Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3)

[2015] NSWSC 1639

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 3) [2015] NSWSC 1639

Hearing dates:

23, 24, 25, 26, 27, 30, 31 March 2015, 1 April 2015 (evidence), 17 April 2015 (directions), 1 May 2015 (motion), 16 July 2015 (motion), 24 July 2015 (interlocutory judgment) 3, 4, 5, 6, 7, 18,19, 20 August 2015 (evidence and oral submissions)

Date of orders:

06 November 2015

Decision date:

06 November 2015

Jurisdiction:

Equity - Expedition List

Before:

Sackar J

Decision:

See [705]-[726]

Catchwords:

CORPORATIONS – members’ remedies – oppression – oppressive to, unfairly prejudicial to, or unfairly discriminatory against – contrary to the interests of the members as a whole – nature of conduct – reasonableness of conduct

 

CORPORATIONS – remedies – winding-up – where business still operational – where relationship between members has broken down

 

CORPORATIONS – breach of directors’ duties – conduct in running competing business – use of information – whether businesses competitive in the same market – provision of similar services – distinguishing features

 

CORPORATIONS – accessorial liability – whether parties induced or procured breaches of fiduciary obligations – whether parties knowingly concerned in breaches – accessorial liability of corporate entities – dishonesty – requisite level of knowledge

  INTELLECTUAL PROPERTY – trade marks – whether trade mark likely to mislead or cause confusion – common or generic words – “institute” – recognition by consumers

Legislation Cited:

Corporations Act 2001 (Cth)
Trade Marks Act 1995 (Cth)
Electronic Transactions Act 2000 (NSW)
Electronic Transactions (Victoria) Act 2000 (Vic)

Cases Cited:

ACCC v Malaysian Airline System Berhad (2010) 271 ALR 91
Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) (2013) 300 ALR 492
Australian Co-operative Foods Ltd v Norco Co-operative Ltd [1999] 46 NSWLR 267
Boardman v Phipps [1967] 2 AC 46
Bonham-Carter v Hyde Park Hotel (1948) 64 TLR 177
Breen v Williams (1996) 186 CLR 71
Brirek Industries Pty Ltd v Mckenzie Group Consulting Pty Ltd (Vic) (No 2) [2015] VSCA 185
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Chan v Zacharia (1984) 154 CLR 178
Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1
Colorado Group Ltd v Strandbags Group Pty Ltd (2007) 164 FCR 506
Commissioner of Taxation v Murry (1998) 193 CLR 605
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Cook v Deeks [1916] 1 AC 554
Donaldson v Natural Springs Australia Limited [2015] FCA 498
E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Ezystay Systems Pty Ltd v Link 2 Pty Ltd [2015] NSWSC 1105
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Fexuto Pty Ltd v Bosnjak Holding Ltd (2001) 37 ACSR 672
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Fink v Fink (1946) 74 CLR 127
First Conferences Services Ltd v Bracchi [2009] EWHC 2176 (Ch)
Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534
Green v Bestobell Industries [1982] WAR 1
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609
Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336
HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 290 ALR 372
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83
Hunter v Organic & Natural Enterprise Group Pty Ltd (2012) 92 ACSR 183
Ireland v Retallack [2011] NSWSC 846
Joint v Stephens [2008] VSCA 210
Markwell Bros Pty Ltd v CPN Diesels (Qld) Pty Ltd [1983] 2 Qd R 508
McCausland v Surfing Hardware International Holdings Pty Ltd [2013] NSWSC 902
McWilliam v L J R McWilliam Estates Pty Ltd (1990) 20 NSWLR 703
Michael Kellaway International v Shark Bay Airport (unreported, 13 November 1997)
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Murray Goulburn Co-operative Co Ltd v NSW Dairy Corporation (1990) 24 FCR 370
Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343
Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110
Nilon v Bezzina [1988] 2 Qd R 420
O’Neill v Phillips [1999] 1 WLR 1092
Power v Ekstein (2010) 77 ACSR 301
Queensland Mines Ltd v Hudson (1978) 18 ALR 1
Ratcliffe v Evans [1892] 2 QB 524
Re Amazon Pest Control Pty Limited [2012] NSWSC 1568
Re Bright Pine Mills Pty Ltd [1969] VR 1002
Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648
Re Cheal Industries [2012] NSWSC 261
Re CMI Ltd [2011] QSC 346
Re D G Brims and Sons Pty Ltd (1995) 16 ACSR 559
Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1
Re London School of Electronics Ltd [1986] Ch 211
Re M Dalley & Co Pty Ltd v Sims (1968) 1 ACLR 489
Re New South Wales Bar Association (2014) 315 ALR 146
Re Tivoli Freeholds Ltd [1972] VR 445
Re Waterfront Investments Group Pty Ltd (in liq) [2015] NSWSC 18
Registrar of Trade Marks v Woolworths Ltd (1999) 93 FCR 365
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
SGH Ltd v Commissioner of Taxation (2002) 210 CLR 51
Southern Cross Refrigerating Company v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592
Southern Real Estate Pty Ltd v Dellow (2003) 87 SASR 1
Sovereign Motor Inns Pty Ltd v Bevillesta (No 2) [2002] NSWSC 7
Square Mile Partnership Ltd v Fitzmaurice McCall Limited [2007] 2 BCL 23
Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291
Thomas Jewellers (Australia) Pty Ltd v Royal Arcade Pty Ltd (1994) 14 ACSR 352
Thomas v HW Thomas Ltd [1984] 1 NZLR 686
Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488
Toddler Kindy Gymbaroo Pty Ltd v Gymboree Pty Ltd (2000) 100 FCR 166
Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256
Trojan Equity Ltd v CMI Ltd (2011) 87 ACSR 144
Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44
Warman International Ltd v Dwyer (1995) 182 CLR 544
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459

Texts Cited:

P Finn (ed) Equity and Commercial Relationships (1987, the Law Book Co Limited)
JD Heydon, JM Leeming and PG Turner, Equity, Doctrines and Remedies (5th ed, 2014, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

2014/85141 (Licence Fee Proceedings)

 

Australian Institute of Fitness Pty Limited - Plaintiff
Australian Institute of Fitness (Vic/Tas) Pty Limited - Defendant

 

2014/299981 (Sage Proceedings)

 

Australian Institute of Fitness Pty Limited – Plaintiff
Sage Institute of Fitness Pty Limited – First Defendant
Australian Careers Institute Pty Limited – Second Defendant
Robert Hornsey – Third Defendant
Vicki Tuchtan – Fourth Defendant
Paul Kinghorn – Fifth Defendant

 

2014/300068 (Oppression Proceedings)

  Australian Institute of Fitness (Vic & Tas) Pty Limited – Plaintiff
Australian Institute of Fitness Pty Limited) – First Defendant
Australian Institute of Fitness (NSW) Pty Limited – Second Defendant
Australian Institute of Fitness (WA) Pty Limited – Third Defendant
Australian Institute of Fitness (QLD) Pty Limited – Fourth Defendant
Australian Institute of Fitness (SA & NT) Pty Limited – Fifth Defendant

Representation:

Counsel:
2014/85141
Counsel:
Mr D Pritchard SC – Plaintiff
Mr MS Osborne QC – Defendant

 

Solicitors:
Watson Mangioni - Plaintiff
B2B Law - Defendant

 

2014/299981
Counsel:
Mr D Pritchard SC – Plaintiff
Mr MS Osborne QC with Mr J Tomlinson, Mr D Stretton – First to Fifth Defendants

 

Solicitors:
Watson Mangioni - Plaintiff
B2B Law – First to Fifth Defendants

 

2014/300068
Counsel:
Mr MS Osborne QC with Mr J Tomlinson, Mr D Stretton – Plaintiff
Mr D Pritchard SC – First Defendant
Mr R Newlinds SC with Mr R Yezerski – Second to Fifth Defendant

  Solicitors:
B2B Law – Plaintiff
Watson Mangioni – First Defendant
Yeldham Price O’Brien Lusk – Second to Fifth Defendants

File Number(s):

2014/85141, 2014/299981, 2014/300068

Publication restriction:

N/A

contents

Introduction – The Proceedings and the Parties

Background facts

Legal principles

Construction of the RLA

Oppression

Contrary to the interest of the members as a whole

Oppressive to, unfairly prejudicial to, or unfairly discriminatory against

Winding up pursuant to s 461(1)(k) or s 232

Loss

Breach of directors’ duties

Accessorial liability

Trade marks

Witnesses

Mr Robert Hornsey

Ms Tuchtan

Ms Richardson

Ms Ward

Mr Weir

Mr Hurst

Mr Creagh

Discussion

The Licence Fee issue

Use of Separate RTO Status

The Sage Proceedings

Setting Up the Sage Business

Promoting the Sage fitness business

Freedom to compete

Accessorial claims

The Trade Mark Case

The Oppression Proceedings

Some preliminary issues

Licence fee issues

VET funding issues

Funding levy issues

Cross claim: alleged breach of the MOU

The Licence Fee Proceedings

The exclusion issue

The Notices Issue

The Sage Proceedings Issue

Relief and remedies

Oppression

The Sage Proceedings

The Licence Fee Proceedings

Use of the separate RTO status

Costs

Judgment

Introduction – The Proceedings and the Parties

1. These proceedings concern three matters which have been heard together. The three matters are referred to as the “Licence Fee Proceedings”, the “Sage Proceedings” and the “Oppression Proceedings” respectively.

2. The Licence Fee Proceedings concern a claim by the Australian Institute of Fitness Pty Ltd (Institute) that the Australian Institute of Fitness (Vic/Tas) Pty Limited (AIF Vic/Tas) has not paid licence fees owed under a regional licensing agreement. The Institute is the plaintiff and AIF Vic/Tas is the defendant.

3. AIF Vic/Tas has brought a cross claim in the Licence Fee Proceedings alleging breach by the Institute of a memorandum of understanding between the Institute and AIF Vic/Tas about funding that was potentially available from the Victorian government.

4. The Sage Proceedings relate to the conduct of the defendants in the Sage Proceedings in relation to the establishment of the Sage Institute of Fitness Pty Limited (Sage) in competition with the Institute and its licensees.

5. The Institute is the plaintiff in the Sage Proceedings. Sage is the first defendant in the Sage Proceedings. The Australian Careers Institute Pty Ltd (ACI) is the second defendant. Mr Robert Hornsey (Mr Hornsey) is the third defendant, Ms Vicki Tuchtan (Ms Tuchtan) is the fourth defendant, and Mr Paul Kinghorn (Mr Kinghorn) was the fifth defendant. The proceedings were discontinued against Mr Kinghorn. By reason of the amended originating application AIF Vic/Tas was joined as the sixth defendant.

6. The Oppression Proceedings were commenced by the Australian Institute of Fitness (Vic & Tas) Pty Limited (AIVT), which alleges that various acts and omissions by the Institute and others (described below) were, individually or cumulatively, in contravention of s 232 of the Corporations Act 2001 (Cth).

7. AIVT is the plaintiff in the Oppression Proceedings. The Institute is the first defendant. The Australian Institute of Fitness (NSW) Pty Limited (AIF NSW), the Australian Institute of Fitness (WA) Pty Limited (AIF WA), the Australian Institute of Fitness (QLD) Pty Limited (AIF Qld) and the Australian Institute of Fitness (SA & NT) Pty Limited (AIF SA/NT) are the second to fifth defendants in the Oppression Proceedings and are collectively referred to in this judgment as the “Shareholder Defendants”.

8. The Shareholder Defendants are all shareholders and licensees in and of the Institute. Each of those four parties holds 20% of the shares in the Institute. In Victoria and Tasmania the shareholder and licensee are different corporate entities; the shareholder is AIVT and the licensee is AIF Vic/Tas. AIVT holds the remaining 20% of the shares in the Institute. Both AIVT and AIF Vic/Tas are wholly owned subsidiaries of the same corporate entity, The Institute Holdings Pty Limited (Holdings).

9. On 5 December 2014 the Institute sought interlocutory relief in the Sage Proceedings. The Institute sought orders restraining Sage from using a particular shade of the colour green, a black background similar to that used in the Institute’s advertisement, and a telephone number that differed by one digit to the Institute’s telephone number.

10. On 11 December 2014 Rein J gave judgment refusing the application for interlocutory relief. His Honour was “not able to accept that [the Institute’s] claim is a strong one.” His Honour also considered significant the fact that Sage had undertaken to take various steps to place disclaimers on its materials to indicate that it was not connected to the Institute. His Honour ordered the Institute to pay the defendants’ costs on the motion, but costs were awarded on the ordinary basis.

11. The Oppression Proceedings initially included claims that the Institute and Shareholder Defendants caused AIVT to enter into licence agreements in circumstances where those agreements were required to comply, but did not in fact comply, with the Franchising Code of Conduct, and that the Institute and the Shareholder Defendants failed subsequently to rectify that non-compliance. These claims were abandoned 23 March 2015 (see T16.22-5).

12. On the ninth day of this hearing before me, Senior Counsel representing the Institute made the following concession at T583/14-40:

We're not pursuing certain claims, but prayers for relief, and not pursuing certain paragraphs in the amended statement of claim, in accordance with the document handed up. They, your Honour, will appreciate - maybe not instantly - are the pure passing off and misleading, deceptive conduct claims. There is still breach of director's duties by reason of that conduct.

13. In addition, in final submissions the matters concerning the response to the Fair Work Commission and the establishment of a disputes committee were also abandoned in relation to the claim of oppression (T908.38-40).

Background facts

14. The Institute was incorporated on 13 September 2001 and its constitution (Constitution) is dated the same day. The Institute is a major provider of education and training services in the fitness industry. The Institute operates its business through its shareholders and licensees. Each shareholder/licensee has the right and duty to operate the Institute’s business in their respective Australian state or territory and use the Institute’s intellectual property for that purpose.

15. The Institute was established to promote the interests of each of its individual shareholders. The Institute does not, and has never, operated to return a profit and does not itself have any business activities related to fitness accreditation. It does not employ lecturers or trainers. As described above, each shareholder holds 20% of the shares in the Institute. The Institute’s role is in sales and marketing, development of training products, control of the Institute brand, provision of administrative systems, and maintenance of the status of a Registered Training Organisation (RTO) for the benefit of each regional licensee.

16. RTO status is required under the legislative scheme for vocational educational training (VET) in order for a body to be able to provide particular kinds of training services and be eligible for certain government funding schemes.

17. In late 2000 Greg Hurst (Mr Hurst) was responsible for organising a meeting of representatives (including Russell Creagh and Nigel Champion) from various fitness businesses to “formalise a network with the sole objective of working together to reduce hassle, increase profit and maintain the No 1 market position for each member at a state level and for all at a national level”. Mr Hornsey attended “planning meetings” from November 2000 onwards and was the representative for the Victorian and Tasmanian regions.

18. On 24 July 2001 six original shareholders entered into the Shareholders Agreement. Recital A of that agreement provided:

The shareholders have formed the company to act as a national body to market and advance the position of each shareholder in its territory.

19. Clause 2.1 provided:

…the objectives of the shareholders are to have [the Institute] promote and advance the interests of the shareholders as leading businesses dedicated to education and training in the fitness industry in their respective territories.

20. On 29 April 2005 the Institute obtained registration as an RTO.

21. On 7 September 2005 Kym Weir (Mr Weir) was appointed the independent Chair of the Institute.

22. The underlying ownership of the Institute shifted by mid-2008 to early 2009 from being split between the six original shareholders to being concentrated in AIF NSW and AIF WA. In brief, the following occurred:

1. AIF NSW absorbed the ACT business and continues to operate the business in the ACT;

2. AIF NSW is co-owned and co-directed by Mr Hurst and Mr Champion, with Mr Hurst as its Chair at all relevant times;

3. AIF WA is wholly owned by Mr Creagh, and its directors are Mr Hurst and Mr Creagh, with Mr Creagh its Chair at all relevant times;

4. AIF NSW and AIF WA each own 50% of AIF Qld, with Mr Hurst and Mr Creagh as co-directors of AIF Qld and Mr Creagh its Chair at all relevant times;

5. AIF NSW and AIF WA collectively hold 44% of the shares in AIF SA/NT and the next largest shareholder is Mr Chatterton, who holds 40% of the shares;

6. Mr Hurst is a director of AIF SA/NT and its Chair at all relevant times, and was appointed by AIF SA/NT to sit on the Institute’s Board as the AIF SA/NT representative until late 2014, when Mr Chatterton was appointed by AIF SA/NT.

23. Neither AIVT nor any of its directors has any interest in or control over any other shareholder of the Institute.

24. The corporate members of the Sage defendants are all owned by Holdings. Holdings, in turn, is owned by companies associated with Mr Hornsey, Ms Richardson (who is Mr Hornsey’s wife) and Ms Tuchtan. Mr Hornsey and Ms Tuchtan are both directors of AIF Vic/Tas, Holdings, ACI and Sage.

25. Since 2008, ACI and other Sage entities have operated businesses providing educational and training services in areas other than fitness (namely massage, child care, aged care and certain business courses).

26. Mr Weir was appointed by Mr Hurst and Mr Creagh to sit on the Institute’s Board as the nominee director for AIF Qld on 10 December 2009. Mr Weir had and has no financial interest in either AIF Qld or the Institute.

27. A document entitled “Variation of Shareholders’ Agreement” dated 7 May 2010 inserted a clause 29 into the Shareholders’ Agreement, which provided that shareholders:

“must at all times be appointed licensees of [the Institute] …A shareholder may, with the consent of [the Institute] …nominate a nominee to undertake its rights, duties, obligations, responsibilities under the terms of any license agreement with [the Institute]…”

28. On 4 June 2010 the Institute entered into regional licensing agreements with AIF Qld, AIF SA/NT, AIF WA and AIF NSW. On 24 August 2010 Mr Hurst, then the CEO of the Institute, and Mr Hornsey executed an agreement between the Institute and AIF Vic/Tas (2010 MOU). The 2010 MOU related to AIF Vic/Tas obtaining the benefit of funding then offered by the Victorian government (VET funding). This funding was conditional on, inter alia, the Institute performing “the required tasks to re-apply for [Skills Victoria] funding if and when such funding becomes available”. The VET funds received by the Institute were to be “the sole property of [AIF Vic/Tas]. The Institute had accepted Skills Victoria funding offers in 2010, 2011, 2012 and 2013.

29. Prior to the entry into the 2010 MOU, Mr Hornsey emailed Mr Hurst on 24 March 2010 saying “[t]his VicGov funding threatens the Victorian Business and it has started to impact already as more of our opposition sign up for this. Please discuss this with me as a matter of urgency.”

30. In Mr Hurst’s CIC report for July 2010, he made the following remarks:

Significant work undertaken by National and VicTas. A detailed MOU is drafted and now awaiting approval by both parties for final execution. VicTas has proceeded with application for funding under Skills Victoria with in-principle approval from National.

31. The Institute received over $600,000 in Skills Victoria VET funding in respect of training services provided by AIF Vic/Tas.

32. The Institute consented to AIVT appointing AIF Vic/Tas to be its nominee to perform the services under a licensing agreement on 10 December 2010. On 17 December 2010 the Institute and AIF Vic/Tas entered into a regional licensing agreement (AIF Vic/Tas RLA). This RLA is materially identical in form to the RLAs entered into by the other regions.

33. A letter of 10 December 2010, on the Institute’s letterhead, which accompanied execution of the AIF Vic/Tas RLA, provided:

In accordance with clause 5.10 of the Regional Licensing Agreement, AIF gives its consent to allow Robert Hornsey and Charles Tuchtan, both Senior Management, to engage in other business during normal business hours.

34. Schedule 2 of the AIF Vic/Tas RLA set out fees payable by the licensee, AIF Vic/Tas to the Institute.

35. From 23 May 2012 ACI, which was at that time an RTO trading as “Sage Academic”, included fitness on its scope of registration.

36. On 26 November 2012 the Board of the Institute resolved, against Mr Hornsey’s wishes, that:

(a) That for the 4 months commencing 1 March 2013 and thereafter until further resolution by the Board, fees payable by each licensee pursuant to clause 6 of the Licensing Agreement are such that the licensee must pay to the [the Institute] the following monthly fees based on 25% of the annual budget split equally between the regions and 75% of the annual budget based on 2012/13 budgeted revenue:-

NSW/ACT $49,156

VIC/TAS $74,065

WA $28,182

SA/NT $27,144

QLD $28,182

…

(b) The above fees are in complete substitution for the fees currently set out in Schedule 2 of each Licensing Agreement.

37. This is referred to as the “First Licence Fee Increase”.

38. ACI applied on 14 August 2013 to register the trade mark “the institute”. The trade mark is a logo comprising the words “the institute” in lower case and three stylised leaves.

39. A disputes committee (Disputes Committee) was established by the Institute to “deal with” disputes between the Institute, AIF Vic/Tas, AIVT and Mr Hornsey on 3 September 2013.

40. On 10 September 2013 the Board of the Institute (again, over Mr Hornsey’s objections) resolved as follows:

R4. That the annual licence fees in 13/14 for each region are:

NSW $694,079

QLD $408,778

SA $375,791

WA $418,481

VIC $966,119

Total $2,863,248

41. This is referred to as the “Second Licence Fee Increase”.

42. The Institute, in October 2013, became aware that ACI now included “fitness” on its scope of registration.

43. The Department of Early Childhood Development (Victoria) (Department) wrote to the Institute on 26 November 2013 offering a further VET funding contract to the Institute in respect of AIF Vic/Tas’ provision of fitness accreditation services in Victoria (2014-16 Funding Offer). This offer by its terms required lodgement of acceptance documents by 10 December 2013.

44. Matthew Rowe from HWL Ebsworth emailed a version of a Service Delivery Agreement “intended to be used with the 2014 Victorian Government Agreement” on 3 December 2013. This email reflected an understanding on the part of Mr Rowe that the “plan” was to be one whereby the Service Delivery Agreement was to be provided to AIF Vic/Tas, along with a copy of the funding contract, and that AIF Vic/Tas would be informed, first, that the Institute would be seeking consent from the Victorian Government and, second, that the Institute needed the Service Delivery Agreement signed so that it could lodge the relevant VET documents.

45. Ms Ward, on 4 December 2013, wrote to Lee Watts of the Department requesting an extension of time to lodge the acceptance documents.

46. The Institute (with Ms Ward as CEO) on 6 December 2013 sent a draft Services Delivery Agreement to Mr Hornsey. This was, in the view of Ms Ward, reflective of “resolutions of the board in relation to licensees who operate with a government funding program.” This document provided for personal guarantees from the AIF Vic/Tas directors, and a fee calculated by reference to the funding received, capped at a maximum of $60,000 per annum.

47. Mr Hornsey wrote to Ms Ward on 7 December 2013, saying:

…I gave you an undertaking that Vic/Tas would not commence any delivery in 2014 under this new 3 year contract until National and Vic/Tas have reached an agreement in respect to delivery under the contract.

… I am happy to sign the acceptance documentation on Monday the 9th and hand deliver (in the absence of a favourable reply from Ms Lee Watts).

48. Ms Ward responded, inter alia, as follows:

I note you have confirmed your verbal undertaking that ‘Vic/Tas would not commence any delivery in 2014 under this new 3 year contract until National and Vic/Tas have reached an agreement in respect to delivery under the contract.’ Can you further qualify the word ‘agreement’ as we need to rely on a written agreement signed by both parties.

49. ACI commenced advertising the Sage Institute of Fitness business in Victoria from late December 2013. The Institute became aware of this from at least 15 January 2014.

50. The Institute commenced the Licence Fee Proceedings on 20 March 2014.

51. On 22 March 2014 a marketing workshop was held for the Institute. Mr Hornsey and Ms Richardson (at that time the Marketing Director for AIF Vic/Tas and Sage) were not invited.

52. AIF Vic/Tas registered itself as an RTO able to provide fitness training accreditation on 1 April 2014, but did not start using its own RTO until 1 January 2015.

53. From 4 to 6 April 2014 the Australian Fitness & Health Expo (Expo) was held in Melbourne. There is a dispute as to the arrangements made for the display stands for the respective entities.

54. The Institute issued the first of several notices of alleged default or breach of the AIF Vic/Tas RLA on 7 April 2014 (First Notice). The First Notice, from the Institute, alleged that AIF Vic/Tas was in breach of the AIF Vic/Tas RLA by obtaining its own RTO registration.

55. A second notice was issued on 8 April 2014 (Second Notice) and referred to Mr Hornsey’s “workplace behaviour issues” and “competition issues” arising out of the operations of Sage in Victoria.

56. As at 8 April 2014, the Institute had not accepted the 2014-16 Funding Offer. On 8 April 2014 the Department wrote to the Institute saying the offer would be withdrawn if not accepted by 5pm 17 April 2014.

57. A third notice was issued on 9 April 2014 (Third Notice), which contained allegations about Mr Hornsey’s workplace behaviour and required Mr Hornsey to “cease to hold any title or office with [AIF Vic/Tas]”.

58. The Institute’s Board met on 16-17 April 2014 and Mr Hurst required the following to be noted in the minutes:

The Board recognises that the government [VET] funding contract … is of value to the VicTas licensee. … [the Institute] is willing to expedite and finalise this contract if appropriate confirmations are received by the VicTas licensee as previously requested. Therefore the Board will adjourn the meeting of 17 April to enable the Chair and CEO to negotiate a resolution with VicTas licensee, provided such resolution includes:

- A written undertaking that the VicTas licensee not deliver training in any way or at any time under a funding contract until a suitable written agreement is reached between [the Insitute] and the VicTas licensee.

- An undertaking by both parties to work in good faith to finalise an [sic] written agreement within 30 days; and

- A condition precedent of any undertaking and agreement is that personal guarantees are required by Directors of the VicTas licensee.

59. The 2014-16 Funding Offer was not accepted and was formally withdrawn on 13 May 2014.

60. Ms Ward, as CEO of the Institute, informed Mr Hornsey on 23 April 2014 that the Institute’s management meetings were to be split, with representatives of AIF Vic/Tas to attend only “Part B” of those meetings.

61. On 1 May 2014 the Institute issued the following further notices of alleged default under the AIF Vic/Tas RLA:

1. A Fourth Notice concerning AIF Vic/Tas obtaining its own RTO status and requiring immediate cancellation of the RTO;

2. A Fifth Notice concerning allegations about Mr Hornsey’s workplace behaviour and alleged misuse of confidential information;

3. A Sixth Notice concerning the Third Notice and notifying AIF Vic/Tas of the Institute’s intention to terminate the AIF Vic/Tas RLA.

62. Mr Hornsey, on 18 May 2014, received a notice of meeting for the Institute’s Board on 3 June 2014, which included an agenda item entitled “Funding Levy” and gave notice of the Board’s intention to raise, from its shareholders, “funding in the amount to be agreed at the meeting”.

63. Ms Ward filed an application in the Fair Work Commission against Mr Hornsey on 20 May 2014 (Complaint). The application sought various remedies, including that Mr Hornsey be removed from his position and that he be restrained from contacting any external advisor of the Institute without approval in writing from Ms Ward.

64. Mr Weir, on 28 May 2014, responded to the Complaint with the comment “[the Institute] believes the allegations made by the applicant in the application and agrees that the behaviour of [Mr Hornsey] amounts to workplace bullying”.

65. The Institute’s Board resolved on 3 June 2014 (over Mr Hornsey’s objections) to raise $800,000 by way of shareholder loans (First Funding Levy) and to expand the Disputes Committee’s powers to include disputes between the Institute and any person or entity associated with Mr Hornsey.

66. A seventh notice, referring to the six previous notices, was issued on 19 June 2014 (Seventh Notice).

67. The Oppression Proceedings were commenced in the Victorian Registry of the Federal Court of Australia on 7 July 2014.

68. The Institute’s Board resolved on 8 July 2014 to raise a further shareholder loan in the sum of $400,000 (Second Funding Levy).

69. The Sage Proceedings were commenced in the New South Wales Registry of the Federal Court of Australia on 9 July 2014.

70. Ms Ward ceased actively pursuing the Complaint in August 2014.

71. A resolution for a third shareholder loan in the amount of $170,000 was passed by the Institute’s Board on 4 September 2014 (Third Funding Levy).

72. On 29 October 2014 a fourth resolution was passed to raise $390,000 from the shareholders of the Institute (Fourth Funding Levy).

73. In late 2014 ACI began advertising Sage in states other than Victoria.

74. The Institute sought an interlocutory injunction to restrain the advertising and promotion of Sage on 5 December 2014. On 11 December 2014 Rein J dismissed the application with costs.

75. Mr Hornsey was not permitted to attend a meeting of the Institute on 18-19 December 2014.

76. In late 2014 and early 2015 the Institute caused notices, alleging breaches of the AIF Vic/Tas RLA or demanding it be allowed to inspect AIF Vic/Tas’s records, to be issued (Further Notices).

77. On 6 March 2015 a further resolution was passed to raise an amount of $1,020,000 from the Institute’s shareholders (Fifth Funding Levy). This meeting was held in two parts and Mr Hornsey was not invited to attend the first reconvened meeting.

78. AIVT provided loan funds to the Institute under protest, as is made clear by emails from Mr Hornsey to Mr Weir of 6 June 2014, 15 August 2014 and 15 September 2014.

Legal principles

Construction of the RLA

79. The High Court of Australia recently affirmed the principles to be applied in contractual construction in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37. In that case the plurality (French CJ, Nettle and Gordon JJ), said as follows:

46   The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

47   In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

48   Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

49   However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" . It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

50   Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

51   Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".

52   These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd . We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.

80. See also the judgment of Kiefel and Keane JJ at [107]-[111].

Oppression

81. Section 232 of the Corporations Act provides as follows:

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.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

Contrary to the interest of the members as a whole

82. The concept of “contrary to the interests of the members as a whole” is independent of the “oppressive, unfairly prejudicial or unfairly discriminatory” ground: Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44 (Turnbull v NRMA) at [32] per Campbell J. The section is of broad compass and “should not be hedged about by implied limitations”: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 per Gummow, Hayne, Heydon and Kiefel JJ at [178].

83. This element of s 232 has not been subject to extensive judicial exegesis. It is, however, clear that such conduct will not necessarily involve commercial unfairness. Campbell J, in Turnbull v NRMA at [32], observed:

An action is capable of being “contrary to the interests of the members as a whole” in ways other than by being commercially unfair. Being pointlessly wasteful is one example.

84. The test is objective: see Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534 at [42]-[44] (Goozee v Graphic World Group Holdings). It is to be determined by reference to 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: Goozee v Graphic World Group Holdings at [41]. The decision of what is contrary to the interests of the members as a whole directs attention not to the interests of the persons who are, in fact, the members for the time being, but rather on the interests of an individual hypothetical member: Goozee v Graphic World Group Holdings at [42].

85. It should be noted that a company has an interest, separate from its shareholders, in resisting a compulsory buyout order and in defending challenges to the validity of its decision-making: see, eg, Power v Ekstein (2010) 77 ACSR 301 at [111]-[121] per Austin J.

Oppressive to, unfairly prejudicial to, or unfairly discriminatory against

86. In both Joint v Stephens [2008] VSCA 210 (Joint v Stephens) at [134] per Nettle, Ashley and Neave JJA and Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336 (Hillam (No 2)) at [4] per Emmett, Jacobson and Buchanan JJ it was held that the phrase “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” is a compound expression. The phrase is concerned with conduct that involves commercial unfairness or, as Black J put it in Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1 (Re Ledir Enterprises) at [178], “a departure from the standards of fair dealing, or where a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair”.

87. Consideration of whether there has been unfairness in the relevant sense is judged objectively: see the judgment of Brennan J at 472-3 of Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 (Wayde v NSW Rugby League).

88. In Wayde v NSW Rugby League the test was described as follows by Brennan J at 472-3:

…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.

89. In Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 (Morgan v 45 Flers Avenue) at 704 Young J described the test as 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…

90. Although the test is again an objective one, the court should be informed by the context in determining whether a decision is unfair: Joint v Stephens at [134] and [136]; Hillam (No 2) at [4].

91. The observations of Richardson J in Thomas v HW Thomas Ltd [1984] 1 NZLR 686 at 694 were cited with approval by Black J in Re Ledir Enterprises at [179]:

Fairness cannot be assessed in a vacuum or simply from one member’s point

of view. It will often depend on weighing conflicting interests of different groups in the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and sec 209 in particular; thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that sec 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member’s interests arising from the acts or conduct of the company in that way is justifiable.

92. Black J went on to express the opinion at [182] that commercial unfairness “was to be assessed in the context of the particular relationship in issue, and would not infrequently involve a balancing exercise between competing considerations”.

93. In Re M Dalley & Co Pty Ltd v Sims (1968) 1 ACLR 489 at 492 Lush J considered that:

In assessing the facts of the present case it is necessary to remember that the petitioner is a minority shareholder. There are in the position of such a shareholder in a proprietary company many grave disadvantages but however galling and even financially damaging these may be they do not in themselves constitute oppression…

94. The fact a minority shareholder does not get her or his way in relation to the conduct of the affairs of the company will not be sufficient, in and of itself, to constitute oppression, as was made apparent in McCausland v Surfing Hardware International Holdings Pty Ltd [2013] NSWSC 902 (McCausland v Surfing Hardware) at [647] and Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 740 (which was reversed for other reasons in Fexuto Pty Ltd v Bosnjak Holding Ltd (2001) 37 ACSR 672).

95. Similarly, it will not be oppressive for the controllers of a company to insist on the adoption of policies on matters of business judgment concerning matters on which there may be legitimate differences of opinion: Ireland v Retallack [2011] NSWSC 846 at [20]. Oppression will not be found where a company has merely been mismanaged or managed poorly: see Donaldson v Natural Springs Australia Limited [2015] FCA 498 at [250]; Ananda Marga Pracaraka Samgha Ltd v Tomar(No 6) (2013) 300 ALR 492 at [417].

96. These cases reflect the proposition that the court must “avoid an unwarranted assumption of the responsibility for management of the company”: Wayde v NSW Rugby League at 467 per Mason ACJ, Wilson, Deane and Dawson JJ. In HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 290 ALR 372 (HNA Irish Nominee) at [507] Emmett J considered that:

The mere fact that a decision by directors might affect the interests of a shareholder adversely is not of itself sufficient, assuming good faith, to render the decision oppressive, unless it was one that no reasonable directors could have made: see John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63 at 67. The court will not interfere with the traditional roles of directors and shareholders in managing and controlling a company, as provided for in its constitution, unless appropriate cause is shown.

97. Slattery J made the following remarks in McCausland v Surfing Hardware at [651]:

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

98. In Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1 at 26 and Joint v Stephens at [138] it was made clear that the question of commercial unfairness is to be judged having regard to the facts known to the parties at the time of the conduct complained of, and not by reference to what subsequently transpires or facts which subsequently become known.

99. In HNA Irish Nominee at [508], Emmett J observed (citations omitted, emphasis in the original):

While parliament may have chosen commercial unfairness as the criterion for the granting of relief, it does not follow that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially, and the content that is given to it by the court must be based upon rational principles. While equity may, in certain circumstances, restrain the exercise of strict legal rights in certain relationships where not to do so would be contrary to good faith, it must be remembered that a company is an association of persons for an economic purpose, usually entered into with legal advice and a degree of formality. Accordingly, the manner in which the affairs of that company may be conducted is closely regulated by the provisions of the company’s constitution, with which the members have agreed and which they must be taken to have accepted. In order to give rise to an equitable constraint based on legitimate expectation, what is required is a personal relationship or personal dealings of some kind between the parties seeking to exercise the legal right and the party seeking to restrain such exercise, such as will affect the conscience of the former.

100. In O’Neill v Phillips [1999] 1 WLR 1092 at 1098, Lord Hoffmann considered:

Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. Conduct which is perfectly fair between competing businessmen may not be fair between members of a family. In some sports it may require, at best, observance of the rules, in others (“it's not cricket”) it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important.

In the case of section 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.

101. The relevant context to be taken into account includes the course of conduct undertaken by the parties, including the conduct of the plaintiff: Joint v Stephens at [136]; Hunter v Organic & Natural Enterprise Group Pty Ltd (2012) 92 ACSR 183 at [105].

102. The relevance of the plaintiff’s conduct was described in the following terms by Nourse J in Re London School of Electronics Ltd [1986] Ch 211 at 222 (footnotes omitted):

The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct of the other side, even if it is prejudicial, not unfair: cf Re R.A. Noble & Sons (Clothing) Ltd [1983] BCLC 273]. Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner’s conduct may nevertheless affect the relief which the court thinks fit to grant under subsection (3). In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands.

103. Those remarks have been found equally applicable in an Australian context: Morgan v 45 Flers Avenue at 707 per Young J; Joint v Stephens at [136].

104. Young J, in McWilliam v L J R McWilliam Estates Pty Ltd (1990) 20 NSWLR 703 at 712, observed that:

It is also a feature of many of these cases that potential plaintiffs bait potential defendants in order to produce more evidence of oppression. The fact that defendants often rise to the bait is regrettable, but it is also understandable in a family situation.

105. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 at [90] per Spigelman CJ it was said that the fairness of the defendant’s actions must be judged by reference to the conduct of the plaintiff and, in some cases, the conduct of the plaintiff might be such as to give rise to a legitimate basis to exclude the plaintiff from management of a company. This reflects the need for the conduct to be demonstrated to be unfairly prejudicial: Re New South Wales Bar Association (2014) 315 ALR 146 at [77] per Brereton J.

106. Where nominee directors are concerned, it is clear that such directors can act with the interests of their appointors in mind, providing that they do so in the genuine belief that they are also acting consistently with the interests of the company as a whole: Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648 (Re Broadcasting Station 2GB) at 1662-1663; ACCC v Malaysian Airline System Berhad (2010) 271 ALR 91 at [148]; cf SGH Ltd v Commissioner of Taxation (2002) 210 CLR 51 at [30].

107. In Re Broadcasting Station 2GB, Jacobs J observed:

I am satisfied that these additional directors were, to all intents and purposes, the nominees of the Fairfax companies who would be likely to act and who would be expected by the Fairfax interests to act in accordance with the latter’s wishes. At this point I feel that a critical stage in the analysis is reached. It is my view that conduct of the kind which I have related is not reprehensible unless it can be inferred that the directors so nominated, would so act even if they were of the view that their acts were not in the best interests of the company. This is not a conclusion that can be lightly reached and I see no evidence in the case upon which I can reach that conclusion.

…

The view which I take of the conduct of the directors does not in my approach to this matter amount to oppression of any shareholder nor improper conduct so long as they bona fide believed that the Fairfax companies would act in the interests of the companies as a whole.

108. It may be oppressive if directors or majority shareholders conduct the affairs of a company in a way that advances their own interests or the interests of others, to the detriment of a minority shareholder: Re Bright Pine Mills Pty Ltd [1969] VR 1002 (Re Bright Pine Mills). AIVT says that it may be oppressive to require a party to fund contentious litigation against itself, citing Trojan Equity Ltd v CMI Ltd (2011) 87 ACSR 144 (Trojan v CMI) and Re D G Brims and Sons Pty Ltd (1995) 16 ACSR 559 (Re D G Brims).

109. In Re D G Brims the company in question was a closely held corporation that manufactured timber products. The applicants, the granddaughter of the founder and her family, became dissatisfied with the management of the company. Byrne J considered at 592 that (footnotes incorporated into text):

Many thousands of dollars of company funds have been spent on lawyers, accountants and valuers in defending these proceedings on behalf of the majority shareholders. This is unfair and infringes the basal principle that “the powers, and the funds, of a company may be used only for the purposes of the company” (Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464, 493, cited approvingly in ANZ Executors & Trustee Company Ltd v Qintex Australia Ltd [1991] 2 Qd R 360, 370). No doubt a small part of the expenditure was justifiable; for example, in discovery, and in resisting such orders as that the company purchase the shares or pay a dividend for 1991. Expenditure to protect its discrete interests or for other proper purposes of the company may be made from company resources. The essential dispute here, however, is between the shareholders; and company funds should not have been used to defend the majority shareholders (Re a Company (No 4502 of 1988) [1992] BCLC 701; Re a Company (No 1126 of 1992) [1994] 2 BCLC 146; Coombs v Dynasty Pty Ltd (1994) 14 ACSR 60, 94. The board acted on legal advice, which is no defence: see Re M Dalley & Co Pty Ltd (1968) 1 ACLR 489, 492 and footnote 96).

The company was not separately represented. After the case concludes, in accordance with a December 1993 board resolution, the other respondents were to be asked to pay any costs of representing them beyond those incurred for the company. This inverts the proper approach, which in this case required that the majority shareholders meet the great bulk of the costs of representing all the respondents. This unfair conduct, in which all respondents joined, is discriminatory.

110. In Trojan v CMI the applicant was seeking relief because of alleged oppressive conduct by the board of CMI Limited. The issue of relevance on the application was whether or not CMI Limited’s participation in the proceedings was necessary or expedient in the interests of the company as a whole, or whether it was for the improper purpose of assisting other respondents. McMurdo J, as her Honour then was, made the following observations:

[27]   At this point some circumstances should be noted. The first is that unlike many oppression proceedings, not all of the members of the company are on one side or the other of the record. The Company’s issued capital consists of 33,752,634 ordinary shares which are held by 1,271 members together with 28,005,311 class A shares which are held by 1,119 members. More than 99 per cent of the ordinary members, holding nearly 46 per cent of the ordinary shares, are not parties. More than 99 per cent of the class A members, holding 80.5 per cent of the class A shares, are not parties. Accordingly, there are many shareholders who are at least potentially affected by the outcome of these proceedings, at least insofar as relief is claimed against the Company. This is not a case of the kind in Pickering v Stephenson, where Sir John Wickens V-C said:

“It seems to me that where a quasi partnership of this sort is divided into a majority and a minority who differ on the question of internal administration, and litigation results from the difference, it is contrary to the spirit of the partnership to pay the expense of the litigation out of the general fund…”

Shareholders who are not parties have an interest in the outcome as shareholders, such that a proper participation in the proceedings by the Company would serve a legitimate purpose as distinct from merely assisting one side of the dispute against the other.

[28] Trojan argues that it can be appropriate for a company whose affairs are the subject of oppression proceedings to be heard on the appropriate form of relief, but not to participate in the preceding litigation by which an entitlement to relief is determined. In other words, it is suggested that the Company be permitted to participate only after the facts have been found. That approach has support in some of the authorities. However, the proceedings involve allegations which it is in the Company’s interest to contest. For example, there is an issue as to the proper construction of the constitution of the Company, specifically in its provision for dividends to be paid to class A shareholders. The Company has a clear interest in the outcome of that issue. There are other issues for which the Company, as a listed public company, has a proper interest in the findings to be made as well as in the ultimate relief, because of the potential for those findings to affect the market for its shares. For example, the Company has pleaded to allegations concerning its financial position at various times, the conduct of and results of voting at meetings of the Company, the use of company resources, the validity of decision-making by its directors and whether it has complied with requirements of the Corporations Act.

Winding up pursuant to s 461(1)(k) or s 232

111. There is no principle or assumption that, in all cases, it will be inappropriate to wind up a company that is solvent: Hillam (No 2) at [68]-[70]. The use of the words “just and equitable” in s 461(1)(k) allows the court to “subject the exercise of legal rights to equitable considerations”: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360.

112. An order under s 461(1)(k) may be made in circumstances where it is impossible to maintain the object or purpose for which a company was founded or where there has been an irreconcilable breakdown in the relationship between members: Re Tivoli Freeholds Ltd [1972] VR 445; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343.

113. However, a winding up order is frequently recognised as being a remedy of last resort, particularly when a company is solvent: Re Amazon Pest Control Pty Limited [2012] NSWSC 1568 (Amazon Pest Control) at [31]-[32].

114. If the breakdown of relations between the members has not frustrated the commercially viable and sensible operations of the company, this will tend against ordering a winding up: Amazon Pest Control at [19]; Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [50] (Tomanovic v Argyle). Tomanovic v Argyle was reversed on appeal, but on a different point, see Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256.

115. When a court is minded to order a winding up on just and equitable grounds, in a situation where a company is solvent, the court will sometimes order a stay to give the parties an opportunity to negotiate a buy-out: Amazon Pest Control at [33], Tomanovic v Argyle at [53].

116. The ability of the minority shareholder to transfer their interest will be relevant. In Tomanovic v Argyle at [51], Austin J noted that if there is no evidence that the board will refuse to register a transfer in favour of a respectable transferee, this operates against winding up being ordered: Tomanovic v Argyle at [52]; Amazon Pest Control at [22].

Loss

117. In cases where there has been actual loss, the law does not permit difficulties of estimation to defeat the remedy for breach of contract: Fink v Fink (1946) 74 CLR 127 at 143; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349. This, however, does not relieve the plaintiff of the burden of proving on the balance of probabilities that there has been such a loss: Brirek Industries Pty Ltd v Mckenzie Group Consulting Pty Ltd (Vic) (No 2) [2015] VSCA 185 (Brirek Industries) at [44]. Recovering substantial as opposed to nominal damages is predicated upon the plaintiff proving both the fact and the amount of damage: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 (Amann Aviation) at 99, see also 80, 118, 137-8. As Lord Goddard CJ put it in Bonham-Carter v Hyde Park Hotel (1948) 64 TLR 177 at 178 (followed, inter alia, by the Full Court of the Supreme Court of Western Australia in Michael Kellaway International v Shark Bay Airport (unreported, 13 November 1997)):

Plaintiffs must understand the fact that if they bring actions for damages it is for them to prove their damage; it is not enough to write down the particulars, and, so to speak, throw them at the head of the Court saying: ‘This is what I have lost; I ask you to give me these damages’. They have to prove it.

118. In circumstances where precise evidence is not available, the Court must do the best it can: Amann Aviation at 83. However, in a situation where precise evidence is available, the Court expects it: Brirek Industries at [44].

119. In Nilon v Bezzina [1988] 2 Qd R 420 at 424 it was said that “[t]he degree of precision with which damages are to be proved is proportionate to the proof reasonably available”. In Ratcliffe v Evans [1892] 2 QB 524 at 533-4 the Court opined that “[a]s much certainty and particularity must be insisted on … as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done”.

120. Austin J made the following observations in Sovereign Motor Inns Pty Ltd v Bevillesta (No 2) [2002] NSWSC 7 at [77]:

There is an important distinction between a case where it is difficult to award damages, and to do so involves making an estimate as to which there cannot be mathematical precision, and a case where the problems of assessment of damages are so great, or the plaintiff's evidence is so weak, as to lead the Court to conclude that the plaintiff has failed to prove its case with respect to its allegation of loss.

620. In the circumstances I consider the loss of the benefit of the 2014/2016 Funding offer was a result of AIF Vic/Tas refusing via Mr Hornsey to respond sensibly, commercially and reasonably to what were relevantly reasonable requests. As I have, again, already said, in the circumstances I think it only had itself to blame. I am satisfied, therefore, that there was no breach of the 2010 MOU by the Institute and I would therefore dismiss the cross claim.

The Licence Fee Proceedings

678. I have already determined the question of construction, but the issue that remains is whether there is any impropriety in the directors of the Institute resolving to commence the Licence Fee Proceedings.

679. I have determined that the two relevant resolutions involved variations which the Board was perfectly entitled to pass. In my view, therefore, to that extent there can be no question as to the propriety of commencing those proceedings. As the amounts claimed are due and payable I cannot accept that it was improper or inappropriate for the Institute to make the claims given the refusal of AIF Vic/Tas to pay them. Nor do I think it could possibly or rationally be described as an act of unfaithfulness or disloyalty to do so.

680. The allegation here that this and other conduct of the Institute could amount to oppressive behaviour seems to me to be somewhat misconceived. In the instant case it could not be suggested (nor was it in cross examination) that the Court’s procedures were being invoked for an illegitimate purpose. It was not put to either of Ms Ward, Mr Weir, Mr Hurst or Mr Creagh that the proceedings were commenced otherwise than as a result of a bona fide belief that the Institute had a lawful claim against AIF Vic/Tas.

681. On this issue, if indeed it was going to be suggested that the proceedings were commenced for a purpose or to effect an object beyond that which the legal process offered, I would have expected questions along those lines to be put. They were not. In addition, there would have to be materials whether by concession in cross examination or otherwise that would in effect point to something akin to oppression. For example, if it was sought to be argued that the predominant purpose of the litigation was to effect some collateral or other inappropriate advantage that, again, should have been put, and it was not. Independently of that, I am satisfied there is no evidence to support that assertion.

682. In the circumstances, therefore, I do not see that the commencement or the prosecution of the Licence Fee Proceedings as amounting to oppressive conduct in the relevant sense.

The exclusion issue

683. The exclusion of Mr Hornsey from meetings occurred only after the Institute commenced proceedings against AIF Vic/Tas.

684. Mr Hornsey accepted that after the Licence Fee Proceedings were commenced there was significant mistrust and antagonism between the respective parties.

685. AIVT complains that Mr Hornsey was excluded from a branding workshop at the Institute on 26 March 2014 but that Mr Hurst and Mr Champion were permitted to attend notwithstanding their interest in Network. However, the allegation is factually erroneous as Mr Hurst and Mr Champion were both excluded from the same meeting because of their involvement with Network.

686. AIVT also complained that the Institute arranged its meetings so that Mr Hornsey and other key employees of AIF Vic/Tas did not meet with the Institute’s executive team at the same time as employees of each of the other licensees. The structure occurred as a result of requests made on 17 April 2014 by Mr Hurst on behalf of AIF NSW and Mr Creagh on behalf of AIF WA.

687. I am satisfied on the factual material that, especially after the Licence Fee Proceedings had commenced, Mr Hornsey displayed belligerence and hostility towards a number of people. For example, Mr Creagh explained in his evidence (T861/31-T862/7) that it had been reported to him that Mr Hornsey had been openly and bluntly critical of Mr Steven Pettit, the General Manager. Mr Creagh took the view that, whilst he was prepared to put up with criticism, he thought it was inappropriate that Mr Hornsey direct his criticism to employees.

688. Mr Creagh was not challenged on this evidence and it seems to me on the basis of at least this material the exclusion of Mr Hornsey could not amount to anything vaguely approaching oppression. In other words, if the bifurcation of the team meetings was out of a genuine belief or concern to protect employees from what was thought to be inappropriate criticism or behaviour by Mr Hornsey, then that does not seem to me to amount to unfairness.

689. In addition, AIVT also complains that Mr Hornsey was restricted from participating in the Institute’s Board meetings of 18 December 2014, 19 December 2014 and 6 March 2015. The board minutes make it clear that Mr Weir sought confirmation from those present (which included Mr Hornsey) that what was to be discussed would remain confidential to those present unless disclosure was approved by the Chair. Mr Hornsey simply refused to give that confirmation and was asked to leave the meeting.

690. In his evidence (Mr Weir’s affidavit of 10 March 2015 at [87] – [92]) indicated that in or about July 2014 he became concerned that Mr Hornsey was recording discussions of Board meetings without approval or consent. He regarded this to be a violation of what he described as “board ethics”. He went on to explain that by October 2014 the Institute and AIF NSW, AIF WA, AIF Qld and AIF SA/NT (on the one hand) and Mr Hornsey and his associated entities on the other were engaged in numerous legal disputes. In the circumstances he considered it in the best interests of the Board to discuss matters in the absence of Mr Hornsey unless he was prepared to provide an undertaking as to strict confidentiality.

691. It is unclear whether the Shareholder Defendants fairly accept whether Mr Hornsey intended to record the meetings so as to be able to breach the confidentiality of the board. If that was indeed his aim, Mr Weir’s attempt to prevent that occurring was entirely proper. If Mr Hornsey’s only motivation was to keep an accurate record of what had occurred alternatives could have been devised, no doubt.

692. Mr Weir’s concern about what he believed Mr Hornsey might get up to could well have been as a result of his misunderstanding of Mr Hornsey’s intentions or indeed motivations.

693. The Shareholder Defendants submit that Mr Hornsey was never prohibited from attending Board meetings but, at most, was prohibited from recording meetings at a time when there were tensions and ongoing disputes between the Institute, the Shareholder Defendants, AIVT and AIF Vic/Tas.

694. It is submitted that even if Mr Weir’s behaviour could be characterised as an overreaction that does not amount to oppression. Indeed, on the facts I am satisfied that there was no relevant oppressive conduct.

The Notices Issue

695. AIVT complains that the Institute issued a number of notices to AIVT and AIF Vic/Tas in the period 7 April 2014 to 3 March 2015. All of the notices were issued after the Licence Fee Proceedings had been filed and when litigation was then pending between the Institute and AIF Vic/Tas.

696. I fail to see how the notices themselves provided any burden on AIVT or AIF Vic/Tas. I agree with the Shareholder Defendants’ characterisation of these notices. They were, in fact, correspondence between sophisticated parties, each of whom was represented in an ongoing legal and commercial dispute.

697. Again, I fail to see how correspondence of this sort could objectively be described as oppressive. Mr Hornsey is no shrinking violet and I do not see how they could be regarded rationally as either intimidating or harassing or, as I say, oppressive in the relevant sense.

698. Again, I agree with the Shareholder Defendants’ submission that they should be viewed objectively as letters written in the context of litigation when relations between the parties were strained and, although it may have been better for some of them not to have been sent, I fail to see how they could be regarded as oppressive in the relevant sense.

The Sage Proceedings Issue

699. As will appear from the above, the Institute has had a rather limited success in the Sage Proceedings.

700. That said, one has to look at the proceedings both as a whole and in context. First, no application was made to strike the proceedings out on the basis that they were unarguable or were an abuse of process. That the proceedings amounted to an abuse of process is, in my view, the effect of the thinly disguised allegation on the part of AIVT. No such suggestion was put to anyone, nor was it pleaded.

701. If it were to be fairly suggested that the Institute issued those proceedings as a result of some predominant purpose which was to effect an object beyond that which the process offered, I would have expected that to have been put quite candidly to any number of the witnesses called on behalf of the Institute.

702. It was, however, not put to Ms Ward, Mr Weir, Mr Hurst or Mr Creagh that they caused the Institute to commence those proceedings for some improper or collateral purpose.

703. Notwithstanding the findings I have arrived at in relation to aspects of those proceedings, I am unable to conclude that the Sage Proceedings were commenced as a result of anything other than a genuine belief that there was an arguable claim or claims. Accordingly, I am not satisfied that the commencement of the claims in their entirety and/or their prosecution could be regarded as oppressive conduct. Nor am I of the view that merely because some matters were not pressed (the Institute was not alone in this regard), that fact in and of itself amounts to some concession or admission that the proceedings were commenced improperly or by reason of some collateral purpose or in the absence of a genuine belief at the time they were commenced.

704. I am not satisfied, therefore, that the commencement or indeed prosecution of the Sage Proceedings amounts to oppressive conduct.

Relief and remedies

Oppression

705. As is clear from the above, I have found against AIVT on the oppression case. Therefore ss 232 and 233 are not engaged and I can therefore not make any orders for winding up or acquisition pursuant to those provisions.

706. Notwithstanding those conclusions the question arose for debate before me as to whether, pursuant to s 461(1)(k) the court should wind up the Institute.

707. There is no doubt relations between Mr Hornsey and all others are strained and have, perhaps, reached an all-time low.

708. However, I am satisfied I should not wind up the Institute, on the just and equitable ground for a number of reasons.

709. First, it is an established, successful and solvent company operating Australia wide. It has a number of employees and has the benefit of an independent and experienced Chair, Mr Weir.

710. The Institute operates efficiently on a day to day basis and there is no deadlock at the Board level.

711. Although this judgment may have little effect on the attitudes of the parties it will have the effect of bringing a number of issues to an end, and hence provide some certainty.

712. The level of disharmony has not made the Institute commercially unviable. The parties’ conduct is adequately and amply regulated in its Constitution and in the Shareholders’ Agreement. For example, there is a protocol which could see consent to the assignment of minority’s interest (clause 16 of the Shareholders’ Agreement). As is also clear from my findings, much of the disharmony has been provoked or orchestrated by Mr Hornsey to suit what he sees to be his own commercial interests.

713. In all of the circumstances and notwithstanding the level of disharmony otherwise referred to in detail in this judgment I do not consider a winding up order to be appropriate.

714. I would make an order dismissing these proceedings.

The Sage Proceedings

715. I have found in favour of the Institute a breach of directors’ duties on the part of Mr Hornsey. However, as a result of my findings liability also flows to ACI and Sage.

716. The question arises on my findings as to whether I should make a declaration that ACI and Sage hold any assets of the Sage fitness business owned by them on trust for the Institute. Alternatively, I could order an account of profits to be taken in respect of the benefits derived by those defendants. Of course, the Institute has also reserved its right of election between an account of profits and damages or equitable compensation until after profits have been identified.

717. My view is that an account of profits and/or damages under s 1317H of the Corporations Act is the more appropriate course. That would require an order that an account of profits be taken and damages could be assessed accordingly.

718. On my findings against Mr Hornsey it would, in my view, be appropriate to restrain Mr Hornsey from having any further role in the Institute for as long as he has an interest in the Sage fitness business.

719. I have also found AIF Vic/Tas was in breach of the AIF Vic/Tas RLA by reason of the operation of the Sage fitness business and accordingly a declaration to the effect in appropriate.

720. I will, of course, hear the parties on the matter as to the precise orders.

The Licence Fee Proceedings

721. I have found in favour of the Institute in these proceedings and accordingly there is an outstanding debt to be met by AIF Vic/Tas. The amount has been agreed and a judgment in that sum plus any interest would be appropriate.

Use of the separate RTO status

722. I have also found AIF Vic/Tas was in breach of the RLA by using its own RTO accreditation to provide some specific training services.

723. The question arises as to what relief should be granted to the Institute. The Institute correctly observed (final submissions of 13 August 2015 at [102]) that as a matter of discretion I may choose not to order AIF Vic/Tas to cease to supply services to students currently signed up on the expectation of funding from the Victorian government. I am certainly of that view.

724. I would be, however, disposed to restrain AIF Vic/Tas from signing up new students using its own accreditation, and to order that it make no further use of its accreditation at least while the RLA remains on foot, which would be after the expiry of the current agreement with the Victorian government. The Institute made it clear it sought nominal damages but presses for declaratory and injunctive relief (see the submissions in reply of 18 August 2015 at [27]). I am of the view that relief is appropriate in all the circumstances.

725. However, I would if need be hear the parties further on the precise form of any relief.

Costs

726. If costs cannot be agreed, I would also invite the parties to relist the matter so that the issue can be argued and determined.

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Amendments

06 November 2015 - Paragraph [705], changed “cannot therefore not make” to “can therefore not make”.

Paragraph [715] deleted the word “is”

Decision last updated: 06 November 2015