Parker v Auswild
[2022] VSCA 8
•3 February 2022
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0006
| PETER PARKER | Applicant |
| v | |
| JAMES RONALD AUSWILD & ORS (AS PER ATTACHED SCHEDULE OF PARTIES) | Respondents |
| S EAPCI 2021 0007 | |
| JAMES AUSWILD BERGMULLER | Applicant |
| v | |
| JAMES RONALD AUSWILD & ORS (AS PER ATTACHED SCHEDULE OF PARTIES) | Respondents |
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| JUDGES: | FERGUSON CJ, KENNEDY JA and GARDE AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 5 October 2021 |
| DATE OF JUDGMENT: | 3 February 2022 |
| MEDIUM NEUTRAL CITATION: | [2022] VSCA 8 |
| JUDGMENT APPEALED FROM: | [2020] VSC 731 (Riordan J) |
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CORPORATIONS – Oppression – Family companies – Where litigation brought for an improper purpose to pressure minority shareholders – Commercial unfairness – Objective test – Reimbursement of costs incurred by companies in conducting litigation – Corporations Act 2001 (Cth) ss 232, 233(1)(j).
CORPORATIONS – Director’s duties – Whether scope of director’s duties narrowed by board delegation to conduct litigation or other circumstances – ‘No conflict’ rule – Acquiescence – Whether director may have a personal interest by reason of shareholding of a family member – Material personal interest – Corporations Act 2001 (Cth) s 191.
EQUITY – Fiduciary duties – Causation – ‘But for’ test – Onus – Court entitled not to speculate against interest of plaintiff – Consideration of counterfactual – GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113; Brickenden v London Loan & Savings Company of Canada [1934] 3 DLR 465 considered.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant (Parker) | Mr J Peters QC with Mr L Molesworth | Altus Lawyers |
| For the Applicant (Bergmuller) | Mr P Collinson QC with Ms F Bentley | KCL Law (as town agents for Shanahan Tudhope Lawyers) |
| For the First to Tenth Respondents (Parker)/ Respondents (Bergmuller) | Mr J Kelly SC with Mr S Shepherd | Lander & Rogers (as town agents for Pikes & Verekers) |
FERGUSON CJ
KENNEDY JA
GARDE AJA:
Introduction
In broad terms, this case concerns a family company owned by the descendants of two brothers who established a successful car dealership business in the late 1960s. Some decades later, the two lines of the family (faction A and faction B), each of which was represented by directors of the company, fell into dispute which resulted in expensive and protracted litigation — relevantly:
(a) an unsuccessful proceeding brought by the company, at the behest of the two faction B directors, against faction A (‘company proceeding’);
(b) a shareholders oppression proceeding brought by faction B against faction A (which was settled) (‘shareholders proceeding’);
(c) an unsuccessful counterclaim brought by faction A against faction B in the shareholders proceeding; and
(d) a third party claim in the shareholders proceeding brought by faction A against the two faction B directors who controlled the company proceeding.
Ultimately, the question is whether the two faction B directors should bear costs of about $14 million in respect of the company proceeding, or whether those costs should be borne by the company itself. If the company bears the costs then the side of the family that was sued and successfully defended the claims brought by the company will effectively bear some of those costs.
The following paragraphs set out more detail about the facts and the various proceedings and issues.
The applicants for leave to appeal, Peter Parker (‘Parker’) and James Bergmuller (‘Bergmuller’) (together, the ‘applicants’), are directors of a network of companies within the Preston Motors Group (‘PMG’). PMG was established by two brothers, Sir James Auswild (‘Sir James’) and Ronald William Auswild (‘RWA’) (both now deceased) in the late 1960s, and carried on the primary business of owning and operating new and used car dealerships and the supply of motor vehicle parts. Sir James held a controlling interest of 52.186% in PMG, while RWA held 47.814%. Their interests are now held by their respective sides of the family.
Family members on Sir James’ side of the family (‘the JFJ family’) include his daughters, Margaret Parker and Geraldine Bergmuller (both now deceased), his granddaughters, Martina Parker (whose partner is Peter Parker), Simone Ferry, and Nicky Alekna (‘the Parker women’), and his grandson, James Bergmuller. Family members on the RWA side of the family (‘RWA family’) include his children, James Auswild Senior (‘JRA’), Barbara Auswild, and Raymond Auswild, and his grandson, James Auswild Jnr.
Sir James died on 29 May 1985, leaving his estate, including his controlling interest, to his wife and two daughters. RWA was appointed executor of Sir James’ estate and held Sir James’ shares on trust until they were transferred to JFJ family members between 2003 and 2006.
PMG’s constitution provides for the board of directors to be comprised of appointments by lineal descendants of the respective groups. The JFJ family is represented by the applicants and the RWA family was represented by James Auswild Jnr and Graham Hamilton (‘RWA directors’). The RWA directors resigned on 14 April 2020.
Over the period from 1985 to 2006, RWA and JRA were directors of the companies in PMG. Some JFJ family members complained that over this period, RWA and JRA made decisions which favoured the RWA family interests over the JFJ family interests. In the company proceeding, which was filed on 29 August 2014, various companies in PMG (‘plaintiff companies’) claimed equitable compensation, damages, and other relief arising out of the management of certain corporations between 1985 and 2003.
By originating process filed 8 September 2014 which commenced the shareholders proceeding, various JFJ family members (‘JFJ shareholders’) applied under ss 232 and 233 of the Corporations Act 2001 (Cth) (‘Act’) for relief from oppression including the transfer of the shares of RWA family members (‘RWA shareholders’) in four holding companies within PMG at fair value, or, alternatively, the purchase by the RWA shareholders of the JFJ shareholders’ shares in the four holding companies at fair value after taking into account the repayment of the amounts and transfer of the properties sought in the company proceeding, and the loss and damage alleged to have been suffered by the JFJ shareholders in the company proceeding.
On 16 February 2018, the RWA shareholders filed a defence and counterclaim in the shareholders proceeding alleging that the JFJ shareholders’ conduct was contrary to the interests of PMG as a whole, and oppressive, unfairly prejudicial and discriminatory to the RWA shareholders. They sought orders that the JFJ shareholders reimburse and indemnify the plaintiff companies for the costs of the company proceeding. The counterclaim was unsuccessful.
On 19 February 2018, the RWA shareholders filed a third party notice in the shareholders proceeding against the applicants, alleging that the filing and maintenance of the company proceeding was contrary to the interests of PMG’s members as a whole, and oppressive, unfairly prejudicial or unfairly discriminatory to the RWA shareholders within the meaning of ss 232(d) and (e) of the Act. They sought an order under s 233(1)(j) of the Act that the applicants reimburse the plaintiff companies for the costs and disbursements of the company proceeding, including any adverse costs orders.
The RWA shareholders alleged that:
(a)the company proceeding was brought for an improper purpose, and was intended to exert pressure on the RWA shareholders to sell their shares at a discount;
(b) the applicants stood to unfairly benefit from the company proceeding in that:
(i)interests closely associated with the applicants were the plaintiffs in the shareholders proceeding;
(ii)by reason of allegations common to both the company proceeding and the shareholders proceeding (‘common conduct allegations’), the plaintiff companies would incur most of the costs associated with establishing the common conduct allegations, including the costs of the trial, thereby giving the JFJ shareholders a ‘free ride’; and
(iii)the pricing mechanism in the relief sought in the shareholders proceeding was such that the plaintiff companies would not receive the financial benefit of a successful outcome in the company proceeding;
(c)in filing and maintaining the company proceeding, the applicants had a conflict of interests and acted in breach of their fiduciary duties as well as their statutory duties under s 181 of the Act; and
(d)the breaches of statutory and fiduciary duty were not in the interests of the members of PMG as a whole and were oppressive, unfairly prejudicial, or unfairly discriminatory to the RWA shareholders.
The trial of the company proceeding extended over 23 days from November 2018 to April 2019. On 3 October 2019, the primary judge delivered judgment.[1] The claims were unsuccessful. The primary judge found that there was no breach of duty by JRA in respect of most of the claims pursued at trial. To the extent that the claims were subject to limitation periods applied in equity by analogy, they were filed out of time. The claims also failed under the doctrine of laches. The primary judge found that while JRA had breached his duty not to allow his interests to conflict with his duties as a director of various PMG companies in a number of transactions, the plaintiff companies had failed to prove that they had suffered any loss or that JRA had obtained any unauthorised benefit from the relevant transactions as a result of the conflict.[2]
[1]Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664 (Riordan J).
[2]Ibid [5]–[6].
On 1 June 2020, the claims of the JFJ shareholders in the shareholders proceeding were discontinued. The trial of the remaining claims in the company proceeding and the shareholders proceeding occupied ten days in June and July 2020. Judgment was handed down on 11 November 2020.[3]
[3]JAB Nominees (Aust) Pty Ltd v Auswild [2020] VSC 731 (Riordan J) (‘Reasons’).
The main conclusions in respect of the third party claim in the shareholders proceeding were:
(a) The applicants breached their fiduciary duty to avoid conflict when they filed and maintained the company proceeding. They gained a personal advantage in the filing and maintenance of the company proceeding such that a reasonable person would think there was a real or substantial possibility of them being swayed by it.[4] However, the applicants did not breach s 181 of the Act because the company proceeding was brought honestly and there was evidence supporting the case brought by the plaintiff companies.[5]
[4]Ibid [132], [135], [140], [141]–[144].
[5]Ibid [177]–[179].
(b) In equity, the test of causation for breach of fiduciary duty is a ‘but for’ test, and but for the applicants’ conflicted decisions the costs and liabilities of the company proceeding would not have been incurred. It was impossible to determine whether an independent director would have decided to prosecute the company proceeding. This was a matter of speculation and the Court should not speculate against the plaintiffs’ interests.[6]
(c) A breach of fiduciary duty could found a claim for oppression. Once it was established that the directors were intending to achieve a purpose other than the furtherance of the purposes of the company, they were at risk of a finding that the conduct was commercially unfair, and oppressive. The bringing of the company proceeding was used as part of a ‘coordinated plan’ to obtain the RWA family’s shares.[7]
(d) The applicants should be ordered to reimburse the plaintiff companies for the costs incurred in conducting the company proceeding as well as the adverse costs they were ordered to pay.[8]
[6]Ibid [203], [205], [207]–[208].
[7]Ibid [232], [238]–[240].
[8]Ibid [241].
In separate applications, the applicants seek leave to appeal, and if leave to appeal is granted, appeal from orders of the primary judge in the third party proceeding. In particular, they challenge the finding that they were conflicted and breached their fiduciary duties when they filed and maintained the company proceeding.
Each applicant relies on seven grounds of appeal. The grounds of appeal will be addressed in succession.
Background
Expert reports
In early 2008, BDO Kendalls (‘BDO’) was engaged by PMG to investigate the JFJ family’s concerns as to PMG’s management and financial position. In September 2008, Mr Po Mar of BDO provided his report. This identified a number of loan transactions which subsequently became the subject of the company proceeding.
In October 2011, PMG resolved to engage Michael Smith, a forensic accountant with BDO (later with ShineWing), to investigate PMG accounting issues.
On 28 March 2013, Mr Smith provided a report to PMG (‘ShineWing report’). The report identified a number of matters which potentially gave rise to significant claims, mainly against RWA family members and their related entities, for breaches of duties owed to PMG, and to recover assets transferred out of PMG. The report was provided to Macpherson & Kelley as PMG’s solicitors (‘PMG’s solicitors’) and to shareholders. The issues in the report were discussed at a special shareholders meeting in June 2013. Following the meeting, the RWA family asked for a draft statement of claim to be prepared to identify and clarify the claims. ShineWing updated their report on 25 June 2013.
The company proceeding
On 26 September 2013, PMG’s board resolved to instruct PMG’s solicitors to prepare a draft statement of claim in respect of matters identified in the reports. The RWA directors abstained from voting in respect of this resolution as they considered they had a conflict of interest arising from the fact that members of the RWA family were to be named as defendants in the proceeding.
On 4 February 2014, the PMG board resolved to delegate authority to the applicants to provide instructions for the litigation. On 25 February 2014, the PMG board resolved to grant an indemnity to a previous secretary of various companies in PMG. In April 2014, a draft statement of claim for the company proceeding was provided to PMG and then to shareholders.
In a letter dated 2 July 2014, Brown Wright Stein raised the prospect of an arrangement whereby the JFJ family acquired the RWA family’s shares on an agreed basis which took account of the JFJ family’s claims against members of the RWA family. The same topic was discussed by the same solicitors in two letters, both dated 4 September 2014. On 1 October 2014, in the presence of Parker, Hamilton was told by Bergmuller at PMG’s board meeting that the purpose of the proceedings was to get a compulsory share sale order, and that the damages would be more than enough to pay for Barbara and James Auswild’s shares.
Mr Joseph, solicitor for the Parker women, said in evidence that he met with Bergmuller’s solicitor on 27 August 2014, and was informed of what was intended by Bergmuller in the shareholders proceeding. He was advised that the proceedings were to be commenced to pursue an oppression claim, and that it would be more cost effective if the Parker women were to join with Bergmuller rather than commence their own claim. At a meeting on 2 September 2014, the Parker women gave instructions to Mr Joseph to pursue the shareholders proceeding with Bergmuller. The shareholders proceeding was issued shortly afterwards.
On 29 July 2014, PMG’s board resolved to instruct PMG’s solicitors to finalise and issue the statement of claim in the company proceeding.
Before and after the company proceeding was issued on 29 August 2014, the applicants sought and received advice from PMG’s solicitors as to the claim. From 2016, advice was received as frequently as fortnightly. The RWA directors were provided with updates on the company proceeding, but were not involved in its conduct.
On 9 December 2014, Hamilton, James Auswild Jr and Parker received an email from Bergmuller which explained the purpose of the shareholders proceeding and stated that the primary remedy in oppression proceedings was for one shareholder to buy out the other subject to such terms as the Court may agree on (‘the December 2014 email’).
Following unsuccessful mediations, the company proceeding and the shareholders proceeding were listed together for trial commencing on 15 October 2018. However, on 12 June 2018, the primary judge made orders to separate the proceedings. The company proceeding was to be tried first with the parties to the shareholders proceeding undertaking to be bound by findings of fact made in the company proceeding.
Relevant legislation
Section 232 of the Act deals with oppression, and provides:
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
…
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.
Section 233(1) of the Act empowers the Court to give relief in the event of oppression, and provides:
The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
…
(j) requiring a person to do a specified act.
The ‘no conflict’ rule
The obligations of fiduciaries were not disputed before the Court. One of the fundamental obligations of a fiduciary is known as the ‘no conflict’ rule.
In Chan v Zacharia, the plurality of the High Court stated the principle in these terms:
There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain. The doctrine is often expressed in the form that a person “is not allowed to put himself in a position where his interest and duty conflict” or “may conflict” or that a person is “not to allow a conflict to arise between duty and interest”. As Sir Frederick Jordan pointed out … this, read literally, represents “rather a counsel of prudence than a rule of equity”: indeed, even as an unqualified counsel of prudence, it may, in some circumstances, be inappropriate … The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement “in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect” … or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed.[9]
[9](1984) 154 CLR 178, 198 (Deane J, Brennan and Dawson JJ agreeing) (citations omitted); [1984] HCA 36 (‘Chan’).
In Warman International Ltd v Dwyer, the High Court identified the underlying purpose of the rule, and said the following:
A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves “at a level higher than that trodden by the crowd”. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.[10]
[10](1995) 182 CLR 544, 557–8 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) (citations omitted); [1995] HCA 18. See also Consul Development Pty Ltd v DPC Estates Pty Ltd(1975) 132 CLR 373, 397 (Gibbs J); [1975] HCA 8.
In Hospital Products Ltd v United States Surgical Corporation, Mason J observed:
The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position …
It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …[11]
[11](1984) 156 CLR 41, 97; [1984] HCA 64 (‘Hospital Products’).
In Howard v Federal Commissioner of Taxation, Hayne and Crennan JJ held that:
It is well established that “[i]t is an inflexible rule of a Court of Equity that a person in a fiduciary position ... is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict”. The majority in Pilmer v Duke Group Ltd (In liq) said of this obligation that “the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is ‘a conflict or a real or substantial possibility of a conflict’ between personal interests of the fiduciary and those to whom the duty is owed” or a conflict between competing duties.[12]
[12](2014) 253 CLR 83, 107 [59] (citations omitted); [2014] HCA 21 (‘Howard’).
The primary judge referred to the often cited test of conflict of interest stated by Lord Upjohn in Boardman v Phipps, who concluded:
In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.[13]
[13][1967] 2 AC 46, 124, quoted in Reasons, [125].
In Coope v LCM Litigation Fund Pty Ltd,[14] Payne JA stated the ‘no conflict’ and ‘no profit’ rules in this manner:
A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed … A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary …
[14](2016) 333 ALR 524, 542 (Gleeson and Leeming JJA agreeing) (citations omitted); [2016] NSWCA 37.
There was also no dispute that the relationship between a director and company is one of the recognised categories of fiduciary relationships.[15] As Warren CJ said in Australasian Annuities Pty Ltd (in liq) (recs and mgrs apptd) v Rowley Super Fund Pty Ltd:
As a result of that fiduciary relationship a director owes a number of separate, though intertwined duties, including a duty to act in good faith and in the interests of the company, a duty to avoid conflicts of interest, and a duty not to exercise powers for an improper purpose.[16]
Parker Ground 1 — the primary judge erred in failing to consider the subject matter over which the fiduciary obligations extended in respect of Parker and whether or not Parker was prohibited by the conflict rule from commencing and continuing the company proceeding
[15]Reasons, [123]; Breen v Williams (1996) 186 CLR 71, 107 (Gaudron and McHugh JJ); [1996] HCA 57.
[16](2015) 318 ALR 302, 317 (citations omitted); [2015] VSCA 9.
The primary judge found that Parker’s interest in the shareholders proceeding arose from the fact that he had cohabited with Martina Parker since 2006 and was the father of their two children. Bergmuller’s interest in the shareholders proceeding arose from the fact that he was the sole director and shareholder of JAB Nominees (Aust) Pty Ltd (‘JAB Nominees’) (the first plaintiff to the shareholders proceeding).[17]
[17]Reasons, [136]–[137].
The primary judge found that the applicants had a conflict of interest in these terms:
In my opinion, the [applicants] had a personal advantage in the filing and maintenance of the [company proceeding] such that a reasonable person would think there was a real or substantial possibility of them being swayed by it, for the following reasons:
(a)The [applicants], through their association with JAB Nominees and Martina Parker, had a substantial personal interest in the [shareholders proceeding].
(b)The interests of the [JFJ shareholders] in the [shareholders proceeding], and by association the [applicants], were advantaged by the filing and maintenance of the [company proceeding].
(c)The [shareholders proceeding] was not in the interests of the [plaintiff companies].
(d)The [applicants] knew about the [shareholders proceeding].[18]
[18]Ibid [132] (citation omitted).
The primary judge described the apparent injustice of the RWA shareholders’ position in these terms:
Unsuccessful claims brought by a company against minority shareholders may give rise to considerations that create a particular tension.
On the one hand, there is an apparent injustice in the fact that, although successful, the 48% shareholder (taking the approximate minority shareholding in this case) is obliged to pay:
(a)48% of the costs incurred by the plaintiff company in unsuccessfully prosecuting the claim (in this case an amount exceeding $15,000,000 including GST); and
(b)48% of the costs ordered to be paid by the unsuccessful plaintiff company to the same minority shareholder.
The statement that the claim is brought on behalf of the company and that, had the claim been successful, the 48% shareholder would have enjoyed 48% of the benefit, would ring hollow to the successful minority shareholder. Of course, in no real sense is the claim brought for the benefit of the minority shareholder.
On the other hand, a corporation is a legal entity separate from its owners and is entitled to recover debts or damages, even from its shareholders. Directors must be able to prosecute bona fide claims on behalf of a company against shareholders to recover debts and other amounts due to the company, without being unreasonably at risk for the costs of the proceeding.[19]
[19]Ibid [234]–[236] (citations omitted).
As a result, the primary judge determined that the applicants as directors were required to make decisions concerning proceedings against minority shareholders strictly in accordance with their fiduciary and statutory obligations. While the principles of equity did not determine claims for oppression, the doctrine of oppression was informed by equitable considerations.[20]
[20]Ibid [237]–[238]. See Re a company; O’Neill v Phillips [1999] 2 All ER 961, 967–8 (Lord Hoffmann); Walker v New South Wales Bar Association (2016) 114 ACSR 269, 292 (Besanko J); [2016] FCA 799.
The primary judge concluded that the applicants’ conduct was oppressive for these reasons:
In this case, the [applicants] allowed the [company proceeding] to be used as part of a coordinated plan, which included the acquisition of the shares held by the [RWA shareholders]. By using the very substantial amount of company funds for the purpose of prosecuting the [common conduct allegations], the [applicants] conducted themselves in a commercially unfair manner and oppressively within the meaning of s 232 of the Act. Once the [applicants] proposed to use the [company proceeding] to fund the long-standing dispute between the [JFJ family] and the [RWA family] and to assist them to obtain the relief sought in the [shareholders proceeding], they were obliged to abstain from participating in the decision-making involved in the filing and maintenance of the [company proceeding].
In all the circumstances, in deciding to file and maintain difficult, problematic and expensive litigation against the RWA shareholders in the [company proceeding], while simultaneously participating in an application for relief by the JFJ shareholders against the RWA shareholders in the [shareholders proceeding], the [applicants’] conduct was commercially unfair to the RWA shareholders and constituted oppression within the meaning of s 232 of the Act.[21]
[21]Reasons, [239]–[240] (footnote omitted).
Parker submitted that:
(a)the decision to commence and continue the company proceeding did not form part of the subject matter over which his fiduciary obligations extended;
(b)the course of dealings between the parties revealed that Parker was not prevented by the conflict rule from commencing or continuing the company proceeding which might bring some benefit to his wife as a shareholder;
(c)the constitution of the companies provided for shareholders to be represented by specific directors; and
(d)the board delegated to the applicants the authority to have carriage of the company proceeding.
The respondents submitted:
(a)there was no justification for narrowing or relaxing Parker’s duties as a director applicable to the commencement and maintenance of parallel proceedings based on the common conduct allegations;
(b)the primary judge considered and rejected all arguments which sought to narrow Parker’s duties as a director;
(c)there is no evidence that the intention to file the shareholders proceeding was disclosed to the RWA directors at the time of the delegation;
(d)the RWA directors disqualified themselves from voting because of their conflict of interest, and were excluded from all decision making in relation to the company proceeding; and
(e)one of the RWA directors protested to the applicants that the applicants were under the same conflict of interest as the RWA directors at the board meeting on 25 February 2014.
Parker relied on the decision of the High Court in Mills v Mills,[22] where the directors of a company passed a resolution which increased the voting power of one of the directors as part of a resolution to distribute the profits of the company in its reserve account by way of dividends payable to ordinary shareholders by the issue of ordinary shares. The increase in the number of ordinary shares greatly improved the position of ordinary shareholders with respect to preference shareholders on a winding up, as preference and ordinary shares ranked equally. It also increased the voting power of ordinary shareholders.
[22](1938) 60 CLR 150; [1938] HCA 4 (‘Mills’).
Latham CJ observed that if the directors did not act bona fide in the interests of the company, the court in a properly constituted action would set aside their resolution. If directors issued shares only for the purpose of conserving their own power, the resolution creating the shares would be set aside or an injunction granted to prevent the holding of a proposed meeting. However, it must be recognised that as a general rule directors will have an interest as shareholders. In promoting the interests of the company, a director will also promote his or her own interests. Directors were not prohibited from acting in any matter where their own interests were affected by what they do in their capacity as directors. It would be ignoring realities and creating impossibilities in the administration of companies to require that directors should not advert to or consider in any way the effect of a particular decision upon their own interests as shareholders.[23]
[23]Ibid 162–3.
The plurality considered that the validity of the directors’ resolution must depend on the question of whether they exercised the power in good faith for the purpose for which the power was given, and accepted the finding of the trial judge that the purpose of the resolution was the desire of the directors to give ordinary shareholders a title to part of the reserve of profits.[24]
[24]Ibid 170–1 (Rich J, Evatt J agreeing), 179 (Starke J).
Dixon J noted the finding of the trial judge that the directors thought the resolution to be in the best interests of the company because it gave ordinary shareholders the greater part of the reserves of profits in the event of liquidation. While they were not unconscious of the effect of the resolution in altering voting power, and one of the directors probably hoped that it would make a majority easier, the trial judge was far from finding that an actuating motive for the resolution was the desire to maintain voting strength.[25]
[25]Ibid 188.
Parker also relied on the decision of the Western Australian Court of Appeal in Streeter v Western Areas Exploration Pty Ltd [No 2], where it was said:
It has been observed that in the case of company directors, the conflict rule is not strictly applied … Thus a director can also be a shareholder and act with a personal interest even though the director cannot be shown to have freed his or her mind of that personal interest … It is also said that a director is permitted to occupy board positions in competing companies …
Of course, the scope of the rules can be narrowed or excluded by contract or other instrument which defines the duties and powers of the fiduciary … However, that is not the only means by which the content of fiduciary duties can be affected. The High Court has said that the content of fiduciary duties are moulded to the character of the particular relationship so that even within an established fiduciary relationship, the content of the duties will not be uniform for all cases … Further, the subject matter over which fiduciary obligations extend can be ascertained from the course of dealing between the parties or the circumstances of the appointment of the fiduciary …[26]
[26](2011) 278 ALR 291, 303–4 [69]–[70] (McLure P, Buss JA agreeing) (citations omitted); [2011] WASCA 17.
The majority held that two of the directors were not prohibited by the conflict rule from investing in, and being directors of, other mining companies in Western Australia including a start-up mining company in the market for capital with the object of listing. One of the directors had been approached to serve on the board because of his reputation and role as an astute investor of high-risk, speculative capital in mining companies, particularly junior exploration companies.[27]
[27]Ibid 304.
High Court authorities confirm that the fiduciary relationship between a director and a corporation may need to be moulded and shaped to meet the circumstances of the particular case.
In Hospital Products, Mason J described the need to mould the scope of the fiduciary duty in these terms:
The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship … [I]t is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case … [I]n the present case the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest cannot be usefully applied in the absolute terms in which it has been stated.[28]
[28]Hospital Products (1984) 156 CLR 41, 102–3 (citations omitted); [1984] HCA 64.
In Howard, French CJ and Keane J referred to the principle that:
The scope of the fiduciary duty generally in relation to conflicts of interest must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship.[29]
[29]Howard (2014) 253 CLR 83, 100 [34]; [2014] HCA 21.
The issue which arises in this case is whether the relationship between the parties and the circumstances of the case call for the conflict rule to be narrowed so as to free the applicants from its ordinary scope and application in the context of litigation decision-making in proceedings against minority shareholders. Here, the narrowing suggested would permit Parker to make decisions as a director to commence and maintain proceedings against the RWA shareholders despite the shareholding and personal interest of his wife.
This is not a case where there were pre-existing contracts or obligations which should affect the applicants’ fiduciary obligations in litigation. Nor is it a case where the applicants sought to preserve their economic liberty so as to be able to invest in, or serve as directors of, another company. Rather, it is a case where significant decisions had to be made as to whether litigation would be commenced and maintained against minority shareholders in circumstances where the directors representing the minority shareholders considered that they had a conflict of interest and should not vote on the subject matter.
It is not obvious why the fiduciary duties of a company director should be narrowed or qualified in the area of litigation decision-making, particularly when the proceeding under consideration was against minority family shareholders with whom there had been disputes and disagreements extending back over a considerable period of time. No authority was cited where this has been done. The primary judge accurately described the company proceeding as problematic and as likely to be extremely expensive.[30] The shareholders proceeding involved common conduct allegations with, and was dependent on the success of, the company proceeding. Far from being a situation where directors should be free to pursue their own family interests, it was a situation where the fiduciary duties of directors should have been pre-eminent and observed. Caution and care were necessary before decisions were made to commence and maintain high-risk litigation ultimately costing PMG in excess of $14.1 million.
[30]Reasons, [178].
A review of the relationships and circumstances which led to the company proceeding, which in turn led to this litigation, does not assist the applicants. On 30 November 2009, Bergmuller and Martina Parker were appointed as directors of various companies in PMG. On 22 June 2012, the shareholders of the companies in PMG resolved to adopt new constitutions and to appoint Martina Parker as a director of various other companies in PMG.
Clause 13.1 of the new constitutions limited the number of directors for each company to six, and prescribed, absent the unanimous consent of the relevant board, that the board include one director appointed by Bergmuller or his lineal descendants, one director appointed by the lineal descendants of Margaret Parker, and two directors appointed by the lineal descendants of RWA.
On 17 February 2013, Martina Parker resigned as a director of each company in PMG and was replaced by Parker.
There is nothing about the appointment of either applicant to the board, or in the new form of constitution, that suggests that it was intended to modify the fiduciary duties of directors of companies in PMG.
The primary judge noted that at the board meeting on 25 February 2014, Bergmuller as chairman and with a casting vote presented minutes prepared in advance and advised that the intention was to secure the co-operation of a former company secretary and to delegate responsibility for the conduct of the case against the previous directors to Parker and himself. When asked by Hamilton whether there was any point in discussing the minutes, or whether they would be passed on the chairman’s casting vote, Bergmuller responded that there was no point in discussing them, and that ‘we have to ensure that the proceedings are not affected by your conflicts’. When Hamilton asked whether the applicants were in the same position of conflict as the RWA directors, Bergmuller responded that he, Parker and members of his family were not being sued. Bergmuller appears to have had little if any appreciation of the ‘no conflict’ rule. Parker was present at the meeting. There is nothing about the delegation to the applicants to conduct the company proceeding which affected their duties as fiduciaries.
After the company proceeding was commenced on 29 August 2014, followed by the shareholders proceeding on 8 September 2014, Parker was copied into correspondence between Bergmuller and Hamilton concerning the selection of defendants, the basis and cost of the proceedings, the commercial dangers associated with court proceedings, and possible risks to PMG. The applicants sought and received regular advice from PMG’s solicitors as to the claim.
By August 2016, the plaintiff companies had incurred fees in the company proceeding exceeding $5.7 million. In December 2016, the applicants received letters from the respondents’ solicitors challenging how the company proceeding was in the best interests of PMG, and referring to the shareholders proceeding as a parallel and collateral proceeding. They asserted that the applicants had a conflict of interest between their obligations to act in good faith for the benefit of PMG as a whole and their personal interests or the personal interests of those with whom they were associated.
The applicants disregarded all objections and protests about their conflict of interests. Their solicitors responded in April 2017 that, by reason of the delegated authority held by the applicants to conduct the company proceeding, the allegations of conflict of interest were without basis. In further correspondence in April and May 2017, the respondents’ solicitors renewed their objection that the applicants had a conflict of interests, but their solicitors denied any such conflict.
We accept the respondents’ submissions that there is nothing in the applicants’ past relationships or associations, PMG companies’ constitutions, or the circumstances of the case, which leads to the conclusion that the fiduciary duties of the applicants were narrowed or qualified to permit them to commence or conduct the company proceeding in the context of the shareholders proceeding regardless of their personal conflicts of interest.
Parker Ground 2 — the primary judge erred in holding that Parker had a personal advantage in filing and maintaining the company proceeding
The primary judge held:
In my opinion, the [applicants] had a personal advantage in the filing and maintenance of the [company proceeding] such that a reasonable person would think there was a real or substantial possibility of them being swayed by it, for the following reasons:
(a)The [applicants], through their association with JAB Nominees and Martina Parker, had a substantial personal interest in the [shareholders proceeding].
(b)The interests of the [JFJ shareholders] in the [shareholders proceeding], and by association the [applicants], were advantaged by the filing and maintenance of the [company proceeding].
(c)The [shareholders proceeding] was not in the interests of the [plaintiff companies].
(d)The [applicants] knew about the [shareholders proceeding].[31]
[31]Ibid [132].
The primary judge found that the preferred relief sought by the JFJ shareholders in the shareholders proceeding was an order for the compulsory transfer of the shares of the RWA shareholders to the JFJ shareholders and gave reasons for the finding.[32]
[32]Ibid [135].
The primary judge also held that the applicants pursued their personal interests by deciding to file and maintain the company proceeding as ‘part of a coordinated plan, which included the purchase of the shares of the RWA shareholders by the JFJ shareholders’.[33]
[33]Ibid [140].
Parker challenged the primary judge’s findings that:
(a) Parker had a personal advantage in the filing and maintenance of the company proceeding and through his association with Martina Parker, giving rise to a substantial personal interest in the shareholders proceeding;
(b) the preferred relief sought in the shareholders proceeding was the compulsory transfer of the shares of the RWA shareholders to the JFJ shareholders; and
(c) the decision of the applicants to file and maintain the company proceeding was part of a coordinated plan.
As to the first two findings, Parker submitted:
(a)the compulsory transfer of shares was one form of a basket of alternative relief sought in the shareholders proceeding under s 233 of the Act;
(b)it was not put to Parker that the transfer of shares was the primary form of relief sought;
(c)two of the solicitors’ letters (those of 2 July 2014 and 4 September 2014) did not refer to preferred relief and there was no evidence that Parker was aware of the letters;
(d)the primary judge relied on the evidence of Hamilton to the effect that Bergmuller said that the ‘purpose of the proceedings is to get a compulsory share sale order’ which is not evidence of the state of mind of Parker; and
(e)the primary judge relied on an email from Bergmuller (the December 2014 email) which is not evidence of Parker’s intention.
As to the third finding, Parker submitted that:
(a)the primary judge failed to give reasons as to how he arrived at such a factual finding or identify the date and limits of the plan;
(b)the primary judge’s finding ignores the applicants’ evidence that the true intention in bringing the company proceeding was to recover monies, compensation, damages and other relief;
(c)the finding assumes that Parker could control the manner in which the proceedings were dealt with by the Court;
(d)the finding ignores the work on and intention to bring the company proceeding long before the shareholders proceeding was contemplated; and
(e)Parker only knew of the shareholders proceeding after it was issued.
The respondents submitted:
(a)Parker had a substantial personal interest in the shareholders proceeding through his association with Martina Parker;
(b)an order for the compulsory transfer of shares was the preferred relief of the JFJ shareholders. It was the first relief sought in the shareholders proceeding. All other relief was sought in the alternative;
(c)Parker knew that his wife was contemplating filing the shareholders proceeding before it was filed;
(d)a breach of the no conflict rule may take place without any other form of wrongdoing; and
(e)the evidence shows that the two proceedings were part of a coordinated plan.
Parker’s evidence
Parker said in his evidence that he knew his wife was contemplating filing the originating process and that she had a number of meetings with her solicitor. He and his wife had attended the mediation before Michael McHugh QC in July 2014 where a draft statement of claim in the company proceeding was discussed.
He said that he believed that he had some conversations with his wife prior to December 2014 about what she was seeking to achieve by being a party to the shareholders proceeding, but could not recall specific conversations. His conversations with her as to what the companies were trying to achieve by bringing the company proceeding did not take place very often and were in general terms.
When asked by the primary judge whether he realised that the shareholders proceeding relied on similar facts to those alleged in the company proceeding, Parker said that he understood that to be the case some time after it was filed. He described his understanding of the purpose of the shareholders proceeding as, in layman’s terms, a backup plan in case the company proceeding ran into limitation issues as the shareholders’ claims were treated differently from the companies’ claims.
Later during his evidence, the primary judge put to Parker that his understanding at or about this time was that the purpose of the shareholders proceeding was that if the company failed in its proceeding, particularly by reason of time limits, then his wife and others may be able to successfully recover some or all of the same amounts because their claim would not be subject to such time limits. Parker responded ‘in broad terms, yes’ except that ‘[he] wasn’t sure of when [he] came to that realisation’.
Parker confirmed that he was the director who had oversight of the progressive cost of the company proceeding. He said that the applicants, as delegates of the board, authorised expenditure of legal fees for the conduct of the company proceeding.
Personal advantage
There can be no doubt that a director may have a personal interest in the subject matter of a decision to be made by the board, or in an action proposed to be taken by the company, by reason of the shareholding of a family member. Plainly, a reasonable person might think that there was a reasonable or substantial possibility of a director being swayed by the interest of a family member even if the director had no similar personal interest.[34]
[34]Australasian Annuities Pty Ltd (in liq) (recs and mgrs apptd) v Rowley Super Fund Pty Ltd (2015) 318 ALR 302, 317–8 (Warren CJ), 333 (Neave JA), 352 (Garde AJA); [2015] VSCA 9; Ying Mui v Hoh [No 3] (2017) 349 ALR 296, 362 (Vickery J); [2017] VSC 29.
Parker was well aware of his wife’s shareholdings in PMG, and that of her sisters, and represented them on the board. At the commencement of the company proceeding, he was aware of the shareholders proceeding and considered that it operated as a backup plan, so assisting his wife and the other JFJ shareholders in the event that the company proceeding failed by reason of limitation periods.
In our view, the primary judge was correct when he found that Parker had a personal interest in the company proceeding and in the shareholders proceeding through his wife’s shareholding. Her interests and those of the other JFJ shareholders benefitted from the conduct of two proceedings. The proceedings were known by Parker to advance his wife’s interests as a substantial shareholder in PMG. At all times, a reasonable person would think that there was a real or substantial possibility that the decisions that Parker made concerning the litigation were swayed by his wife’s shareholding and interests.
Objective test
The test of commercial unfairness is an objective test and does not require the victim to prove dishonesty, want of probity, lack of good faith, or any other mental state on the part of the fiduciary.
As the Full Federal Court said in Catalano v Managing Australia Destinations Pty Ltd, ‘[a]s 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.’[35]
[35](2014) 314 ALR 62, 66 [9]; [2014] FCAFC 55, cited in Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689; [2014] NSWCA 326. See also discussion at [128]–[130] below.
Nor does it assist the applicants that PMG’s solicitors prepared the documents filed in the company proceeding or that the applicants acted on legal advice. In Re M Dalley & Co Pty Ltd v Sims, a minority shareholder in a proprietary company sought relief from oppression alleging that the company sought to expropriate her shares at an undervalue. In holding that it was not an answer to her case to say that the company and its directors were acting throughout on the advice of their solicitors and accountants, Lush J said:
The respondents have argued that they were acting on the advice of their solicitors and accountants … and that their conduct cannot therefore be regarded as oppressive but should be regarded as conduct designed to maintain what they believed was the true position and what they thought were their rights. If the sole matter at issue was the respondent’s honesty, or, to use a word frequently used in this branch of the law, probity, this argument would be weighty. Dishonesty or fraud or want of probity cannot be found unless there is a dishonest mind. In my opinion want of probity is only one of the ways in which oppression can manifest itself … One person may “subject another to continual injustice” by insisting, however honestly, on a proposition that is wrong or by using his strength to maintain, however honestly, a position unjustified in law. I have expressed … the opinion that there are only limited classes of cases in which a party to litigation can ask to be judged on the footing that he has no responsibility for the acts of his solicitors. Section 186 is, upon the authorities, a wide remedial section not to be narrowed in the manner contended for by an interpretation of the first judicial observations made upon it. It is to be observed that it speaks of oppression in terms of its impact on the oppressed, not in terms of the intention of the oppressor, except to the extent that the word itself has some moral or emotional content.[36]
[36](1968) 1 ACLR 489, 492 (appeal allowed as to relief: M Dalley & Co Pty Ltd v Sims (1968) 120 CLR 603; [1968] HCA 82); see also Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 306; [2009] HCA 25.
Likewise in Re George Raymond Pty Ltd; Salter v Gilbertson, Byrne J considered an application for relief from oppression in the management of a company on the basis that the director had made a number of uncommercial loans to a company in which he had an interest. In holding the director’s conduct to be oppressive and unfairly prejudicial to the other shareholders of the company, Byrne J said:
I accept the analysis of oppression set out by Richardson J in Thomas v H.W. Thomas Ltd. This case, moreover, and those which have followed it make it clear that the interest of the court is focussed, not so much on the intent behind the acts of the majority as on their effect upon the minority. For the same reason, it has been held that the fact that the conduct in question was engaged in bona fide and even on legal or other advice, is no defence to an allegation of oppression.[37]
[37][1999] VSC 460, [18] referring to Re M Dalley & Co Pty Ltd (1968) 1 ACLR 489, 492 (citations omitted).
In Aqua-Max Pty Ltd v MT Associates Pty Ltd, this Court observed that bona fide conduct may still be oppressive or unfairly prejudicial:
notwithstanding that the conduct is lawful, or accords with the company’s constitution, having regard to its effect upon the minority shareholder.[38]
[38](2001) 3 VR 473, 481 [60] (Brooking, Charles and Chernov JJA); [2001] VSCA 104.
‘Coordinated plan’ and preferred relief
The company proceeding and the shareholders proceeding had an undoubted synergy in the sense that the shareholders proceeding sought to address and overcome the limitation periods in the company proceeding as the JFJ shareholders could succeed in circumstances where the company proceeding might fail. While the company proceeding sought compensation, the shareholders proceeding operated in conjunction with the company proceeding by covering a likely defence. Taken together, the two proceedings increased the leverage of the JFJ shareholders over the RWA shareholders in any buyout negotiations.
The primary judge described in detail the expert reports, mediation and other steps leading to the decision to commence the company proceeding. When the company proceeding was commenced, the shareholders proceeding was seen to be expedient because oppression proceedings under ss 232 and 233 of the Act were not subject to the limitation periods which affected the company proceeding.
The primary judge held that at or about the time of the filing of the company proceeding, Parker was aware of the proposal to file the shareholders proceeding, describing it as a backup plan in case the company proceeding ran into limitation issues.[39] Parker’s own evidence, detailed above, describes his understanding of the backup plan at and subsequent to the commencement of the shareholders proceeding.
[39]Reasons, [142(a)].
The primary judge also found that:
(e) an order for the compulsory transfer of the RWA shareholders’ shares to the JFJ shareholders was the primary and preferred form of relief sought in the shareholders proceeding;[40]
[40]Ibid [135].
(b) by the pricing mechanism, the JFJ shareholders sought to obtain an adjustment in their favour on any price payable on a share transfer from the RWA shareholders, quantified by the amount by which shareholder value had been reduced by the amounts payable on proof of the common conduct allegations;[41]
(c) the common conduct allegations could be prosecuted through the company proceeding simultaneously with the shareholders proceeding;[42] and
(d) the company proceeding would be funded using a substantial amount of company funds.[43]
[41]Ibid [139(b)], [141].
[42]Ibid [239]–[240].
[43]Ibid [239].
The primary relief and the pricing mechanism in the shareholders proceeding, together with the reliance on the common conduct allegations in the company proceeding and the shareholders proceeding, were self-evident from the originating process filed in the two proceedings and from the emails and correspondence. The preferred relief is found in the statements of Bergmuller, made in the presence of Parker, who clearly articulated that the purpose of the proceedings was to get a compulsory sale order in a conversation with Hamilton at the board meeting on 1 October 2014 and again in the December 2014 email. The applicants had carriage of the company proceeding on behalf of PMG and were familiar with the proceedings from the routine reports they received and the instructions they gave PMG’s solicitors.
In our view, the primary judge was correct to conclude that the backup plan coupled with the other features that we have listed constituted a coordinated plan for the conduct of the litigation by the applicants. The evidence and documentation that we have described supports such a conclusion.
There is another reason why the challenge to the primary judge’s finding of a coordinated plan must fail. If it were assumed that the primary judge had not used the expression ‘coordinated plan’, the backup plan described by Parker in his evidence coupled with the findings we have set out above would have led to exactly the same result in the proceeding. This is because the test of commercial unfairness is objective.[44] It focusses on the effects on the victim caused by the actions and conduct of the director and those instructed or authorised to act by the director, and not on the director’s subjective intention. If the director’s conduct lacks probity or good faith, or is dishonest or fraudulent, that circumstance will be given due weight, but it is the effect of the director’s conduct on the victim that ultimately constitutes the oppression.
Parker Ground 3 — the primary judge erred in failing to consider whether Parker had actively pursued an identified conflict — an essential element in finding a breach of fiduciary duty as to conflict
[44]Knights Quest Pty Ltd v Daiwa Can Company (2018) 366 ALR 557, 588–9 (Beach, Kyrou and Hargrave JJA); [2018] VSCA 349.
The primary judge took the view that a breach of the conflict rule was actionable per se, relying on the following passage by Edelman J in Agricultural Land Management Ltd v Jackson [No 2]:
The “conflict rule” when concerned with conflicts between duty and personal interest is not limited merely to situations in which a fiduciary actually prefers personal interest. It includes also situations involving a potential for personal interest to be preferred or a potential for breach of duty to one principal where conflicting duties are owed to different principals. The same principles apply where, as in this case, the relevant conflict rule concerns two potentially conflicting duties.
It has been said that it is a “counsel of prudence” rather than a “rule of equity” that a fiduciary ought to avoid placing himself or herself in a position of conflicting duties. The rule, it has been said, is that a fiduciary must not take advantage of a conflict. But those judges who have remarked on this limit to the fiduciary duty have done so in the context of considering the scope of the separate “profit rule” or the “equitable principle governing the liability to account”. The assumption behind the statement may have been that there is no basis for the order of an account of profits in circumstances in which it has not been shown that any advantage was taken to make any profit.
Bergmuller Ground 7 — the primary judge erred in holding that it was appropriate to make orders for reimbursement and indemnity by Bergmuller of the whole of the costs and liabilities incurred by the plaintiff companies in the company proceeding
Bergmuller submitted that:
(a)the primary judge failed to properly consider whether reimbursement was necessary to relieve against oppression;
(b)the reimbursement order was unnecessary and inappropriate and gave the plaintiff companies a windfall;
(c)there was no apparent injustice in the company proceeding, as if the proceeding succeeded the RWA shareholders would receive 48% of the benefits, but if it failed, they would incur 48% of the costs; and
(d)the oppression cases where the majority deploys company funds to resist the claims of the minority were distinguishable.
The respondents submitted that:
(a)s 233 of the Act gave the Court wide powers to make any order it considers appropriate in relation to the company;
(b)the Court chose a remedy which was least intrusive but brought the oppression to an end; and
(c) reimbursement was the appropriate remedy.
Once the discretion conferred by s 233 of the Act is enlivened by a finding of oppression under s 232, the Court has a wide discretion as to the remedy.[94] In the present case, an order that the applicants reimburse the plaintiff companies for the costs expended and the adverse costs orders made against them was an appropriate method of restoring the plaintiff companies to the position in which they would have been had the conflicted decisions not been made. There is no windfall to the plaintiff companies. Rather, the applicants, as the conflicted directors who decided to commence and maintain the company proceeding, will recompense the plaintiff companies for the costs which they have sustained and the liabilities which they have incurred.
[94]Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (2004) 207 ALR 136, 145 (Wilcox, Marshall and Jacobson JJ); [2004] FCAFC 153.
Bergmuller cited two cases in support of his submissions. In Re D G Brims and Sons Pty Ltd, Byrne J held that the fact that a company’s funds were used to pay the costs of the majority shareholders was unfair and infringed the basic principle that the powers and funds of a company may be used only for the purposes of the company. As the essential dispute was between the shareholders, company funds should not have been used to defend the majority shareholders.[95] In Fexuto, the New South Wales Court of Appeal ordered a buyout of shares after an actual or notional accounting for monies that should be returned to the holding company.[96] There is nothing in these decisions which is inconsistent with the findings of the primary judge.
[95](1995) 16 ACSR 559, 591–2; [1995] QSC 53.
[96]Fexuto (2001) 37 ACSR 672; [2001] NSWCA 97.
Conclusion
We grant each applicant leave to appeal, and dismiss the appeals.
- - -
SCHEDULE OF PARTIES
S EAPCI 2021 0006
| PETER PARKER | Applicant |
| - and - | |
| JAMES RONALD AUSWILD | First Respondent |
| BARBARA JOAN AUSWILD | Second Respondent |
| RONALD RAYMOND AUSWILD | Third Respondent |
| BARONJA INVESTMENTS PTY LIMITED (ACN 071 230 709) | Fourth Respondent |
| GEORGE KEITH KEARNS | Fifth Respondent |
| ROSE BAY ESPLANADE PROPERTIES PTY LTD (ACN 000 259 263) | Sixth Respondent |
| JAMES RONALD AUSWILD (AS EXECUTOR OF THE ESTATE OF RONALD WILLIAM AUSWILD, DECEASED) | Seventh Respondent |
| BARBARA JOAN AUSWILD (AS EXECUTOR OF THE ESTATE OF RONALD WILLIAM AUSWILD, DECEASED) | Eighth Respondent |
| JAMES RONALD AUSWILD (AS EXECUTOR OF THE ESTATE OF JOAN PATRICIA AUSWILD, DECEASED) | Ninth Respondent |
| BARBARA JOAN AUSWILD (AS EXECUTOR OF THE ESTATE OF JOAN PATRICIA AUSWILD, DECEASED) | Tenth Respondent |
| JAB NOMINEES (AUST) PTY LTD (ACN 603 601 994) | Eleventh Respondent |
| SIMONE CATHERINE FERRY | Twelfth Respondent |
| MARTINA CAROLE PARKER | Thirteenth Respondent |
| KATHLEEN NICOLE ALEKNA | Fourteenth Respondent |
| JAMES AUSWILD BERGMULLER | Fifteenth Respondent |
| FINANCE & GUARANTEE COMPANY PTY LTD (ACN 000 032 548) | Sixteenth Respondent |
| PRESTON MOTORS PTY LTD (ACN 004 082 213) | Seventeenth Respondent |
| PRESTON MOTORS (PROPERTIES) PTY LTD (ACN 008 467 427) | Eighteenth Respondent |
| PRESTON MOTORS (PARTS SALES) PTY LTD (ACN 005 142 978) | Nineteenth Respondent |
| ACN 008 392 505 PTY LTD (ACN 008 392 505) (FORMERLY KNOWN AS COMMONWEALTH MOTORS PTY LIMITED) (ACN 008 392 505) | Twentieth Respondent |
| PRESTON MOTORS (HOLDINGS) PTY LTD (ACN 004 357 279) | Twenty-first Respondent |
| AUSWILD SECURITIES PTY LTD (ACN 000 718 178) | Twenty-second Respondent |
| FINTEE INVESTMENTS (CANBERRA) PTY LTD (ACN 008 461 818) | Twenty-third Respondent |
S EAPCI 2021 0007
| JAMES AUSWILD BERGMULLER | Applicant |
| - and - | |
| JAMES RONALD AUSWILD | First Respondent |
| BARBARA JOAN AUSWILD | Second Respondent |
| RONALD RAYMOND AUSWILD | Third Respondent |
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