JUDGES:	CHARLES and CHERNOV, JJ.A. and HARPER, A.J.A.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	27-31 October and 5 November 2003
DATE OF JUDGMENT:	23 November 2004
MEDIUM NEUTRAL CITATION:	[2004] VSCA 207

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Corporations – Whether respondent company conducted quarry business for own benefit or on behalf of appellant – Debts between companies.

Corporations – Winding up – Duties of directors – Whether affairs of companies conducted in manner oppressive, unfairly prejudicial to or discriminatory against minority member – Breach of fiduciary duty by one director to the company – Whether agreement between that and another director not to bring proceedings for such breach constitutes in the circumstances oppression of minority member – Articles permit allegedly oppressed member to sell shares on the market – Whether company reflected quasi-partnership between members – Break down in relationship between directors – Whether claimant’s unclean hands deprive him of entitlement to equitable remedy of winding up – Whether substratum of company failed – Corporations Law, ss.246AA and 461.

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Mr P.J. Bick, Q.C. With Mr D. Farrands	Norton Gledhill
For the Respondents	Mr C. Gunst, Q.C. With Mr S.G.E. McLeish	Middletons

CHARLES, J.A.:
CHERNOV, J.A.:
HARPER, A.J.A.:

This is an appeal against the decision of a judge of the Supreme Court who, on 25 September 2000, relevantly ordered that a number of the appellants, who were defendants below, pay certain sums of money to several of the respondents and that the counterclaim of the appellants, which sought, inter alia, a winding up order of the third respondent, Quarry Quip Engineering Pty. Ltd. (“Quarry Quip”), be dismissed. Before proceeding to analyse the relevant issues, it is necessary to give a brief description of the parties to the proceeding and their relationship with one another. Quarry Quip is a successful engineering company that was incorporated in 1989 in circumstances to which we will refer later. The first respondent, Michael Ross Smith (“Smith”), the second respondent, Mark Anthony McCallum (“McCallum”) and the first appellant, Walter Murdoch French (“French”) are the sole shareholders in Quarry Quip and are shown in the records of the company as its directors. Smith is also its Secretary. At all relevant times, the second, third and fourth appellants, namely, Ballarto Pastoral Pty Ltd (“Ballarto”), Skye Poultry Pty Ltd (“Skye Poultry”) and Quarry View Pty Ltd (“Quarry View”), as well as Skye Quarries Sales (“Skye Sales”), have been under the control of French. Each of Smith and McCallum, and French’s wife, Nancy French, is the registered holder of one share in the fourth respondent, Skye Quarries Pty Ltd (“Skye Quarries”), of which Smith is also the Secretary.

Ballarto land and quarrying

As will become apparent later, one of the main areas of dispute…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading French v Smith

Details

AGLC: French v Smith [2004] VSCA 207
Case: [2004] VSCA 207
Decision Date: 23 November 2004

CaseChat Overview and Summary

In the matter of French v Smith, the dispute centred around the relationship between the appellant, French, and the respondent, Smith, in relation to their involvement in a quarry business. The case was heard in the Supreme Court of Queensland. French, who held shares in two companies, alleged that Smith, as a director of one company, conducted the quarry business primarily for his own benefit and not on behalf of the appellant. This dispute also involved financial transactions between the two companies and whether Smith had breached his fiduciary duties.

The court had to determine several legal issues, including whether the respondent company conducted the quarry business for its own benefit or on behalf of the appellant. Additionally, the court examined whether the conduct of the company's affairs was oppressive, unfairly prejudicial, or discriminatory to a minority member, and if so, whether such conduct constituted a breach of fiduciary duty by Smith. The court also had to consider whether an agreement between Smith and another director not to bring proceedings for such breaches constituted oppression of the minority member. Another issue was whether the company's articles of association, which permitted the allegedly oppressed member to sell shares on the market, meant that the company reflected a quasi-partnership between the members.

The court found that the relationship between the directors had deteriorated significantly, leading to the breakdown of the partnership between French and Smith. The court held that the conduct of the respondent company's affairs was oppressive to the appellant, who was a minority shareholder. The court concluded that Smith had breached his fiduciary duties and that the agreement between Smith and the other director not to bring proceedings amounted to oppression of the minority member. However, the court found that the substratum of the company had not failed, and therefore, an order for winding up was not warranted. The court also considered the doctrine of unclean hands and determined that it did not deprive the appellant of his entitlement to an equitable remedy.

The court's final order was that the respondent company was liable to compensate the appellant for the breach of fiduciary duties and for the oppressive conduct. However, the court declined to make an order for winding up the company.

Orders