exercise them in a particular way.[7] I observe:
(a)Given the language used by Lord Wilberforce (i.e. referring to (1) considerations of a “personal” character arising between “one individual and another” and (2) to an association formed or continued on the basis of a “personal” relationship), a question arises whether the requisite relationship can exist unless all parties concerned are natural persons.
(b)I note that in Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144, Brereton J proceeded on the basis that the requisite relationship could exist between a natural person and her corporate joint venture partner, who, together, became associated as shareholders. Further, the law can undoubtedly recognize the existence of a fiduciary relationship between corporate persons: United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1.
(c)No argument that the requisite relationship could only exist between natural persons was advanced by APJM in this case, and, in any event, taking such approach would seem to me to be too restrictive an approach to take to Lord Wilberforce’s judgement and,[8] more importantly, the language of s 461(k). Accordingly, I conclude that it is not essential to the operation of the approach described by his Lordship that all parties concerned must be natural persons.
[7] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 per Lord Wilberforce at 379.
[8] Pearl Link International Ltd v Recruit Co Ltd [2005] HKCFI 366.
Third, it is well recognized that one category of case in which legal rights may be regarded as subject to the superimposition of equitable considerations, is the category described by Lord Wilberforce[9] as involving companies characterized by one, or probably more, of the following elements:
(a)an association formed or continued on the basis of a personal relationship, involving mutual confidence;
(b)an agreement, or understanding, that all or particular shareholders shall participate in the conduct of the business;
(c)restriction upon the transfer of the members’ interest in the company – so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
[9] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 379.
Fourth, it is often said of such companies that they are in the nature of a “quasi-partnership”, but in some cases that terminology might be misleading and it may be more accurate to say that the company is “a majority controlled business requiring mutual cooperation and a level of trust”. [10] For companies which fall into the category described by Lord Wilberforce, winding up is regarded as the characteristic remedy where the working relationship predicated on mutual cooperation, trust and confidence has irretrievably broken down.[11] To put it another way, for companies of this type, it would be unjust or inequitable for the majority to continue to exercise their legal rights to control the business once the working relationship predicated on mutual cooperation, trust and confidence has irretrievably broken down.
[10] See Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 per Barrett J at [77] citing MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 per Spigelman CJ at [71]. See also Ian Allan Byrne v A J Byrne Pty Limited [2012] NSWSC 667 per Black J at [76].
[11] Doughty v Abboud [2010] NSWSC 721 per Barrett J at [225]; Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325 per Dodds-Streeton JA at [119].
Fifth, the circumstances in which legal rights will be subject to the superimposition of equitable considerations cannot and should not be exhaustively defined. The presence of the elements identified by Lord Wilberforce does not mean that the court will necessarily draw the inference that there were superimposed equitable considerations on the company law rights and duties.[12] On the other hand, the categories of case in which a winding up order can be made on the just and equitable ground are not closed.[13] The question of whether equitable considerations should be superimposed is a question of fact, which will depend on the circumstances of the particular case.[14]
[12] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 707.
[13] See also Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294 at 300 per Owen J; Doughty v Abboud [2010] NSWSC 721 per Barrett J at [219].
[14] Re Tivoli Freeholds Ltd [1972] VR 445 per Menhennitt J at 468.

Sixth, the making of a winding up order on the just and equitable ground involves the exercise of a judicial discretion. It would be wrong to regard an order for the winding up of a solvent company as a “last resort”. Although some cases have used that language,[15] such an absolute statement seeks to impose a limitation on the discretion which is not justified by the wording of the statute: see generally the discussion in Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 per Emmett, Jacobson and Buchanan JJ at [8], [67] to [74], and see also the discussion of s 467(4) below. The better approach is that suggested in Hillam at [70], namely to regard it to be an extreme step to wind up a solvent company and to bear that consideration in mind when considering whether the remedy is appropriate on the facts of the particular case. It may also be relevant to consider –
(a)whether the commercially sensible operations of the company in accordance with the incorporators’ expectations has been frustrated;[16]
(b)whether continuation of the company would be a futility;[17]
(c)whether any loss of confidence is justified;[18] and
(d)whether the claimant is the person who is responsible for the breakdown of the relationship.[19]
[15] See, eg, Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561; Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 at 252.
[16] Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [49]-[51]. On appeal, the Court specifically noted that neither party challenged the trial judge’s summary of the applicable principles: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310 at [140]. See also Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 per Black J at [19].
[17] Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325 at [119]. This was quoted with approval in Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 at [322] and Jankar v Dellmain [2009] NSWSC 766 at [81]-[85].
[18] Loch v John Blackwood Ltd [1924] AC 783 at 788; Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368 per Peter Lyons J at [215].
[19] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 per Lord Cross at 387; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 per Spigelman CJ at [90]; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 at [96]; Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 per Black J at [22]. In Ruut v Head (1996) 20 ACSR 160 at 162 it was noted that this is not an absolute bar to relief, but one of a number of factors to be taken into account.
Seventh, grounds for winding up on the just and equitable ground under s 461(1)(k) may be established, and a winding up order made, in circumstances which do not amount to oppression under s 232.[20] But where the facts of the particular case reveal that some remedy other than winding up is available (whether because oppression is established and other remedies under s 233 are open, or for any other reason), it is necessary to consider the matters made relevant by s 467(4). As to this:
[20] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd(2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd(2009) 71 ACSR 343; Doughty v Abboud [2010] NSWSC 721 per Barrett J at [227]; Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 per Black J at [19].
(a)Section 467(4) provides:
Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
(b)Where it applies, s 467(4) imposes a duty on the Court to make a winding up order unless the Court forms the positive opinions that –
(i) some other remedy[21] is available to the applicants; and
(ii) the applicants are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
(c)No implication that winding up is a last resort arises from s 467(4), or should be made in those terms: see Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368 per Peter Lyons J at [216]. Where s 467(4) applies, the Court is required to consider whether or not the opinions specified should be formed. If applicants are seeking to have a solvent company wound up instead of pursuing another available remedy, the fact that it is an extreme step to wind up a solvent company would be relevant to (but not necessarily determinative of) the question whether the Court should form the opinion that the applicants were acting unreasonably in pursuing that step instead of the other available remedy.
(d)By way of example, in Re Amazon Pest Control Pty Ltd[22] Black J specifically recognized the Courts’ reluctance to wind up a solvent company, expressly bore in mind that it was an extreme step to make such an order, but nevertheless could not form the opinion that the applicant for the order was acting unreasonably in pursuing it. Black J made the order to wind up, although the order was stayed for a short period to permit the parties to explore the possibility of reaching another solution.
[21] The expression “some other remedy” in s 467(4) of the Act has been construed very broadly to include not only legal remedies but alternative courses of action otherwise open to the parties, including commercial remedies such as an offer to purchase the applicant’s shares: see Exton v Extons Pty Ltd [2017] VSC 14 per Sifris J at [84] to [86].
[22] [2012] NSWSC 1568 per Black J at [26] – [32].

Relief for oppressive conduct of a company’s affairs

Sections 232 and 233 are in these terms:
Part 2F.1—Oppressive conduct of affairs
232 Grounds for Court order
The Court may make an order under section 233 if:
(a)        the conduct of a company’s affairs; or
(b)        an actual or proposed act or omission by or on behalf of a company; or
(c)        a resolution, or a proposed resolution, of members or a class of members of company;
is either:
(d)        contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
233 Orders the Court can make
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)        that the company be wound up;
(b)        that the company’s existing constitution be modified or repealed;
(c)        regulating the conduct of the company’s affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)        for the purchase of shares with an appropriate reduction of the company’s share capital;
(f)         for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)        appointing a receiver or a receiver and manager of any or all of the company’s property;
(i)         restraining a person from engaging in specified conduct or from doing a specified act;
(j)         requiring a person to do a specified act.
Order that the company be wound up
(2)If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:
(a) as if the order were made under section 461; and
(b)        with such changes as are necessary.
(3)…
For present purposes, the following summary of general principle may be made.
First, the language and history of these sections indicate that they are to be read broadly.[23] The imposition of judge-made limitations on their scope is to be approached with caution.[24]
[23] Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [72], per French CJ; at [176] per Gummow, Hayne, Heydon and Kiefel JJ.
[24] Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [72], per French CJ; at [178] per Gummow, Hayne, Heydon and Kiefel JJ.
Second, the phrase “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members” is to be regarded as a compound expression,[25] which calls for a single overall judgment about the conduct of the affairs of the company in relation to a person.[26]
[25] Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310 at [140]; HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228 at [506]; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 per Young J at 704; Joint v Stephens [2008] VSCA 210 at [134].
[26] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 per Spigelman CJ at [6].
Third, the different aspects of the compound expression are concerned with the essential criterion of “commercial unfairness”.[27] The test is whether, objectively in the eyes of a reasonable commercial bystander, there has been unfairness, namely, conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.[28] Fairness is not the same as legality. Conduct which is legal because, for example, it involves an exercise of power consistently with the company’s constitution, may still be oppressive.[29] In Re Spargos Mining NL (1990) 3 WAR 166 at 189, Murray J held:
… it is certainly clear that the opinion required of the court is that objectively viewed, the conduct of those in control of the company is in all the circumstances to be regarded as unfair to a particular member, a group of members, perhaps a minority group, or the members as a whole and I conclude that that unfairness may lie in the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision making processes within the company.
[27] Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 per Brennan J at 472; Joint v Stephens [2008] VSCA 210 at [134]; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 per Young J at 704.
[28] Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 per Brennan J at 472; Joint v Stephens [2008] VSCA 210 per Nettle, Ashley and Neave JJA at [133] – [135]; and Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 at [4].
[29] Dodrill v The Irish Restaurant & Bar Co Pty Ltd & Ors [2009] QSC 317 per Daubney J at [21]
Fourth, the task of deciding whether there has been commercial unfairness is to be undertaken in the context of the particular relationship which is in issue.[30] It will not infrequently involve a balancing exercise between competing considerations.[31] There is no fixed rule that an applicant must have clean hands, but the conduct of an applicant may be relevant, for example, because it may either render the conduct on the other side not unfair[32] or may affect the relief which the court thinks fit to grant.[33]
[30] O’Neill v Phillips [1999] 1 WLR 1092 per Lord Hoffmann at 1098; Joint v Stephens [2008] VSCA 210 at [134], [136]; Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 at [4].
[31] Re London School of Electronics Ltd [1986] Ch D 211 per Nourse LJ at 222; Joint v Stephens [2008] VSCA 210 at [136].
[32] Thus, it might be relevant to take into account that a minority shareholder has baited a majority shareholder to act in an oppressive manner (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 741) or conduct said to be oppressive may have been undertaken with the acquiescence or consent of the applicant (John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 per Young J at 66).
[33] Joint v Stephens [2008] VSCA 210 at [134].
Fifth, authority suggests that the better view is that s 232(d) is separate and distinct from s 232(e).[34] Conduct may be ‘contrary to the interests of members as a whole’ without necessarily involving commercial unfairness. The task of deciding whether there has been such conduct involves an objective assessment of whether the conduct adheres to accepted standards of corporate behaviour or is in accordance with how reasonable directors would act in attending to the affairs of the company.[35]
[34] See the review of the authorities reaching that conclusion in Exton v Extons Pty Ltd [2017] VSC 14 per Sifris J at [35] – [39].
[35] Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534 at [42] – [44]; Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 3) [2015] NSWSC 1639 at [84], both cited with approval by Sifris J in Exton v Extons Pty Ltd [2017] VSC 14 per Sifris J at [36].
Sixth, in selecting the nature of the remedy concerned when a finding of oppression has been made, the discretion should be exercised with a view to ending the oppression.[36] If there was no continuing oppression when a case came to trial, the weight of authority presently supports the view that the Court would retain power to make the orders for which s 233 provides; the fact that claimed relief was founded on conduct which was no longer continuing would be regarded as relevant but not necessarily determinative of the exercise of the discretion.[37]
[36] Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95 per Giles JA at [122].
[37] See the review of the authorities reaching that conclusion in Exton v Extons Pty Ltd [2017] VSC 14 per Sifris J at [27] – [34]. Note, however, that in Campbell v Backoffice Investments Pty Ltd, the judgment of the plurality (Gummow, Hayne, Heydon and Kiefel JJ) expressed the view that that “may very well” be the case, but concluded that the point did not need to be decided: see (2009) 238 CLR 304 at [182].
Seventh, for reasons expressed earlier in relation to winding up on the just and equitable ground, it would be wrong to approach the exercise of the discretion concerning remedy by regarding winding up a solvent company as a “last resort”. Rather, that it is an extreme step to wind up a solvent company is a consideration which must be borne in mind when considering whether the remedy is appropriate on the facts of the particular case. Where some remedy other than winding up is available, it is necessary to consider the matters made relevant by s 467(4).

Other bases for winding up under s 461

Section 461(1)(e), (f) and (g) are, relevantly, in these terms:
Part 5.4A—Winding up by the Court on other grounds
461 General grounds on which company may be wound up by Court
(1) The Court may order the winding up of a company if:
…
(e)directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or
(f)affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(g)an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole; or
These grounds share some similarities with the grounds contained in s 232 for the making of an order (including a winding up order) under s 233. There are also differences.
The first part of s 461(1)(e) is narrower than s 232(d), which encompasses not only directors acting in their own interests, but extends to any instance of directors acting contrary to the interests of the members. The second part of s 461(1)(e), acting in a manner that appears to be unfair or unjust to other members, does not appear in s 232, although it seems likely that conduct encompassed by s 232 would be regarded as unfair or unjust. It has been judicially noted that s 461(1)(e) adds nothing to s 461(1)(k).[38]
[38] See Re William Brooks & Co Ltd [1962] NSWR 142 per Hardie J. His Honour was there dealing with a cognate provision.
On the other hand, the language used in ss 461(1)(f) and (g) mirrors the language used in ss 232(d) and (e). It is a settled canon of statutory interpretation that where the same words appear multiple times in a single piece of legislation, they should ordinarily be given the same meaning. In Registrar of Titles (WA) v Franzon (1975) 132 CLR 611 at 618, Mason J (as he then was) spoke of the “sound rule of construction to give the same meaning to the same words appearing in different parts of a statute unless there is reason to do otherwise”.[39] Given that a winding up order is an available remedy under both sets of provisions, ss 461(1)(f) and (g) do not appear to contemplate any avenues of relief beyond those available in s 232. Indeed, one commentator has noted that “it is difficult to see how s 461(1)(f), 461(g) [sic] add anything to s 232”.[40]

The facts

[39] See also Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450 per Hodges J at 452.

[40] Justice Barrett, Robson's Annotated Corporations Legislation (Looseleaf service, Thomson Reuters) at [461.80].

Preliminary observations

The documentary evidence in this case was contained in a 16-volume trial bundle and 14 additional volumes containing other exhibits. Many of the exhibits (including some affidavits) appeared both in the Chinese language and in English translation. I received 4 sets of written submissions from the parties, containing a total of 582 pages. Affidavit evidence was received from 19 witnesses (often in multiple affidavits, including affidavits which directly responded to statements in other affidavits). The oral evidence was received from 12 witnesses over 6 days. Of those witnesses, 6 required interpreters because they were either unable to speak and write English or insufficiently confident of their ability to do so.
It does not seem to me to be either necessary or appropriate to resolve every factual contest which can be identified as arising out of the evidence before me. I will focus principally on the factual contests and related evidence which were addressed in the written submissions, and then only on those which are necessary for the determination of the issues and relevant remedy, if any, to which the plaintiffs are entitled.
As much as possible, the factual findings will be made in the course of a chronological analysis, using as the principal reference points:
(a)the events leading up to the establishment on 20 April 2012 of the association between the current shareholders of Samgris; and
(b)the 7 board meetings which took place over about 4 years of Samgris’ operations, namely –
(i)      the first board meeting, which took place on 18 May 2012 in Xi’an, China.
(ii)      the second board meeting, which took place on 17 March 2013 in Brisbane.
(iii)     the third board meeting, which took place on 6 December 2013 in Xi’an, China.
(iv)     the fourth board meeting, which took place on 22 April 2014 in Brisbane.
(v)     the fifth board meeting, which took place on 30 March 2015 by video link between Brisbane and Xi’an.
(vi)     the sixth board meeting, which took place on 10 November 2015 by video link between Brisbane and Xi’an.
(vii)   the seventh board meeting, which took place on 31 May 2016 by video link between Brisbane and Xi’an.

On occasion it will be necessary to interpose a consideration of issues which cannot be conveniently analysed in this way because they require a consideration of facts which span a broader time frame.

Events leading to the establishment of the association between the members of Samgris

Introduction

Dr Wanfu Huang had undergraduate and post-graduate degrees in Science from the China University of Geosciences in Wuhan in the People’s Republic of China and a doctorate in Geology from James Cook University in Queensland. He registered Samgris in November 2010 for the purpose of conducting the business of coal exploration in Queensland. In the period from 19 November 2010 until 19 April 2012, Dr Huang was Samgris’ sole director and shareholder.
Shaanxi Coal and Chemical Industry Group Co Ltd (Shaanxi Coal) and Shaanxi Coal Geology Group Co Ltd (Shaanxi Geology) (together the Shaanxi Parties) are entities owned by the People’s Republic of China. Shaanxi Coal is a very large coal mining company. To give an idea of its size: in 2015 its total sales measured in excess of ¥190 billion (over $30 billion[41]) and it had approximately 180,000 employees. Shaanxi Geology is a coal exploration company. It is responsible for all of the coal exploration work in the Shaanxi Province, and for 178 billion tonnes of coal reserves within the Province.
[41] The precise exchange rate is not relevant. This calculation uses the 6:1 ratio referred to in Exhibit 2: Huang (1) at [70].
At a time when it was solely under the control of Dr Huang, Samgris developed a plan to conduct lawful exploration and development of resources within its exploration rights in Queensland “through the introduction of partners”, and to establish a large scale coal production supply base in Queensland. To this end, Samgris entered into a suite of agreements in 2011 and 2012 with the Shaanxi Parties. Mr Shijie Song, who was the Head of the Strategic Planning Committee of Shaanxi Coal, and had acted as a director, supervisor and senior officer of more than ten companies within its group, was the principal negotiator on behalf of Shaanxi Coal for the initial agreement.[42] As will appear, broadly speaking, Dr Huang’s side of the deal was to contribute the relevant coal exploration tenements held by corporations he controlled, and the Shaanxi Parties’ side of the deal was the contribution of funds.
[42] Exhibit 13: Song (1) at [15].
One of the questions which must be determined in this proceeding is whether –
(a)(as APJM contends) the association between the present members of Samgris is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively stated in the Act and in the constitution of Samgris; or
(b)(as the minority shareholders contend) the association between the present members of Samgris bears the character (sometimes referred to as quasi-partnership) which would warrant subjecting to equitable considerations the legal rights which otherwise govern their association.
In order to answer this question it is necessary to examine the way in which the association between the present members of Samgris became established. That requires an examination of the fact and terms of the instruments which gave rise to the association, namely:
(a)the “Cooperation Framework Agreement” dated 9 March 2011 which was entered into between on Samgris (at a time when Dr Huang was its sole director and shareholder), and the Shaanxi Parties;
(b)the “Investment Agreement” dated 15 October 2011 which was entered into between Samgris (still at a time when Dr Huang was its sole director and shareholder), Dr Huang personally and also the Shaanxi parties;
(c)three instruments entered into on 20 April 2012, which was effectively the settlement date of the transaction contemplated by the Investment Agreement, namely:
(i) the “Amendment Agreement” dated 20 April 2012 between Samgris, Dr Huang personally and also the Shaanxi parties by which they varied and supplemented the Investment Agreement;
(ii) the Constitution which Samgris adopted on 20 April 2012; and
(iii) the “Side Agreement” dated 20 April 2012 between Samgris, Dr Huang personally, the minority shareholders, APJM, and also the Shaanxi parties.

The Cooperation Framework Agreement dated 9 March 2011

The Cooperation Framework Agreement was executed in a Chinese language form entitled “Australia SAMGRIS Coal Resources Exploration and Development Cooperation Framework Agreement”. A certified translation was in evidence before me. I make the following observations as to the relevant provisions of the Cooperation Framework Agreement.
The first part of the Cooperation Framework Agreement was essentially the recitals. Recital 1 stated (inter alia) that the development plan of Samgris was to conduct lawful exploration and development of resources within its exploration rights “through the introduction of partners”, and to establish a large scale coal production supply base in Queensland. Recitals 2 and 3 described Shaanxi Geology and Shaanxi Coal respectively and Recital 4 stated that Shaanxi Coal and Shaanxi Geology planned to establish a new entity (referred to as “The Joint Entity”) and cooperate with Samgris on the coal resources exploration and development in its area. (The “Joint Entity” which the Shaanxi Parties eventually established was APJM and, when summarizing the terms of the Cooperation Framework Agreement, it is convenient to refer to the Joint Entity as APJM, even though APJM did not yet exist.)
From the recitals it appeared that the intention involved the “partners”, namely Samgris, on the one hand and the Shaanxi Parties (via APJM which they would establish) on the other hand, cooperating for coal resources exploration and development in the exploration rights held by Samgris.
The operative part of the Cooperation Framework Agreement was then introduced with these words “On the basis of equality and consent, through negotiation, the three parties reached the below agreement”.
The intention of the Cooperation Framework Agreement was set out in clause 6, which contemplated a further contract would be entered into in the future, but at the same time that there would be a continued role for the Cooperation Framework Agreement:
6.1.This agreement forms the basic framework of cooperation by the 3 parties and is the foundation of the cooperation between the 3 parties. Within this framework, the three parties will undertake further negotiations regarding the details of the cooperation in accordance with practical needs and form and sign a formal cooperation contract.
6.2. Issues not exhaustively covered will be prescribed in the formal contract.
6.3 …
By clause 1 “Company Overview Objectives”, Samgris was identified as a private proprietary company conducting coal exploration and development in Australia which held or was applying for 16 coal exploration tenements. Various characteristics of the tenements were then recorded, namely the type of coal concerned, the estimated resource quantity and whether they were approved or awaiting approval.
By clause 2 the parties recorded the “Method of Cooperation”. The clause made clear these matters:
(a)The Shaanxi Parties would establish APJM and contribute certain resources to it.
(b)There would be a restructure of Samgris, which would result in the shares of Samgris being held by APJM as to 60% and the original shareholders of Samgris as to 40%. (Although the plural was used in the instrument, in fact there was only one shareholder of Samgris at the time, namely Dr Huang.) That would happen by APJM acquiring shares from the original shareholders and also from a fresh issue of shares.
(c)For its part, APJM would pay $11 million to the original shareholders of Samgris and also contribute $55 million capital to Samgris in the form of cash by way of a number of instalments. For their part, the original shareholders of Samgris would contribute capital in the form of the coal exploration tenements.
(d)There would be a final transaction price, the calculation of which depended in certain respects on a quantitative assessment of the coal resource as proved by exploration.
(e)Clause 2 also set out agreement as to some aspects of the governance of Samgris, consequent upon the contemplated restructure. Clause 2.3.4 provided:
2.3.4. Governance Structure
SAMGRIS will establish a Board of Directors and a Supervising Committee. The Board of Directors will consist of 5 members, among which The Joint Entity will elect 3 directors. The Supervising Committee will consist of 3 members, among which The Joint Entity will elect 2 supervisors. The Chairman of the Board of Directors will be chosen from the directors elected by The Joint Entity, the Chairman of the Supervising Committee will be chosen from the supervisor elected by SAMGRIS’s original shareholders.
Company management will consist of the Chief Executive Officer (CEO), the Chief Operating Officer (COO), the Chief Finance Officer (CFO) and deputy Chief Executive Officer. Among them CEO will be recommended by The Joint Entity, COO will be recommended by SAMGRIS’s original shareholders (underlined in original), CFO will be recommended by The Joint Entity, and other management level personnel are to be appointed by the Board of Directors (underlined in wavy lines in original).
Rights, responsibilities and procedural rules of the board of directors, the Supervising Committee and the CEO will be determined upon negotiation amongst the cooperating parties and clarified in the constitution of the restructured company.
By clause 3, Samgris (i.e. prior to its restructure) was to assist in obtaining investment access approval from relevant Australian government departments (failing which approval the agreement was to terminate). Samgris was obliged not to undertake commercial negotiation concerning the coal exploration tenements with other “partners”. In the meantime, a bank account jointly managed by Samgris and the Shaanxi Parties was to be established; each was to deposit monies into the account and provisions were set out governing how monies might be spent from that account.
By clause 9, the parties agreed that the contract would be governed by the law of the People’s Republic of China, and set out an arbitration agreement committing disputes to the China International Economic and Trade Arbitration Commission (CIETAC).

The Investment Agreement dated 15 October 2011

The “Investment Agreement” dated 15 October 2011 was entered into between Samgris (still at a time when Dr Huang was its sole director and shareholder), Dr Huang personally and also the Shaanxi parties. It was written and executed in both the English and Chinese languages.
The Investment Agreement was the formal cooperation contract which had been contemplated by clause 6 of the Cooperation Framework Agreement. As the following observations demonstrate, the shape of the transaction was a fleshed out version of the transaction contemplated by the Cooperation Framework Agreement:
(a)The recitals to the Investment Agreement acknowledged that the Shaanxi Parties and Samgris had signed the Cooperation Framework Agreement.
(b)The recitals acknowledged that the Shaanxi Parties would establish an acquisition vehicle, referred to as “the Purchaser”. (The “Purchaser” which the Shaanxi Parties eventually established was APJM and, when summarizing the terms of the Investment Agreement, it is convenient to refer to the Purchaser as APJM, even though APJM did not yet exist.)
(c)The recitals acknowledged that the contemplated restructure of Samgris would still result in the shares of Samgris being held by APJM as to 60% and the original shareholders of Samgris as to 40%.   That would happen by APJM –
(i)      purchasing 200,000 shares from Dr Huang for an “Acquisition Price” of $11 million; and
(ii)      subscribing for a fresh issue of 1,000,000 shares in Samgris for a “Subscription Price” of $55,000,000.
(d)APJM would pay the $11 million Acquisition Price to Dr Huang at the “Closing”. It would pay the $55 million Subscription Price to Samgris in installments of $22 million, $22 million and $11 million. The first instalment would be paid on the Closing. The second instalment would be paid (subject to satisfaction of certain conditions) within 12 months after Closing and the third instalment (again subject to satisfaction of certain conditions) would be paid within a further 12 months.
The Investment Agreement added two new ingredients.
First, the express contemplation that at the Closing, Dr Huang’s 800,000 shares in Samgris would be transferred to two entities, of which he directly owned a more than 50% equity interest and over which he had full control. This was referred to as the “Redistribution at the Closing”. These were the two entities which became the minority shareholders.
Second, by clause 6.2, an express restriction on transfer was created, to be applicable after the Closing which –
(a)constrained both Dr Huang and APJM from transferring or charging any of the shares in Samgris which they beneficially held without the other’s prior consent in writing; and
(b)constrained Dr Huang to maintain over 50% equity interest in and full control over each of the entities which acquired his shares through the “Redistribution at the Closing”.
Notably, the connection between the amount which would be paid by the Shaanxi Parties (via APJM) and the quantitative assessment of the coal resource contained in the existing exploration tenements as ultimately proved by exploration, which had been previously stated in clause 2 of the Cooperation Framework Agreement, was also fleshed out in the Investment Agreement. A schedule to the Investment Agreement listed the 4 exploration permits for coal (or EPC’s) which had been granted; the 7 for which application had been made; and identified relevant variables, including the type of coal expected to be found, the anticipated coal reserve, and its estimated value. Clause 2.3 of the Investment Agreement revealed that the $66 million (the addition of the Acquisition Price to the Subscription Price, referred to as the “Initial Consideration”) could be adjusted up or down leading to a further payment by APJM to Samgris or vice versa depending on what was found. It also contemplated an adjustment being made in the event that there was eventually a “supermajority”[43] board decision to cease activities in relation to any of the tenements. The clause provided:
[43] “Supermajority” was a term which was ultimately defined in clause 19.4 of the Constitution as over two thirds of the votes cast by all directors present at a duly convened board meeting.
2.3Price/Adjustment
(a)The Initial Consideration shall be adjusted following the Closings as follows:
(i)if the Geological Resources Amount[44] is less than 90% of the Basic Resource Amount[45] for any of the exploration permits for coal set forth in the schedule headed by “EPCs”, by deducting the amount calculated based on the formula below, subject to a maximum deduction of 70% of the Benchmark Price[46] of that permit:
[44] This was a term defined as “the geological coal reserve portion exceeding the finally-verified resourcing ranking of 333 as determined in accordance with the Coal and Peat Geological Exploration Guidelines (DZ/T 0215-2002) published by the PRC Land and Resources Ministry in 2002”.
[45] This was a term defined as “the anticipated coal reserve for each of the exploration permits under the column, “Anticipated Coal Reserve” in the schedule headed by “EPCs”.
[46] This was a term defined as “the estimate value for each of the exploration permits as set forth under the column, “Estimate Value” in the schedule headed by “EPCs”.
·        the Benchmark Price for that permit *(90% of the Basic Resource Amount – Geological Resources Amount)/ the Basic Resource Amount.
(ii)if the Geological Resources Amount is more than 120% of the Basic Resource Amount for any of the exploration permits for coal set forth in the schedule headed by “EPCs”, by adding the amount calculated based on the formula below, subject to a maximum addition of 20% of the Benchmark Price of that permit:
·        the Benchmark Price for that permit * (Geological Resources Amount-120% of the Basic Resource Amount)/ the Basic Resource Amount.
(b)If as a result of such adjustment:
(i)the amount of the Initial Consideration is increased, the Purchaser shall pay to Samgris in cash a sum equal to that increase without any change to the Purchaser’s shareholding in Samgris; or
(ii)the amount of the Initial Consideration is decreased, Samgris shall return to the Purchaser in cash a sum equal to that decrease without any change to the Purchaser’s shareholding in Samgris, or
(c)Any such payment or transfer shall be made within five (5) Business Days following the day on which the Geological Resources Amount for any of the exploration permits for coal set forth in the schedule headed by “EPCs” has been finally determined by a third party selected by the Minerals Resources Reserve Appraisal Centre of the PRC Ministry of Land and Resources authorized by the board of Samgris.
(d)If subject to a supermajority board approval of Samgris (a supermajority board approval will be further specified in Samgris’s articles of association), Samgris finally determines to not pursue any mine activities for any reasons in relation to any of exploration permits for coal set forth in the schedule headed by “EPCs”, Samgris shall return to the Purchaser in cash a sum equal to the Benchmark Price for that permit multiplying its relevant Discounted Ratio minus the cost and expenses arising from the exploration activities in the area covered by that permit without any change to the Purchaser’s shareholding in Samgris.
The Investment Agreement also contained terms regarding the composition of the board of directors of Samgris (the Board). Clause 6.1(b) provided that initially the Board would consist of five directors and the quorum should consist of three directors (at least including one appointed by Dr Huang and one appointed by APJM). Clause 6.1(c) provided that APJM could designate three directors and the remaining shareholders of Samgris could designate two directors. Unless all directors agreed otherwise, each director had to receive at least 30 days notice in advance of any board meeting: clause 6.1(g). Clause 6.1(i) provided that:
The board shall have authority with respect to all aspects of the operation of Samgris but the detailed requirements of the board approval will be further specified in Samgris’s [Constitution].
By clauses 13.8 and 13.9, the parties again agreed that the contract would be governed by the law of the People’s Republic of China, and again set out an arbitration agreement committing disputes to CIETAC.
I observe parenthetically:
(a)The obligation to pay the second payment of $22 million and the conditions relevant thereto were set out in clauses 2.5 and 9.1. The obligation to pay the third payment of $11 million and the conditions relevant thereto were set out in clauses 2.6 and 10.1.
(b)It eventually transpired that neither the second nor the third payment was made within the timeframe contemplated by the Investment Agreement and there is a dispute between the minority shareholders and APJM as to whether the $33 million is payable by APJM to Samgris.
(c)The question of the merits or otherwise of that dispute is not before me. I have been told that that question is the subject of arbitration proceedings under the arbitration agreement.
(d)However, as will appear, the way in which the dispute arose, and the way in which parties conducted themselves in relation thereto, is part of the evidence before me and sheds light on the findings I should make in relation to the issues which are before me.

By clause 13.11, the parties set out an entire agreement clause in terms which acknowledged that anything specified in the Cooperation Framework Agreement, but which had not been mentioned in the Investment Agreement, would continue to be valid in accordance with the terms and conditions of the Cooperation Framework Agreement. The clause provided (emphasis in original):
This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they have related in any way to the subject matter hereof unless anything specified in CFA has not been mentioned in this Agreement and such specification in CFA should continue to be valid in accordance with the terms and conditions of the CFA.

The events which occurred on the Closing on 20 April 2012

Prior to 20 April 2012, the Shaanxi Parties had established APJM and Dr Huang had brought about a restructure of Samgris, such that the shares which had been solely held by him had become held by he and his two entities ARH and MBR.
It was common ground that on or about 20 April 2012:
(a)the parties to the Investment Agreement entered into an “Amendment Agreement” which varied and supplemented the Investment Agreement;
(b)the Closing took place such that –
(i) APJM paid $11 million to Dr Huang and $22 million to Samgris;
(ii) APJM became the owner of 60% of the issued shares in Samgris, leaving ARH and MBR each holding 20%;
(c)Samgris adopted a formal written Constitution; and
(d)the parties to the Investment Agreement, together with all the shareholders in Samgris entered into the “Side Agreement”.

The Amendment Agreement dated 20 April 2012

The Amendment Agreement was dated 20 April 2012 and was written and executed in both English and Chinese languages. The Amendment Agreement varied and supplemented the Investment Agreement in certain respects.
Three matters should be noted.
First, it recorded the parties’ agreement that the Closing would occur at 10am on 20 April 2012.
Second, the parties recorded the fact that the “Redistribution at the Closing” had occurred before the Closing by way of a restructure and thus, at the Closing, the Acquisition Shares (200,000 shares) would be transferred to APJM by Dr Huang, and his two entities ARH and MBR as follows:
(a)Dr Huang would transfer his ownership of 18,000 fully paid and issued shares in Samgris to APJM for a consideration of $990,000 such that after the Closing, Dr Huang would not hold any shares in Samgris;
(b)ARH would transfer 91,000 fully paid and issued shares in Samgris to APJM for a consideration of $5,005,000 such that after the Closing, it would only directly hold 400,000 fully paid and issue shares in Samgris; and
(c)MBR would transfer 91,000 fully paid and issued shares in Samgris to APJM for a consideration of $5,005,000 such that after the Closing, it would only directly hold 400,000 fully paid and issued shares in Samgris.
Third, as to the relationship between Dr Huang and the two entities ARH and MBR:
(a)ARH was incorporated in Australia on 11 November 2011 and is a company registered with the Australian Securities and Investments Commission. Since 11 November 2011, Dr Huang has been its sole director. He holds over 67% of its shares.
(b)MBR was incorporated on 30 March 2007 in the British Virgin Islands. Dr Huang is the sole director. He holds about 51% to 52% of its shares, with the remainder being held by 3 other shareholders.[47]
[47] Transcript, pp 1-89 and 2-12.

The Constitution adopted 20 April 2012

The Constitution recorded that it was adopted on 20 April 2012. It stated (by clause 4.1) that as at the time it was adopted, the members of the company were ARH, MBR and APJM. Accordingly, logically, it is to be regarded as having been adopted after the Closing had occurred.
It is also notable that, by a number of its clauses and definitions, it revealed an intention that it be construed as against the background of Australian Corporations law.[48] Although executed in a version which expressed both English and Chinese, clause 3.2(f) provided than in the event of inconsistency the English language version would prevail.
[48] See, for example, clauses 2.2, 3.1 and 3.2.
The Constitution contained the following relevant provisions:
7Restriction on sale or transfer
7.1Shares in Samgris
(a)Any member of the Company shall not, directly or indirectly (through the transfer of Shares it holds, or controls it holds), male or solicit any sale or transfer of, or create, incur or assume any Encumbrance with respect to, any Share beneficially owned by it or them, in whole or in part without the other members’ prior consent in writing.
(b)No transfer of Shares shall be effective if a purpose or effect of such transfer shall have been to circumvent this section 7(a). Any attempt to make any sale of, or create, incur or assume any Encumbrance with respect to any Shares of the Company other than in compliance with this rule 7(a) shall be null and void and of no force and effect and in that case:
(i)       the purported transferee shall have no rights or privileges in or with respect to Samgris; and
(ii)      Samgris shall not give any effect in Samgris’s book records to such attempted sale or Encumbrance.
7.2Shares in ARH and MBR
(a)Notwithstanding the foregoing, Dr. Huang Wanfu is obligated to keep maintaining an over 50% equity interest in and have control of each of ARH and MBR.
(b)If Dr Huang Wanfu’s equity interest in any of ARH or MBR (as the case maybe) is below or equal to 50% of that entity or Dr. Huang Wanfu no longer has control of either of ARH or MBR (as the case maybe), that member of the Company shall have no rights or privileges in or with respect to Samgris, and its Shares in Samgris will be transferred to APJM automatically free of charge and Encumbrance and the directors of the Company must register such automatic transfer of Shares in the Company, provided, however, that APJM is obligated to acquire the Shares in Samgris held by each of ARH and MBR at a fair market value and each of ARH and MBR is also obligated to sell all its owned Shares to APJM at a fair market value if Dr. Huang dies or becomes mentally incapable or totally and permanently disabled.
….
14Appointment and removal of directors
14.1Number of directors
The Board must consist of five (5) directors.
At least one director must reside ordinarily in Australia.
14.2Members to appoint directors
APJM shall be entitled to appoint three (3) directors by giving notice in writing to the Company. ARH and MBR shall be entitled to appoint two (2) directors by giving notice in writing to the Company. The appointment is effective from the date of the notice or a later date specified in the notice.
14.3Confirmation of appointment
If a person is appointed as a director of the Company by a member or members jointly pursuant to this Constitution, the Company must confirm the appointment by resolution as soon as practicable but in any event within two months after the appointment is made.
14.4Director may resign by giving written notice to the Company (Replaceable Rule 203A)
A director of the Company may resign as a director by giving a written notice of resignation to the Company at its registered office.
14.5Removal by Shareholders
A member may at any time remove a director appointed by it under rule 14.2 from office by giving notice in writing to the Company.
….
16Senior Managing
The board of directors of the Company should decide the management structure of the Company. The day-to-day operation and management of the Company should be under the leadership of the general manager, who should be nominated by APJM. The general manager should report directly to the board of directors of the Company. All other senior officers should report directly to the general manager.
17Powers of directors
17.1Management of business (Replaceable Rule 198A(1))
The board of directors of the Company shall have all the authority conferred by law in the conduct of the business of the Company and granted by the members’ meeting and shall have the responsibility for making general policy decisions concerning the management of the business and affairs of the Company. The business of the Company is to be managed by or under the direction of the board of directors of the Company.
…
18Remuneration of directors
18.1Determined by resolution (Replaceable Rule 202A(1))
The directors of the Company are to be paid the remuneration that the Company determines by resolution.
18.2Traveling and other expenses (Replaceable Rule 202A(2))
The company may also pay the directors’ travelling and other expenses that they properly incur:
(a)     in attending directors’ meetings or any meetings of committees of directors;
(b)     in attending any general meetings of the Company; and
(c)     in connection with the Company’s business.
19Directors’ meetings
19.1Calling directors’ meetings (Replaceable Rule 248C)
A directors’ meeting may be called by a director by giving not less than twenty-one (21) days prior notice in writing individually to every other director, unless all directors agree in writing for a short period of notice in relation to that meeting.
19.2Chairing directors’ meetings (Replaceable Rule 248E)
(a)   The directors may elect a director to chair their meetings. The directors may determine the period for which the director is to be the chairman.
(b)   The directors may elect a director present to chair a meeting, or part of it, if:
(i)a director has not already been elected to chair the meeting; or
(ii)a previously elected chairman is not available or declines to act, for the meeting or the part of the meeting.
19.3Quorum at directors’ meetings
The quorum for a directors’ meeting is three (3) directors (one of them must be a director designated by ARH and MBR) and the quorum must be present at all times during the meeting.
19.4Passing of directors’ resolutions (Replaceable Rule 248G)
(a)     A resolution of the directors must be passed by a simple majority (over 50%) of the votes cast by all directors present at a duly convened board meeting, except that each of the following shall be passed by a super majority vote (over two thirds (2/3)) of the votes cast by all directors present at a duly convened board meeting):
(i)the Company issues or agrees to issue new Shares or instrument convertible to Shares;
(ii)the Company obtains external funding or financing;
(iii)the Company grants any security on its assets;
(iv)the Company amends any rules of this Constitution;
(v)the Company acquires or disposes assets over ten million Australian dollars;
(vi)the Company disposes or surrenders a tenement;
(vii)the Company enters into an off-take agreement;
(A)other than at arm’s length; or
(B)not in usual commercial terms (including a sale price which is at a materially lower than market price); or
(C)with an associate of a member; and
(viii)approval of an exploration work program and budget.
(b)     The chairman has no casting vote.
(c)     In addition to the above-mentioned, all members and directors of the Company hereby agree and undertake that Australia Shaanxi Mining Pty Ltd. (with the ACN number of 151 573 983 and registered address of Indooroopilly QLD 4068) will be granted a priority to provide the service to the geographic exploration work of the Company.
19.5Directors’ meetings by teleconference
At any time not less than two (2) Business Days prior to a directors’ meeting, a director may by notifying the director who calls that directors’ meeting require to attend that directors’ meeting by teleconference. In that case, the director who calls that directors’ meeting shall make all reasonable arrangements to enable the notifying director to attend that directors’ meeting over phone.
20      Circulating resolutions
20.1Resolutions (Replaceable Rule 248A(1))
The directors of the Company may pass a resolution without a directors’ meeting being held if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.
20.2Copies (Replaceable Rule 248A(2))
Separate copies of a document may be used for signing by directors if the wording of the resolution and statement is identical in each copy.
20.3When the resolution is passed (Replaceable Rule 248A(3))
The resolution is passed when the last director signs.
….
26Notices
26.1General
Any notice, statement or other communication under the Constitution must be in writing in both English and Chinese.
26.2How to give a communication
In addition to any other way allowed by the Corporations Act, a notice or other communication may be given by being:
(a)     personally delivered;
(b)     left at the person’s current address as recorded in the Register of Members;
(c)     sent to the person’s address as recorded in the Register of Members by pre-paid ordinary mail or, if the address is outside Australia, by pre-paid airmail; or
(d)     sent by fax to the person’s current fax number for notices.
26.3Notice to joint members (Replaceable Rule 249J(2))
Notice to joint members must be given to the joint member named first in the register of members.
26.4When notice by post or fax is given (Replaceable Rule 249J(4))
A notice of meeting sent to a member by post is taken to be given three (3) days after it is posted (and fourteen (14) days if posted to an overseas address). A notice of meeting sent to a member by fax, or other electronic means as that member elected and notified to the Company, is taken to be given to that member on the next business day after it is validly sent.

The Side Agreement dated 20 April 2012

The Side Agreement was dated 20 April 2012 and was also written and executed in both English and Chinese.
Although it bore the same date as the Amendment Agreement, the terms of the Side Agreement recite the fact that the “Redistribution at the Closing” and the Closing had already occurred. It refers to the Constitution of Samgris. Accordingly it is to be regarded as an agreement entered into after all the foregoing events had been finalized and the Constitution had been adopted.
As mentioned, the parties to the Side Agreement were the parties to the Investment Agreement together with all of the shareholders of Samgris. The effect of the Side Agreement was –
(a)to record the agreement of the three shareholders:
… to hold their shares in Samgris and only deal with their shares in Samgris in accordance with the Investment Agreement as amended by the Amendment Agreement and the constitution of Samgris, provided, however, that in the event of any conflict between the terms and provisions of the Investment Agreement as amended by the Amendment Agreement) and the constitution of Samgris, the terms and provisions of the Investment Agreement as amended by the Amendment Agreement) shall prevail.
(b)to record the agreement of all parties that Samgris would be operated and managed in the same way and subject to a similar precedence agreement;
(c)to record the agreement of Dr Huang’s two companies, namely the two minority shareholders, that–
(i) they assumed joint and several liability with Dr Huang for his obligations under the Investment Agreement as amended by the Amendment Agreement; and
(ii) they, jointly and severally with Dr Huang, would indemnify and hold harmless Samgris, APJM, and the Shaanxi Parties from losses caused by breach by Dr Huang or Samgris of the Investment Agreement or the Amendment Agreement or certain other things.

Conclusion concerning the nature of the association between the members of Samgris

The question at hand is whether the association between the members of Samgris was –
(a)(as APJM contends) entirely commercial such that they may be safely left to their legal rights; or
(b)(as the minority shareholders contend) such as would attract the superimposition of equitable considerations in the manner explained by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd.
It will be recalled that Lord Wilberforce identified three considerations which might support the latter conclusion:
(a)an association formed or continued on the basis of a personal relationship, involving mutual confidence;
(b)an agreement, or understanding, that all or particular shareholders shall participate in the conduct of the business; and
(c)restriction upon the transfer of the members’ interest in the company – so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
Each of Lord Wilberforce’s considerations is present in this case.
The association between the members of Samgris which was brought into being on 20 April 2012 was formed on the basis of the pre-existing relationship between –
(a)on the one hand, Dr Huang; and
(b)on the other hand, the Shaanxi Parties,
which involved mutual cooperation and a level of trust between them.
It is not clear on the evidence when that relationship was first formed. However, it must have been in existence by the time of entry into the Cooperation Framework Agreement in March 2011, notwithstanding that Dr Huang was not a party to it. I infer that that was so because, at the time that agreement was entered into, Dr Huang was the sole member and director of Samgris and the end goal was that he and an entity which the Shaanxi Parties would set up would be the members of Samgris, and Samgris would be administered via the involvement of both as set out in clause 2.3.4. Although the Cooperation Framework Agreement referred to the Shaanxi Parties as co-operating with Samgris, in substance and given the end goal, the necessary co-operation was with Dr Huang.
The relationship was formalized when in October 2011 the Investment Agreement amended and supplemented the Cooperation Framework Agreement and Dr Huang became a party to the Investment Agreement. The end goal became one in which Dr Huang and the Shaanxi Parties would bring about an association as members of Samgris between corporations over which they, respectively, had control, in circumstances in which they agreed that the corporations would be locked into that association by restrictions on transfer. Samgris would be administered via the involvement of those corporations as set out in clause 6.1 of the Investment Agreement. Although by the Investment Agreement the direct relationship between Dr Huang and the Shaanxi Parties would continue only until the Closing, Dr Huang agreed that he would maintain majority equity in and control over the corporations which would become the members of Samgris after the “Redistribution at the Closing”.
The relationship and its importance continued after the contemplated Closing occurred on 20 April 2012. By that time, the members of Samgris had become ARH and MBR (as minority shareholders) and APJM (as majority shareholder) and the Constitution had been adopted in a form which restricted all members from transferring or encumbering shares without the consent of other members (clause 7.1), and which obliged Dr Huang to maintain his majority equity in and control over ARH and MBR (clause 7.2). And, by the Side Agreement, all parties (namely Samgris, its 3 members, Dr Huang and the Shaanxi Parties) agreed that Samgris would be operated and managed in accordance with the Investment Agreement as amended by the Amendment Agreement and the Constitution. In this way the direct relationship between Dr Huang and the Shaanxi Parties continued.

I note that Dr Huang subsequently stated that he voted in favour of the appointment of Mr Zhang, despite his concerns about Mr Zhang’s suitability, because he did not think he had any real choice in the matter and Mr Zhang would be appointed regardless of how he voted. However, by the time he made that statement, much water had passed under the bridge and I do not accept it as a reliable statement concerning Dr Huang’s reasons for so voting at the time. I do, however, accept that Dr Huang had the subjective view of Mr Zhang which he expressed.
In their written submissions, the plaintiffs point to a number of steps not taken in the executive management of Samgris, which, they contend, evidence the incompetence of Mr Zhang.[359] But if this case was a serious negligence case in which I was invited to make a finding as to the incompetence of a CEO, I would have evidence which focused with particularity on discrete events and their causes and which permitted me to form a view on the question of whether Mr Zhang’s conduct was or was not consistent with the conduct of a reasonably competent person standing in his shoes. I do not have such evidence or indeed such a rigorous analysis of the issue of Mr Zhang’s alleged incompetence.
[359] Plaintiffs’ written submissions at [231] – [272].
What I do have is evidence which points to matters which occurred in the executive management of Samgris which the plaintiffs characterize as less than satisfactory, and I am then invited to draw an inference that the explanation for that must be the incompetence of Mr Zhang as CEO. Amongst other things, the plaintiffs’ written submissions referred to –
(a)the timing of the development by Samgris management, under the direction of Mr Zhang, of certain important policy documents such as organization structure and remuneration plans;
(b)the fact that in August 2012 Mr Zhang said that he needed assistance in his role as CEO[360] and, it may be that that was why Mr Howard was, for a period, given a consultancy by Samgris;[361]
(c)the fact that Mr Li Bao Zhu was hired to become Deputy CEO of Samgris in September 2012,[362] which may also have been to assist Mr Zhang.[363]
(d)the fact that Mr Zhang applied the draft remuneration plan despite the fact that it had been rejected by the Board,
but none of these (or indeed the miscellany of other things referred to in the submissions) were matters to which it could be appropriate, in effect, to apply the doctrine of res ipsa loquitur. They are not an adequate evidentiary basis for the conclusion about Mr Zhang’s incompetence which I am invited to draw.
[360] See [15](c)(i) of the Reply.
[361] Exhibit 6: Howard (2) at [12]. See also the consultancy agreement at tab 43 of Volume 2 of Exhibit 1.
[362] See above at [116].
[363] Tab 143 of Volume 5 of Exhibit 1 at pp 1028/932 – 1029/933; Mr Song was the person speaking: Transcript, p 5-23 line 40 to 48 to p 5-24 lines 1 to 14.
The plaintiffs invite me to conclude that Mr Zhang’s continuation in the role of CEO was contrary to the interests of Samgris and to its shareholders as a whole, that it caused real financial detriment to Samgris, that he should have been replaced but was not, and that was all the fault of APJM and the directors which it appointed to the Board. I do not accept the premise that the plaintiffs have proved the incompetence of Mr Zhang, so I will not make that finding.

Evaluation

Is it just and equitable that Samgris be wound up?

I have explained at [72] to [84] above my reasons for concluding that the nature of the association between the members of Samgris was such that it was appropriate to regard it as a “quasi-partnership”, or “a majority controlled business requiring mutual cooperation and a level of trust” between APJM and the two minority shareholders. I found that Samgris was the type of company for which winding up is regarded as the characteristic remedy where the working relationship predicated on mutual cooperation, trust and confidence has irretrievably broken down.
APJM contended that the minority shareholders had mischaracterized the nature of the relationship between the incorporators of Samgris. APJM submitted that the better view was that the relationship was entirely commercial and was completely spelt out in the Cooperation Framework Agreement, the Investment Agreement and the Side Agreement. I have explained earlier in these reasons why I rejected this view by reference to an analysis of what had occurred between the parties up to and including the Closing on 20 April 2012.
APJM submitted that the fact that the parties did not regard the company as bearing the character to which I have referred was demonstrated by the letter from Dr Huang to the Shaanxi Parties dated 5 August 2013 to which I have referred at [190] above. That proposition is misconceived. As the quote I have set out at [190] demonstrates, Dr Huang’s conduct in writing to the Shaanxi Parties was entirely consistent with a view of the centrality of the need for mutual trust and co-operation. The letter revealed his attempt to explain the damage which had been done, and to suggest that proper attention to that relationship would give him some redress for the complaints to which the letter was addressed.
The factual examination carried out in the previous section of these reasons leaves no room for any doubt that the working relationship between the 2 minority shareholders and APJM has irretrievably broken down. APJM’s principal response was to meet this argument at the antecedent point of whether the relationship was one which should be subject to equitable considerations for the reasons identified by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd. It did formally submit that the relationship had not irretrievably broken down, but I think the evidence against that proposition is overwhelming. I do not think that the responsibility for the breakdown in the relationship can be attributed to the minority shareholders. Samgris is not functioning, and cannot reasonably be expected in the future to, in the way intended at the time of Closing. There is no real prospect that the directors nominated by the two sides can work together sensibly to reach the necessary agreement to be able to conduct the company’s business in the future.
In the circumstances of this case, in the absence of any other remedy, it would be just and equitable that Samgris should be wound up.

Have the affairs of Samgris been conducted in a way which is commercially unfair to the minority shareholders?

I have earlier explained (see paragraphs [21] – [23] above), that the phrase “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members” is to be regarded as a compound expression which calls for a single overall objective judgment by the Court about the conduct of the affairs of the company in relation to a person. In this case, at issue is the the conduct of the affairs of Samgris in relation to the minority shareholders. The test is whether, objectively in the eyes of a reasonable commercial bystander, there has been conduct that is so unfair that reasonable directors who consider the matter would not have thought it fair.
In this case it seems to me that that conclusion is justified. Unfairness, as Murray J observed in Re Spargos Mining NL (1990) 3 WAR 166 at 189 (quoted at [22] above) can lie in the decision-making processes within the company. I think there was fundamental unfairness in the decision-making processes within Samgris.
In this case, I have explained that from the time of the 31 August 2012 meeting, important decisions started to get made and implemented as between the Samgris Chair and Samgris management, without having first obtained the authority so to do from the Board. This behavior was at the root of the breakdown in the relationship between the two sides. This conduct was evidenced by -
(a)the 31 August 2012 meeting: see [109] – [121] above;
(b)Samgris’ conduct (by Mr Song as Chair) in making important staff appointments, both shortly before and after that meeting and at later occasions: see [116] above;
(c)the 4 January 2013 meeting: see [136] – [147] above;
(d)APJM’s own view expressed in its letter of 18 April 2013, that it had in fact taken over the management of Samgris at the Closing: see [173] above;
(e)the staff appointments made without board involvement in 2014 and 2015: see [227] – [232] above;
(f)the de facto cessation or reduction of mining activities without board approval: see [233] – [238] above;
(g)the way in which the accounting treatment of the APJM $33 million dollar receivable for the year ended 31 December 2014 occurred: see [241] – [278] above;
(h)the manner of implementation of the draft remuneration plan despite its rejection: see [288] – [304] above; and
(i)the manner in which decisions were made concerning the irregular payments which had been made to Mr Zhang see [289] – [314] above; and
(j)the inadequacy of response to complaints advanced by Dr Huang and Mr Howard, to which I have referred throughout the chronological analaysis.
Some of this conduct could have been authorized if, at a properly constituted board meeting, the Samgris board –
(a)had authorized that sort of conduct by the Chair;
(b)had identified that the delegated authority of the CEO extended to making particular types of decision without recourse to the Board (or with recourse only to the Chair).
As to the former, clause 14 of the Board Operation Rules adopted in December 2013, contemplated that the Board could authorize the Chair “to exercise part of the powers of the Board during the period when the Board meeting is not in session” but also specifically contemplated that “in this case the limits of the powers should be specified by the Board.” However, the Board never authorized the Chair to exercise any part of its powers.
As to the latter, under both the Constitution and in the Board Operation Rules, the Board had the authority to conduct the business of Samgris. The business was to be managed by or under the direction of the Board. The day-to-day operation and management of Samgris was to be done “under the leadership of [the CEO]”, on a direct report to the Board. But as I have said I would not construe the relevant clauses as bringing about the result that the CEO was thereby authorized to make any decision which could be characterized as “day-to-day operation and management of Samgris” without seeking Board authority. Both the Constitution and the Board Operation Rules contemplated that the question of the conferring of (and the setting of the precise limits of) the CEO’s delegated authority was a matter for the Board. The Board never exercised that power.
Absent proper delegations, the process whereby important decisions were made and implemented as between the Samgris Chair and Samgris management, without having first obtained the authority so to do from the Board and without the involvement of the directors appointed by the minority shareholders, was so unfair that reasonable directors who considered it would have reached that conclusion. I note and agree with the observations by Young J in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63 at 71–72:
It is essential in company law that all persons who are entitled to participate in meetings are able to participate in them to the extent which the law allows. There must be proper notices of meetings; there must be proper time for discussion at meetings; everybody's views must be respected before the vote is taken, on which the majority will succeed, if they wish, but only after they have listened. Where the rights of the minority are affected by persistent conduct at the board, so that they are not able fully to participate in meetings, then there is, in my view actual oppression and, in my view, there is actual oppression on the sum total of the events in this case.
These were not mere matters of form. Compliance with agreed processes was not excused by virtue of the fact that the some of the decisions made by this process could be characterized as unexceptionable. And whilst acquiescence is relevant in evaluating the significance of such conduct, the fact is that Dr Huang and Mr Howard complained about exclusion virtually from the outset. That APJM was treating Samgris as its wholly-owned subsidiary of which APJM had the management was a constant (and, to my mind, valid) theme to their complaints. The vice in what occurred was the exclusion of the minority shareholders (by the exclusion of Dr Huang and Mr Howard) from the appropriate decision making processes and the exercise of decision making power, in the way described in the meetings of 31 August 2012 and 4 January 2013.
The unfairness constituted by the exclusion from the agreed manner by which the minority shareholders would participate in management decisions was the most significant and ongoing oppressive conduct which occurred. The same conduct was also unfair, viewed from the perspective of departure from the underlying assumption on which the legal rights were entered into, which I have discussed in the previous section of these reasons.
There were some other matters which may be characterized as commercially unfair, viewed as discrete topics. I refer in particular to –
(a)the way in which the accounting treatment of the APJM $33 million dollar reeivable for the year ended 31 December 2014 occurred: see [241] – [278] above;
(b)the manner of implementation of the draft remuneration plan despite its rejection: see [288] – [304] above;
(c)the manner in which decisions were made concerning the irregular payments which had been made to Mr Zhang see [289] – [314] above; and
(d)the continued inadequacy of response to complaints advanced by Dr Huang and Mr Howard.
My opinion is that the plaintiffs have established that they are entitled to a remedy under s 232(d). It is a remedy which should provide them redress for the cumulative commercially unfair effect of the considerations to which I have referred, but principally for the fact that -
(a)Samgris has not been managed so as to accord to its minority shareholders the degree of participation in management to which they were entitled under its Constitution and Board Operation Rules.
(b)Samgris has not been managed so as to accord to its minority shareholders the degree of participation in management which, in light of the assumption which underlay the formation of the relationship between its members, was just and equitable. The mutual trust and co-operation between the groups of its members has completely broken down.
(c)There is no reason to believe that either of those two considerations will change and the minority shareholders are subject to restraint on their ability to exit the company, which APJM has indicated that they will insist upon.
They are entitled to relief either by winding up of the Company or by other means.

Has there been conduct ‘contrary to the interests of members as a whole’?

I have earlier explained (see [24] above), that the better view is that s 232(d) is separate and distinct from s 232(e). Conduct may be ‘contrary to the interests of members as a whole’ without necessarily involving commercial unfairness. The task of deciding whether there has been such conduct involves an objective assessment of whether the conduct adheres to accepted standards of corporate behaviour or is in accordance with how reasonable directors would act in attending to the affairs of the company.
It does not seem to me that the application of this test reaches any different outcome to that arrived at in relation to commercial unfairness.

Relief

Section 467(4) provides:
Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
This case involves an application which meets the description in the chapeau to the section. The findings I have made in these reasons mean that I have formed the opinions referred to in subparagraphs (a) and (b). The result is that I must make a winding up order unless I form the positive opinions that –
(a)some other remedy is available to the applicants; and
(b)the applicants are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Some other remedy is available to the plaintiffs. They and APJM both accept that the remedy of ordering APJM to purchase the minority shareholders is available.[364] For their part, the plaintiffs’ primary position is that a winding up order should be made. APJM submit that if, contrary to their principal case, I was minded to grant the plaintiffs a remedy, there is no justification in making a winding up order in preference to a share buy-out order. The only available buy-out order was one where APJM bought out the minority shareholders. Dr Huang’s evidence that the minority shareholders could not afford to buy-out APJM was not disputed. APJM submits that I should form the view that the minority shareholders have not discharged their onus to persuade me that share purchase was not a reasonable and viable option.
[364] APJM also submit that I could conclude it was appropriate to make an order for compensation for financial loss suffered by the plaintiffs under s 233. Whilst that remedy might be regarded as responsive to complaints concerning the implementation of the draft remuneratin plan and other inappropriate payments (and reference to the evidence was identified at Transcript, pp 8-3 and 8-4), it is not responsive to the principal matters which I have found to be oppressive, so I do not consider it further.
Neither side was able to draw my attention to any authority on the question whether the proper construction of s 467(4) is that if applicants have persuaded the court to form the two opinions in (a) and (b), with the result that the Court is obliged to make a winding up order unless it forms the opinion referred to in the final paragraph, there is then an onus on the applicants to prove that the Court should not form that opinion. APJM suggests that there is such an onus. However, the language of the section does not support that view. It seems to me that the substance of the matter is that the last paragraph after the word “unless” identifies an exception to a general rule which exception would apply by reason of additional or special matters, and accordingly the burden of proof would be on the party seeking to rely on the existence of those special or additional matters: cf Vines v Djordjevitch (1955) 91 CLR 512 at 519.
Putting aside the question of onus, the issue is whether I should form the opinion that the the applicants are acting unreasonably in seeking to have the company wound up instead of pursuing the other available remedy.
In this case there is no suggestion that Samgris is not solvent. Its draft financial accounts for the year ended 31 December 2015[365] strongly suggest the contrary because they record net assets of in excess of $18 million before having any regard to the disputed $33 million receivable from APJM. I accept, therefore, that in forming the opinion and in exercising the discretion I have as to remedy based on the findings I have made, I should regard it to be an extreme step to wind up a solvent company.
[365] Exhibit 20: Li (2) at exhibit LL-76.

I balance that consideration against the following.
First, the operations of Samgris are relatively confined. Nothing of significance has happened in its operations for some little time. The persons affected by it being wound up will principally be Dr Huang, the minority shareholders and APJM.
Second, no offer is on the table. Rather the share buy-out option would involve my ordering APJM to purchase the plaintiffs’ Samgris shares at a price to be determined by the Court on a date to be fixed after the culmination of a further judicial process. The requisite further litigation would carry with it the virtual inevitability of time, cost and further uncertainty. In this regard, I make the following observations:
(a)APJM submitted that it was not legitimate for the plaintiffs to point to such considerations as justifying a submission that they would not be unreasonable in pursuing the remedy of winding up instead of the remedy of share-buy out by APJM.
(b)However, I reject that contention. Similar considerations were considered relevant in Hillam.[366]
(c)I have no evidence from either side addressing the extent of time and cost which would be involved, but it would inevitably be considerable. I observe:
(i)      There would be have to be valuation evidence necessarily adduced from each side, aimed at working out the value to be attributed to the plaintiffs’ 40% shareholding.
(ii)      That would require consideration of the true net asset position of Samgris.
(iii)     There are 3 principal assets: cash, the EPCs and the the chose in action against APJM for the disputed $33 million receivable.
(iv)     The potential for dispute in the approach to be taken to the valuation of the latter two assets would be high. The valuation of the chose in action would be particularly complex.
(d)Further, I have no evidence as to the financial position of APJM. The facts that APJM is owned by the Shaanxi Parties and they are companies of significant substance does not mean that APJM should be so regarded. Accordingly, there is uncertainty whether APJM would be able to comply with any buy-out ordered by the Court and at least the possibility that a buy-out order might still end up with a winding up of Samgris.
[366] Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 at [80] to [82]
Third, winding up would introduce a third party (namely the liquidators) who could bring an objective mind to the realization of the assets and liabilities of Samgris, including Samgris’ chose in action against APJM for the recovery of the $33 million receivable. The liquidators could form a view whether there was merit in the pursuit of APJM for the monies. True it is the liquidators would have to form a view about value in order to make the decisions involved in performing their duty. There would be at least a possibility that Samgris might become involved in further litigation. But it would not necessarily involve any direct incurrence of costs by the plaintiffs.
When one considers the competing merits of the two options, I do not form the opinion that the plaintiffs are acting unreasonably in preferring the winding up option over the buy-out option. It seems to be to be entirely reasonable to choose to avoid the practical certainty of being directly subjected to the time, cost and uncertainty involved with further litigation concerning the value of any buy-out offer and the potential uncertain consequences of obtaining a buy-out order.
If, as I think is the better view, the onus was on APJM to persuade me to form the opinion that the plaintiff would be acting unreasonably by pursuing the winding up remedy, APJM has failed to to persuade me of that. If I am wrong in that, and the onus was on the plaintiffs to persuade me that I should not form that opinion, they have done so.
Accordingly, the appropriate relief in this case is an order that Samgris be wound up and Mr W.J. Harris and Mr A.N. Connolly be appointed as liquidators of Samgris. I propose, however, to take the approach referred to by Black J in Re Amazon Pest Control Pty Ltd at [33] to [36] and to stay the order to give the parties a chance to resolve their differences in a manner which might avoid the liquidation. I will stay the order for 7 days, but preserve the capacity to alter the length of the stay, should that prove necessary.
I make the following orders:
1.        The first defendant be wound up.
2.Mr W.J. Harris and Mr A.N. Connolly be appointed as liquidators of the first defendant, jointly and severally.
3.        The orders made in (1) and (2) be stayed until 4:00pm on 15 May 2017.
4.        The parties have liberty to apply to vary the length of the stay ordered in (3).
I will hear the parties as to costs.

CITATION:	Allways Resources Holdings Pty Ltd & Anor v Samgris Resources Pty Ltd & Anor [2017] QSC 74
PARTIES:	ALLWAYS RESOURCES HOLDINGS PTY LTD ACN 154 218 256 (first plaintiff) MCKAY BROOKE RESOURCES LIMITED (second plaintiff) v SAMGRIS RESOURCES PTY LTD ACN 147 457 181 (first defendant) ASIA PACIFIC JOINT MINING PTY LTD ACN 156 619 484 (second defendant)
FILE NO/S:	SC No 11618 of 2014
DIVISION:	Trial Division
PROCEEDING:	Application
DELIVERED ON:	8 May 2017
DELIVERED AT:	Brisbane
HEARING DATE:	1 – 2, 5 – 8, 15 September 2016
JUDGE:	Bond J
ORDERS:	The orders of the Court are that: 1. The first defendant be wound up. 2. Mr W.J. Harris and Mr A.N. Connolly be appointed as liquidators of the first defendant, jointly and severally. 3. The orders made in (1) and (2) be stayed until 4:00pm on 15 May 2017. 4. The parties have liberty to apply to vary the length of the stay ordered in (3).
CATCHWORDS:	CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – JUST AND EQUITABLE – OTHER CASES – where the company was said to be in the nature of a “quasi-partnership” – whether the company should be wound up on the just and equitable ground CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – CONDUCT OF DIRECTORS – OTHER CASES – whether the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members – whether the company should be wound up CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – CONDUCT OF DIRECTORS – OPPRESSIVE, UNFAIRLY PREJUDICIAL OR UNFAIRLY DISCRIMINATORY CONDUCT – whether the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs or in a manner that is contrary to the interests of the members as a whole – whether an act or omission by or on behalf of the company was oppressive or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs or was contrary to the interests of the members as a whole – whether the company should be wound up CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS’ REMEDIES AND INTERNAL DISPUTES – OPPRESSIVE OR UNFAIR CONDUCT – WHAT CONSTITUTES – GENERALLY – whether the affairs of the company were being conducted in a manner which was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs – whether the affairs of the company were being conducted in a manner which was contrary to the interests of the members as a whole CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS’ REMEDIES AND INTERNAL DISPUTES – OPPRESSIVE OR UNFAIR CONDUCT – RELIEF – whether an order should be made requiring the second defendant to purchase the plaintiffs’ shares – whether the company should be wound up Corporations Act 2001 (Cth), s 232, s 233, s 461, s 467 Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325 Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 3) [2015] NSWSC 1639 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95 Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450 Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561 Dodrill v The Irish Restaurant & Bar Co Pty Ltd & Ors [2009] QSC 317 Doughty v Abboud [2010] NSWSC 721 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Exton v Extons Pty Ltd [2017] VSC 14 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534 Gregor v British-Israel World Federation (NSW) (2002) 41 ACSR 641 Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228 Ian Allan Byrne v A J Byrne Pty Limited [2012] NSWSC 667 International Hospitality Concepts v National Marketing Concepts (No 2) (1994) 13 ACSR 369 Jankar v Dellmain [2009] NSWSC 766 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 Joint v Stephens [2008] VSCA 210 Jones v Dunkel (1959) 101 CLR 298 Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144 Loch v John Blackwood Ltd [1924] AC 783 MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 O’Neill v Phillips [1999] 1 WLR 1092 Pearl Link International Ltd v Recruit Co Ltd [2005] HKCFI 366 Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368 Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 Re Day (2017) 91 ALJR 262 Re London School of Electronics Ltd [1986] Ch D 211 Re Spargos Mining NL (1990) 3 WAR 166 Re Tivoli Freeholds Ltd [1972] VR 445 Re William Brooks & Co Ltd [1962] NSWR 142 Registrar of Titles (WA) v Franzon (1975) 132 CLR 611 Ruut v Head (1996) 20 ACSR 160 Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294 Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 288 ALR 310 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 Justice Barrett, Robson's Annotated Corporations Legislation (Looseleaf service, Thomson Reuters)
COUNSEL:	K E Downes QC, with R Schulte, for the plaintiffs No appearance for the first defendant S Couper QC, with J Baartz, for the second defendant
SOLICITORS:	Holding Redlich for the plaintiffs No appearance for the first defendant Corrs Chambers Westgarth for the second defendant