Jolan Pty Ltd v Essential Investments Pty Ltd (No 2)
[2021] FCA 1533
•7 December 2021
FEDERAL COURT OF AUSTRALIA
Jolan Pty Ltd v Essential Investments Pty Ltd (No 2) [2021] FCA 1533
File number(s): QUD 101 of 2021 Judgment of: DOWNES J Date of judgment: 7 December 2021 Catchwords: CORPORATIONS – oppression proceedings – company formed for purpose of acquiring business to be sold within two years – largest five shareholders each entitled to appoint director to board of company – board required to approve business plan and budget of subsidiaries – removal of director appointed by shareholder to board – whether shareholder entitled to participate in management of company – whether shareholder excluded from management – where shareholder ceased to be provided information relating to the business of the corporate group – where directors resolved to further delay sale of business of corporate group – whether shareholder impeded in its attempt to sell its shares and exit the company – whether court can consider conduct which occurred after the commencement of the proceedings – appropriate remedy pursuant to s 233 Corporations Act 2001 (Cth) – compulsory purchase of shares – method of valuation of shares of minority shareholder – whether value of minority shares should be subject to discount – where concerns raised about financial ability of company to buy back shares – whether winding up order should be made
PRACTICE AND PROCEDURE – whether draft reasons should be provided to enable parties to identify aspects of reasons which should be suppressed – where same result can be achieved by publishing judgment to parties only to enable identification of confidential parts of the reasons to be identified – where trial conducted in open court
Legislation: Corporations Act 2001 (Cth) ss 53, 232, 233, 461, Pt 2F.1
Federal Court of Australia Act 1976 (Cth) s 22
Federal Court Rules 2011 (Cth) r 17.08(c)
Cases cited: BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192
Byrne v AJ Byrne Pty Ltd [2012] NSWSC 667
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25
Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62; [2014] FCAFC 55
Shanahan v Jatese Pty Ltd [2019] NSWCA 113
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122; [1995] FCA 610
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97
Garraway v Territory Realty Pty Ltd [2010] FCAFC 9
Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336; [2012] FCAFC 73
HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228
Hylepin Pty Ltd v Doshay Pty Ltd (2020) 148 ACSR 30; [2020] FCA 1370
Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201
In Re Blue Index Ltd [2014] EWHC 2680 (Ch)
InRe DG Brims & Sons Pty Ltd (1995) 16 ACSR 559; [1995] QSC 053
Irvine v Irvine (No 2) [2007] 1 BCLC 445; [2006] EWHC 583 (Ch)
John J Starr (Real Estate) Pty Ltd v Robert R Andrew (Australasia) Pty Ltd (1991) 6 ACSR 63
Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478
Mopeke Pty Ltd v Airport Fine Foods Pty Ltd (2007) 61 ACSR 395; [2007] NSWSC 153
Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133
Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342
O’Neill v Phillips [1999] 1 WLR 1092
Re Bird Precision Bellows Ltd [1984] Ch 419
Re Bird Precision Bellows Ltd [1986] Ch 658
Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1; [2013] NSWSC 1332
Re Tivoli Freeholds Ltd [1972] VR 445
Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 166 FLR 451; [2002] NSWSC 13
Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth (No 2) (2010) 88 IPR 633; [2010] FCA 1212
Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136; [2004] FCAFC 153
Tomanovic v Global Mortgage Equity Corp Pty Ltd (2011) 288 ALR 310; [2011] NSWCA 104
Wallington v Kokotovich Constructions Pty Ltd (1993) 11 ACSR 759
Wilmar Sugar Australia Ltd v Mackay Sugar Ltd (2017) 120 ACSR 1; [2017] FCAFC 40
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 500 Date of hearing: 20 – 23 September 2021, 1 October 2021, 30 November 2021 Counsel for the Plaintiff: Mr S Webster with Ms M Barnes Solicitor for the Plaintiff: Holding Redlich Counsel for the Defendants: Mr J Peden QC with Mr E Robinson Solicitor for the Defendants: Cronin Miller Litigation ORDERS
QUD 101 of 2021 BETWEEN: JOLAN PTY LTD ACN 613 047 448
Plaintiff
AND: ESSENTIAL INVESTMENTS PTY LTD ACN 610 685 535
First Defendant
TODD HISCOCK
Second Defendant
TL HISCO INVESTMENT PTY LTD ACN 612 008 910 (and another named in the Schedule)
Third Defendant
ORDER MADE BY:
DOWNES J
DATE OF ORDER:
7 DECEMBER 2021
THE COURT ORDERS THAT:
1.Subject to order 2, the first defendant shall forthwith send by email a copy of this Order and the reasons for judgment to each of its shareholders, excluding the plaintiff and the third and fourth defendants.
2.If the first defendant does not have an email address for any shareholder, a copy of this Order and the reasons for judgment shall be sent by express post to that shareholder, with such documents to be posted by no later than 12.00pm on 8 December 2021.
3.By 4.00pm (AEST) on 8 December 2021, the parties shall file and serve submissions (limited to 5 pages) which identify any part of the reasons for judgment which that party claims should be the subject of a suppression order.
4.By 4.00pm (AEST) on 13 December 2021, the parties shall file and serve any submissions which they wish to make (limited to 10 pages) in relation to the form of the final orders to be made, including the appropriate costs order to be made.
5.By 4.00pm (AEST) on 13 December 2021, the parties shall file and serve any affidavit material which shall be confined to the issue of the appropriate costs order to be made.
6.By 4.00pm (AEST) on 15 December 2021, any shareholder of the first defendant or other interested person (other than the parties to this proceeding) shall file and serve on the parties to this proceeding any submissions which they wish to make (limited to 10 pages) in relation to the final orders which are proposed to be made in this proceeding as indicated in the reasons for judgment.
7.If any shareholder proposes to file any submissions in accordance with order 6, the legal or other costs associated with those submissions shall not be paid by the first defendant.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DOWNES J:
INTRODUCTION
[1]
RELEVANT LEGAL PRINCIPLES
[26]
Overview
[26]
When oppression is to be assessed
[38]
Relevance of reasonable offer to purchase the minority shareholding
[45]
CREDIT OF WITNESSES
[50]
CHRONOLOGY OF RELEVANT EVENTS
[65]
Events leading to the formation of the Company
[65]
Shareholders’ Agreement
[90]
Management of the Business prior to late 2020
[109]
Event leading to the resignation of Mrs McWilliam from the board of the Company
[126]
Mr McWilliam is then removed as director of both the Company and Essential Coffee
[190]
The insurance issue
[201]
The inertia clause issue
[232]
Expression of opinion about Mrs McWilliam
[250]
Events post CML letter of 7 December 2020
[253]
Mrs McWilliam is appointed as a director of the Company who is then removed
[263]
Mr McWilliam is appointed as a director of the Company
[277]
Mrs McWilliam is appointed as a director of the Company but then removed
[281]
Jobkeeper issue
[289]
Offers to purchase Jolan’s shares
[296]
Whether the oppression arose because of “baiting”
[301]
Whether reasons should be published in draft
[304]
CONSIDERATION
[312]
Exclusion from management
[312]
Did Jolan have an entitlement to participate in the management of the Company?
[312]
Was Jolan deprived of its entitlement to participate in the management of the Company?
[317]
Failure to provide information
[351]
Failure or refusal to provide information and thereby impeding the sale of Jolan’s shares
[352]
Jolan’s access to information about the Business is diminished
[358]
Failure by shareholders to exercise powers to achieve Exit Event
[362]
Conclusion
[374]
APPROPRIATE REMEDY UNDER SECTION 233
[375]
The parties’ respective submissions at trial
[375]
Whether second to fourth defendants should be ordered to purchase Jolan’s shares
[396]
Whether the Company should be ordered to purchase Jolan’s shares
[402]
Price at which shares should be acquired
[405]
Whether the Company should be wound up
[474]
Conclusion as to remedy
[490]
INTRODUCTION
The plaintiff (Jolan) seeks orders under s 233 of the Corporations Act 2001 (Cth) (Act) to remedy the oppression, unfair prejudice and unfair discrimination against it as a minority shareholder of the first defendant (Company).
The Company is the holding company of three subsidiaries, Essential Coffee Pty Ltd (Essential Coffee), Essential Coffee (NZ) Limited (Essential Coffee NZ) and Essential Brands Group Pty Ltd (together the Group).
The primary business of Essential Coffee and Essential Coffee NZ is the supply of coffee machines and consumables (in particular, coffee beans) (Business). Essential Brands Group Pty Ltd holds the intellectual property for Essential Coffee and Essential Coffee NZ.
Mr Todd Hiscock, who was employed in the Business, approached others to invest in the Company and buy the Business. In Mr Hiscock’s words, he “got investors to the table with a view of doubling their money in one to two years”. One of the investors who Mr Hiscock “got to the table” was Mr James McWilliam.
As observed by the defendants’ expert, the venture appeared to be “established with a particular strategy in mind to acquire some franchises and so on, bring them in and, for want of a better term, flip it within a couple of years”.
In 2016, Mr Hiscock was a trusted friend of Mr McWilliam. Prior to June 2016, Mr McWilliam was told various things by Mr Hiscock including to the effect that he should invest $1 million towards the overall $5 million purchase price of the Business, the investment would be “short term” with an exit event within two years, the investment would be doubled in two years, and he (Mr McWilliam) would get a paid executive position within the Business paying $150,000 per annum. Mr Hiscock also said that, as one of the top five shareholders, Mr McWilliam would be entitled to a board seat.
Jolan was incorporated on 16 June 2016 and is the trustee of the Jolan Trust, which was used as the vehicle by Mr McWilliam, and his wife, Mrs Nikola McWilliam to invest $1 million in the Company and become one of its five largest shareholders. In order to do this, they borrowed money from Mr McWilliam’s parents, and from Mr McWilliam’s business, Gutter Mesh Trading Co Pty Ltd (which in turn borrowed $750,000 from a bank).
In July 2016, Mr McWilliam caused Jolan to enter a shareholders’ agreement which required all shareholders to exercise their powers with the purpose of achieving an “Exit Event” within two years. An Exit Event included, amongst other things, the sale or transfer of all or substantially all of the shares in the Company.
Since 1 July 2016, Jolan has been the largest single shareholder of the Company. As a substantial shareholder, Jolan has certain contractual rights under the shareholders’ agreement to appoint a director to the board of the Company.
In 2016, Mr McWilliam commenced in his role as a paid executive director of Essential Coffee as well as director of the Company pursuant to a nomination by Jolan.
There has been only one active campaign to sell the Company, which was run by Yarra Advisory Pty Ltd (Yarra Advisory) from about June 2019 to September 2019.
When it became plain that an Exit Event was not going to be achieved in the short term, Jolan attempted to sell its shares. In parallel with this process, it nominated Mrs McWilliam to be a director of the Company in March 2020. Mrs McWilliam, a practising solicitor, then raised some concerns with corporate governance issues with the board’s processes, at least one of which the Company’s solicitor agreed with.
On 25 May 2020, Mr Hiscock sent an email to others within the Company which requested “a plan to be put forward to the shareholders in attempts to end what is clearly vindictive, vexatious and frivolous conduct via Nikola.”
In July 2020, the Company caused its solicitors to write to Mrs McWilliam in relation to the circumstances surrounding the release of the Company’s confidential information to a prospective purchaser of Jolan’s shares and alleging that her conduct may constitute a breach of her duties as a director of the Company. This led to exchanges between the Company’s solicitors and Mrs McWilliam’s solicitors, and her ultimate resignation as a director in November 2020 following a notice being issued to shareholders with a proposed resolution that she be removed as a director of the Company.
Jolan nominated Mr McWilliam to be its director on the board of the Company. The reaction of the Company was swift. The Company caused its solicitors to write to him making various allegations concerning events which had occurred years earlier, many of which were incorrect, and which Mr Hiscock (at least) knew to be incorrect. The letter was written for the purposes of persuading the shareholders of the Company to remove him as a director. It succeeded, and Mr McWilliam was removed as a director of the Company in February 2021.
Mr McWilliam was also removed as a director of Essential Coffee. Shortly after this occurred, directors of the Company were no longer given information relating to the subsidiaries (as had been done previously).
Mrs McWilliam was again nominated by Jolan to be a director of the Company, but was then removed again on 18 March 2021. She was later nominated by Jolan again and removed again, and Jolan has not had its nominated director on the board of the Company since June 2021.
Jolan’s shareholding is significant, and it is to be expected that any third party purchaser would wish to undertake appropriate due diligence before buying into a private company. One purchaser, Mr Russell Egan, had executed a non-disclosure agreement. In March 2021, he asked to visit the Company’s headquarters and meet the CEO, Mr Hiscock, but Mr Hiscock did not meet with him, leaving it to others to do so. Mr Egan also requested certain information, and Jolan sought this information from the Company, but the Company refused to provide it. Mr Egan did not proceed to acquire Jolan’s shares.
Also in March 2021, the Company imposed a restriction on its directors which had the effect that they could not disclose information received in their capacity as directors to the shareholder which had appointed them.
On 20 April 2021, a decision was made by the board of the Company to defer consideration of achieving an Exit Event until 12 – 18 months after certain events had occurred.
On 8 June 2021, a majority of the shareholders of the Company resolved to make any director who has been removed by shareholders in a general meeting ineligible for reappointment for a period of 12 months from the date of removal.
On 29 November 2021, the shareholders of the Company passed the following resolutions:
(a)Resolution 1:
In the event of an adverse Court Order being made against EI in the matter of Jolan Pty Ltd v Essential Investments Pty Ltd & Ors (the Proceeding) the Shareholders approve a capital raise whereby the Shareholders can commit to purchase up to one million shares in EI at a price determined by the Judge as part of the Court Order.
The Shareholders authorise EI to purchase Jolan’s shares at the price ordered by the court, cancel those shares, and issue new shares at the same price. The new shares will be issued to participating Shareholders.
(b)Resolution 2:
The Shareholders approve the executive of Essential Investments Pty Ltd to do all things necessary to raise new emergency capital by seeking investors for and issuing new Ordinary Shares in Essential Investments Pty Ltd up to a value of $850,000 to $1.1 million to be offered to existing and new Shareholders on a first come, first served basis, at a price of $0.80 per Share.
The oppression which has been established by Jolan in this case can be generally grouped into categories as follows, although it is the combined effect of the totality of the conduct which constitutes the oppression:
(a)Jolan’s exclusion from management by the removal (and eventual barring from appointment) of its appointed directors to the board of the Company;
(b)the removal of Mr McWilliam from the board of Essential Coffee coupled with the cessation of the provision of information about the subsidiaries to the directors of the Company;
(c)the imposition of restrictions placed on the information provided to directors of the Company and able to be provided by those directors to the shareholder which appointed them;
(d)the withholding from Jolan of information to enable Jolan to sell its shares to Mr Egan and so exit the Company and the passing of resolutions which placed restrictions on information able to be provided to purchasers;
(e)the failure to take steps to achieve the Exit Event, including a refusal to engage with potential offers to purchase, and the decision to defer any possible sale for at least 12 – 18 months after certain criteria are satisfied (the timing of which is also uncertain).
While other matters were relied upon by Jolan to allege oppression, it has not been necessary to address those matters in light of the findings made below.
For the reasons which follow, Jolan has established its claims and is entitled to relief under s 233 of the Act.
RELEVANT LEGAL PRINCIPLES
Overview
By the Statement of Claim, Jolan pleads that the conduct of the Company was “oppressive to, unfairly prejudicial to or unfairly discriminatory against Jolan within the meaning of s 232” of the Act.
Section 232 of the Act provides that the Court may make an order under s 233 of the Act if the conduct of the company’s affairs, or an actual or proposed act or omission by or on behalf of the company, or a resolution or proposed resolution of the members or a class of members of the company, is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity (s 232(e)).
The ‘affairs’ of a body corporate are described broadly, including for the purpose of s 232 and s 233, in s 53 of the Act. Those affairs include the formation, membership, business, transactions and dealings, property, profits and liabilities of the company (s 53(a)); the internal management of the body (s 53(c)); the ownership of shares in the body (s 53(e)); the powers of persons to exercise voting rights (s 53(f)); and the circumstances of the acquisition or disposal of shares in the body (s 53(h)): Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 at [123] (Markovic, Banks-Smith and Anderson JJ). All of the allegations made in the Statement of Claim fall within the scope of the affairs of the Company within the meaning of s 232 of the Act.
The expression “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” is a compound expression, meaning that it does not involve separate tests for the elements within it: see Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336; [2012] FCAFC 73 at [4] (Emmett, Jacobson and Buchanan JJ); Tomanovic v Global Mortgage Equity Corp Pty Ltd (2011) 288 ALR 310; [2011] NSWCA 104 at [140]; HNA Irish Nominee Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228 at [506];
The essential focus under s 232 of the Act is on whether there has been commercial unfairness in the conduct of the affairs of the company: see Hylepin Pty Ltd v Doshay Pty Ltd (2020) 148 ACSR 30; [2020] FCA 1370 at [24]:
The phrase “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” in 232(e) is … concerned with conduct that involves “commercial unfairness”, or “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”: In the Matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332; 96 ACSR 1 at [178] per Black J. Whether there has been “unfairness” in the requisite sense is to be judged objectively: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 … at 472-473 per Brennan J. The relevant test is “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” (Wayde at 472-473 per Brennan J) or 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”: Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62 at [9].
This summary of principles was not challenged on appeal in Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 at [131] (Markovic, Banks-Smith and Anderson JJ).
The Full Court in Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62; [2014] FCAFC 55 at [9] (Siopis, Rares and Davies JJ) observed that:
The test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend upon the motives for what was done. It is the effect of the acts that is material.
(citations omitted)
The Full Court (Dowsett, Jagot and White JJ) also observed the following in Wilmar Sugar Australia Ltd v Mackay Sugar Ltd (2017) 120 ACSR 1; [2017] FCAFC 40 at [73]:
While the test is objective, in the sense that the purpose or motive of the decision-maker cannot be determinative, purpose or motive may nevertheless be relevant. For example, if the decision-maker was motivated to make a decision to achieve some particular unfairness against a member, that fact might enable it to be concluded more readily that the effect of the decision is as the decision-maker intended (namely, unfair).
Moreover, conduct can contravene s 232 even if it is lawful, in good faith or compliant with the company’s constitution. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, Gummow, Heydon, Hayne and Kiefel JJ stated at [176]:
Section 232 should not be read more narrowly. Wrongful exclusion from management may be a form of oppression. It is not to be supposed that the only conduct of a company’s affairs that is to be classified as “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member” is conduct of the company’s affairs that is otherwise lawful. The fact that Mr Campbell’s conduct was said to constitute breach of his or Sentinel’s contractual obligations under the shareholders agreement, or the procuring of a breach by Healthy Water of its obligations under the services agreement with Backoffice, does not preclude engagement of the oppression provisions. Neither is it to be supposed that there cannot be oppression on the part of one who thinks that he or she is acting rightly. It is therefore not to the point to examine Mr Campbell’s motives for acting as he did.
In Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 at [133] – [136], the Full Court stated that:
It can be accepted that findings as to oppressive conduct may be founded on a whole course of conduct. In Aqua-Max, the Court of Appeal observed that:
[61]…There are numerous cases which look to the effect (including the cumulative effect of all the various pieces of unfairness) independently of the question whether the alleged oppressor's actions are legal or comply with the article of association …
Where a course of conduct is relied upon, it is appropriate to have an overview. In John J Starr (Real Estate), Young J said at 72 that:
Although in this sort of case one needs to have an overview, and sometimes a series of a relatively minor matters can add up to oppressive conduct, I think the way to deal with the evidence is … to deal with each of the 16 counts and then draw the various threads together.
In each of the cases upon which Hylepin relied as to cumulative conduct, at least one of the instances of separate conduct relied upon was found independently to be oppressive: Grego v Copeland at [56]‑[60]; Vigliaroni at [70]‑[84]; John J Starr (Real Estate) at 72 (and where the cumulative effect of the conduct was 'sufficiently serious' to amount to oppression); and Aqua‑Max at [168]‑[171].
We accept, however, that depending on the circumstances, an accumulation of conduct, even where none of the separate matters of conduct is found to be oppressive, may have that result.
The failure to comply with reasonable requests for information to which a party is entitled is capable of constituting oppression: see Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 166 FLR 451; [2002] NSWSC 13 at [198]; Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1; [2013] NSWSC 1332 at [194]-[197] and [199].
Similarly, it may be oppressive to alter internal business operations such that information which had previously been provided is no longer given, particularly where it would prevent the minority from having any relevant input into the business: BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192 at [72]-[74].
When oppression is to be assessed
The defendants submitted at trial that Jolan was unable to rely on any events which occurred after 1 April 2021 (being the date on which proceedings were commenced) for the purposes of establishing oppression. Repeated reliance was placed upon the decision of BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192 at [46]. That case applied the decision of Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133 at [22], which stated that:
The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing.
This proposition originated with Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97. Having regard to [159] of Fexuto, it is apparent that the case before the Court of Appeal was argued on the common basis that the time at which the Court must formulate the opinion about oppression or unfair prejudice was the date of the institution of the proceedings. It was not a statement of principle by the Court of Appeal.
In any event, my reading of the statement of principle in Munstermann does not preclude consideration of acts of oppression which occur after the institution of the proceedings.
Indeed, such a consequence would be remarkable in circumstances where an oppressor engages in different or more extreme acts of oppression after proceedings have been commenced. It would have the consequence that the party being oppressed could not amend its pleading to refer to the further acts of oppression in the existing proceedings but must start fresh proceedings (for example) and consolidate those proceedings with the existing proceedings. And so on again for each new act of oppression which occurs until trial.
It is relevant that no such constraint is contained within s 232 of the Act which, by its express terms, contemplates that the oppression might not have even occurred as at the date of the order made under s 233: see s 232(b).
Further, the oppression provisions under Part 2F.1 apply to conduct which occurred but has ceased by the time of trial or which is continuing. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [182], the plurality stated that:
It is not necessary to decide whether that conclusion follows because there was no power to make such an order in those circumstances or because the discretion to make such an order could be exercised only by refusing to do so. Because the current form of the oppression provisions in Pt 2F.1 was introduced with a view to making it clear that the Court may make orders even if the act, omission or conduct complained of has yet to occur or has ceased, it may very well be that the fact that there was no continuing oppression when this case came to trial does not entail that the court had no power to make any of the orders for which s 233 provides. …
(emphasis added)
For these reasons, I do not accept the submission that Jolan is unable to rely on events after 1 April 2021 in order to establish its case under s 232 of the Act.
Relevance of reasonable offer to purchase the minority shareholding
Where the majority has made a reasonable offer to purchase the minority shareholding, and that offer was ignored or rejected, that fact can be relevant in considering whether any exclusion was “unfair”, and accordingly whether oppression is established: O’Neill v Phillips [1999] 1 WLR 1092 at 1107; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 at [103] and [109].
In O’Neill, Lord Hoffmann identified five factors to be considered in assessing the reasonableness of the defendant’s offer at 1107 to 1108:
(a)first, the offer must be to purchase the shares at a fair value representing an equivalent proportion of the share capital – that is, without any minority discount;
(b)second, the value, if not agreed, should be determined by a competent expert;
(c)third, the value should be determined by the expert as an expert, with the objective of economy and expedition;
(d)fourth, the offer should provide for equality, in that both parties have the same right of access to information about the company which bears upon the value of the shares, and have the opportunity to make submissions to the expert;
(e)fifth, the offer should include the payment of costs, unless the majority shareholders were not given reasonable time to make the offer.
Lord Hoffman’s comments in O’Neill v Phillips were analysed in detail by Campbell JA (with whom Macfarlan and Young JJA agreed) in Tomanovic. In that case, Campbell JA cautioned against treating buy-out offers as “an addition to, or a substitute for, the statutory text” at [234], noting at [235]:
… it is not as though “exclusion from management” and “absence of a reasonable offer” are elements of a cause of action, so that a plaintiff in an Oppression suit (or, perhaps, in the sub-species of Oppression suits in which exclusion from management is a prime element in the Oppression alleged) has the onus of proving absence of a reasonable offer. Rather, the making of a reasonable offer is merely one factor that, in some (but not all) types of situations where Oppression is alleged can be relevant to whether Oppression is made out. A party who wished to assert that a reasonable offer had been made would bear an onus of adducing evidence of the making of an offer, and an onus of persuading the court that it was reasonable, and that because it had been made there was no Oppression.
(emphasis added)
Campbell JA stated at [242] that there could be circumstances in which a bona fide buyout offer was made and held open for long enough to:
…justify a court in concluding that, when ignored or not accepted, any disadvantage that the addressee of that offer thereafter came to be in, concerning the affairs of the corporation to which it related, was not in itself Oppression or the result of Oppression.
However, his Honour ultimately concluded at [255] that although there had been “an offer that was reasonable in its terms”, this did not mean that there was no oppression. This was because the weight of the offer was lessened by the fact that it was not able to be accepted to constitute a binding contract, because it was submitted on the basis that there might be queries or comments. The situation was a commercially unfair one, even if part of the reason for its existence was the conduct of the plaintiff.
CREDIT OF WITNESSES
It was submitted by the defendants during closing submissions that it was not necessary for any credit findings to be made in this case. While I agree that it is not necessary to make a credit finding in relation to all of the lay witnesses who were called by the parties at the trial, and who were cross-examined, I consider it necessary to make credit findings in relation to witnesses who were central players in the relevant events and who gave contested evidence about critical facts in issue.
Mr McWilliam was the first witness called by Jolan. He gave his evidence in a straightforward and measured manner. He responded directly to questions put to him in cross-examination as well as by the Court. He appeared honest and truthful in the manner in which he gave his evidence and made appropriate concessions. On occasion, it was apparent that he did not recall all of the details concerning events over the past five plus years, but this is to be expected. Mr McWilliam’s evidence was generally consistent with the contemporaneous documentary evidence.
Mrs McWilliam was the second witness called by Jolan. Mrs McWilliam gave direct answers to questions put to her. Her recollection was better than that of Mr McWilliam. She was businesslike, calm and unemotional. Like her husband, she was willing to make concessions. Her evidence was also generally consistent with the contemporaneous documentary evidence and that of Ms Xia (a broker who was engaged to sell Jolan’s shares). The attempts made in cross-examination to paint Mrs McWilliam as an incompetent solicitor who had exaggerated her work history in her affidavit missed their mark. Mrs McWilliam was the most impressive witness called in the trial.
That Mrs McWilliam gave her evidence in this way was impressive having regard to the picture which the defendants tried to paint of her in her role as a director of the Company and of her conduct during board meetings. Having regard to the case advanced by the defendants, it is noteworthy that her demeanour and the content of her answers given under sustained cross-examination did not support the defendants’ case.
For these reasons, the evidence of Mr and Mrs McWilliam ought to be accepted for the purposes of this matter.
Mr Hiscock was called by the defendants. Unless otherwise stated in these reasons, all references to Mr Hiscock are to Mr Todd Hiscock, and not to Mr Terence Hiscock who also gave evidence for the defendants.
By contrast to Mr and Mrs McWilliam, Mr Hiscock gave answers in a confident and direct manner and then, without demur, changed his evidence just given when shown documents which contained different information. Mr Hiscock’s evidence was unreliable for this reason.
For example, Mr Hiscock initially gave evidence that he did not intend the 7 December 2020 letter sent by the Company’s solicitors to Mr McWilliam to be seen by shareholders or to influence their views. When confronted with a contemporaneous email he sent which indicated to the contrary, he changed his evidence completely, to say he was “just trying to get the facts to the shareholders so they could know what’s happening within their company”.
Mr Hiscock gave evidence that the requirement for Mr McWilliam to get public liability insurance was “a requirement that we used on all our contracts, including Mark White’s contract”. However, when Mr White’s contract was produced, it contained no requirement for public liability insurance, and Mr Hiscock’s evidence was again shown to be unreliable.
Indeed, Mr Hiscock’s lack of reliability as a witness was apparent almost immediately after his cross-examination commenced. In both his affidavit and his brief oral evidence in chief, Mr Hiscock confirmed that he held a small parcel of shares in the Company in his own name. This was incorrect. In fact, these shares were transferred out of his name on or about the first day of trial. When confronted with this fact, he gave evasive evidence, suggesting he could not recall whether or not he had, only a couple of days earlier, asked one of the company secretaries to effect the transfer of these shares and claiming the timing was mere coincidence.
Because of these matters, I received the impression that Mr Hiscock was attempting to give evidence which he considered would suit the defendants’ case rather than giving evidence of his best recollection of the events that he was asked about.
Such an approach even extended to the documentary evidence put before the Court which related to Mr Hiscock. For example, Mr Hiscock’s affidavit annexed an “email chain” between himself and Mr McWilliam relating to the JobKeeper subsidy issue (“TH-14”). In the last email from Mr Hiscock, Mr Hiscock makes allegations including to the effect that what Mr McWilliam is proposing to him is unlawful. In his affidavit, Mr Hiscock deposed that Mr McWilliam’s email (to which he had responded) was understood by him to suggest that Essential Coffee manipulate or reduce its revenue in order to obtain COVID-19 government subsidies and that “seriously concerned” him. However, Mr Hiscock did not exhibit what was, in fact, the final email in the “email chain” which he had received from Mr McWilliam approximately six minutes after Mr Hiscock’s last email, which made plain that Mr McWilliam was not suggesting anything unlawful or unethical. Mr Hiscock did not explain how he still held his concerns notwithstanding receipt of this email from Mr McWilliam.
Further, it was put to Mr Hiscock that he was fabricating his evidence or had fabricated his evidence that day. No leave to adduce evidence of any prior consistent statement of Mr Hiscock was sought by the defendants. I infer from this that no such prior consistent statement existed.
For all of these reasons, Mr Hiscock cannot be accepted as a reliable witness or a witness of truth.
Mr James Cook was also an unimpressive witness. His evidence concerning his involvement in the inertia clause issue (addressed below), and the 7 December 2020 letter to Mr McWilliam (addressed below), was not believable. When answering questions, Mr Cook was evasive and defensive, and I do not regard his evidence as reliable because, like Mr Hiscock, he appeared to be attempting to give evidence which he considered would suit the defendants’ case rather than giving evidence of his best recollection of the events that he was asked about.
CHRONOLOGY OF RELEVANT EVENTS
Events leading to the formation of the Company
In early 2016, the second defendant, Mr Hiscock, was working as CEO of Essential Coffee and was tasked with finding a buyer for the business operated by that company.
In around January 2016, Mr Hiscock approached Mr McWilliam regarding the purchase of Essential Coffee. Mr McWilliam and Mr Hiscock had studied together at Bond University, and Mr McWilliam regarded Mr Hiscock as a close personal friend who he trusted and respected. Mr Hiscock had attended the wedding of Mr and Mrs McWilliam as a member of the bridal party, and was asked to be godfather to their youngest son.
Over several telephone calls between February and June 2016, some of which included Mrs McWilliam, Mr Hiscock proposed (amongst other things) that there be five investors who would each contribute $1 million to the $5 million purchase price, that the five investors would be Mr Hiscock, Mr McWilliam and three of his other friends (two of whom were known to Mr McWilliam from university days) and that as one of the top five shareholders, Mr McWilliam would be entitled to a board seat.
One of the matters which Mr Hiscock also told Mr McWilliam in the period between February and June 2016 was that he would get a paid executive position within the business paying $150,000 per annum plus superannuation, five weeks leave and a long notice period.
Mr McWilliam was also told by Mr Hiscock during these discussions that that it would be a short term investment with an exit within two years.
That Mr McWilliam was told this is consistent with an email dated 2 April 2016 from Mr Hiscock to Mr McWilliam and others in which Mr Hiscock referred to the fact that he “got investors to the table with a view to doubling their money in one to two years”.
The defendants alleged that Mr McWilliam was told “on a number of occasions” prior to entry into the shareholders’ agreement that achieving an “Exit Event” (as defined in the shareholders’ agreement) “might take longer than two years”. Reliance was placed on particular evidence given at the trial by Mr White, Mr Cook, Mr Christopher Rankine and Mr Hiscock concerning discussions between them and Mr McWilliam.
Mr White had worked with Mr Hiscock from 2001 to 2010. Since 2016, Marjul Investments Pty Ltd, of which Mr White is the sole director, has held 700,000 shares in the Company. Marjul Investments Pty Ltd is trustee of the White Family Trust and trustee of the White Family Superannuation Fund. Marjul Investments Pty Ltd became a shareholder in the Company following an approach by Mr Hiscock to Mr White in about January 2016.
Mr White was a director of the Company and of Essential Coffee between July 2016 and late 2019.
In his affidavit sworn on 19 August 2021, Mr White deposed that:
In the first half of 2016 (prior to the acquisition of Essential Coffee) the original intended investors (myself, Todd Hiscock, James Cook, and James McWilliam) had regular telephone meetings to discuss the investment, due diligence findings and the business plan to support the acquisition. Among other things, we discussed in those meetings how long it might take to achieve an exit sale of the company or its business in the future. My view, which I expressed on a number of occasions during those calls, was that achieving an exit event would take at least three years as a best case outcome and could be up to 5 years as a planned exit strategy. James McWilliam was a participant in those telephone calls.
….
I recall having a discussion with James McWilliam at the Burleigh Bears Football Club during that trip to Miami on the Gold Coast. James and I, along with Todd Hiscock and James Cook went to the club to have lunch and inspect its coffee services supplied by Essential Coffee. I recall that while we were there James McWilliam asked me questions, including how long I thought it would take to achieve a sale of the company or its business. I told James McWilliam that it would take between three and five years, although I did not give a definitive view as to how long it would take, given the range of uncertainties involved. However, as a plan I considered 3 years best likely outcome and up to 5 years achievable, all things being normal (i.e., no COVID-19 impact).
Mr Cook is the current Chair of the board of the Company. He is also a director of the Company and of Essential Coffee. He is a former solicitor, and attended Bond University with Mr Hiscock in around 1991 – 1993. Mr Cook was approached by Mr Hiscock in 2016 to “become involved in a coffee business that he was working in”. Mr Cook acquired shares in the Company through his entity, Relative Superiority Investments Pty Ltd.
Mr Cook deposed in his affidavit sworn 20 August 2021 that:
I recall discussions between the founding directors, including Mark White and James McWilliam, during discussions over Mark White joining the company at which Mark White expressed his view that it would more likely be more than 2 years before the business could be packaged up and sold. This is evidenced in an email chain of which James and Nikola were recipients where Mark White requested options at 24 months and 5 years when discussing remuneration and equity prior to Mark joining the company. ….
Mr Rankine is a director and shareholder of the Company. Mr Rankine is a good friend of Mr Hiscock, having known him since university. Mr Hiscock approached Mr Rankine in about early 2016 about investing in the Essential Coffee business.
Mr Rankine gave this evidence:
The initial intention was for there to be five investors - me, Todd, Mark White, James Cook, and James McWilliam. There were a number of telephone discussions between the five of us from about early 2016. We also all met in person at Miami on the Gold Coast. Although I can't recall when that was, it was while we were all considering the investment. In these various conversations, one of the topics we discussed was how long it might take to achieve an 'exit event'. Although there were some discussions about a two year target, the discussion of that aim was terribly light on at the time. I thought that a two year timeframe was unrealistic and I said so on at least one occasion. Specifically, during the trip to Miami the five of us were out the front of the Surf Club in Miami and I said that in my opinion an exit in five to seven years was far more realistic. It never occurred to me at the time that anybody saw it as something we were welded to, rather that it was a hypothetical mechanism of initiating a planning process.
Mr Hiscock gave the following evidence:
In the first half of 2016, I had numerous telephone conversations with James McWilliam about the investment in the Essential Brands group and also the separate business Global Coffee which I intended to become part of the business. … However, I told James and others (Mark White, Chris Rankine and James Cook) at a face to face meeting at Piccolo Cafe Miami in the Miami Surf Club in early 2016, that there were no guarantees in relation to returns nor the timeline for a listing or strategic trade sale.
Exhibited hereto and marked TH-2 is an email from James McWilliam to me dated 7 April 2016 following an exchange between the initial investors. In the email chain there are references to various possible time frames including a “5yr option”.
(bolding omitted)
The email which is TH-2 is one from Mr McWilliam to Mr Hiscock dated 7 April 2016 with the subject matter “Mark White – Investment Structure”. There are no other emails exhibited which indicate the context in which this email was sent. Mr McWilliam gave evidence that the email was not addressing an exit event, but related to share options, which appears to be correct when one has regard to its contents.
Mr McWilliam gave this evidence in his second affidavit:
At paragraph 8(c)(vi) of the Defence it is alleged that I (along with other individuals who were to become Directors) were involved in discussions about the sale process taking longer than two years prior to the Shareholders Agreement (Shareholders Agreement) being entered into.
The topic of how long it would take to sell the Business came up from time to time in phone and email discussions amongst the individuals who were to become Directors, including myself in the period prior to purchase in early to mid-2016. There were a great number of things discussed over the course of a couple of days of meetings on the Gold Coast in early 2016 (the first face to face get together of the individuals who would become Directors). These included the progress of negotiations with the owners of the business, due diligence and capital raising for the purchase. I do not recall the timeline for an exit being specifically discussed or any major emphasis placed on it at the meetings in Miami.
In phone calls and emails around this time, Todd said words to the effect that shareholders would double their money in 1-2 years.
…
I do not recall any other discussions about a five year time frame outside the context of [Mr White’s] request for share options. No one said to me at the time that the investment would be five years or more.
(bolding omitted)
Even if individuals who were to become directors had certain discussions or expressed certain opinions to each other around the timeline within which an “Exit Event” could be achieved, this does not detract from the fact that, by the time that the shareholders’ agreement came to be executed, including by Jolan and other shareholders who were not involved in these discussions between the original five proposed shareholders, the shareholders’ agreement contained an express contractual obligation in the following terms:
Each Shareholder (in so far as it lawfully can do so) undertakes that it will exercise its powers in relation to the Company with the purpose of achieving an Exit Event within a period of two years from the Commencement Date.
“Exit Event” was defined to mean, “Share Sale, asset sale, merger or initial public offering involving the Company”.
By reason of clause 20.4 of the shareholders’ agreement, the shareholders’ agreement and the Constitution superseded all prior agreements and understandings between the parties.
It is plain from the terms of the shareholders’ agreement itself that there must have been further discussions about the proposed Exit Event, and that two years was settled upon as being an appropriate timeframe. Support for this is found in the evidence of Mr Cook who stated that:
In the original business plan/model, the business plan also involved amalgamation with Global Coffee. This merger was to give instant scale overnight. This planned merger/combined entity is what we aspired to sell within the two-year period and what projected returns were based on.
(emphasis added)
That the plan to sell within two years is consistent with Mr Hiscock’s own evidence as to what he intended (which intention it is likely that he shared, at least with Mr McWilliam) being that his initial desire was to either build sufficient scale and investments in the Company to publicly list it or sell the business via a strategic trade sale within about two years after the acquisition in mid-2016, and that this was “to some extent reflected in clause 11.1 of the Shareholders’ Agreement”.
Importantly, the evidence of the discussions between the original five intended shareholders demonstrates that, even amongst themselves, none of them intended to become shareholders in the Company on an indefinite or long term basis.
On 2 July 2016, the Company acquired all of the shares in the subsidiaries, which included Essential Coffee.
Importantly and irrespective of whether the Exit Event would be achieved within two years or five years, it is apparent from the evidence referred to above, and from the terms of the shareholders’ agreement itself, that the purpose of the Company being formed was to buy the Business (and associated intellectual property) (through the acquisition of the shares in the three companies including Essential Coffee) and then achieve an Exit Event within the short term. The Company was not formed to operate as a holding company of the subsidiaries on an indefinite basis. Nor was it formed for the purpose of achieving an Exit Event at some future time when the majority of the shareholders decided that the best profit could be achieved.
Shareholders’ Agreement
By a document which states expressly that it is an agreement made on 1 July 2016, Jolan and the other shareholders entered into the shareholders’ agreement. The Company was also a party to that agreement. By that time, there were (in effect) fourteen shareholders.
The original shareholders included Mr Hiscock personally, the third and fourth defendants (which have a connection with Mr Hiscock), Jolan (associated with Mr McWilliam), Marjul Investments Pty Ltd (associated with Mr White), Relative Superiority Investments Pty Ltd (associated with Mr Cook) and Mr Rankine (acting as trustee for the F.A.C. Trust).
Another original shareholder was PCH Nominees Pty Ltd (acting as trustee for the PC Hughes Family Trust) which is a company of which Ms Joy Hughes is a director. Ms Hughes also used to work with Mr Hiscock, and he approached her in February 2016 about investing in the Company.
The Sheehy Family Trust was also an original shareholder, and Mr Michael Sheehy signed the shareholders’ agreement on its behalf. Mr Hiscock deposed that he was aware that Mr Sheehy was looking for a new investment opportunity. I infer from this that Mr Hiscock knew Mr Sheehy personally and that he also approached Mr Sheehy to invest in the Company. Mr Sheehy was not called as a witness at the trial.
Another original shareholder was Mrs Patricia Rainey, who is married to Mr Neil Rainey, who used to work with Mr Hiscock. In his affidavit sworn 17 August 2021, Mr Rainey referred to his decision to invest in the Company and referred to himself as a passive investor (through his wife’s shareholding).
The original shareholders referred to above therefore all had a personal connection with Mr Hiscock and together held over 5.3 million shares in the Company at the date of execution of the shareholders’ agreement.
By comparison, the other three original shareholders only held 600,000 shares collectively and only one of them held more than 100,000 shares.
Of the original shareholders and notwithstanding the previous discussions referred to above, only Jolan proceeded to acquire 1 million shares in the Company at $1 each (which acquisition occurred on 2 July 2016). It became and has always been one of the five largest shareholders in the Company.
Mr Hiscock is a director of the third and fourth defendants. He is also a 50% shareholder in the third defendant. The fourth defendant is the trustee of a superannuation fund of which Mr Hiscock is a beneficiary. Each of the third and fourth defendants is one of the five shareholders holding the most shares in the Company.
It was common ground at the trial that subsequent shareholders who bought shares in the Company also entered into the shareholders’ agreement.
The shareholders’ agreement contained certain express terms.
Certain terms were defined in clause 1.1 as follows:
Board means the board of Directors of the Company.
Business means the Company's business of food and beverage manufacturing and distribution.
Confidential Information means all information of the Company or a Shareholder (Discloser) which is disclosed to or otherwise becomes known by the Disclosee, whether before or after the date of this Agreement, which is in fact or which is reasonably regarded by the Discloser as confidential to the Discloser, including information relating to technology, processes, products, specifications, inventions or designs used or developed by the Discloser, trade secrets and know-how and information of a commercially sensitive nature. …
Director means a person appointed or elected to the office of director of the Company in accordance with the Constitution and in accordance with this Agreement and, where appropriate, includes an alternate Director.
Exit Event means a Share Sale, asset sale, merger or initial public offering involving the Company.
Group means:
(a) the Company; and
(b) each Subsidiary of the Company (if any).
Group Entity means each entity which is a member of the Group.
Share means an ordinary share in the capital of the Company.
Share Sale means the sale or transfer of all or substantially all of the Shares in the Company.
Clause 3 relevantly provided:
3 Business and management of Company
3.1 Conduct of Company’s Business
Each Shareholder (in so far as it lawfully can do so) must exercise its powers in relation to the Company to ensure that:
(a) the Company carries on and conducts the Business in a proper and efficient manner in accordance with sound business practice and for its own benefit and so as to give effect to any business plan of the Company; and
(b) the Company performs and complies with all obligations on its part under this Agreement and complies with the restrictions imposed on it by the Constitution.
3.2 Scope of Company Business
Unless the Shareholders otherwise agree, the business of the Group will be limited to the conduct, maintenance, improvement and extension of the Business in accordance with any business plans (as amended by agreement between the Shareholders) and budgets approved under clause 4.2.
3.3 General policy determined by Directors
Subject to clause 3.12, the Board will be responsible for:
(a) the overall direction and control of the management of the Company; and
(b) the formulation of the policies to be applied in the conduct of the Business.
3.4 Entitlement to appoint Directors
(a) The total number of Directors is 5.
(b)Each of the five largest Shareholders, measured by total numbers of Shares owned as a proportion of all Shares is entitled to appoint, and to replace from time to time, 1 Director.
(c)If at any time there are less than five Shareholders then each Shareholder is entitled to appoint a number of Directors which bears to the total number of Directors the same proportion as its Specified Proportion. Fractions in the number of Directors are to be disregarded in this calculation.
3.5 Appointment and removal of Directors
(a) Every appointment of a Director will take effect when the written notice of appointment is received from the nominating Shareholder and the written consent to act as a Director is received from that nominated individual at the registered office of the Company and every removal of such a Director will take effect when the written notice of removal is received from the nominating Shareholder at the registered office of the Company.
(b) If the Specified Proportion of a Shareholder, for the purposes of clause 3.4(b), changes such that the entitlement of that Shareholder to appoint Directors pursuant to that clause changes, the Shareholders must do all things necessary, including causing the resignation or appointment of Directors (as the case may be), to ensure that, at all times, the number of Directors reflects the entitlement of the Shareholder to appoint Directors.
3.6 Remuneration of Directors
Unless all the Directors agree otherwise, each Director appointed under clause 3.4 is not entitled to receive directors’ fees or other remuneration in connection with their role as Director.
…
3.8 Voting and regard to Shareholders’ interests
Each Director is entitled to one vote.
3.9 Nominee Directors
A Director appointed by a Shareholder may take into account the interests of that Director’s appointor and may act on the wishes of that appointor in performing any of the Director’s duties or exercising any power, right or discretion as a director in relation to the Company, except in any particular case where no honest and reasonable director could have formed the view that, in so doing, the Director was complying with his fiduciary duties including the duty to act in good faith in the best interests of the Company as a whole.
3.10 Board meetings
(a) The Directors must meet quarterly or more frequently as requested by any two Directors. …
Clause 4.2 provided as follows:
4.2 Annual Budgets and plans
(a) At least 90 days before the commencement of each financial year of the Company, the Company must prepare and submit to the Directors for approval a detailed draft business plan together with a detailed draft operating budget for the Group for that next financial year. The budget must be on a calendar month basis and must include estimated major items of revenue and capital expenditure and be accompanied by a cash-flow forecast and a balance sheet showing the projected position of the Group as at the end of that next financial year.
(b) The Board must consider and vote on each business plan and budget at least 30 days before the commencement of the financial year to which they relate. The Board may approve a business plan and budget with or without amendment and give conditional or unconditional approval of any item in the business plan and budget.
(c)The Company may, if at any time circumstances require it, prepare a revised or supplementary business plan and budget and submit it to the Directors for approval at a meeting of the Board convened at least 30 days before the proposed implementation date of the revised or supplementary business plan and budget.
However, it is apparent from the Notice of General Meeting which was issued to the shareholders of the Company by Mr How on 5 November 2021, and the email which accompanied that notice, that:
(a)the shareholders were made aware of these proceedings at a general meeting of shareholders held on 7 September 2021 (that is, before the trial);
(b)the relief claimed by Jolan in these proceedings was explained to those shareholders at the meeting on 7 September 2021;
(c)a significant number of shareholders present at the 7 September 2021 meeting indicated that they would be interested in acquiring shares;
(d)the shareholders were informed that judgment in this proceeding was expected to be handed down prior to 25 December 2021.
It is also apparent from an email from Mr How to the shareholders dated 29 November 2021 that:
(a)the shareholders have received updates from Mr Cook about these proceedings;
(b)the shareholders have previously been provided with certain court documents;
(c)the shareholders were invited to request a copy of the defendants’ closing submissions;
(d)the shareholders were advised of the hearing on 30 November 2021 and the submissions made by the defendants at that hearing, including that reasons should be delivered to enable, amongst other things, shareholders to participate in any purchase of Jolan’s shares;
(e)the individual shareholders were advised that they “will need to consider the worst-case scenario regarding their investment should Jolan obtain the judgement it seeks: a buy back of their shares at $1.30 or liquidation (or such other lesser order the Court may make over Jolan’s shares or costs)”.
Having regard to these matters, and the fact that many shareholders (or their representatives) filed affidavits in this proceeding and were witnesses at the trial (such as Mr Hiscock, Mr White, Mr Cook, Mr Rankine, Ms Hughes, Mr Rainey and Mr Terence Hiscock), a period of 7 days from the date of judgment is sufficient time to enable shareholders to make submissions as to the final form of orders which should be made.
For the same reasons, and having regard to the information which the shareholders have had about these proceedings, the advice which they were given by the Company and the resolutions which were passed by the shareholders on 29 November 2021, it is not necessary for another general meeting to be held, as submitted by the defendants on 30 November 2021.
It is not necessary to have an oral hearing for the purposes of deciding the final form of orders to be made.
I certify that the preceding five hundred (500) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes. Associate:
Dated: 7 December 2021
SCHEDULE OF PARTIES
QUD 101 of 2021 Defendants
Fourth Defendant:
KANGAROO POINT REALTY PTY LTD ACN 001 917 237
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