Olive & Anor v Oceanview Developments Pty Limited & Ors
[2023] NTSC 38
•28 April 2023
CITATION:Olive & Anor v Oceanview Developments Pty Limited & Ors [2023] NTSC 38
PARTIES:SCOTT OLIVE
First Plaintiff
And
Virtucom Pty Limited
Second Plaintiff
v
OCEANVIEW DEVELOPMENTS PTY LIMITED
First Defendant
And
Liveris Holdings Pty Limited
Second Defendant
And
ANDREW LIVERIS
Third Defendant
And
HABITAT (NT) PTY LIMITED
Fourth Defendant
And
PAUL WINTER
Fifth Defendant
TITLE OF COURT: SUPREME COURT OF THE NORTHERN TERRITORY
JURISDICTION: SUPREME COURT exercising Territory jurisdiction
FILE NO:2022-02316-SC
DELIVERED: 28 April 2023
HEARING DATE: 13 March 2023 and written submissions concluding 14 April 2023
JUDGMENT OF: Luppino AsJ
CATCHWORDS:
Practice and Procedure – Summary judgment and summary dismissal of proceedings – The “no reasonable prosects of success” test applies in both instances – Whether there is a real question which should be decided at trial – Effect of serious disputes of facts – Discretionary nature of relief – Factors relevant to the exercise of the discretion.
Practice and Procedure – Jurisdiction – Concurrent common law relief and relief under the Corporations Act 2001 (Cth) sought in an Originating Process – When such concurrent claims are permitted – Jurisdiction of the Court to hear and determine a common law claim alone in proceedings commenced under the CLR – Whether such proceedings are a nullity.
Corporations – Oppressive conduct under section 232(e) Corporations Act 2001 (Cth) – Circumstances where relief for oppressive conduct is available to a majority shareholder.
Courts – Authority of Associate Judge – Limitation on authority of Associate Judge under the Supreme Court Rules to hear and determine final relief by way of declarations – Associate Judge has authority to hear and determine all interlocutory applications – Limitation on authority in respect of final relief does not apply when declarations are sought on an interlocutory application.
Corporations Act 2001 (Cth), ss 9, 136(2), 140(1), 232, 233, 249L(1)(c).
Supreme Court Act 1987 (NT), s 19
Federal Court of Australia Act 1976 (Cth), s 31A
Corporations Reform (Northern Territory) Act 2001 (NT)
Australian Securities and Investments Commission Act 2001 (Cth)
Cross-Border Insolvency Act 2008 (Cth)
Supreme Court Act 1935 (WA), s 24(7)
Supreme Court Rules 1987 (NT), rr 1.02, 1.3, 2.02, 2.03, 3.04(1), 9, 22.01(1) and (2), 77.01(3), 77.02(4)(e)
Corporations Law Rules 2000 (NT), rr 1.3(1)-(2), 16.1(1).Practice Direction 6 of 2009 – Trial Civil Procedure Reforms
McCasker v Omad (NT) Pty Ltd [2023] NTSC 1.
Spencer v The Commonwealth (2010) 241 CLR 118.
Australian Securities and Investment Commission v Cassimatis (2013) 220 FCR 256.
Re Polyresins Pty Ltd [1999] 1 Qd R 599.
Watson v James [1999] NSWSC 600.
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304. International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368.
Re Richardson & Wrench Holdings Pty Ltd (2013) 97 ACSR 351.
Re Crow Inn Pty Ltd (No 2) [2020] NSWSC 1749.
Kooee Communications Pty Ltd & Anor v Primus Telecommunications Pty Ltd [2008] NSWCA 5.
Fitzgerald v Masters (1956) 95 CLR 420.
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181.
Jacobs v Edwards [2012] SASC 66.
Palatium Pty Ltd v Koren Holdings Pty Ltd (No 2) [2015] WASC 311.
Cooper v Perrone [2016] SASC 102.
Civil & Civic Pty Ltd v Pioneer Concrete (NT) Pty Ltd (1991) 1 NTLR 243.REPRESENTATION:
Counsel:
Plaintiff:Mr J Barber SC
Defendant:Dr C Ford
Solicitors:
Plaintiff:De Wet Partnership Solicitors
Defendant:Cozens Johansen Lawyers
Judgment category classification: B
Judgment ID Number: Lup2301
Number of pages: 39
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWINOlive & Anor v Oceanview Developments Pty Limited & Ors [2023] NTSC 38
No. 2022-02316-SC
BETWEEN:
SCOTT OLIVE
First Plaintiff
AND:
Virtucom Pty Limited
Second Plaintiff
AND:
OCEANVIEW DEVELOPMENTS PTY LIMITED
First Defendant
AND:
LIVERIS HOLDINGS PTY LIMITED
Second DefendantAND:
ANDREW LIVERIS
Third DefendantAND:
HABITAT (NT) PTY LIMITED
Fourth Defendant
AND:
PAUL WINTER
Fifth Defendant
CORAM: Luppino AsJ
REASONS
(Delivered 28 April 2023)
There are two applications before me. The first is the Plaintiffs’ Interlocutory Process filed pursuant to the Corporations Law Rules 2000 (NT) (“CLR”). That application seeks orders for summary judgment pursuant to rule 22.01(1) of the Supreme Court Rules 1987 (NT) (“SCR”) by way of firstly, in paragraph 1, a declaration that the First Plaintiff (“Olive”) was validly appointed as a director of the First Defendant (“OVD”). Secondly, in paragraph 2, specific performance in respect of discrete parts of certain agreements entered into by the parties, or alternatively orders pursuant to those agreements or, in the further alternative, orders pursuant to section 233 of the Corporations Act 2001 (Cth) (“the Act”) essentially for the purpose of perfecting the appointment of Olive as director of OVD if the declaration is made.
The substantive proceedings were commenced by Originating Process under the CLR seeking inter alia relief pursuant to sections 232 and 233 of the Act as well as at common law, and in equity in respect of contractual claims unconnected with the Act.
The second application is the Defendants’ Interlocutory Process, also filed pursuant to the CLR. That seeks summary dismissal or strike out of the claims of the Plaintiffs which are made under the Act. The relief is sought pursuant to both the CLR and rule 22.01(2) of the SCR. Alternatively, the Defendants seek a stay of the proceedings pending the undertaking of dispute resolution.
At the commencement of the hearing Mr Barber, senior counsel for the Plaintiffs and Mr Ford, counsel for the Defendants, joined together to raise an issue concerning my authority to hear and determine these applications. The concern was the limitation on my authority imposed by rule 77.02(4)(e) of the SCR. That rule limits my authority to hear and determine a proceeding in respect of certain types of declarations. The first order sought by the Plaintiffs is a declaration to which rule 77.02(4)(e) of the SCR applies. Also relevant in respect of the relief sought under the CLR is rule 16.1(1) of the CLR, which sets my authority under the CLR. That rule contains a restriction on my authority similar to rule 77.02(4)(e) of the SCR, hence the issue is also relevant to the part of the case that is based on the CLR.
My authority to hear and determine summary judgment applications derives from rule 77.01(3) of the SCR which essentially provides that I may hear and determine all interlocutory applications. A similar provision exists in rule 16.1(1) of the CLR.
I determined that I could hear the current applications on the basis that rule 77.02(4)(e) of the SCR only applies to substantive relief and not to interlocutory relief. Notwithstanding that I might not be able to hear and determine the substantive case where a declaration is sought, by reason of rule 77.01(3) of the SCR I can still hear and determine an application for summary judgment on an interlocutory basis even if the same declaration is sought in that application. Likewise, under the CLR, although the same issue does not arise there in any case as the Plaintiff’s declaration is sought at common law, not under the Act.
The statutory provisions relevant to these reasons are now set out for reference. First rule 22.01of the SCR:-
22.01 Summary judgment
(1)The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
(2)The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
Next section 232 of the Act:-
232 Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
The background facts are that Olive is the sole director and shareholder of the Second Plaintiff (“Virtucom”). He was also a director of OVD until 2015. Currently, the directors of OVD are the Third Defendant (“Liveris”), the Fifth Defendant (“Winter") and Olive's former domestic partner Ms Woolley (“Woolley”), who is not a party to the proceedings.
The shareholders of OVD are Virtucom as to 51% and 24.5% to each of the Second Defendant (“LH”) and the Fourth Defendant (“Habitat”). Ostensibly at least, Virtucom is the majority shareholder in OVD.
OVD owns various properties in Darwin River from which it runs a number of businesses, including a licensed tavern. Olive was employed by OVD as its manager until 13 November 2021 when his employment was terminated. The reason given was that he had not provided evidence of his Covid 19 vaccination status which was then allegedly a requirement for his employment in that industry.
On 22 March 2016 OVD, Virtucom, LH, Habitat, Olive and Woolley entered into a Deed (“Deed”). The Deed provided inter alia that
· a shareholders agreement (“SA”) would be entered into by OVD and all of its shareholders;[1]
· Liveris, Winter and Woolley would be appointed as directors of OVD;[2]
· Olive may be appointed a director of OVD upon Virtucom giving notice to that effect;[3]
· OVD would issue shares (which would achieve the shareholding referred to in paragraph 9 above);[4]
· while Liveris, Winter and Woolley were the only directors, at meetings of directors, Liveris and Winter had one joint vote and Woolley had one vote;[5]
· if Olive became a director and Woolley ceased to be a director, each of Liveris, Winter and Olive would have one vote each at meetings of directors;[6]
· certain specified decisions of directors had to be unanimous;[7]
· any decisions made by shareholders had to be unanimous.[8]
As the name of the document suggests, only OVD and its shareholders, post the issue of shares made in accordance with clause 4.2 of the Deed, are parties to the SA. The more relevant provisions of the SA are that:
· in the event of an inconsistency, precedence would be in order of the Deed, then the SA and lastly, OVD's Constitution;[9]
· Virtucom was entitled to appoint two directors, and LH and Habitat one each;[10]
· a shareholder could remove its nominee director and appoint a substitute at any time;[11]
· nominee directors were entitled to represent the interests of the shareholder who appointed them;[12]
· any decision of shareholders could only be taken if it was approved by resolution of the directors.[13]
Save that a nominee could not be appointed if they were disqualified from appointment pursuant to the Act, the right to appoint a director in clause 7.1(b) of the SA is absolute.
Notice purporting to remove Woolley as a director of OVD and to appoint Olive as a director of OVD was given by Virtucom on 20 September 2021. A second notice was given on 21 April 2022. The current proceedings were commenced because Olive has still not been accepted as a director of OVD.
The first notice of appointment given by Virtucom did two things. First it gave notice of Virtucom’s removal of Woolley as a director, and secondly of the appointment of Olive as the substitute director. On the evidence, that appears to have followed on from the breakdown of the personal relationship between Olive and Woolley.
The second notice of appointment given by Virtucom made no mention of the removal of Woolley as a director but repeated the notification of the appointment of Olive as a director of OVD. I do not consider that anything turns on that difference. The overall effect is that Woolley has been removed as a director by the first notice and Olive has been appointed as Virtucom’s nominee director by both notices.
The Plaintiffs have provided evidence of the satisfaction of pre-condition of the provision of a consent to act as a director as well as proof of the giving of the notice, none of which was challenged by the Defendants.
Various emails by Liveris and Winter to Olive were put in evidence. They make various allegations against Olive, which Olive disputes, that Olive had caused staff issues and was responsible for the poor performance of OVD’s business. Importantly, the emails clearly show Liveris and Winter do not want, and will not accept, Olive as a director of OVD. Liveris and Winter continue to deny that Olive is, or is entitled to be, a director of OVD. Other emails go as far as banning Olive from OVD’s premises.
One email refers to what is said to be a requirement of the Act that a director must be a fit and proper person before they can be appointed as a director. No doubt that seeks to justify the refusal to accept Olive as a director by reason that the SA prohibits the nomination of someone who is disqualified from being a director by the Act. However, that claim is incorrect. Being a fit and proper person may be a requirement for liquor and gaming licensing purposes but not under the Act for appointment as a director. As regards liquor licensing and gaming licensing, given the evidence that OVD had employed Olive for more than five years as the manager of the business, clearly he was, at least until his appointment was terminated, a fit and proper person for licensing purposes notwithstanding Liveris’ and Winter’s bare assertions to the contrary. There is no evidence that Olive is disqualified from appointment as a director pursuant to the SA.
The Defendants’ challenge to the Plaintiffs’ entitlement to summary judgment raises a number of factual disputes which the Defendants claim are an appropriate basis to decline summary judgment. Those disputes vary in significance. The allegations of representations as to the future capacity of the business allegedly made by Olive to Winter, and the allegation of breaches by Olive of warranties contained in the Deed are amongst the more significant. These are discussed in greater detail below.[14] The less significant is, for example, the issue of whether Olive is a fit and proper person to be a director of a company holding a liquor licence, which has been discussed above already. In any case, all instances appear to relate to Olive personally and they are not matters which are raised against Virtucom and it is Virtucom, not Olive, which has the contractual right of appointment.
I will first briefly set out the legal principles concerning summary determination of proceedings, whether by way of summary judgment or by summary dismissal or strike out. There was not any disagreement between the parties concerning the applicable principles but nonetheless I briefly set out those principles for completeness and context. For that purpose I gratefully adopt the summary set out in the most recent decision in this Court namely, McCasker v Omad (NT) Pty Ltd.[15] As was noted in that case, the test for summary judgment under rule 22.01 of the SCR, whether on application by a Plaintiff or a Defendant, is now the same namely, the “no reasonable prospect of success” test. That mirrors the test under section 31A of the Federal Court of Australia Act 1976 (Cth). Essentially, the party applying only needs to show that the opposing party has no reasonable prospect of successfully prosecuting or defending, as the case may be, the part of the proceeding that is the subject of the application.
Relief by way of summary judgment is discretionary. The discretion, like many judicial discretions has an enlivening factor, in this case that there are no reasonable prospects of success. Once enlivened, the discretion must be exercised judicially and after taking into account all relevant factors.
In Spencer v The Commonwealth,[16] the High Court considered the similar test in section 31A of the Federal Court of Australia Act 1976 (Cth) and said that, although it remains the position that the power to grant summary judgment is not to be exercised lightly and should be attended with great caution, the current test lowered the bar for summary judgment applications and set a different inquiry compared with earlier regimes. As to the latter, Reeves J in Australian Securities and Investment Commission v Cassimatis,[17] said that the determination of a summary judgment or summary dismissal application now only requires a critical examination of the available materials to determine whether there is a real question of law or fact that should be decided at trial.
Although the Defendants dispute that the Plaintiffs are entitled to summary judgment, they led little evidence to challenge the Plaintiff’s evidence. The Defendants however, put evidence on in support of their own application for dismissal.
Having regard to that, the Plaintiffs argued that the necessary elements to establish entitlement to the declaration sought on a contractual basis had been satisfied and submitted that I should exercise the power to grant summary judgment for that reason, coupled with there being no evidence that would deny Virtucom’s claim. The Plaintiffs emphasised that the right of appointment is a contractual right. The relevance of that is that the Plaintiffs only seek summary judgment based on the contractual rights. Presumably, that means that the Plaintiffs recognise that summary judgment would not likely succeed if based solely on the relief sought under section 232(e) of the Act, which I think is a proper concession in any case.
The Defendants opposed the Plaintiffs’ claim for summary judgment on four separate bases, albeit one of those bases had multiple limbs. In summary these are first, a jurisdictional basis that as the Plaintiffs’ claim for oppressive conduct cannot succeed, the Court has no jurisdiction to hear and determine only the common law claim in proceedings commenced under the CLR. Second, the Plaintiffs have not complied with contractual preconditions to the commencement of proceedings. Third, the existence of a significant factual disputes, some of which have already briefly been referred to. Last, discretionary reasons.
Dealing first with the jurisdictional basis. The Defendants’ argument is predicated on the dual source of the relief sought in the Originating Process namely, the statutory relief pursuant to section 232(e) of the Act and relief at common law and in equity based on contract. The argument is prefaced on the submission that the oppressive conduct claim cannot succeed and must be dismissed. In that event that would leave the common law claim to proceed on a stand-alone basis in proceedings under the CLR, which the Defendants say is impermissible.
The claimed inevitable failure of the oppressive conduct claim was argued on the basis that relief under section 232(e) of the Act was not available to Virtucom as it is a majority shareholder of OVD. More precisely, the argument is that the remedies available pursuant to section 232(e) of the Act are only available to majority shareholders in limited circumstances, none of which apply in the present case, therefore the application cannot succeed.
This principle arises as, in the usual case, a majority shareholder can use voting rights to eradicate the effects of the oppressive conduct.[18] However, that is not necessarily the case where the majority shareholder does not have voting control, see Watson v James.[19] A number of other cases have held that majority shareholders can be oppressed, see Campbell v Backoffice Investments Pty Ltd[20], International Hospitality Concepts Inc (No 2),[21] Re Richardson & Wrench Holdings Pty Ltd[22] and Re Crow Inn Pty Ltd (No 2).[23]
However, I am satisfied that the evidence in the current case establishes that Virtucom does not have voting control. That is the combined effect of both the Deed and the SA. The terms of the SA, in conjunction with the terms of the Deed, effectively gives every director and every shareholder the equivalent of a right of veto. In light of that Virtucom’s 51% holding in OVD is illusory as an indicator of voting control of OVD and that therefore means that Virtucom can be the subject of oppressive conduct. For current purposes it is not necessary that I determine whether the evidence actually amounts to oppressive conduct within the meaning of section 232(e) of the Act.
A second limb of this argument is related to the second basis of the Defendants’ opposition to the Plaintiffs’ summary judgment application, namely, non-compliance with contractual preconditions to action. In terms of majority oppression, the Defendants argue that it cannot be said that there is oppressive, unfairly prejudicial or unfairly discriminatory conduct (which mirrors the wording of section 232(e) of the Act), unless the dispute resolution process in clause 23 of the SA has first been undertaken. Also relevant is the Defendants’ argument that the absence of evidence that Woolley is not neglecting Virtucom’s interests, or that the Board of Directors is not operating smoothly, negates oppressive conduct as it has not been established that Virtucom is unable to exert control over OVD.
The Plaintiffs conceded during argument that non-compliance with a dispute resolution clause in a contract will usually result in an order for a stay of proceedings until that clause has been complied with. This argument of the Defendants’, if accepted, would necessarily lead to summary judgment being denied.
With the exception of the argument based on non-compliance with the dispute resolution clause in the SA, I do not consider that the arguments outlined in paragraph 31 above are overly persuasive. The Defendants later went on to argue, as part of their second basis of opposition, that as the Plaintiffs have not undertaken the dispute resolution process provided for in clause 23 of the SA, the Plaintiffs were not entitled to commence proceedings. Hence, the argument proceeds, the Plaintiffs are not entitled to summary judgment as the proceedings are premature. A major stumbling block for this otherwise persuasive argument is that, as worded, clause 23.1 of the SA applies to disputes between directors, not shareholders, and neither of the Plaintiffs are directors, ironically because the Defendants deny that Olive is, or is entitled to be, a director.
Mr Barber relied on this to argue that clause 23.1 of the SA has no application. Mr Ford replied that the word "director" in clause 23.1 of the SA should refer to "shareholder". However, no order for rectification has been sought and therefore that issue is to be approached solely on the basis of contractual construction. On its face the reference to directors in clause 23.1 of the SA is clear and unambiguous.
Mr Barber referred me to Kooee Communications Pty Ltd & Anor v Primus Telecommunications Pty Ltd.[24] In that case the New South Wales Court of Appeal considered the line of authorities including the High Court decision in Fitzgerald v Masters[25] through to the more recent High Court decision in Maggbury Pty Ltd v Hafele Australia Pty Ltd.[26] The effect of these decisions is that although constructions which are commercially unrealistic are to be avoided, that does not permit the judicial rewriting of contractual provisions. As Basten JA noted in Kooee,[27] all members of the High Court in Maggbury agreed that the approach to proper construction of an agreement is that it is to be consistent with the principle that the Court is not able to disregard clear words nor to rewrite a term as part of the interpretation process.
Mr Ford argued that unless clause 23.1 of the document is read as a reference to shareholders it would make the management of OVD unworkable because, by operation of various terms of the SA and the Deed, it would mean that the dispute resolution process would be triggered unless there was a unanimous decision of directors. That would be an undesirable result.
An equally undesirable result was pointed out by Mr Barber namely, that if Mr Ford’s interpretation was correct, as clause 9.1 of the SA was an effective right of veto for all shareholders, that would mean that there could never be a dispute for the purposes of clause 23.1 of the SA and that would render the provision otiose. Mr Barber drew support from clause 9.2 of the SA which specifies the decisions of shareholders which require the prior approval of directors. He submitted that although the list of such decisions in that clause was extensive, it was not entire and that showed that there were other director’s decisions which could be the subject of clause 23.1 if that clause was read as referring directors.
On this issue I queried whether the parties had omitted to deal with what I thought was a relevant consideration namely, that only OVD and its shareholders are parties to the SA. The directors are not parties and they cannot be bound to comply with 23.1 of the SA. Although that assists Mr Ford’s argument, it raises issues relative to the construction of that clause, even allowing for the other obligations on the directors in the SA as Mr Barber referred to. Therefore, following conclusion of the hearing I invited further submissions from the parties on that discrete point.
In those further submissions, Mr Ford predictably submitted that the directors could not be compelled to comply with clause 23.1 of the SA and that strengthened his previously put argument that the reference to directors in that subclause was intended to refer to shareholders. That alone however does not address the point made by Mr Barber in the course of argument namely, that on Mr Ford’s interpretation of clause 9.1 of the SA, the effective veto of all shareholders would render the provision otiose. Also, it still contradicts the otherwise clear wording of the clause.
Mr Barber presented an argument founded on the ability of shareholders to modify a company’s Constitution by special resolution, see section 136(2) of the Act. He submitted that section 140(1) of the Act is to the effect that the Constitution of a company is a statutory contract between firstly, the company and each member; secondly, between the company and each officer; and lastly, between a member and each other member. That, it was argued, lead to the proposition that the Constitution can be enforced by a director against the company and vice versa. In principle, I agree with that proposition.
The other steps in the argument were first, the SA is an agreement between OVD and its shareholders and it has the effect of altering the director voting provisions of the Constitution. Next, by clause 1.3 of the SA, that variation takes precedence over the Constitution. As a result the SA is an informal modification of the Constitution pursuant to section 140(1) of the Act and therefore it, and consequently clause 23 of the SA, is enforceable against directors.
I do not see how that can be effective to actually alter the Constitution given the requirement for a special resolution in section 136(2) of the Act. The definition of “special resolution” in section 9 of the Act requires that a notice pursuant to section 249L(1)(c) of the Act must first been given and contemplates a voting process at a meeting. Section 249L(1)(c) of the Act sets out the required content for a notice of meeting where a special resolution is proposed to be put. Although I accept that informal and abbreviated processes are permitted in certain circumstances, nothing demonstrates that this is the position in the current case nor is it apparent on the face of the SA. Had there been a provision in the SA that it was intended to operate as a special resolution amending the Constitution, and if all formalities for such a resolution such as notice of meeting etc had been observed or waived, the argument would have had greater force. However that is not the case.
It is not incumbent on me to finally resolve this anomaly at this stage. The relevance currently is in relation to whether or not the reasonable prospects of success test is satisfied and whether or not there is a real question of fact or law that should be determined at trial.
In the end, if it were not for the fact that the directors are not parties to the SA and the consequences of that, acknowledging the clear and unambiguous wording of clause 23.1 of the SA, noting that the construction advocated by each party has its issues, I would have found that the clause applied to directors as worded and therefore on that basis I would have rejected Mr Ford’s argument that there has been non-compliance with contractual pre-conditions.
The other limbs of this basis of the Defendants’ case referred to is the Defendants’ argument that the right to remove Woolley and appoint Olive only applies if Woolley is shown not to be properly representing the interests of Virtucom. That submission runs counter to the precise wording of the SA which does not set any pre-requites to the exercise of the power of removal and the power to make a substitute appointment.
I think the Defendants’ submission on this point is not a strong one. The premise of that argument is that there is insufficient evidence to demonstrate that Woolley is not representing the interests of Virtucom. I do not accept that. I think there is sufficient evidence, relying partly on inferences, to the contrary. This is the evidence of the breakdown of the personal relationship between Olive and Woolley. I think that, in conjunction with other evidence, is very telling. That other evidence is the unchallenged evidence that Woolley had not attended management meetings of OVD and that Woolley had indicated to Olive that she would vote with, and/or support Mr Liveris and/or Mr Winter. That intended and apparently arbitrary siding with the other directors is an indicator that Woolley would not act in the interests of Virtucom. Secondly, it can reflect Woolley’s acrimony over the breakdown of her personal relationship, something which Olive alluded to, and provides a motive to explain why she would always side with the other directors. I reject the Defendants’ argument.
I turn to the related argument that there is no evidence that the Board of Directors was not operating smoothly or that there were any deadlocks preventing decisions being made. Concern was expressed that the appointment of Olive would result in numerous deadlocks such that the management of OVD would be rendered unworkable. Without necessarily accepting the correctness of that proposition, I accept that there is a possibility that there would be disagreements if Olive was appointed as a director. However, I do not consider that possibility is any greater than currently if Virtucom’s interest were contrary to those of LH and/or Habitat and if Woolley voted according to the best interests of Virtucom. Therefore I also reject that argument of the Defendants.
Also related to the Defendants’ jurisdictional point is the argument that if the oppressive conduct claim is dismissed, that renders the proceedings a nullity as a standalone common law claim in proceedings commenced under the CLR. As I am of the view that the oppressive conduct claim can proceed for the reasons already discussed, the question is academic but again I will deal with the argument in case it becomes relevant.
This argument was not dealt with by the Plaintiffs in any detail in written submissions and, as it was developed in argument at the hearing, it was clear that Mr Barber understood that the Defendants’ argument was that, in proceedings commenced under the CLR, it was not permissible to combine a claim under the Act with a claim for common law relief. Mr Barber dealt with the argument on that incorrect basis and relied on the provisions of the CLR and the SCR, including the rules of joinder[28] and relevant authorities.[29]
Given that apparent misunderstanding, I invited supplementary submissions from the parties following the conclusion of the hearing. In those submissions the Plaintiffs referred me to Palatium Pty Ltd v Koren Holdings Pty Ltd (No 2).[30] That case was a decision of the Master of the Western Australian Supreme Court. In that case the proceedings under the Act were commenced under the Western Australian equivalent of the CLR in respect of alleged oppressive conduct within the meaning of the Act. After a Statement of Claim was filed the plaintiff sought to amend that Statement of Claim in a way which abandoned all the relief under the Act leaving only relief available as a general civil claim. The residual claim in the proposed amended pleading would ordinarily have been commenced by way of a Writ under the Western Australian equivalent of the SCR. The defendants in that case sought to have the proceedings dismissed arguing that there was no power to convert relief under the Act in proceedings commenced under the equivalent CLR into a general civil claim which did not seek any relief under the Act. Therefore, Mr Ford’s submissions to the contrary notwithstanding, I agree with the Plaintiffs that there are obvious parallels with the current case. The Master held that the rules of court read with section 24(7) of the Supreme Court Act 1935 (WA) meant that the proceedings were not a nullity simply because they had been commenced in an inappropriate way.
Section 24(7) under the Supreme Court Act 1935 (WA) provided as follows:
24.Law and equity to be concurrently administered
(1)-(6) Omitted
(7)The Court, in the exercise of the jurisdiction vested in it by this Act, in every cause or matter pending before it, shall have power to grant, and shall grant, either absolutely or on such reasonable terms and conditions as shall seem just, all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of any and every legal or equitable claim properly brought forward by them in such cause or matter; so that, as far as possible, all matters so in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided.
That is similar in terms to section 19 of the Supreme Court Act 1987 (NT) (“SCA”) which provides:
19Determination of matter completely and finally
The Court shall, in every proceeding before it, grant, either absolutely or on such terms and conditions as it thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him in the proceeding, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.
Mr Ford attempted to distinguish Palatium on the basis that the Western Australian Supreme Court did not deal with the Federal and non-Federal issues raised in the current case but I do not see how that can be correct, or if so, its relevance. The initial claims under the Act in that case invoked Federal jurisdiction and the other relief proposed to be claimed was non-Federal in nature. I think the ruling in Palatium directly applies here.
The Defendants’ stand on this was based on their initial written submissions which set out a detailed historical analysis of the legislative background to the CLR. Based on that analysis Mr Ford presented a novel argument, novel in the sense that it does not appear to have ever been raised before, that it would be beyond the rule making power[31] enabling the CLR to provide for anything other than claims as provided in rule 1.3(1),[32] of the CLR in proceedings under the CLR. It was therefore argued that the CLR must be interpreted and applied so as to render the CLR a valid exercise of the rule making power. As the Federal jurisdiction under the Acts referred to in rule 1.3(1)(a) of the CLR invoke Federal jurisdiction and the investiture of Federal jurisdiction on the Supreme Court of the Northern Territory, the use of the CLR for applications other than as permitted under rule 1.3(1)(a) of the CLR will invalidly invoke the judicial power of the Commonwealth.
If that argument was limited to proceedings that only sought relief under the legislation named in rule 1.3(1) of the CLR, I think that would be correct based simply on that rule. Reliance on the judicial power of the Commonwealth would be unnecessary in that event. Either way, the argument goes too far where composite claims are concerned. I do not accept the Defendants’ argument in respect of composite claims where there is some relief sought under the legislation referred to in rule 1.3(1) of the CLR. Otherwise, taken to its logical conclusion, the argument would mean that in the current case, the Plaintiffs would have been required to issue two proceedings in this Court, both running concurrently, one under the CLR by Originating Process for relief under sections 232 and 233 of the Act and another by Writ under the SCR for the common law contractual claim.
That would result in a significant legislative contradiction as that would run counter to the requirements of section 19 of the SCA and would disregard the combined effect of rule 2.02 of the SCR and rule 1.3 of the CLR.
Section 19 of the SCA is a general provision applying to all proceedings before the Court including proceedings under the CLR. That section is a direction to the Court to ensure that all matters in controversy between the parties are completely and finally determined, and to avoid multiplicity of proceedings.
Rule 2.02 of the SCR applies to all civil proceedings and provides that proceedings are not to be set aside only because they were commenced by the wrong process. In turn, rule 1.3(1) and (2) of the CLR are to the effect that, unless the Court otherwise orders, the CLR apply to a proceeding in the Court under inter alia the Act and that the SCR applies to a proceeding under the CLR to the extent that the SCR is not inconsistent with the CLR, hence rule 2.02 of the SCR applies in the current case.
Mr Barber drew support from the case of Cooper v Perrone[33] in the South Australian Supreme Court. In that case, the relief under the Act was sought in conjunction with a general civil claim where proceedings were incorrectly commenced by Writ under the South Australian general civil Rules of Court. The proceedings should have been commenced by Originating Process as required under the rules equivalent to the CLR in that State. As a means of correcting that error, the plaintiffs brought an application seeking an order that the South Australian general civil Rules of Court apply to the proceedings in lieu of the rules in that State equivalent to the CLR, and alternatively, seeking an order for amendment of the process filed in the proceedings to comply with the equivalent CLR rules.
Mr Ford submitted that Cooper should be distinguished from the current case given that, unlike in the current case, the proceedings in Cooper were commenced under the rules equivalent to the SCR and not the rules equivalent to the CLR, i.e., the reverse of the current case. Although I agree that the position is the reverse of the current case, I do not see that anything turns on that suggested distinction. It is relevant I think that the proceedings which are before this Court are proceedings to which both the CLR and the SCR apply, dependent on the relief sought, such that the interconnection would mean that the suggested distinction does not matter having regard to the application of rule 2.02 of the SCR, rule 1.3 of the CLR and section 19 of the SCA. Those provisions are below. First, rule 2.02 of the SCR:-
2.02Originating process
The Court shall not wholly set aside a proceeding or the originating process by which a proceeding was commenced on the ground that the proceeding was commenced by the wrong process.
Next rule 1.3 of the CLR:-
1.3Application of these Rules and other rules of the Court
(1)Unless the Court otherwise orders:
(a) these Rules apply to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules; and
(b) Omitted.
Lastly, section 19 of the SCA is set out in paragraph 51 above.
In Cooper the Court found that the jurisdiction of the Court had been invoked, albeit irregularly. The Court concluded that the irregularity could be cured and it did not render the proceedings a nullity. The Court concluded, properly in my view, that it had jurisdiction and as a result the manner of commencement was not considered to be important.[34] In coming to that conclusion the South Australian Supreme Court relied on various of the South Australian Rules of Court which are broadly equivalent to rules 2.02 of the SCR, and rule 1.3 of the CLR.
Consequently, the Plaintiffs argue that if the oppressive conduct claim is struck out, the net effect is that the current proceedings will only be an irregularity by reason of rule 2.02 of the SCR and that can be cured by orders, including orders for amendment. That is similar to the approach taken in Cooper and utilising the apparent power to do so reflected in the opening words of rule 1.3(1) of the CLR which states that the CLR applies to the proceedings "Unless the Court otherwise orders…”.
In my view, in situations such as the current case, the Court will be more concerned with the bona fides of a composite claim at the time when proceedings were issued rather than focusing on the possible eventual result of the individual components of the composite claim. If, in such a claim, the claim for relief under the Act is dismissed, whether at trial or summarily, then provided the claim under the Act was bona fide and regularly issued, this Court will no doubt apply rule 2.02 of the SCR in light of the overarching direction contained in section 19 of the SCA to avoid multiplicity of proceedings and will validate the proceedings by making any necessary curative orders.
The Defendants’ submission that a standalone common law claim following dismissal of the claim for relief under the Act in a composite claim is a nullity, would lead to a situation where the Plaintiff would have to recommence proceedings. If the Defendants were correct and if the entire proceedings were struck out, the Plaintiffs could still recommence proceedings seeking only the common law relief in a claim under the SCR. That clearly disregards the direction in section 19 of the SCA so the Plaintiffs’ argument falls neatly within the direction in that provision to avoid multiplicity of proceedings.
The last limb of this basis of the Defendants’ case turns on the actual wording of clause 4.1(b) of the Deed. That clause empowers Virtucom to remove Woolley and to substitute Olive as a director. It provides “… that Olive may (emphasis added) be appointed as a director (of OVD)…”. Based on that the Defendants dispute that Virtucom has an unqualified right to appoint Olive, or an alternative, as a director of OVD. That construction is argued because in the context of the appointments of Liveris and Winter as directors of OVD in contrast, the words "will" or "shall" are used. The Defendants therefore concluded that Liveris and Winter have the unfettered right to be appointed as directors but that does not apply in the case of Olive.
I do not read that clause of the Deed in that way. Looking at it holistically and from the point of view of the scheme of the Deed and the SA, I think the right of Virtucom to appoint Olive, who is Virtucom’s sole shareholder and director, was intended to be an absolute right and as a way to protect Virtucom’s interests, similarly to the positions of Liveris and Winter respectively in the cases of LH and Habitat. It is inconsistent with that if other directors or shareholders can unilaterally negate that right. It is also inconsistent with that for the appointments by LH and Habitat to be on a different basis or to have greater force or effect than any appointment by Virtucom. That would give Liveris and Winter a considerable advantage over a majority shareholder if they could refuse to approve the substitute director.
Moreover, in the terms of the first notice given by Virtucom, that would mean that the notice was unconditional and fully effective to remove Woolley but without any certainty that Virtucom would have an alternative nominee director appointed. That then corrupts the structure and control situation which I think was clearly intended by the Deed and the SA. I agree with Mr Barber that the word "may" in that clause is used as a power, not as creating a discretion or as being on a permissive basis. Therefore, I am of the view that the removal of Woolley and the appointment of Olive was completed by the giving of notice and the provision of Olive’s consent to act as a director.
Next I consider the Defendants’ third basis of opposition to the Plaintiffs’ summary judgment application which is that summary judgment should not be ordered due to the existence of significant factual disputes. This relies on Spencer v Commonwealth.[35]
Some disputed facts which are of less significance have already been referred to. The remaining disputed facts are the more significant disputed facts identified by the Defendants. That is the allegation that there were actionable representations allegedly made by Olive, and an alleged breach by Olive of the warranties in clause 8(a) and 8(c) of the Deed. The relevance of those allegations is that they may be a basis for termination of one or both of the agreements, which could arguably also terminate the right of appointment given to Virtucom.
However, before that could be the case, as the allegations are made against Olive not Virtucom, some basis would have to be demonstrated to deem Virtucom responsible for those alleged breaches. That could be either contractual or based on director’s authority. No basis was put to me and without more, those alleged breaches could not affect the contractual rights of Virtucom. Moreover, there was no evidence of any steps taken to terminate the Deed and/or the SA for breach and Virtucom has already purported to exercise its claimed right of appointment of a director. Any subsequent termination of either agreement cannot adversely impact on that. Nonetheless I further deal with this issue for completeness.
The Defendants’ evidence in respect of the allegations is first, that Olive represented to Winter that he could make OVD’s tavern business a success in the future (emphasis added) under his management, and secondly that he could double the income of that business, (to $800,000 pa) in the future (emphasis added) under his management. Winter then deposes to the required reliance on those representations when making a decision to become involved in the venture. On that basis the minimum essential requirements of an action for misrepresentation may, subject to proof, be satisfied.
Relative to the second allegation, clause 8(a) of the Deed is an acknowledgement that LH and Habitat have relied on representations made by Olive and Woolley in respect of the forward estimates of the tavern business, but the Deed does not identify precisely what representations were made. Particularly, nothing was put to me that those representations were one and the same as the representations that Winter refers to in his affidavit.
Clause 8(c) is a general acknowledgement that firstly OVD, Olive and Woolley have disclosed all information which an intending buyer of the business would reasonably expect (something which in itself may be vague) and that such information is true and correct. Secondly, that all financial information provided to LH and Habitat is but the a true view of the financial position of the business. The remaining two sub-clauses are not relevant.
Winter's evidence in respect of the alleged breach of the warranty in clause 8(a) of the Deed is little more than a bare statement and, in respect of clause 8(c), it is simply a bare allegation of breach. Further the evidence of Winter in respect of the representations is temporally vague, specifically the reference to "in the future" in each case. Absent better evidence of this allegation, it is difficult to assess the validity of any cause of action that might be based on this allegation of misrepresentation.
For completeness, I note that in responding affidavits, Olive generally disputes Winter’s allegations but he does not deny the making of the alleged representations. He does however depose to significant matters of dispute regarding the surrounding circumstances.
More relevantly, what is being alleged is a breach of the Deed by Olive. However, it is Virtucom that has the right to appoint a director and that is contained in the SA. Clause 7.1 of the Deed enables LH and Habitat, and only them, to terminate the Deed for breach of any of the warranties in clause 8. The SA is independent of the Deed. On my reading of the Deed, other than a statement that a Shareholders Agreement would be entered into,[36] there are no provisions as to what that Agreement is to provide or to the effect that a breach of the warranties in clause 8 of the Deed also operates as a breach of the SA or similarly, that termination of the Deed automatically and contemporaneously also terminates the SA. Nothing to that effect was put to me in the written submissions or in the course of argument.
Overall I consider the evidence is insufficient to establish any claimed right to terminate the Deed for present purposes and therefore the allegation of representations and breach of warranty do not alone provide a basis to deny summary judgment.
That then leaves the question of the residual discretion which is the Defendants final basis of opposition. This relies on summary judgment being a discretionary remedy.[37] That is clearly apparent from the wording of rule 22.01 of the SCR and in any case that is a well-established principle. As with all judicial discretions, it must be exercised properly and having regard to all relevant circumstances.
A number of discretionary factors militating against summary judgment were raised by the Defendants. The Plaintiffs also raised a discretionary factor in respect of the Defendants’ stay application namely, the failure of the Defendants to apply for a stay within the confines of rule 2.03 of the SCR. This was raised not only in opposition to the Defendants’ stay application but also on the basis that that default disentitled the Defendants to discretionary relief as they lacked “clean hands”. Although a stay is also discretionary relief and although the Plaintiffs’ point is a relevant consideration in that context, I do not consider it appropriate to necessarily transpose the factors between the applications in this way. Therefore the discretionary factor raised by the Plaintiffs’ will only be considered if I am minded to grant the stay the Defendants seek.
The Defendants firstly argue that I should decline summary judgement because of the failure of the Plaintiffs’ solicitors failure to engage in communications with the Defendants’ solicitors at various times. Most relevantly, as part of that the Defendants complain that the Plaintiffs did not engage in the Practice Direction No 6 of 2009 – Trial Civil Procedure Reforms pre-action process. The Plaintiffs also raised a failure by the Defendants’ solicitors to respond to the Plaintiffs’ solicitors in relation to correspondence mostly dealing with settlement negotiations and arrangements for a settlement conference.
There is fault on both sides and in my view, this factor should be disregarded.
In respect of PD6 compliance, the Defendants allege that it was a deliberate strategy by the Plaintiffs to issue proceedings pursuant to the CLR to avoid the application of PD6. I do not accept that that was the case and in any event, the fact that I have ruled that the Plaintiffs were entitled to commence proceedings under the CLR as they did means that PD6 has no application to the current proceedings.[38] Regardless, as the Plaintiffs confirm in their written submissions, the consequences of non-compliance with PD6 are confined to possible adverse costs and interest orders. PD6 compliance is not a precondition to action where the Practice Direction applies. In my view this is not a proper discretionary consideration.
The Defendants rehash a number of matters already raised in argument on the other bases as discretionary factors. These matters have been discussed above and which I have already decided in favour of the Plaintiffs. For that reason, I also dismiss those in respect of discretionary factors but I list those factors so that they are properly identified.
They are:
· the Plaintiffs’ failure or refusal to initiate the dispute resolution process under clause 23.1 of the SA;
· the alleged lack of a cause of action under section 232 of the Act in respect of oppression of majority shareholders;
· the need to hear evidence in respect of relief under section 233 of the Act because of the discretionary nature of that relief. This largely repeats the submission of the Defendants regarding the need to resolve disputed facts;
· the allegation of the commencement of proceedings in the wrong jurisdiction of the Court. This ties in with the claimed factor of the incorrect commencement of proceedings by Originating Process under the CLR rather than by Writ under the SCR. This combination of factors repeats the submission that if the oppressive conduct claim under the Act is dismissed, the Plaintiffs’ proceedings are a nullity for the reasons discussed above, which I rejected in any case.
The Defendants also put, as a discretionary factor, that a favourable result for the Plaintiffs on this application would be a pyrrhic victory as it could possibly result in the winding up of Virtucom and OVD as well as bankruptcy for Olive. I thought this was trivial. There is an evidentiary basis to support at least the assertion concerning Virtucom and OVD on a financial basis but not so in respect of Olive. I consider that the consequences of either commencing proceedings or consequences of what might eventuate after the completion of these proceedings is not a matter for the Court. That is a value judgment for each party and the Court should not be involved in that. I disregard that as a discretionary factor
The Defendants also complained that the Plaintiffs commenced the proceedings without warning and claim this as a discretionary factor. Although that event is conceded by the Plaintiffs, it must be seen in the context of the very fixed and transient position taken by the Defendants up to that point. I do not consider that anything would have changed had a warning been given and the positions taken by the parties since the commencement of the proceedings confirms that.
In a related submission the Defendants also complained that the proceedings were commenced on the last working day before Christmas, implying that this was a deliberate strategy designed to catch out the Defendants given likely leave of lawyers. I am not persuaded to make that finding on the evidence. In any case, I do not think this factor carries much weight as time does not run from 24 December in any year until 9 January of the following year pursuant to SCR rule 3.04(1). Unless it was proven to be a deliberate strategy as alleged, resulting in some demonstrated prejudice to the Defendants, the Plaintiffs cannot be held responsible for the timing of the commencement of the proceedings by reason only that crucial events in a matter occur at an awkward time of the year.
Lastly, the Defendants claim a discretionary factor based on their principled and restrained response to the dispute, both before and after commencement. I do not see how that is the case but I cannot see how it is relevant and I think it is countered by the consistently intransient position taken by the Liveris and Winter as demonstrated by the evidence.
Having regard to the foregoing if I was minded to order summary judgment as sought by the Plaintiffs I do not consider that there exists a basis to refuse that solely on discretionary factors.
I have resolved all bar one of the numerous arguments in favour of the Plaintiffs. The remaining argument is the question of the construction of clause 23.1 of the SA which provides for mandatory pre-action dispute resolution and which the Plaintiffs failed to undertake. In my view there is a serious issue to be tried as to whether that clause binds directors or shareholders. Although the wording of the clause is clear enough, the complicating factor is that the directors are not parties to that document and therefore that provision cannot compel compliance with that provision by non-party directors. By reason of that the Defendants’ argument that the clause should refer to shareholders in lieu of directors is stronger than would otherwise be the case but the position is far from clear. I do not consider that it is appropriate that this question be determined on a summary basis.
That has a flow on effect on the Defendants’ application for summary dismissal and for a stay. As I have resolved all other issues against the Defendants, the orders the Defendants seek for summary dismissal and stay depend on a favourable construction of clause 23.1 of the SA and there is no certainty concerning that at present. Accordingly, I conclude that there is a real question to be tried in respect of that dispute between the parties. It is also inappropriate to order summary dismissal or a stay at present.
I therefore dismiss both applications and I will hear the parties as to costs and any ancillary orders.
[1]Clause 4.
[2]Clause 4.1(a).
[3]Clause 4.1(b).
[4]Clause 4.2.
[5]Clause 4.3(a).
[6]Clause 4.3(b).
[7]Clause 4.3(c).
[8]Clause 4.4.
[9]Clause 1.3 but query the enforceability of this provision beyond the SA given that the parties in the Deed defer to those in the SA.
[10]Clause 7.1(a).
[11]Clause 7.1(b).
[12]Clause 7.3.
[13]Clause 9.1.
[14]See paras 68-76.
[15][2023] NTSC 1.
[16](2010) 241 CLR 118.
[17](2013) 220 FCR 256.
[18]Re Polyresins Pty Ltd [1999] 1 Qd R 599.
[19][1999] NSWSC 600.
[20](2009) 238 CLR 304.
[21](1994) 13 ACSR 368.
[22](2013) 97 ACSR 351.
[23][2020] NSWSC 1749.
[24][2008] NSWCA 5.
[25](1956) 95 CLR 420.
[26](2001) 210 CLR 181.
[27][2008] NSWCA 5 at para 38.
[28]SCR rr 1.02, 1.3, 9.
[29]Jacobs v Edwards [2012] SASC 66.
[30][2015] WASC 311.
[31]Deriving from the Corporations Reform (Northern Territory) Act 2001 (NT).
[32]Being claims under the Act or the Australian Securities and Investments Commission Act 2001 (Cth) or the Cross-Border Insolvency Act 2008 (Cth).
[33][2016] SASC 102.
[34][2016] SASC 102 at para 17.
[35](2010) 241 CLR 118 at p131.
[36]In clause 4.
[37]Civil & Civic Pty Ltd v Pioneer Concrete (NT) Pty Ltd (1991) 1 NTLR 243.
[38]PD6, para 1.
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