Asparq Consolidated Pty Ltd v Chameron Pty Ltd
[2021] VSC 697
•26 October 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 01023
IN THE MATTER OF ASPARQ LEGAL PTY LTD (ACN 612 809 266)
BETWEEN
ASPARQ CONSOLIDATED PTY LTD (ACN 164 008 315) Plaintiff
and
CHAMERON PTY LTD (ACN 006 384 185) & ORS (according to the attached schedule)
Defendants
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JUDGE: | DELANY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 September 2021; written submissions dated 22 September 2021 and 29 September 2021 |
DATE OF RULING: | 26 October 2021 |
CASE MAY BE CITED AS: | Asparq Consolidated Pty Ltd v Chameron Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2021] VSC 697 |
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PRACTICE AND PROCEDURE – Amendment application – Alleged oppressive conduct contrary to the Corporations Act 2001 (Cth) by unit holder not a member or director of corporate trustee – Competing authorities as to construction of s 233 – ‘In relation to’ – Leave to amend to rely on s 233 – Leave refused to include claim for knowing participation in breach of fiduciary duty – No allegation defaulting fiduciary engaged in a dishonest and fraudulent design – Particulars of knowledge insufficient – Third defendant entitled to summary judgment on oppression claim against her – An employee acting as entitled to terminate her employment – Criteria in Wayde v New South Wales Rugby League Ltd not satisfied – Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282, Wain & Ors v Drapac & Ors [2012] VSC 156, Hamex Corporation Pty Ltd v The La Trobe Street Ventures Pty Ltd [2019] FCA 1717, Blong Ume Nominees Pty Ltd & Ors v Semweb Nominees Pty Ltd & Ors (No 2) [2021] SASC 22, Trust Company Ltd v Noosa Venture 1 Pty Ltd [2010] NSWSC 1334; (2010) 80 ACSR 485, Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 288 ALR 310, Vargas v Minister for Home Affairs [2021] FCAFC 162, O’Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356 considered – HarstedtPty Ltd v Tomanek [2018] VSCA 84; (2018) 55 VR 158, Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73; (2019) 57 VR 406, Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 applied – Supreme Court (General Civil Procedure) Rules 2015 (Vic), rr 9.03, 9.04, 13.10(3)(b), 22.16, 23.01 - Corporations Act 2001 (Cth), ss 232, 233 - Civil Procedure Act 2010 (Vic), ss 62, 63, 64.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Segal | Danaher Moulton |
| For the Third Defendant | Mr A. Rodbard-Bean | Marsh & Maher Richmond Bennison Lawyers |
HIS HONOUR:
Introduction
The plaintiff in this proceeding is Asparq Consolidated Pty Ltd (‘Asparq Consolidated’). The first defendant is Chameron Pty Ltd (‘Chameron’), the second defendant is Gregory Bruce Thomas and the third defendant is Jessica Hill. The dispute concerns a legal practice, previously conducted by the fourth defendant, Asparq Legal Pty Ltd (‘Asparq Legal’). The fourth defendant conducted the legal practice in its capacity as trustee of the Asparq Legal Unit Trust (‘Unit Trust’).
On 17 September 2021 the Court heard argument in relation to the plaintiff’s application for leave to file and serve amended points of claim, by summons dated 10 September 2021. The application was supported by an affidavit of the plaintiff’s solicitor, Fleur Dillon, sworn 10 September 2021. The proposed amended points of claim are exhibited to that affidavit.
There was no opposition for leave to be given to the plaintiff to file and serve the amended points of claim by the first and second defendants. As the amendment was not opposed by those parties, an order was made on 17 September 2021 that recorded in ‘Other Matters’ that subject to further submissions from the parties, the plaintiff would be granted leave to file and serve the proposed amended points of claim.
Leave to file the amended points of claim was opposed by Ms Hill. The allegations in the proposed amended points of claim against Ms Hill are found in paragraphs 36D – 36H and 39 of the proposed amended points of claim.
On 17 September 2021, the Court also heard an application on behalf of Ms Hill, for summary judgment in her favour in the proceeding, by way of summons dated 18 August 2021. In support of that application Ms Hill relied on an affidavit from her solicitor, Annabel Clarke, sworn 18 August 2021.
After hearing argument on both applications on 17 September 2021, orders were made for the filing of submissions as to whether the claim for oppressive conduct under the Corporations Act 2001 (Cth) (‘the Act’) against Ms Hill, made at paragraph 39 of the proposed amended points of claim, can be pursued in circumstances where she is only a unit holder of the Unit Trust of which Asparq Legal is trustee. The plaintiff filed submissions on 22 September 2021. The third defendant filed submissions in reply on 29 September 2021.
These reasons concern the determination of issues on both applications as between the plaintiff and the third defendant, as well as the question of costs of the two summonses.
The initiating process and the proposed amended points of claim
The proceeding was commenced by originating motion on 8 April 2021. The relief sought in the motion relies upon ss 232, 233, 461, and 462 of the Act pursuant to which an order is sought requiring Mr Thomas to purchase Asparq Consolidated’s shares in the fourth defendant, Asparq Legal and its units in the Unit Trust. Alternatively relief is sought pursuant to s 48(1) of the Trustee Act 1958 (Vic) (‘the Trustee Act’) that Asparq Legal be removed as trustee of the Unit Trust, and that a new trustee be appointed in substitution for Asparq Legal, and pursuant to s 51 of the Trustee Act, that the assets of the Unit Trust be vested in the new trustee. A claim is made, further, or in the alternative, for equitable compensation from Chameron, Mr Thomas, and/or Ms Hill.
The amended points of claim allege, and it is not in contest, that Asparq Legal is a company of which Mr Phillips and Mr Thomas were directors. At relevant times, that company was trustee of the Unit Trust. Ms Hill holds 2.57% of the units in the Unit Trust. The plaintiff, Asparq Consolidated, owns 50% of the units and Chameron, an entity controlled by Mr Thomas, owns 47.43% of the units in the Unit Trust.
In addition to being a unit holder in the Unit Trust, Ms Hill was employed as an employee solicitor in the Asparq Legal practice as trustee for the Unit Trust pursuant to an employment agreement commencing 1 September 2016. The employer named in that employment agreement is LPL Professional Services Pty Ltd as trustee of the LPL Unit Trust trading as Lanyon Partners Legal. By contract of sale dated 30 August 2016, Asparq Legal, at that time called LPL Professional Services Pty Ltd, purchased the legal practice of Redvers Read Commercial Lawyers which was operated previously by Mr Read. Ms Hill had previously been employed by Mr Read. Initially Asparq Legal acquired a 50% interest in the Redvers Read Commercial Lawyers practice. In June 2017, when Mr Read retired, it acquired the remaining 50%. It was at around that time that Ms Hill acquired her interest in the Unit Trust.
The employment agreement pursuant to which Ms Hill was employed by Asparq Legal provided for termination by either party on 28 days’ written notice. On 14 January 2021 Ms Hill gave Asparq Legal six weeks’ notice of her resignation.
The amended points of claim allege that on 14 January 2021 Mr Thomas gave notice that he was resigning and would be leaving Asparq Legal in six weeks’ time. It is alleged that from about 1 March 2021 Mr Thomas, Ms Hill and another legal practitioner previously employed by Asparq Legal, Mrs Stapleton, have worked as legal practitioners with another law firm, Velocity Legal.
The amended points of claim allege that Mr Thomas acted in breach of statutory and fiduciary duties owed to Asparq Consolidated, in relation to his departure from Asparq Legal and his going to work at Velocity Legal. The points of claim include allegations that he attended meetings in 2020, with the Managing Director of Velocity Legal, defined as the ‘Secret Velocity Meetings’.
It is alleged that the six weeks’ notice given by Mr Thomas and Ms Hill was of an insufficient duration to enable Mr Phillips, in his capacity as the director of Asparq Legal, or Asparq Consolidated, to find a replacement for Mr Thomas in his role as the sole legal practitioner director, and the sole authorised principle of Asparq Legal. It is alleged that if Mr Thomas had provided at least three months’ notice of the decision of he and Ms Hill to resign from their employment, there would have been an opportunity to find a replacement for Mr Thomas, as well as Ms Hill and Mrs Stapleton, and to retain the business goodwill and clients of the legal practice. It is alleged that in the absence of such a period of notice, Mr Phillips, in his capacity as the director of Asparq Legal, had no alternative but to cease the legal practice of Asparq Legal.
The proposed amended points of claim allege knowing participation by Ms Hill in breach of fiduciary duty by Mr Thomas. These allegations, which conclude with an allegation that Ms Hill is liable to pay equitable compensation to compensate Asparq Consolidated for its loss and damage, are new.
There was, in the previous points of claim, and still is, no allegation of breach of the employment agreement by Ms Hill.
The proposed amended points of claim allege that Ms Hill knew or ought to have known of the fiduciary duties owed by Mr Thomas to Asparq Consolidated. They allege that Ms Hill participated in Mr Thomas’ nondisclosure to Asparq Consolidated concerning the Secret Velocity Meetings, that at some point prior to 14 January 2021 she entered into an agreement to join Velocity Legal, and that she did not inform Asparq Consolidated or its director of these matters. Further, that she participated in Mr Thomas’ failure to negotiate for all unitholders. It is alleged that as an employee of Asparq Legal she worked under the supervision of Mr Thomas. It is alleged that Ms Hill participated in Mr Thomas’ nondisclosure to Asparq Consolidated and in his failure to negotiate for all unit holders with knowledge that his conduct was a breach of his fiduciary duties to Asparq Consolidated.
Separately the proposed amended points of claim retain, but also amend the original allegations against Ms Hill, based on conduct alleged to be in contravention of ss 232 and 233 of the Act. It is alleged that Ms Hill’s actions from the time of the Secret Velocity Meetings up to and including her departure from Asparq Legal and joining Velocity Legal, and her knowledge and participation in Mr Thomas’ nondisclosure to Asparq Consolidated and/or the failure to negotiate for all unitholders was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Asparq Consolidated and was oppressive conduct by Ms Hill within the meaning of the Act. It is alleged that by reason of the conduct of Ms Hill and Mr Thomas, Asparq Consolidated is entitled to the fair and reasonable value of its shares in Asparq Legal and its units in the Unit Trust as at 31 December 2020.
In determining the application for leave to file and serve amended points of claim against Ms Hill, and also the summary judgment application, it is necessary to consider both aspects of the proposed claim against her.
Summary judgment: the principles to be applied
The principles to be applied on a summary judgment application made under ss 62 and 63 of the Civil Procedure Act 2010 (Vic) (‘CPA’) or in reliance upon rr 22.16 and 23.01 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) are well-established. They were recently summarised in Shan v Zhang & Ors:
31.The Court may order summary judgment if a claim has no real prospect of success. The test is well established. In submissions filed on behalf of Min Ren the principles were summarised as follows:
(a)the test is whether the respondent to an application has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)the test is to be applied by reference to its own language and without comparison to the ‘hopeless’ or ‘bound to fail‘ test enunciated in Dey and General Steel;
(c)‘the “no real prospects of success” test is to some degree more liberal than Dey and General Steel. It permits of the possibility of cases in which, although the plaintiff’s case is not “hopeless” or “bound to fail”, it does have a real prospect of succeeding’;
(d)the court’s power under section 63 is not to be exercised lightly;
(e)the power under section 63 ‘should not be exercise[d] unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process where the application is supported by evidence’;
(f)the court is to have regard to the overarching purpose of the CPA, as set out in section 7(1) of the CPA, being ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.’[1]
[1][2021] VSC 452, [31] (citations omitted).
Where an application is made under rule 23.01 of the Rules, the question is whether ‘by no proper amendment of the pleading can the plaintiff raise a good cause of action because the claim so completely lacks foundation in fact or law that no legitimate pleading amendment could save it’.[2]
[2]Annesley v Westpac [2016] VSC 323, [68].
The claim for oppressive conduct under the Act against Ms Hill
The amendments for which leave is sought include an amendment to paragraph 39. That paragraph alleges, among other things, that the actions of Ms Hill were oppressive to, unfairly prejudicial to, or unfairly discriminatory against Asparq Consolidated and constituted oppressive conduct by Ms Hill within the meaning of the Act.
The plaintiff submitted that Ms Hill, in her capacity as a unit holder of the Unit Trust, engaged in oppressive conduct against Asparq Consolidated contrary to s 232 of the Act. Ms Hill submitted that the claim both originally made and as proposed to be amended, relying on s 232 of the Act is bad in law and, for that reason, leave to amend should be refused and judgment should be given in her favour on that part of the claim.
The plaintiff submitted that even if that submission were correct, in circumstances where it seeks orders that other unit holders of the Unit Trust purchase its units in the Unit Trust at fair and reasonable value, Ms Hill is a necessary party.
Sections 232 and 233 of the Act are relevantly in the following terms:
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 a 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;
…
(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;
…
(j)requiring a person to do a specified act.
Although ss 461 and 462 of the Act are also relied upon in the Originating Process and concern the winding up of a company, those sections were not relied upon by the plaintiff on these applications. As a result, nothing further need be said about them.
The plaintiff submitted that s 232 of the Act is enlivened when the relevant facts are against a member, in this case Asparq Consolidated; the critical question being the person to whom the conduct is directed, not the person by whom it is occasioned. It was submitted that the oppressive conduct may be against a member in that capacity or in any other capacity (such as a unit holder of a unit trust).
It was submitted, by way of example, that a director who conducts the affairs of the company so as to advance his or her own interests or the interests of others of his or her choice, to the detriment of the company or of a member or members of the company, may have engaged in a contravention of s 232, notwithstanding that the director may not be a member.[3]
[3]Plaintiff, Plaintiff’s Short Submission, dated 22 September 2021, [4], referring to Re Bright Pine Mills Pty Ltd [1969] VR 1002, 1011; Re Spargos Mining NL (1990) 3 ACSR 1; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.
In support of its position that there is jurisdiction to make the claims under the Act against Ms Hill, the plaintiff relied on Vigliaroni v CPS Investment Holdings Pty Ltd,[4] where Davies J said:
[4][2009] VSC 428; (2009) 74 ACSR 282 (‘Vigliaroni’).
64.The Court is given the power under s 233 to make any order “that it considers appropriate in relation to the company”. The legislature deliberately conferred a wide discretion on the court, giving it extensive powers, so that the remedy will eliminate the oppression and enable the causes of any future oppression to be avoided.[5] The High Court in Campbell v Backoffice Investments Pty Ltd[6] very recently affirmed that ss 232 and 233 are to be read broadly and that “[t]he imposition of judge-made limitations on their scope is to be approached with caution”.[7]
65.If oppression is found, counsel for Gargaro has urged me to follow Kizquari Pty Ltd v Prestoo Pty Ltd[8] and to refuse relief under s 233, despite s 53 and the wide discretion. In Kizquari, Young J (as he then was) held that it was not the function of s 233 to remedy oppression within a trust and that an order could not be made under s 260 of the Corporations Law (the predecessor section to s 233) in respect of a trustee company.
66.In Kizquari the plaintiffs successfully proved oppressive conduct by directors of a corporate trustee in paying themselves and their wives excessive remuneration, which diminished the profits available for distribution to the unit holders. Young J observed that the oppression “may well cease” if the corporate trustee pursued the overpayments or stopped distributions until the money had been replaced. However, the plaintiffs wanted to be bought out by the defendants. The plaintiffs sought an order that the defendants purchase the plaintiffs’ shares in the corporate trustee at the fair value of their units in the unit trust. Young J formed the view that there were trust remedies that were available to effect the buy-out and would not make any order under s 260. His Honour reasoned as follows:
The company in question … is a trustee company. It has no assets of its own. It operates a business as a trustee on the basis of loan capital. The only oppression is in relation to the operation of the trust. That oppression has not affected the value of the shares one whit. The shares in [the trustee company] either have no value or alternatively a value of $1 being the amount paid for each share and they continue to have that value. It would be a very bold step indeed to order the [defendants] to buy the plaintiffs’ $1 share for a sum anything like say $189,000 on the basis that the plaintiffs thereby relinquished any interest in the trust.[9]
Young J declined to follow the decision of Vincent J (as he then was) in Re Bodaibo Ltd[10]where his Honour had made an order under the oppression remedy requiring the purchase of shares of a trustee company at the value of the business which the trustee company conducted on behalf of a unit trust, although the oppressive conduct had not directly affected the company or decreased its value but “rather created a situation that is intolerable for the minority shareholder”.[11] Young J commented that “it would not seem that [Vincent J’s] intention (sic) was drawn to the difficulty caused where the only business that the company carries on and the only assets it possesses are held pursuant to a trust in which it is not a beneficiary”.[12][13]
[5]Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688.
[6](2009) 257 ALR 610; 73 ACSR 1; [2009] HCA 25 (‘Campbell’).
[7]Campbell at [72] per French CJ.
[8](1993) 10 ACSR 606 (Kizquari).
[9]Kizquari at 612 per Young J.
[10](1992) 6 ACSR 509 (Re Bodaibo).
[11]Re Bodaibo at 515.
[12]Kizquari at 613.
Her Honour referred to subsequent decisions that had referred to Kizquari Pty Ltd v Prestoo Pty Ltd[14] with approval and continued:
68.These cases, properly considered, do not, in my view, place limitations on the kind of orders that I “consider[] appropriate in relation to the [CPS] company[ies]”, having regard to the particular circumstances before me. The point that I have to consider was not dealt with in Kizquari or any of the other cases mentioned above. None of those cases considered the scope of the oppression power and jurisdiction of the court to grant relief having regard to s 53, although s 53 appeared in the legislation at the time those cases were decided in terms similar to the provision as it now appears. It would appear that s 53 was not brought to the attention of the courts in those cases. Section 53 has been brought to my attention and I must decide in light of s 53 whether my powers are circumscribed so that I cannot make an order under s 233 in respect of a trustee company. In my view, s 53 puts beyond any doubt that the court’s jurisdiction and powers under the statutory oppression provisions are not circumscribed in respect of a trustee company and accordingly I conclude that I should depart from the view expressed by Young J in Kizquari and the cases which have supported that view, in view of s 53. I would also respectfully disagree with the view that Chesterman J expressed in Re Polyresins which Young JA cited with approval in McEwen that the equitable interests in the trust cannot be dealt with by the court under s 233. The only limitation imposed on the court on the kind of order that it can make under s 233 is the requirement for the order to be one that that (sic) that the court considers appropriate “in relation to the company”. The phrase “in relation to” requires a rational and discernible link between the remedy and the company in which the oppression has occurred. In other words, any remedy granted under s 233 must not be extraneous to achieving the object of relieving the oppression and must be appropriate to putting an end to the causes of oppression, including where the company acts as trustee and the oppression relates to the affairs of the trust. In appropriate cases the remedy may include orders dealing with the equitable interests in the trust, in my view.[15]
[14](1993) 10 ACSR 606.
[15][2009] VSC 428; (2009) 74 ACSR 282, [68] (citations omitted).
The plaintiff also relied upon the discussion by Ferguson J, as her Honour then was, in Wain & Ors v Drapac & Ors:
280.The plaintiffs seek orders that Mr Drapac purchase the shares of Mr Wain and Mr Murchie in Endoline. They also seek orders that Briaroaks purchase their shares in Drapac Management and the units held by their companies in the various trusts on the basis that Briaroaks is a unit holder itself.
281.Counsel for the Drapac parties noted that Mr Wain and Mr Murchie are shareholders in Endoline but that neither of them directly holds units in the trusts. Rather, the unitholdings are held by their respective companies. They submitted that there are no authorities that would permit the Court to order Mr Drapac (in his capacity as a member of Endoline) to purchase the shares of Mr Wain and Mr Murchie in Endoline at a value that reflected the value of their companies’ unit holdings in the trust of which Endoline was trustee.
282.The Drapac parties also submitted that the trustees of the various trusts had done nothing wrong, but if they had, that would fall to be dealt with under the provisions of the Trustee Act 1958 (Vic) not under the oppression provisions in the Corporations Act. They submitted that the law does not lack remedies as there are plentiful remedies in the area of equity and trusts but the solution is not to be found in the oppression provisions of the Corporations Act.
283.In Vigliaroni v CPS Investment Holdings Pty Ltd[16] Davies J was of the view that, by virtue of s 53, there was power to grant relief concerning assets that a corporate trustee held on trust.[17] In reaching this conclusion, her Honour did not follow earlier authorities on the same topic.[18] …
[16](2009) 74 ACSR 282.
[17]Ibid at [63]-[69].
[18]Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Bountiful Pty Ltd (1994) 12 ACLC 902; Re Polyresins Pty Ltd [1999] 1 Qd R 599; Surf Road Nominees Pty Ltd v James [2004] NSWSC 61; and McEwan v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244.
…
285.The Drapac parties submitted that the facts in this case are distinguishable from those in Vigliaroni because in that case, the relevant party was a beneficiary of the trust whereas here, Mr Wain and Mr Murchie are not beneficiaries. Rather, their companies are beneficiaries of the relevant trusts. However, a close reading of the decision suggests that this analysis is flawed. The schedule to her Honour’s reasoning makes it clear that the corporate structure in that case had many similarities to the structure of the Drapac Group.
286.The correctness of the decision in Vigliaroni was questioned in Trust Company Ltd v Noosa Venture 1 Pty Ltd.[19] In that case, Windeyer AJ found that there was no oppressive conduct. In case that was incorrect, Windeyer AJ went on to consider whether in any event an order could be made for purchase of the units held in the trust of which the relevant company was trustee and stated:
With respect to the decision of Davies J and accepting the requirement for coherence in corporations law I find it difficult to accept that an order “in relation to the company” includes an order in relation to the affairs of the company because if that were the legislative intention it would have been easy enough to insert the words “or the affairs of the company” after the words “the company” in the commencement part of s 233(1) of the Act. It is a question of power not scope. It follows that if it were necessary for me to decide this question I would not have felt bound to follow the decision in Vigliaroni in preference to the earlier decisions though accepting so far as those earlier decisions are concerned that at least their judgments do not appear to have given consideration to s 53 of the Act or its predecessors in earlier Acts. Thus I would not consider it within power to make an order requiring one trust beneficiary to buy out the interest of the other trust beneficiary. Such an order would, I think, be an order in relation to the trust not to the company.[20]
287.The words “in respect of” have a very wide meaning.[21] Bearing this in mind, and with respect, in my opinion Windeyer AJ’s construction of the legislation is too narrow. Were that interpretation to be accepted, then in cases such as the present, where there is a complex corporate structure that is a mixture of companies and trusts but in a real sense only one business is conducted by the corporate group, the legislation would be rendered virtually useless to remedy the real harm that has been caused by the oppressive conduct. It would strike me as odd if the Court could take into account oppressive or unfair conduct in the company’s affairs in determining whether relief may be granted but then could not give effective relief to redress the harm caused by that conduct. That this is not intended is, I think, clear from the terms of s 233 in respect of at least one form of order for which specific provision is made. In this regard, the section provides that the Court may make any order that it considers appropriate in relation to the company including an order regulating the conduct of the company’s affairs in the future.[22] As noted above, the company’s affairs includes its business, transactions and dealings with others.[23] In my view, it is clear that the legislative intent was to include the power to grant relief provided that (in the words of Davies J) there is a “rational and discernible link between the remedy and the company in which the oppression has occurred.” In a complex corporate structure (such as the Drapac Group) there is such a link between the companies and the relevant trusts which together operate the business. In my opinion there is power to grant the relief sought and consideration needs now to be given to whether, as a matter of discretion, it should be given. [24]
[19](2010) 80 ACSR 485.
[20]Ibid 516 at [105].
[21]Technical Products Pty Ltd v State Government Insurance Office (Qld) (1988) 167 CLR 45 at 47.
[22]Section 233(1)(c) Corporations Act.
[23]See [271] above.
[24][2012] VSC 156, [280]-[287] (‘Wain’).
Ms Hill submitted the weight of Australian authority, both before and after Vigliaroni[25] and Wain,[26] and as constituted by recent appellate authority, is such that the plaintiff’s claim for oppressive conduct against her under the Act cannot succeed.[27] She submitted the plaintiff’s right to seek relief for an order for the purchase of units in the Unit Trust at a fair and reasonable value does not arise under s 233 of the Act, but must be found, if at all, under the terms of the trust deed of the Unit Trust or under trust law. However, that is not the plaintiff’s pleaded case.
[25][2009] VSC 428; (2009) 74 ACSR 282.
[26][2012] VSC 156.
[27]Third Defendant, Third Defendant’s Further Submissions in Reply, dated 29 September 2021, [1], referring to as examples: Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, [301] - [304]; Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd [2000] WASCA 170, [40]; Re Bountiful Pty Ltd (1994) 12 ACLC 902; Re Polyresins Pty Ltd [1999] 1 Qd R 599; Trust Company Limited v Noosa Venture 1 Pty Limited [2010] NSWSC 1334; Ciccarello, Re Adelaide Property Development Pty Ltd v Cubelic [2008] FCA 141; Hamex Corporation Pty Ltd v Latrobe Street Ventures Pty Ltd [2019] FCA 1717, [123]; Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234, [51]; Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319, [42]; McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244; Surf Road Nominees Pty Ltd v Tass James [2004] NSWSC 61.
Ms Hill referred to the decision of Charlesworth J in Hamex Corporation Pty Ltd v The Latrobe Street Ventures Pty Ltd,[28] where her Honour, after considering authority to the contrary said:
123.There is force in the argument that where participants in a venture have structured their affairs in a trading trust it is the terms of the trust deed and not the oppression provisions of the Corporations Act to which they should have recourse. For a more comprehensive analysis of the principles see Emmett, the Hon AR, AO QC and Williams H, “Equity’s childbearing years: the proposed extension of shareholder oppression remedies to the beneficiaries of trading trusts” (2018) 10 (July) Butterworths Corporation Law Bulletin. That principle must apply with all the more force in a case in which the shareholder claiming oppression holds no beneficial interest in the assets of the trust company, as is the case here.[29]
[28][2019] FCA 1717.
[29]Ibid, [123].
The submissions advanced on behalf of Ms Hill are supported by recent observations by Kourakis CJ in Blong Ume Nominees Pty Ltd & Ors v Semweb Nominees Pty Ltd & Ors (No 2).[30] In that case his Honour considered the authorities beginning with Kizquari,[31] where Young J held that beneficiaries of a trust were not entitled to remedies for oppressive conduct of a corporation’s powers as a trustee.[32] He referred to the Victorian decisions in Vigliaroni[33] and Wain,[34] and the decision of Windeyer AJ in Trust Company Ltd v Noosa Venture 1 Pty Ltd,[35] where his Honour drew a distinction between orders in relation to a company, and orders in relation to its affairs and observed that he would not have followed the decision in Vigliaroni[36] if it had been necessary for him to decide.[37] Kourakis CJ said:
It is not strictly necessary for me to form a concluded view on the scope of the power of s 233 of the Corporations Act because of the view I have taken of the power conferred on this Court by s 59C of the Trustee Act. However, if it were necessary for me to decide, I would exercise the power conferred by s 233 of the Corporations Act to fashion similar orders to those I would make pursuant to s 59C of the Trustee Act.[38]
[30][2021] SASC 22, [84]–[95] (‘Blong Ume Nominees Pty’).
[31](1993) 10 ACSR 606.
[32][2021] SASC 22, [85], referring to Kizquari, 612.
[33][2009] VSC 428; (2009) 74 ACSR 282.
[34][2012] VSC 156.
[35][2010] NSWSC 1334; (2010) 80 ACSR 485, [103] – [105] (‘Trust Co’).
[36][2009] VSC 428; (2009) 74 ACSR 282.
[37][2021] SASC 22, [88].
[38]Ibid, [95].
Ms Hill submitted that in addition to Blong Ume Nominees Pty,[39] the decision of the New South Wales Court of Appeal in Tomanovic v Global Mortgage Equity Corporation Pty Ltd[40] supports the Kizquari[41] line of authority. I do not think the observations of the Court in Tomanovic[42] provide unqualified support for the proposition there is no jurisdiction to make an order in cases such as the present in reliance upon s 233 of the Act. All that can be said about Tomanovic[43] is that Campbell JA, with whom Macfarlane and Young JJA agreed, expressed doubts about the court’s jurisdiction:
[39][2021] SASC 22.
[40][2011] NSWCA 104; (2011) 288 ALR 310.
[41](1993) 10 ACSR 606.
[42][2011] NSWCA 104; (2011) 288 ALR 310.
[43]Ibid.
301.There is a question about whether the court would have power to make an order requiring buyout of the interests in the trust. Various cases seem to lead to the conclusion that there is no such power: Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Bountiful Pty Ltd (1994) 12 ACLC 902; Re Polyresins Pty Ltd [1999] 1 Qd R 599; (1998) 28 ACSR 671; Surf Road Nominees Pty Ltd v James [2004] NSWSC 61; McEwen v Combined Coast Cranes Pty Ltd ( 2002) 44 ACSR 244; [2002] NSWSC 1227.
302.However, s 53 Corporations Act has a very wide definition of “affairs of a body corporate”, that extends to matters concerning trustees. It extends to “(a) ... business ... transactions and dealings (... as ... trustee), property (... held as ... trustee).”
303.In Vigliaroni v CPS Investment Holdings Pty Ltd (2009) ACSR 282; [2009] VSC 428 Davies J at [63]-[69] was of the view that, by virtue of s 53, there was power to grant relief concerning assets that a corporate trustee held on trust.
304.Vigliaroni has since been questioned in Trust Company Ltd v Noosa Venture 1 Pty Ltd (2010) 80 ACSR 485;[2010] NSWSC 1334 at [104]-[105].
305.After judgment had been reserved, further submissions were invited from the parties on that topic. The respondents’ submissions in response to that invitation objected to the matter being raised at this stage, when it was not part of the case of the appellants at either the trial or on appeal.
306.Once this objection is taken, it must be acceded to, as the court is in no position to be satisfied that the availability of relief concerning the units in the trust could not be affected by facts additional to those investigated at the trial…[44]
[44]Ibid, [301] – [306].
It was submitted on behalf of Ms Hill that the text of s 233 does not support the proposition that the Court has jurisdiction pursuant to s 233 in a case where, as here, the respondent is neither a director or shareholder of the company, but merely the holder of units in a unit trust of which the company is trustee.
The strongest support for that proposition, based on an analysis of the language of the section to which I have been referred, is found in the observations by Windeyer AJ in Trust Co.[45] Those observations were quoted by Ferguson J in Wain.[46] They form part of the extract from the Wain[47] reasons reproduced at paragraph 31 above.
[45][2010] NSWSC 1334; (2010) 80 ACSR 485, [105].
[46][2012] VSC 156, [286].
[47]Ibid.
Although Windeyer AJ was correct to observe in Trust Co[48] that different words could have been employed in s 233(1), the meaning appropriately given to the expression ‘in relation to’ very much depends on its context. Recently in the context of migration legislation in Vargas v Minister for Home Affairs,[49] the Full Federal Court said:
20The phrase ‘in relation to’ was considered by the Full Court in McHugh v Minister for Immigration & Citizenship, Migrant Services & Multicultural Affairs[2020] FCAFC 223; (2020) 385 ALR 485 (sic). Chief Justice Allsop (with whom Besanko J agreed at [74]) explained, at [15]:
The phrase “in relation to” has a meaning derived from Bodruddaza v Minister for Immigration & Multicultural Affairs[2007] HCA 14; 228 CLR 651 at 662 –663 , esp [22] and [25]. Bodruddaza concerned s 486A (in Pt 8A), but the Full Court in Tang v Minister for Immigration & Citizenship[2013] FCAFC 139; 217 FCR 55 at 57 –58 , esp [8] – [ 9], applied it to s 476A. Tang has the support of Nettle J (sitting as a single Justice) in DBE17 v Commonwealth of Australia[2019] HCA 47; 266 CLR 156 at 164 [14]–[15]. From these authorities, and having regard to the terms of the Explanatory Memorandum for the Migration Litigation Reform Bill 2005 (Cth) discussed in Tang at 217 FCR 58 [8], the phrase “jurisdiction in relation to a migration decision” can be taken to be no wider than jurisdiction in public law remedies of direct judicial review of a migration decision. The phrase “in relation to” has no width or flexibility in this context beyond that. It does not include what might be called collateral attack upon a migration decision: Bodruddaza 228 CLR at 662 [22], such as a claim for false imprisonment available within jurisdiction under s 39B(1A)(c) and s 75(iii) of the Constitution by s 32(1) of the Federal Court of Australia Act 1976 (Cth): PCS Operations Pty Ltd v Maritime Union of Australia[1998] HCA 29; 153 ALR 520 at 523–526 [6]–[13]. See also Commonwealth v Okwume[2018] FCAFC 69; 263 FCR 604 ; and DBE17 v Commonwealth[2019] HCA 47; 266 CLR 156.[50]
[48][2010] NSWSC 1334; (2010) 80 ACSR 485, [105].
[49][2021] FCAFC 162.
[50]Ibid, [20].
In O’Grady v Northern Queensland Co Ltd,[51] the High Court split on the question of the meaning to be attributed to the words ‘in relation to’ in the Mining Act1968-1983 (Qld). The question for the Court was whether the Supreme Court of Queensland was deprived of the jurisdiction to grant relief on a counterclaim by s 80(4) of the Mining Act 1968-1983 (Qld).[52] Section 80(4) relevantly provided:
[51][1990] HCA 16; (1990) 169 CLR 356 (‘O’Grady’).
[52]Ibid, 368.
(1)… a Wardens Court shall have jurisdiction to hear and to determine all actions, suits and proceedings arising in relation to mining or to any mining tenement.
Without limiting the generality of the foregoing jurisdiction of a Wardens Court such a court shall have jurisdiction to hear and determine actions, suits and proceedings with respect to the following matters:
…
(g)any matter arising between miners in relation to mining…
…[53]
[53]Ibid.
Dawson J, who formed part of the majority, said as follows:
The crucial question is whether the proceedings constituted by the respondent's counterclaim were proceedings in relation to mining or to any mining tenement. The words “in relation to”, read out of context, are wide enough to cover every conceivable connexion. But those words should not be read out of context, which in this case is provided by the Mining Act 1968 (Q). What is required is a relevant relationship, having regard to the scope of the Act. Where jurisdiction is dependent upon a relation with some matter or thing, something more than a coincidental or mere connexion — something in the nature of a relevant relationship — is necessary: see Reg. v Ross-Jones; Ex parte Green (1984) 156 CLR 185, at pp. 196-7, 210.[54]
[54]Ibid, 367.
I agree with the submissions on behalf of Ms Hill that the jurisdictional question concerning s 233 of the Act is fundamentally one of statutory construction. As can be seen by way of example from the decisions in McHugh v Minister for Immigration & Citizenship, Migrant Services & Multicultural Affairs[55] and O’Grady,[56] and in particular from the observations of Dawson J in O’Grady,[57] context is critical to the correct construction of what is meant by the words ‘in relation to’. The correct construction of s 233 of the Act is a matter upon which a number of courts have expressed doubt. Given the divergence of views, it is not appropriate to seek to resolve those differences on an amendment application, or, for that matter, on a summary judgment application.
[55][2020] FCAFC 223; (2020) 385 ALR 405 (‘McHugh’).
[56][1990] HCA 16; (1990) 169 CLR 356.
[57]Ibid, 367.
No matter what the weight of authority, the presence of the competing authorities to which reference has been made means that it cannot be said that the plaintiff’s claim against Ms Hill relying on s 233 of the Act does not have a ‘real’ as opposed to a ‘fanciful’ chance of success or that it is bound to fail based on the jurisdictional issue concerning s 233 of the Act. Similarly, it cannot be said that the claim is bad in law and should not be permitted for that reason to go forward. The most that can be said is that despite many cases considering the question, the law remains in a state of flux.
The reliance upon ss 232 and 233 of the Act does not provide a basis to refuse leave in respect of paragraph 39 of the proposed amended points of claim. On its own, without an examination of the merits of the particular allegations of oppressive conduct, s 233 does not provide a basis to grant summary judgment in favour of Ms Hill.
In those circumstances, it is unnecessary to deal with the question of whether or not Ms Hill is a necessary party pursuant to r 9.03 of the Rules for the purposes of the amendment application.
The claim for knowing participation in breach of fiduciary duty
Separately, the proposed amended points of claim allege knowing participation by Ms Hill in breach of fiduciary duty by Mr Thomas.
There are two difficulties with paragraphs 36D - 36H of the proposed amended points of claim. The first, the plea against Mr Thomas, which founds the knowing participation claim against Ms Hill, does not allege that Mr Thomas’ conduct constituted a ‘dishonest and fraudulent design’. The second, the plea fails to either identify or to properly particularise the category of knowledge alleged on the part of Ms Hill.
In HarstedtPty Ltd v Tomanek,[58] Santamaria, McLeish and Niall JJA described the necessary elements of liability for knowing assistance under the second limb of Barnes v Addy,[59] as:
(a)the existence of a fiduciary duty owed by the fiduciary (as trustee or otherwise);
(b)a ‘dishonest and fraudulent design’ on the part of the fiduciary;
(c)assistance by the third party in that design; and
(d)knowledge on the part of the third party of the circumstances constituting that design.[60][61]
[58][2018] VSCA 84; (2018) 55 VR 158 (‘Harstedt’).
[59](1874) LR 9 Ch App 244.
[60]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 159 [160]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 361 [259].
The proposed amended claim against Ms Hill is missing an element of the cause of action relied on. It does not allege that Mr Thomas engaged in a ‘dishonest and fraudulent design’. What must be established in order to prove a ‘dishonest and fraudulent design’ was discussed by Sifris J in Chickabo Pty Ltd v Zphere Pty Ltd.[62] Something more than a mere breach of trust or fiduciary duty is required.[63]
[62][2019] VSC 73; (2019) 57 VR 406 (‘Chickabo’).
[63]Ibid, [188], referring to Westpac Banking Corporation v Bell Group Ltd (No 3) (2012) 44 WAR 1, 381 [2112] (Drummond AJA).
As there is no allegation that the actions of Mr Thomas were ‘dishonest and fraudulent’, the proposed amended points of claim do not make clear whether one of the preconditions to accessorial liability on the part of Ms Hill is alleged. The facts otherwise relied upon against Mr Thomas do not readily assist in determining whether or not the conduct in question meets the relevant criteria discussed in Chickabo.[64] In circumstances where one of the key elements of the cause of action proposed to be alleged against Ms Hill is missing, it is not appropriate to grant leave to amend paragraphs 36D – 36H of the proposed amended points of claim.
[64]Ibid.
Even if a dishonest and fraudulent design allegation formed part of the pleading against Mr Thomas, or if the facts alleged against him should properly be so categorised, there is a further problem with the proposed pleading. If Mr Thomas has engaged in a dishonest and fraudulent design, Ms Hill will only be liable as an accessory if the requisite degree of knowledge on her part is established. The plea of knowledge in the proposed amended points of claim is not properly articulated. The proposed amended points of claim do not specify the category of knowledge alleged on the part of Ms Hill.
In Harstedt the Court of Appeal said:[65]
[65][2018] VSCA 84; (2018) 55 VR 158, [85] – [87] (citations omitted).
[85]It has been customary, though not without some controversy, to analyse the requirement of knowledge for accessorial liability for breach of fiduciary duty by reference to the following five categories set out by Peter Gibson J, acting on an agreement between counsel, in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA:
(i)actual knowledge;
(j)wilfully shutting one’s eyes to the obvious;
(k)wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;
(l)knowledge of circumstances which would indicate the facts to an honest and reasonable person;
(m)knowledge of circumstances which would put an honest and reasonable person on inquiry.
[86]Each of the first two categories speaks for itself. The third category ‘involves such a calculated abstention from inquiry as would disentitle the third party to rely upon lack of actual knowledge of the trustee’s or fiduciary’s wrongdoing’. The fourth category is ‘designed to prevent a third party setting up his or her own “moral obtuseness” as the reason for not recognising an impropriety that would have been apparent to an ordinary person’. The fifth category derives from the doctrine of bona fide purchaser for value without notice.
[87]The High Court in Farah endorsed the Baden scale and indicated that knowledge falling within any of the first four categories, but not the fifth, represents the law in Australia.
Rule 13.10(3)(b) of the Rules requires that every pleading shall contain particulars of knowledge alleged. In this case, the particulars of knowledge allege three matters of fact. The first, the participation by Ms Hill in the Secret Velocity Meetings; the second, the fact Ms Hill signed a contract of employment with Velocity Legal; and the third, Ms Hill not informing Mr Phillips or any of the directors of Asparq Consolidated about these matters. Paragraph 36F alleges that Ms Hill ‘participated’ in Mr Thomas’ breaches, with knowledge that his conduct was a breach of his fiduciary duties to Asparq Consolidated. However neither the plea itself nor the particulars say whether the case against Ms Hill is one where actual knowledge of the breaches by Mr Thomas is alleged, or whether one of the other categories of knowledge in Baden[66] is alleged. As noted in the passage from Harstedt reproduced at paragraph 51 above, the fifth category of knowledge, if that is the knowledge alleged by the plaintiff, is not a claim that represents the law in Australia.[67]
[66][1992] 4 All ER 161, 235, 242-3 (‘Baden’).
[67][2018] VSCA 84; (2018) 55 VR 158, [87].
As no attempt is made in the pleading to identify the relevant Baden[68] category of knowledge, for that separate reason, it is not appropriate that leave be granted to amend the points of claim to include a claim against Ms Hill for knowing participation in breach of fiduciary duty.
[68][1992] 4 All ER 161, 235, 242-3.
Disposition of the application for leave to amend
The application by the plaintiff for leave to amend the points of claim in relation to Ms Hill so as to include paragraphs 36D – 36H is refused.
No argument was directed to the minor amendments to paragraph 39 concerning the claim against Ms Hill under the Act. In those circumstances leave is granted to amend paragraph 39 to include subparagraphs (i) and (j), but not subparagraph (k). That is so because, once again, that paragraph alleges knowledge and is not properly particularised.
Is Ms Hill entitled to summary judgment in her favour?
Assuming jurisdiction in the case of the claims made pursuant to s 233 of the Act, as amended to include subparagraphs 39(i) and (j), is it nonetheless appropriate to grant summary judgment in favour of Ms Hill?
The submissions filed on behalf of the plaintiff on 14 September 2021 state that it does not take issue with Ms Hill’s entitlement to resign as an employee solicitor of Asparq Legal, or with her entitlement to change her employer. While that is the case, it contends that because Ms Hill was also a unitholder in the Unit Trust which operated the legal practice, the exercise of power by her to resign her employment, even if taken in good faith and for a purpose within power imposed a ‘disadvantage, disability or burden on a member that according to ordinary standards of reasonableness and fair dealing was unfair.’[69] Relying on Wayde v New South Wales Rugby League Ltd,[70] the plaintiff submits that in those circumstances the Court’s power under s 232 of the Act will be engaged. In Wayde Brennan J said as follows:
Section 320 requires proof of oppression or proof of unfairness: proof of mere prejudice to or discrimination against a member is insufficient to attract the court's jurisdiction to intervene…. At a minimum, oppression imports unfairness and that is the critical question in the present case.
…
…The question of unfairness is one of fact and degree which s. 320 requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of s. 320 may be attracted to a decision made by directors which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.[71]
[69]Plaintiff, Plaintiff’s Outline of Submissions, dated 14 September 2021, [10].
[70][1985] HCA 68; (1985) 180 CLR 459 (‘Wayde’).
[71]Ibid, 472-3.
In Morgan v 45 Flers Avenue Pty Ltd,[72] Young J said:
… as a result of the decisions in New Zealand in Thomas v H W Thomas Ltd [1984] 1 NZLR 686; 2 ACLC 610; in England in Re Bovey Hotel Ventures Ltd (Chancery Division, Slade J 31 July 1981 unreported); Re R A Noble & Sons (Clothing) Ltd[1983] BCLC 273 at 290; and Re London School of Electronics Ltd[1985] 3 WLR 474 and in Australia in Wayde v NSW Rugby League Ltd(1985) 10 ACLR 87; 61 ALR 225, it has been accepted that one no longer looks at the word “oppressive” in isolation but rather asks whether objectively in the eyes of a 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: see Wayde’s case per Brennan J at ACLR 94 and at ALR 235; per majority at ACLR 91 and at ALR 231. In my view a court now looks at sub-s 2(a) as a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely, commercial unfairness...[73]
[72](1986) 10 ACLR 692 (‘Morgan’).
[73]Ibid, 704.
The plaintiff submitted that Ms Hill’s actions and the manner in which she chose to depart Asparq Legal must be viewed in context. It was submitted that the Court is required to determine whether Ms Hill’s decision, in conjunction with actions taken by Mr Thomas, were designed by them to advance their own interests or the interests of others of their choice, to the detriment of Asparq Legal or to the detriment of other shareholders and unit holders. It was noted in the plaintiff’s submissions that at this stage, the parties have not completed discovery and no affidavits have been filed by Ms Hill. In those circumstances it was submitted that it cannot be said that the claim by the plaintiff of oppressive conduct on the part of Ms Hill does not have a ‘real’ as opposed to a ‘fanciful’ chance of success.
I do not agree. The application for summary judgment in Ms Hill’s favour must be assessed on the basis of the material presently before the Court. Taking the facts alleged and particularised against Ms Hill at their highest, it is alleged that on 22 September 2020 and, again, on 14 October 2020, there was a Zoom meeting attended by Ms Hill, Mr Thomas and Mr Storey, the Managing Director of the legal practice of Velocity Legal. It is alleged that until about 14 January 2021, neither Mr Thomas, nor Ms Hill, informed the plaintiff about the Secret Velocity Meetings. Although it is alleged neither of those persons informed the plaintiff about the Secret Velocity Meetings, it is not alleged that Ms Hill’s failure to do so was in breach of any duty owed by her. It is alleged that Mr Thomas had a duty to disclose these matters which were breached by him, but no such allegation is made in respect of Ms Hill. It is alleged that Mr Thomas should have, but did not seek to negotiate the sale of the business goodwill of Asparq Legal to Velocity Legal, but he instead preferred his own interests. No corresponding allegation of failure to negotiate is made against Ms Hill.
The allegations of fact against Ms Hill that might be said to satisfy the criteria in Wayde,[74] revolve around her participation in two meetings with Velocity Legal, her failure to disclose the fact of those meetings to the plaintiff or its director, her entry into an employment agreement with Velocity Legal on 23 December 2020 and the fact that at the 14 January 2021 meeting, together with Mr Thomas, she refused to consider extending her notice period. It is alleged that had she and Mr Thomas done so, it would have enabled Asparq Legal to find a replacement for Mr Thomas in his role as the sole legal practitioner director and sole authorised principal of Asparq Legal.
[74][1985] HCA 68; (1985) 180 CLR 459, 472-3.
It is accepted that Ms Hill had an entitlement to resign under her employment contract. The contract required four weeks’ notice, and Ms Hill gave six weeks’ notice. It is irrelevant to the notice period given by Ms Hill that there was insufficient time to replace Mr Thomas in his role. No logical connection is established between Ms Hill’s notice period as an employee solicitor and the alleged inability to secure a replacement for Mr Thomas as the principal of the legal practice.
Adapting the language of Young J in Morgan,[75] to succeed in its claim under the Act against Ms Hill, the plaintiff must show that objectively, in the eyes of a commercial bystander, the conduct of Ms Hill has been so unfair that reasonable directors who consider the matter would not have considered the conduct to be fair. In Wayde,[76] Brennan J said the test assumes that reasonable directors weigh the furthering of corporate objectives against the disadvantage, disability or burden which the decision will impose, and address their minds to the question whether the proposed decision is unfair.
[75](1986) 10 ACLR 692, 704.
[76][1985] HCA 68; (1985) 180 CLR 459, 472-3.
Assuming jurisdiction under the Act as I have done, it is extremely difficult to see how the conduct of the employee solicitor – not a director of the company, and the holder of only 2.57% of the units in the Unit Trust operating the legal practice – by acting as she was entitled under her contract of employment, could objectively be said to have been acting unfairly in relation to a corporate trustee, or in relation to members of the corporate trustee or, for that matter, unit holders in the Unit Trust. Ms Hill is not alleged to have been in a position of control or dominance in relation to the company or the Unit Trust, or for that matter, the business. She was an employee of the legal practice who was entitled to terminate her employment, and she did so.
The facts alleged against Ms Hill fall well short of a case that enjoys ‘real’, as opposed to ‘fanciful’, prospects of success when what is alleged to be established by reason of those facts is a visible departure from standards of fair dealing. The visible departure from the standards of fair dealing relied on is the resignation by an employee who was entitled to investigate alternative employment, and was entitled to resign her employment with Asparq Legal on the giving of 28 days’ notice, but in fact gave six weeks’ notice.
Unless it is not in the interests of justice to do so or the dispute is of such a nature that only a full hearing on the merits is appropriate as contemplated by s 64 of the CPA, there being no real prospect of success in the claims against her, the claims against Ms Hill should be dismissed.
The only remaining matter for consideration that could bring the claim against Ms Hill within s 64 of the CPA concerns the contention that Ms Hill is a necessary party.
Is Ms Hill a ‘necessary party’ such that the Court should allow the matter to proceed to trial?
Rule 9.03 of the Rules permits the joinder of necessary parties. Where a party has been joined in that capacity, r 9.04 is relevant. Rule 9.04 provides:
9.04 Joinder Inconvenient
Notwithstanding Rules 9.01 and 9.02, where any joinder of claims or of parties may embarrass or delay the trial of the proceeding or cause prejudice to any party or is otherwise inconvenient, the Court may order that—
(a) there be separate trials;
(b) any claim be excluded;
(c)any party be compensated by an award of costs or otherwise for being required to attend, or be relieved from attending, any part of a trial in which that party has no interest;
(d)any person made a party cease to be a party on condition that that party be bound by the determination of the questions in the proceeding or without any such condition.
The power in r 9.04 may be exercised where joinder would cause prejudice to a party or is otherwise inconvenient. The Originating Process did not seek an order that Ms Hill purchase the plaintiff’s shares in Asparq Legal. That relief was sought against Chameron only. That remains the case because Part A in the prayer for relief in the amended points of claim seeks the relief sought in the Originating Process. The Originating Process seeks in the first instance an order that Chameron, an existing 47.43% unit holder purchase the plaintiff’s units in the Unit Trust, and in the alternative Ms Hill, a 2.57% unit holder purchase those units. Although such an alternative residual claim remains against Ms Hill, applying the language of r 9.04, in circumstances where the only substantive claim remaining in the proceeding is against Mr Thomas, and his company Chameron, for Ms Hill to continue as a party is inconvenient. Consistent with the obligations in s 23 and s 25 of the CPA, the proper application of r 9.04 requires that Ms Hill cease to be a party.
This is not a case where the claim against Ms Hill should not be disposed of summarily because it is not in the interests of justice to do so. Nor is it a case where the dispute is of such a nature that only a full hearing on the merits is appropriate.
Disposition of the summary judgment application
There is summary judgment for Ms Hill against the plaintiff. The claim against her is dismissed.
Costs
There is no reason why costs should not follow the event.
I will order that the plaintiff pay the third defendant’s costs of and incidental to the proceeding, including her costs of the summons dated 18 August 2021 and the application by the plaintiff to file and serve amended points of claim against her, together with any reserved costs on a standard basis.
If there are any other residual issues that require determination, the legal practitioners for the parties should contact my chambers.
SCHEDULE OF PARTIES
ASPARQ CONSOLIDATED PTY LTD (ACN 164 008 315) Plaintiff
and
CHAMERON PTY LTD (ACN 006 384 185) First Defendant
GREGORY BRUCE THOMAS Second Defendant
JESSICA HILL Third Defendant
ASPARQ LEGAL PTY LTD (ACN 612 809 266) Fourth Defendant
[13][2009] VSC 428; (2009) 74 ACSR 282, [64] - [66].
[61][2018] VSCA 84; (2018) 55 VR 158, [70].
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