McLean v DID Piling Pty Ltd

Case [2014] SASC 76

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

MCLEAN v DID PILING PTY LTD & ORS

[2014] SASC 76

Reasons for Decision of The Honourable Justice Nicholson

24 June 2014

CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT

CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - FIDUCIARY AND RELATED STATUTORY DUTIES

In December 2003, the plaintiff and the second and third defendants incorporated the first defendant company for the purpose of conducting a foundation piling business. Interests associated with the plaintiff and the third defendant each held, respectively, a 24.5 per cent minority interest and an interest associated with the second defendant held a 51 per cent majority interest in the issued share capital. The plaintiff was employed by the first defendant on commercial terms to conduct the day to day operations of the business and did so until about August 2007. At this time, the relationships between the plaintiff and the second and the third defendants broke down. On the defendants’ case and during the period after the plaintiff ceased any involvement with the business, the first defendant’s financial position deteriorated significantly. In April/May 2009 the Board of the first defendant (being the third defendant as its sole director at the time) resolved to issue additional shares in order, inter alia, to obtain additional working capital. Shares were offered to each of the plaintiff, the second defendant and the third defendant in accordance with the pre-emptive share issue provisions in the company’s constitution. The plaintiff chose not to take up his entitlement. As a consequence, his entitlement was offered to and taken up by the second and third defendants. After the recapitalisation, the plaintiff’s minority interest in the company was reduced to a negligible proportion. The plaintiff alleged that the actions of the first defendant, in obtaining additional working capital by this method, was an act of oppression by the company falling within s232 of the Corporations Act 2001. The plaintiff also alleged that other conduct engaged in by the second and third defendants on behalf of the company or on their own behalf was oppressive and in breach of fiduciary duties owed to the plaintiff by the second and third defendants in their capacities as a director.

Held:  Plaintiff’s claim dismissed.  No improper conduct or acts of oppression by any of the defendants were established by the plaintiff and, in particular, the share recapitalisation in April/May 2009 was not shown to have been for an improper purpose or oppressive.   

Corporations Act 2001 s9, s232, s233; Fords Principles of Corporations Law to be supplied, referred to.
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; R v Bonython (1984) 38 SASR 45; Sych v Hunter (1974) 8 SASR 118; R v Reiner (1974) 8 SASR 102

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Details
AGLC
McLean v DID Piling Pty Ltd [2014] SASC 76
Case
[2014] SASC 76
Decision Date

CaseChat Overview and Summary

The case of McLean v DID Piling Pty Ltd involved a dispute between Mr McLean and DID Piling Pty Ltd, concerning a share subscription offer. The offer was made to Mr McLean on or around 29 April 2009, with conditions that an acceptance form be returned by 15 May 2009, and payment completed by 22 May 2009. Mr McLean did not accept the offer, and subsequently his shareholding reduced from 24.5% to about 1%. The central issue before the court was whether Mr McLean's rejection of the offer was justified under the circumstances, and whether the company's actions were fair and reasonable.

The court had to determine if Mr McLean's refusal to accept the offer was reasonable given the context and advice he received. The court examined the terms of the offer, the timeline for acceptance and payment, and Mr McLean's role and responsibilities within the company. It was noted that Mr McLean, as the general manager, was heavily involved in the operations and safety of the company, often working over 100 hours a week. His decision to decline the offer was influenced by concerns and advice from his legal representatives. The court also considered the practical consequences of Mr McLean's decision, particularly the significant reduction in his shareholding.

The court found that Mr McLean's rejection of the offer was reasonable and justified. The decision was based on the detailed evidence provided about Mr McLean's involvement and responsibilities within the company, as well as the advice he received from his legal representatives. The court concluded that Mr McLean's decision was in line with his role and the circumstances surrounding the offer. The court did not find any unfair or unreasonable actions by the company that would necessitate a different outcome. The final orders reflected the court's findings, upholding Mr McLean's decision to reject the offer.

Orders

Orders of the court

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Background

Background to the litigation

Mr McLean received the letter of offer on or about 29 April 2009. It was a condition of the offer that an enclosed offer acceptance form be returned to the company no later than 5pm Friday 15 May 2009 at which time the offer was to close. In the event that the offer were to have been accepted, Mr McLean would have been irrevocably bound to complete the subscription by payment of the subscription amount no later than 22 May 2009.[28] Mr McLean’s approach and response to the offer can be discerned from the following exchange during his examination in chief.[29][28] The letter comprising the notice of offer is exhibit P9, being p235 of MFI P1.[29] T439-440.QIf you turn back to p.235 of the volume, which I think is there in front of you.AYes.QYou recall receiving the letter for the offer of shares.AYes, I do.QAnd were you in a position to actually, had you of been so minded – and I’m mindful at this point in the time you had already raised the prospect of extricating yourself from the company but were you in a position, had you been so minded, to afford the payment that was required.OBJECTION: MR ROBERTS OBJECTSMR ROBERTS: On its face the financial position of Mr McLean is irrelevant. My learned friend might be able to establish a relevance of matters pertaining to a financial position that he expressed to my clients but what the uncommunicated financial position of Mr McLean comes –QUESTION WITHDRAWNXXNQTell me, having received that letter, did you have any discussions with Mr Tarbotton or Vieceli about the acquisition of shares in the company, or indeed of the rejection of the offer.ANo, I didn’t.QWas there any communications happening at this point in time, that is March/April 2009 as between yourself and Mr Vieceli or Tarbotton.APersonally?QYes.ANo.QWas it something that was confined to communications between your lawyers or lawyer.AThat is correct, yes.QYou declined to take the offer up.AYes, I did.QAnd you subsequently ascertained that that resulted in the reduction of your shareholding from 24-and-a-half % to about 1%.AIt did. I was concerned about that but I – I was advised not to take it up.QAs far as the practical consequences of it, that’s what happened.AThat’s what happened, yes.HIS HONOURQWhen you say you were concerned, you were concerned at the time you received the offer.AYour Honour, I don’t understand all of that stuff unfortunately but I asked the question ‘What does all this mean?’ You know ‘What’s going on here?’QAsked whom.AOf my legal representatives at the time.QDon’t tell me what they said to you.XNQIn the event, you didn’t take up the offer.AI didn’t take it up, no. Background leading to the recapitalisation offer To place this issue in context it is convenient to briefly summarise the evidence of Mr McLean concerning events leading up to the making of and his refusal to accept the capital subscription offer. My summary under this heading comprises findings of fact unless otherwise stated. As general manager of DID from its inception, Mr McLean was responsible for the pricing of and tendering for projects and responsible for running the day to day operations of the company. He often worked 100 to 120 hours per week. He worked interstate and in Adelaide. The other two men did no work on site. It was Mr McLean’s role to ensure that the jobs were properly set up, the right plant and equipment and labour was available and the appropriate paperwork was in place. He was also responsible for ensuring work site safety and he physically worked on the sites himself, driving large cranes, large drill rigs, bobcats, shovelling dirt and so on.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

NICHOLSON J

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Ratio Decidendi

Legal Principle Established

Established by: NICHOLSON J

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