Pesec v Zivko (No 3) - [2024] ACTSC 325

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:	Pesec v Zivko (No 3)
Citation:	[2024] ACTSC 325
Hearing Dates:	6 March, 7 March, 8 March, 9 March 2023
Decision Date:	23 October 2024
Before:	McCallum CJ
Decision:	(1) The proceedings are dismissed. (2) I order the plaintiff to pay the defendants’ costs.
Catchwords:	CORPORATIONS – MEMBERS’ RIGHTS AND REMEDIES – Oppression – application by shareholder for relief under s 233 of the Corporations Act 2001 (Cth) for alleged oppressive conduct under s 232 – unlisted public company – where managing director granted option to acquire shares in company as part of remuneration package – whether options issued at an undervalue – where company prepares financial statements adopting the cost model of accounting – whether additional financial information necessary to enable shareholders other than directors to ascertain the value of their shares – whether unavailability of list or current valuations of real property assets produces commercial unfairness to shareholders other than directors – whether cumulative impact of separate allegations amounts to oppression
Legislation Cited:	Corporations Act 2001 (Cth), ss 173, 177, 198A, 232, 233, 236, 237, 247A, 251B, 257A, 257H(3), 297, 314 Evidence Act 2011 (ACT), ss 91(1), 136
Cases Cited:	Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 Joint v Stephens [2008] VSCA 210 Latimer Holdings Ltd v SEA Holdings NZ Ltd [2004] NZCA 226; [2005] 2 NZLR 328 Lucy v Lomas [2002] NSWSC 448 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Owners of “Shin Kobe Maru” v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 Pesec v Consolidated Builders Ltd [2019] ACTSC 142 Pesec v Consolidated Builders Ltd (No 3) [2021] ACTSC 105 Pesec v Consolidated Builders Ltd [2021] ACTCA 25 RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756 Sheehy v Nuix Pty Ltd [2023] FCA 56 Shum Yip Properties v Chatswood Investment & Development [2002] NSWSC 13 Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 Tomanovic v One Australia Pty Ltd [2015] NSWCA 11 Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459
Parties:	Anthony Pesec (Plaintiff) Josip Pavao Zivko (First Defendant) Frank Crnkovic (Second Defendant) Mirko Skrnjug (Third Defendant) Rein Heins (Fourth Defendant) Noel Edward McCann (Fifth Defendant) XO 1 Pty Ltd (Sixth Defendant) Consolidated Builders Limited (Seventh Defendant)
Representation:	Counsel M Pesman SC with R Higgins (Plaintiff) D Thomas SC (First and Sixth Defendants) J Hutton SC (Second to Fifth Defendants) M O’Meara SC with IJM Ahmed (Seventh Defendant)
Solicitors Chamberlains Law Firm (Plaintiff) Allens (First and Sixth Defendants) Ashurst (Second to Fifth Defendants) Clayton Utz (Seventh Defendant)
File Number:	SC 147 of 2021

McCALLUM CJ:

Introduction

1․The plaintiff, Anthony Pesec, holds shares in Consolidated Builders Limited, an unlisted public company incorporated in the Territory in…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2024] ACTSC 325
Decision Date: 23 October 2024

CaseChat Overview and Summary

The plaintiff, Pesec, applied to the Federal Court for relief under section 233 of the Corporations Act 2001 (Cth) on the basis that the conduct of the directors of the defendant company, Zivko, was oppressive within the meaning of section 232. Zivko was an unlisted public company, and Pesec was a shareholder. The dispute centred around the issuing of share options to the managing director as part of his remuneration package, the valuation of the company's real property assets, and the adequacy of the financial information provided to shareholders. The plaintiff contended that the options were issued at an undervalue and that the unavailability of a list or current valuations of the real property assets resulted in commercial unfairness to shareholders other than directors. The plaintiff also argued that the cumulative impact of these issues amounted to oppression.

The primary legal issue before the court was whether the conduct of the directors of Zivko constituted oppression under section 232 of the Corporations Act. The court had to determine if the issuing of share options at an undervalue, the lack of current valuations of the company's real property assets, and the overall adequacy of the financial information provided to shareholders amounted to oppressive conduct. The court also had to assess whether these actions, either individually or in combination, produced a commercial unfairness to the plaintiff and other shareholders.

The court dismissed the plaintiff's application, finding that the conduct of the directors did not amount to oppression. The court held that the issuing of share options at an undervalue did not necessarily constitute oppressive conduct, particularly in the context of an unlisted public company. Additionally, the court found that the absence of current valuations of the real property assets did not produce a commercial unfairness to the plaintiff or other shareholders. The court also determined that the financial information provided to shareholders was sufficient for the purposes of section 232. The court emphasised that the plaintiff's dissatisfaction with the company's performance and the actions of the directors did not, in itself, amount to oppression.

The court ordered that the proceedings be dismissed and that the plaintiff pay the defendants' costs. This order reflects the court's view that the plaintiff's application was without merit and that the defendants were not required to bear the costs of the proceedings. The dismissal of the application and the imposition of costs on the plaintiff underscore the court's conclusion that the conduct of the directors did not meet the threshold for oppression under the Corporations Act.

Orders

Orders of the court

(1) The proceedings are dismissed.

(2) I order the plaintiff to pay the defendants’ costs.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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