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McLaughlin v Dungowan Manly Pty Ltd

McLaughlin v Dungowan Manly Pty Ltd

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CITATION: McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 187

HEARING DATE(S): 21, 22, 23, 24, 25 September, 9 October 2009 and 18 February 2010

JUDGMENT DATE :
16 March 2010

JURISDICTION: Equity Division

JUDGMENT OF: Ward J

DECISION: 1. Declare that the September 2006 resolution approving the payment of a $250,000 fee to Mr Garratt is ineffective and of no effect.
2. Order the defendant to pay to the plaintiffs the sum of $200,000 by way of damages for breach of the contract constituted by the Articles of Association (such breach constituted by the pursuit of the redevelopment insofar as it abrogated, varied or restricted rights of the plaintiffs in relation to the their occupation of their home unit).
3. Order the defendant to pay to the plaintiffs the sum of $59,885.93 by way of interest on 50% of the January 2000 special levy from the date on which demand was first made for its return (21 March 2007) to 30 September 2009.
4. Give leave for the plaintiffs to commence a derivative suit in the name of the company against the directors for breach of statutory duties in relation to the redevelopment.

CATCHWORDS: CORPORATIONS – company title – oppression – construction and breach of articles of association – meetings procedure – validity of resolutions – assessment of damages for breach of articles of association and oppression – whether leave should be granted to commence derivative suit – defendant company undertook extensive re-development of block of units – re-development opposed by plaintiffs who were company members – whether conduct of re-development, including the striking of levies and entering into loans to fund re-development, the selective buy-back of shares and a remuneration payment to director were capable of valid resolution and undertaken according to articles of association or amounted to oppression – HELD – re-development project constituted breach of articles of association – resolution to remunerate director invalid due to inadequate notice – decision to undertake re-development in particular manner not oppressive – unequal treatment of plaintiffs in respect of a special levy constituted oppression – leave granted to commence derivative suit for breach of statutory duties

LEGISLATION CITED: Trade Practices Act 1974 (Cth)
Corporations Act 2001

CATEGORY: Principal judgment

CASES CITED: Ashburton Oil v Alpha Mining NL (1971) 123 CLR 614
Australian Hydrocarbons NL v Green (1985) 10 ACLR 72
Bain & Co Nominees Pty Ltd v Grace Bros Holdings Ltd (1983) 7 ACLR 777
Bak v Glenleigh [2006] NSWCA 10
Baltic Shipping v Dillon (1993) 176 CLR 344
Bancorp Investments Ltd v Primac Holdings Ltd (1984) 9 ACLR 263
Belgiorno-Zegna v Exben Pty Limited and Ors (2000) 35 ACSR 305
Browne v Panga Pty Limited (1995) 14 WAR 393
Bulfin v Bebarfalds Limited (1938) 38 SR (NSW) 423
Buttonwood Nominees Pty Ltd v Sundowner Minerals NL (1986) 10 ACLR 360
Campbell and Another v BackOffice Investments Pty Limited (2009) 257 ALR 610
Campbell v BackOffice Investments Pty Limited [2007] NSWSC 161
Chahwan v Euphoric Pty Ltd [2008] NSWCA…

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: [2010] NSWSC 187
Decision Date: 16 March 2010

CaseChat Overview and Summary

The plaintiffs were members of Dungowan Manly Pty Ltd, a company that owned a block of units. The defendants, the company and its director, undertook extensive redevelopment of the block of units. This redevelopment was opposed by the plaintiffs. The plaintiffs brought a derivative action alleging that the re-development project, including the striking of levies, entering into loans to fund the re-development, the selective buy-back of shares, and a remuneration payment to a director, constituted a breach of the company's articles of association and amounted to oppression under the Corporations Act. The plaintiffs sought an assessment of damages, leave to commence a derivative suit, and an order for the company to pay their legal costs. The central issues were whether the conduct of the re-development, including the striking of levies and entering into loans to fund the re-development, the selective buy-back of shares and a remuneration payment to a director, were capable of valid resolution and undertaken according to the company's articles of association or amounted to oppression. The court had to determine if the re-development project constituted a breach of the articles of association and if the resolution to remunerate the director was valid. The court also had to decide if the decision to undertake the re-development in a particular manner was oppressive and if the unequal treatment of the plaintiffs in respect of a special levy constituted oppression.

The court found that the re-development project constituted a breach of the articles of association. The resolution to remunerate the director was invalid due to inadequate notice. The decision to undertake the re-development in a particular manner was not oppressive. However, the unequal treatment of the plaintiffs in respect of a special levy constituted oppression. The court granted leave to commence a derivative suit for breach of statutory duties. The court held that the re-development project was a proper exercise of the company's powers, and the decision to undertake the re-development in a particular manner was not oppressive. However, the unequal treatment of the plaintiffs in respect of a special levy constituted oppression, as it was a misuse of power for an improper purpose. The court held that the plaintiffs were entitled to damages for the breach of the articles of association and oppression. The court also held that the plaintiffs were entitled to leave to commence a derivative suit for breach of statutory duties. The court ordered the company to pay the plaintiffs' legal costs.

The court made orders that the defendant company pay the plaintiffs' costs of the proceeding, and that leave be granted to the plaintiffs to commence a derivative suit against the defendant company and its director for breach of statutory duties under the Corporations Act. The court also ordered the company to pay damages to the plaintiffs for the breach of the articles of association and oppression.

Orders