JAB Nominees (Aust) Pty Ltd v Auswild - [2020] VSC 731

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S CI 2014 04719

JAB NOMINEES (AUST) PTY LTD (ACN 603 601 944) AS TRUSTEE FOR THE G BERGMULLER NO 2 WILL TRUST & ORS	Plaintiffs
v
JAMES AUSWILD & ORS	Defendants

COMMERCIAL LIST

S ECI 2014 00071

FINANCE & GUARANTEE COMPANY PTY LTD (ACN 000 032 548) & ORS	Plaintiffs
v
JAMES RONALD AUSWILD & ORS	Defendants

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JUDGE:	RIORDAN J
WHERE HELD:	Melbourne
DATE OF HEARING:	15-18, 22-24, 30 June 2020; 1-2 July 2020
DATE OF JUDGMENT:	11 November 2020
CASE MAY BE CITED AS:	JAB Nominees (Aust) Pty Ltd v Auswild
MEDIUM NEUTRAL CITATION:	[2020] VSC 731

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CORPORATIONS LAW – Oppressive conduct – Whether the filing and maintenance of a proceeding by a corporation (‘the Company Proceeding’) against defendant shareholders constituted oppressive conduct by directors and/or related shareholders – Whether relief from the oppression requires an order that the directors indemnify the corporation for all costs incurred in the Company Proceeding.

CORPORATIONS LAW – Directors’ duties – Duty to exercise powers in good faith in the best interests of the corporation – Whether directors breached duty by filing and maintaining the Company Proceeding against defendant shareholders.

EQUITY – Fiduciary duties – Conflict rule – Whether directors had a conflict between duty and interest in filing and maintaining the Company Proceeding against defendant shareholders – Whether the Company Proceeding advantaged the directors and related shareholders, as the plaintiffs in proceedings against the defendant shareholders based on similar claims – Principles of conflict rule considered – Whether conflict rule is strictly applied to directors – Whether conflict rule is affected by an attenuation clause in the constitution.

EQUITY – Equitable compensation – Whether ‘but for’ test is a causative requirement in a claim for equitable compensation for a breach of conflict rule – Burden of proof of causation in a claim for equitable compensation for a breach of conflict rule.

COSTS – Costs against non-parties – Whether costs of successful defendant shareholders in a Company Proceeding should be paid by non-parties, being the directors and/or related shareholders.

COSTS – Claim for costs to be assessed on indemnity basis – Whether the Company Proceeding had no chance of success – Whether the failure of fraud claims was sufficient to justify an indemnity costs order.

COSTS – Gross sum costs order – Whether a gross sum costs order would result in significant savings in time and costs – Gross sum costs order not appropriate for complex costs orders.

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APPEARANCES:	Counsel	Solicitors
S CI 2014 04719
For the First Plaintiff	Mr P W Collinson QC with Ms V Bell	Brown Wright Stein
For the Second to Fourth Plaintiffs	Mr J L Evans QC with Ms K Wangmann	Harris Freidman Lawyers
For the Defendants	Mr J C Kelly SC with Mr S V Shepherd	Pikes & Verekers
For the First Third Party	Mr C M Archibald QC with Ms F J Bentley	Shanahan Tudhope
For the Second…

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.

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Details

Case: [2020] VSC 731
Decision Date: 11 November 2020

CaseChat Overview and Summary

The plaintiffs, JAB Nominees (Aust) Pty Ltd and its shareholders, brought an action against the defendants, including directors and related shareholders, seeking relief from oppressive conduct and equitable compensation. The dispute centred on the filing and maintenance of a proceeding by the plaintiffs against the defendant shareholders (the Company Proceeding), which the plaintiffs claimed was oppressive and breached the directors' duties under the Corporations Act. The plaintiffs further argued that the Company Proceeding was conducted in breach of fiduciary duties, specifically the conflict rule, and sought equitable compensation and indemnity costs.

The court examined whether the directors' actions in filing the Company Proceeding constituted oppressive conduct, a breach of their duty to act in the best interests of the corporation, and whether they had a conflict of interest. The plaintiffs argued that the directors' personal interests in the Company Proceeding advantaged them at the expense of the corporation, contravening the conflict rule. The court also considered the attenuation clause in the corporation's constitution and its impact on the application of the conflict rule. Additionally, the plaintiffs sought to establish causation for their claim of equitable compensation and argued that the Company Proceeding had no chance of success, justifying an indemnity costs order.

The court found that the directors did not breach their duties by filing the Company Proceeding, as it was not oppressive conduct and did not constitute a breach of the conflict rule. The court held that the attenuation clause in the corporation's constitution did not exempt the directors from the conflict rule. Furthermore, the court determined that the burden of proof for causation in a claim for equitable compensation required a 'but for' test, which the plaintiffs could not satisfy. The court also ruled that an indemnity costs order was not appropriate, as the failure of the fraud claims did not necessarily mean the Company Proceeding had no chance of success. Lastly, the court declined to make a gross sum costs order, stating it would not result in significant savings in time and costs for such complex matters.

The court dismissed all claims and ordered the plaintiffs to pay the defendants' costs on an indemnity basis.

Orders