Re Docklands Chiropractic Clinic Pty Ltd
[2020] VSC 364
•23 June 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 00264
IN THE MATTER of Docklands Chiropractic Clinic Pty Ltd (ACN 610 223 437)
| ME HEALTH & WELLBEING PTY LTD (ACN 154 841 148) | Plaintiff |
| v | |
| TRAVERS LANDON PRICE & ORS | Defendants |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 May 2020 |
DATE OF RULING: | 23 June 2020 |
CASE MAY BE CITED AS: | Re Docklands Chiropractic Clinic Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 364 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Part 2F.1 – Section 232 – Competing allegations of oppressive conduct of affairs of company.
CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4A – Section 461(1)(k) – Winding up on just and equitable ground – Deadlock – Quasi-partnership – Irretrievable breakdown of relationship – Lack of confidence in the conduct and management of the affairs of the company – Jurisdiction enlivened – Discretionary factors – Relative justice of winding up remedy – Whether applicant for relief has clean hands – Financial position of company – Part 5.4B – s 467(4) – Whether other remedy available.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J McKay | Boon Legal |
| For the Defendants | Mr C Möller with Ms R Howe | Cite Legal Pty Ltd |
TABLE OF CONTENTS
Introduction................................................................................................................................... 1
Background.................................................................................................................................... 1
Procedural history......................................................................................................................... 2
Legislative provisions................................................................................................................... 4
Legal principles............................................................................................................................. 6
Reasoning....................................................................................................................................... 9
Deadlock............................................................................................................................... 9
Breakdown in relationship between shareholders....................................................... 11
Failure of original object of Company............................................................................ 11
Conduct and management of Company’s affairs and allegations of misconduct... 12
Relative justice of a winding up...................................................................................... 13
Clean hands and attribution of fault............................................................................... 15
Civil Procedure Act 2010 (Vic)......................................................................................... 17
Financial position of the Company................................................................................. 19
Utility of liquidation.......................................................................................................... 21
Conclusion on exercise of discretion.............................................................................. 22
Other remedy available.................................................................................................... 22
Future management of proceedings........................................................................................ 23
Conclusion.................................................................................................................................... 25
HIS HONOUR:
Introduction
Docklands Chiropractic Clinic Pty Ltd (‘the Company’) operates a business offering chiropractic and allied health services in the Docklands precinct, Melbourne. Unfortunately, the directors and members of the Company have become mired in conflict. Before the Court is an application by ME Health & Wellbeing Pty Ltd (‘the plaintiff’) to wind the Company up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the ‘Corporations Act’) on the basis that it is just and equitable to do so.
Background
The Company was registered on 15 January 2016. It has 120 shares, half of which are held by the plaintiff. The plaintiff’s directors and shareholders are Michael Edgley and his wife Lauren Wilkinson Le Fevre. The other half of the shares in the Company are held by Michelle Price who is the wife of Travers Price. At the time of its incorporation and until very recently, the directors of the Company were Mr Edgley and Mr Price. Mr Edgley and Mr Price are both chiropractors who have historically consulted patients on behalf of the Company.
For the purpose of these reasons I will refer to the plaintiff, Mr Edgley and Ms Wilkinson Le Fevre as ‘the Edgley parties’ and Mr Price and Mrs Price as the ‘Price parties’.
The business of the Company was purchased for the sum of $50,000, the majority of which represented plant, equipment and fittings. The Company’s practice currently operates under a lease of premises at shop 9, 6 Waterview Walk, Docklands. The premises are proximate to public transport and the offices of various businesses, including financial institutions.
There appears to have been an understanding between Mr Edgley and Mr Price that, as treating chiropractors, they would each regularly invoice the Company in respect of patients they consulted on its behalf. There is otherwise substantial disagreement about the other terms of their arrangement and the management and operation of the Company more generally.
After operating the practice for a number of years, Mr Edgley and Mr Price fell into serious dispute. They have each made allegations against each other, of varying degrees of seriousness. By way of example, Mr Price contends that whilst Mr Edgley was a director of the Company, he established a competing practice close to the Company’s premises and diverted the Company’s business to the competing business. Conversely, Mr Edgley accuses Mr Price of, among other things, improperly billing the Company for his services and re-directing Mr Edgley’s patients to himself.
Procedural history
By originating process filed 21 January 2020, the plaintiff commenced this proceeding under ss 232, 233 and 461(1)(k) of the Corporations Act in relation to the conduct of the affairs of the Company (‘the oppression proceeding’). The primary relief sought by the plaintiff is an order that Ms Price (representing the Price parties) purchase the shares held by the plaintiff in the Company at a price to be determined by the Court. Orders are also sought for compensation to the Company and/or an account of profits in respect of any wrongdoing by Mr Price in the management of the Company. In the alternative, an order is sought that the Company be wound up (including pursuant to s 461(1)(k)).
In his affidavit in support affirmed on 20 January 2020, Mr Edgley estimated the Company’s business to be worth between $10,000 and $20,000 with little transferable goodwill. He also identified that the Company had made a loss in 2017, had broken even in 2018 and made a further loss in 2019.
On 11 February 2020, Mr Price filed his own originating process seeking leave pursuant to ss 236(1) and 237 of the Corporations Act to bring a proceeding on behalf of the Company against Mr Edgley and Docklands Health Pty Ltd (‘Docklands Health’), the entity which operates the competing business, alleging breach by Mr Edgley of various legal duties owed to the Company, (‘the derivative proceeding’).[1] The allegations made against Mr Edgley include those referred to earlier.
[1]See S ECI 2020 00650 In the matter of Docklands Chiropractic Clinic Pty Ltd (ACN 610 223 437).
On 13 February 2020, Sifris J made an order referring the oppression proceeding for management under the Court’s Oppression Proceeding Program.[2] By order dated 20 February 2020, Sifris J referred the derivative proceeding to an Associate Judge for hearing and determination pursuant to r 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’) and r 16.1(3) of the Supreme Court (Corporations) Rules 2013 (the ‘Corporations Rules’). Both matters were listed before me on 26 March 2020. I declined to entertain Mr Price’s application for leave to commence a proceeding in the name of the Company at that time on the basis that it was premature to do so. I expressed concern about the significant costs associated with two pieces of litigation affecting the Company having regard to its apparent financial position and the absence of an undertaking by Mr Price to bear any adverse costs incurred by the Company in the derivative proceeding. Orders were made that evidence filed in each proceeding be evidence in the other proceeding and both matters were referred for early mediation.
[2]See Supreme Court of Victoria, Practice Note SC CC 8: Oppressive Conduct in the Affairs of a Company, 18 May 2018.
In addition, at the hearing on 26 March 2020, the Court noted a number of factual matters arising in both proceedings, including: an ostensible breakdown in the relationship between the shareholders; an apparent deadlock and lack of confidence in the management of the Company; allegations of misconduct and oppression in the affairs of the Company and the Company’s seemingly parlous financial position. Having regard to those matters, the Court indicated that if the dispute was unable to resolve at mediation, the parties would be required to address the Court on the question of whether it would be just and equitable that the Company be wound up pursuant to s 461(1)(k) of the Corporations Act. Orders were made for the filing of submissions and the oppression proceeding was listed on 8 May 2020 as a special fixture to deal with that question.[3] The derivative proceeding was adjourned for mention on the same day.
[3]In accordance with Part 3 of Order 16 of the Corporations Rules, an Associate Judge has the power to hear an application to wind up a company on the just and equitable ground in certain circumstances. However, for the avoidance of any doubt, on 16 April 2020, Riordan J referred the plaintiff’s originating process in the oppression proceeding to an Associate Judge for hearing and determination pursuant to r 77.05 of the Rules and r 16.1(3) of the Corporations Rules.
Regrettably, the mediation of the two proceedings proved to be unsuccessful. When the matters came back before the Court on 8 May 2020, the Edgley parties pressed for the just and equitable winding up of the Company on the basis of an irrevocable breakdown in the relationship with the Price parties and an inability for those parties to manage the affairs of the Company and its business. A liquidator was sought to be appointed as the most practical and commercially just outcome in the circumstances. The Price parties resisted a winding up order on the basis that it would be premature, drastic and unjust.
Legislative provisions
Sections 232 of the Corporations Act relevantly provides as follows:
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.
…
Once the Court’s oppression jurisdiction is engaged, s 233 of the Corporations Act sets out a broad range of remedies available to the Court. The provision states:
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b)that the company's existing constitution be modified or repealed;
(c) regulating the conduct of the company's affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company's share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company's property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j) requiring a person to do a specified act.
Section 461(1)(k) of the Corporations Act provides that the Court may order the winding up of a company if it ‘is of opinion that it is just and equitable’ to do so.
Section 467(4) of the Corporations Act is in the following terms:
Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a)the applicants are entitled to relief either by winding up the company or by some other means; and
(b)in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Legal principles
As McMurdo JA said in Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd:[4]
… there will often be facts and circumstances by which the court has powers both under s 233 and s 461. Conduct in the nature of oppression can make it just and equitable that a company be wound up.[5]
[4](2018) 125 ACSR 227.
[5]Ibid 242-3 [62]-[63].
However, because the present focus is on whether the Company should be wound up under s 461(1)(k) (the just and equitable ground), I will confine my summary of the applicable legal principles as they relate to the application of that provision.
Like other aspects of modern company law, the just and equitable winding up ground has its origins in equity. The legal underpinnings of the earliest form of business organisations were an amalgam of the law of partnerships, trusts and agency, all of which were infused with equitable doctrines.[6] The legislative forerunners to s 461(1)(k) of the Corporations Act include: s 5(8) of the Joint Stock Companies Winding Up Act 1848 (UK); s 79(5) of the Companies Act 1862 (UK); and s 73(5) of the Companies Statute 1864 (Vic) and were in substantially the same terms as the contemporary provision.
[6]Tan Cheng-Han and Wee Meng-Seng, ‘Equity Shareholders and Company Law’ in Paul S Davies and James Penner (eds), Equity, Trusts and Commerce (Hart Publishing, 2017) 2, 3.
A leading authority on just and equitable winding up is Ebrahimi v Westbourne Galleries Ltd.[7] In that case, the House of Lords held that the jurisdiction to wind up a company on this ground may arise where one or more of the following circumstances are present:
(a)an association formed or continued on the basis of a personal relationship, involving mutual confidence … ;
(b)an agreement, or understanding, that all, or some … of the shareholders shall participate in the conduct of the business; [and]
(c)the restriction upon the transfer of the member’s interest in the company — so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.[8]
[7][1973] AC 360 (‘Ebrahimi’).
[8]Ibid 379 (Lord Wilberforce).
However, the categories of circumstances which trigger the just and equitable jurisdiction are not closed or rigid.[9] The court must consider the factual matrix of the dispute in order to be satisfied whether sufficient reason exists to wind the company up.[10] In ReCatombal Investments Pty Ltd,[11] Brereton J further explained:
[t]he court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VLR 222 at 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Co Ltd (1916) 32 TLR 253 at 255].[12]
[9]Ibid. See also Australian Securities and Investment Commission v Storm Financial Ltd (2009) 71 ACSR 81, [65]; ASIC v Letten (No 10) [2011] FCA 498 [12] (‘ASIC v Letten’).
[10]ASIC v Letten [2011] FCA 498 [14].
[11][2012] NSWSC 775.
[12]Ibid [20].
Other matters relevant to the question of whether a just and equitable winding up order should be made include:
(a) a failure of the main object of the company’s formation;[13]
[13]Re Tivoli Freeholds Ltd [1972] VR 445.
(b) a deadlock in the management of the company;[14]
[14]Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426 (‘Yenidje Tobacco’); Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952; Clarke v Bridges [2004] FCA 394 (‘Clarke’); Booker v You Run the Business Pty Ltd [2008] FCA 1762 (‘Booker’).
(c) a breakdown in the relationship between the shareholders;[15]
[15]Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343.
(d) a lack of confidence in the conduct and management of the affairs of the company;[16]
[16]Loch v John Blackwood Ltd [1924] AC 783, 788; ASIC v ABC Fund Managers (2001) 39 ACSR 443, 469 [119] (‘ASIC v ABC Fund’).
(e) where there has been fraud, misconduct or oppression in relation to the affairs of the company;[17]
[17]Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148; Macquarie University v Macquarie University Union Ltd (No 2) [2007] FCA 844. See also B H McPherson, ‘Winding Up on the “Just and Equitable” Ground’ (1964) 27 Modern Law Review 282, 298-9.
(f) serious concerns about the company's compliance with its statutory obligations,[18] including the filing of tax returns;[19] and
(g) a risk to the public interest that warrants protection.[20]
[18]ASIC v Barrack Mortgage Managers Pty Ltd [1999] NSWSC 272; ASIC v Drury Management Pty Ltd [2004] QSC 068.
[19]Entwistle v Minken Pty Ltd (receivers and managers appointed) (2013) 97 ACSR 361, 364.
[20]ASIC v ABC Fund (2001) 39 ACSR 443.
In exercising its discretion, the court will have regard to the position of the company and the availability of any alternative remedy. As Sifris J (as his Honour then was) said in Peter Extons & Anor v Extons Pty Ltd & Ors:[21]
Courts are “extremely reluctant to wind up a solvent company” [International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc [No 2] (1994) 13 ACSR 368, 372 (Young J)] As the Court of Appeal has observed, “[i]t is well accepted that the winding up of a solvent and flourishing company should be a last resort” [French v Smith [2004] VSCA 207 at [122] per Charles and Chernov JJA and Harper AJA; Sassine v Ray & Sons Construction Pty Ltd [2012] NSWSC 307 at [21] per Black J]. Courts will consider whether any other relief would be preferable to a winding up order [Turner v Ulicorp Pty Ltd [2007] NSWSC 206 at [24] per Barrett J; Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 at [67] per Hansen J].[22]
[21](2017) 53 VR 520.
[22]Ibid 545 [89].
Solvency, however, will not operate as a complete barrier to a just and equitable winding up, particularly where there have been serious and ongoing breaches of the Corporations Act.[23]
[23]Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189, 195 [24].
But even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, s 467(4) of the Corporations Act makes clear that the court must consider whether an alternative and less drastic form of relief is available.[24]
[24]Re Wyndham Park Estate Pty Ltd [2019] VSC 92 [40].
Reasoning
It is clear on the facts that one or more of the circumstances described in Ebrahimi are present here. The Company was incorporated on the basis of a personal relationship between Mr Edgley and Mr Price who stand behind the shareholders. It also appears that the relationship was, at least initially, one of mutual confidence (although that is no longer the case). There is also evidence that they each participated in the conduct of the business which appears to have been set up as a quasi-partnership. For example, they each invoiced the Company for patient consultations, organised the payment of expenses and stood to share in the profits.
Given these threshold circumstances are at least present, the Court’s jurisdiction to wind up the Company under s 461(1)(k) is enlivened. The real question then becomes one of discretion, having further regard to the factual matrix.
Deadlock
It is apparent that the management of the Company has historically been deadlocked. For example, it appears the parties have been unable to agree on various aspects of the management of the practice, including communication with patients and the use of online platforms. At the time of the hearing, there was uncertainty about whether the Company would exercise an option to renew its lease with its landlord. Given the breakdown in relations between Mr Edgley and Mr Price, and an apprehension by Mr Edgley about the declining financial position of the Company as a consequence of the COVID-19 pandemic, Mr Edgley did not want to assume any ongoing liability for the lease or other expenses. He submits it would be preferable that the lease not be renewed and the Company’s business cease operating altogether.[25]
[25]Edgley parties’ Amended Submissions dated and filed on 20 April 2020, [2] (‘Edgley Amended Submissions of 20 April 2020’).
However, in his written submissions dated 20 April 2020, and through his counsel at the hearing on 8 May 2020, Mr Edgley indicated to the Court that he would resign as a director imminently. He did so because of a suggestion in the Price parties’ submissions of 17 April 2020 that they no longer sought leave to commence the derivative proceeding on the basis the litigation between the parties could be conducted through the oppression proceeding only.[26] It was further explained by counsel at the hearing that Mr Edgley’s intention in resigning was also in response to the argument he was in breach of his duties as a director of the Company by operating a rival business. Shortly thereafter, Mr Edgley provided to Mr Price and to the Court a document confirming his resignation as a director of the Company with effect from 6 May 2020.
[26]Ibid [5].
A number of cases which have considered deadlock as a factor in favour of a just and equitable winding up have had regard to deadlock at both a board and shareholder level.[27] I accept the Edgley parties’ submission that Mr Edgley's recent resignation will not address the underlying disagreement between the shareholders. However, the resignation has had the important consequence of dissolving the deadlock at the level of the Company’s board. The residual dispute between the shareholders, whilst undesirable, will not likely frustrate the sensible operations of the Company.[28] Mr Price, as sole director, will be empowered to negotiate with the landlord and make other day-to-day operational decisions concerning the Company without regular recourse to Mr Edgley. The Company will no longer be in a state of corporate paralysis.
[27]See Yenidje Tobacco [1916] 2 Ch 426; Clarke [2004] FCA 394; Booker [2008] FCA 1762, above n 14.
[28]See Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152 [237] (Austin J) (‘Tomanovic’). This aspect of his Honour’s decision was not overturned on appeal.
Furthermore, there is no formal restriction in any shareholder agreement or in the Company’s constitution which would prevent the plaintiff from selling its shares in the Company and thereby eliminating any remaining dispute.[29] The Price interests have already made an open offer to purchase the plaintiff’s shares.[30] The impediment to a sale occurring is an absence of an agreement about: (a) the price to be paid; and (b) whether any acquisition should entail a global settlement of the allegations and potential claims raised by Mr Edgley and Mr Price against each other.[31] Although the parties were unable to resolve these matters at mediation, there remains a mechanism for the Court to order in the oppression proceeding a buyout of the plaintiff having regard to the fair value of its shares. This would, of course, require a finding by the Court that its jurisdiction under the oppression provisions of the Corporations Act has been engaged.
[29]See Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 682 [51]-[54].
[30]Exhibit MLC-1 to the Affidavit of Monique Lisa Carroll affirmed and filed on 25 March 2020 (‘Carroll affidavit affirmed 25 March 2020’).
[31]Exhibit MLC-3 to the Carroll affidavit affirmed 25 March 2020; and Price parties' Submissions dated and filed 17 April 2020, [12] (‘Price Submissions of 17 April 2020’).
Breakdown in relationship between shareholders
It is plain that the relationship between the shareholders of the Company has irretrievably broken down. They have each brought proceedings against each other, making allegations and counter-allegations.
However, as noted above, the falling out between shareholders will not necessarily impede the Company from continuing to operate in a practical sense. For all intents and purposes, Mr Edgley appears to be no longer actively participating in the Company’s business. Whether by choice or otherwise, Mr Edgley has seen relatively few patients at the Company’s practice in recent times.[32] His attention appears to be focused on his competing business. A final separation of the parties might be achieved through the vehicle of the oppression proceeding by way of orders requiring the acquisition of the plaintiff’s shares in the Company.
[32]Affidavit of Travers Landon Price affirmed and filed on 4 May 2020, [7]-[9] (‘Price affidavit affirmed 4 May 2020’) and exhibit TLP-1 to the Price affidavit affirmed 4 May 2020.
Failure of original object of Company
The Edgley parties maintain that the original purpose for the incorporation of the Company has failed. While the precise terms on which the relevant parties organised their business relationship is the subject of dispute, I have already observed that they have proceeded on the basis of a ‘quasi-partnership’. According to Mr Edgley, he and Mr Price operated as independent contractors to the Company.[33] There is uncontradicted evidence that Mr Price and Mr Edgley would endeavour to arrange a buyout in the event either party wished to leave the practice.[34] As earlier observed, Mr Edgley has already partially extricated himself from the business. All that remains is the question of the plaintiff’s shareholding. Importantly, there is nothing to prevent the Company from continuing to operate its practice and delivering chiropractic and other allied health services to patients. It would therefore be premature to conclude that the purpose of the Company’s incorporation has failed.[35]
[33]Affidavit of Michael Thomas Edgley affirmed on 20 January 2020 and filed on 21 January 2020, [5] (‘Edgley affidavit affirmed 20 January 2020’).
[34]Affidavit of Travers Landon Price affirmed 10 February 2020 and filed on 11 February 2020 in the derivative proceeding, [55] (‘Price affidavit affirmed 10 February 2020’) to which Mr Edgley specifically makes no comment in the responsive Affidavit of Michael Thomas Edgley affirmed and filed on 18 March 2020 in the derivative proceeding, [33] (‘Edgley affidavit affirmed 18 March 2020’).
[35]See McPherson, above n 17, 290, footnotes 44 and 45 and the older authorities referred to therein; Re M’Donald Gold Mines, Ltd (1898) 14 TLR 204.
Conduct and management of Company’s affairs and allegations of misconduct
Both the Edgley parties and the Price parties have expressed a lack of confidence in the conduct and management of the affairs of the Company. Mr Edgley has alleged in the oppression proceeding that Mr Price has been improperly engaged in irregular billing practices by only obtaining private health care contributions from patients, not recovering the ‘gap’ from the patient in respect of the total consultation fee and nevertheless invoicing the Company for the entire amount.[36] Mr Edgley also cites significant disagreements between himself and Mr Price concerning the Company’s online platforms;[37] suggests Mr Price used the Company’s logo at another practice without authorisation;[38] alleges that Mr Price has actively diverted patients away from Mr Edgley and to himself[39] and has misused the Company’s patient database.[40] For his part, Mr Price not only alleges that Mr Edgley established a competing business through Docklands Health[41] and has diverted the Company’s business to Docklands Health[42], he also maintains, among other things, that Mr Edgley has copied and misused the Company’s patient database[43], installed key-logging software on the Company’s computers[44] and misappropriated Company funds and other property.[45]
[36]Edgley affidavit affirmed 20 January 2020, [11].
[37]Ibid [10].
[38]Edgley affidavit affirmed 18 March 2020, [41].
[39]Ibid [48].
[40]Ibid [80].
[41]Price affidavit affirmed 10 February 2020, [93]-[96].
[42]Ibid [117]-[120].
[43]Ibid [115]-[117].
[44]Ibid [120]-[126].
[45]Ibid [137]-[162].
All of the matters referred to above are cause for concern. In the absence of competing factors, these matters may tend in favour of the appointment of a liquidator. However, in my view, the oppression proceeding constitutes an appropriate forum through which each party can seek to agitate these concerns. The allegations are relevant to not only establishing oppression for the purpose of engaging the Court’s jurisdiction but also in delineating the potential remedy. The inherent breadth and flexibility of the oppression provisions to tailor an appropriate form of relief is discussed further below.
Relative justice of a winding up
In his treatise Winding Up on the Just and Equitable Ground, F H Callaway (as his Honour then was) said:
The expression ‘just and equitable’ may be regarded as an example of statutory hendiadys, the reference to equity being not by way of an additional test but for the purpose of ensuring that the justice to be applied will be equitable justice, ‘the justice of the individual case’.[46]
[46]F H Callaway, Winding Up on the Just and Equitable Ground (Law Book, 1978) 5.
BH McPherson (as his Honour then was) observed in his own article on the topic:
[T]he justice and equity which falls to be considered is that which prevails between…those who support the petition and those who oppose it…and that in reaching its conclusion on this question the court is entitled to take account of ‘every consideration which is fair and reasonable for [all] the interests concerned’.[47]
[47]McPherson, above n 17, 283, quoting Pirie v Stewart (1904) 6 F. 847 (Lord Kinross).
It follows that a winding up must be just and equitable not only for the applicant, but for all parties affected by it.[48]
[48]Re G Jeffrey (Mens Store) Pty Ltd (1984) 9 ACLR 193, 201.
It is submitted by the Price parties that a winding up order would be unjust as it would both ‘punish’ the Price parties who would lose their interest in a viable chiropractic business into which they have devoted years of their time and attention and, at the same time, ‘reward’ Mr Edgley who would be permitted to maintain his competing business whilst benefiting from the ‘summary execution’ of his corporate rival.[49] Conversely, the Edgley parties maintain that the continued operation of the Company’s business and affairs would be prejudicial as they would be required to guarantee the Company’s debts for the predominant purpose of the Company operating as a vehicle through which the Price parties could pursue litigation against them.[50]
[49]Price Submissions of 17 April 2020, [29].
[50]Edgley Amended Submissions of 20 April 2020, [10].
When considering the relative impact of a winding up order upon each party, the justice of the individual case weighs against the making of such an order at this time.
By establishing the competing business and in commencing the oppression proceeding, Mr Edgley has evinced his intention to no longer be tied to the Company. By contrast, Mr Price has made clear he wishes to continue to trade through the Company. He is now the predominant fee earner in the business. The Price parties are also incentivised to negotiate a favourable arrangement with the Company’s landlord in order to keep the practice operational. There is evidence before the Court that Mr Price has now formally requested the landlord remove Mr Edgley’s name as a guarantor because he has resigned as a director.[51] Whilst it is unclear whether the landlord has definitively agreed to this proposal, Mr Edgley may decline to provide a fresh guarantee in respect of a further term in any event.[52] As remaining director, Mr Price would be liable for meeting Company debts whilst continuing to consult patients, invoice the Company for his services and draw a wage. The winding up of the Company would adversely affect his income earning ability and critically injure the goodwill in the business he helped establish and wishes to preserve. It follows that the making of a winding up order would appear to impact more adversely on the Price parties than a refusal to grant a winding up would prejudice the Edgley parties.
[51]Affidavit of Monique Carroll affirmed and filed on 22 May 2020, [26] (‘Carroll affidavit affirmed 22 May 2020’); exhibit MLC-10 to the Carroll affidavit affirmed 22 May 2020.
[52]See clause 12.3 of the lease found at exhibit LP-1 to the Affidavit of Linda Paric sworn and filed on 8 May 2020. That clause states: "if the tenant is a corporation and was required to provide directors' guarantees for [the] lease, the tenant must provide guarantees of its obligations under the renewed lease by its directors, and by each person who has provided a guarantee for the expired term, in the terms of clause 15." This is notwithstanding the wording of clause 15.1.1 which provides that a guarantor "guarantees that the tenant will perform all of its obligations under [the] lease for the term and any further term or terms and during any period of overholding after the end of the term.”
Clean hands and attribution of fault
Given the equitable nature of the Court’s jurisdiction under s 461(1)(k) of the Corporations Act, an attribution of fault or a lack of clean hands on the part of an applicant may lead to the court refusing to make a winding up order,[53] but it does not constitute an absolute bar.[54]
[53] Ebrahimi [1973] AC 360, 367 (Lord Cross); Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319 [39].
[54]Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 [22]; Re David Ireland Productions Pty Ltd [2014] NSWSC 1411 [7].
The maxim that an applicant seeking equitable relief must approach the court with clean hands does not require ‘an abstract moral examination’ of his/her actions.[55] But there must be some relationship between the relief sought and the impugned behaviour which would render it unjust to grant the relief.[56]
[55]I C F Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (Lawbook, 9th ed, 2013) 175.
[56]Ibid, citing Dering v Earl of Winchelsea (1787) 1 Cox 318, 319; 29 E.R. 1184, 1185; Moody v Cox [1917] 2 Ch 71.
The court is also permitted to have regard to considerations ‘of a personal character arising between one individual and another, which make it unjust, or inequitable, to insist on legal rights or to exercise them in a particular way.’[57] Further, the court may examine the extent to which the applicant is responsible for any breakdown of the relationship between the parties.[58]
[57]Ebrahimi [1973] AC 360, 379 (Lord Wilberforce).
[58]Tomanovic [2010] NSWSC 152 [52] (Austin J) citing Morgan v 45 Flers Avenue Pty Ltd(1986) 10 ACLR 692, 708 and Ruut v Head(1996) 20 ACSR 160, 162. This aspect of the decision was not overturned on appeal. See also Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 687 [90]; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, 359-60 [96].
Here, Mr Edgley is accused of conduct in breach of his duties as a director. Putting to one side the allegations of misappropriation of Company assets, which Mr Edgley maintains he has returned or otherwise denies,[59] the establishment by Mr Edgley of Docklands Health as a competing business is a serious matter which warrants discussion.
[59]Edgley affidavit affirmed 18 March 2020, [89]-[101], [105]-[108].
It is clear that the statutory and fiduciary duties of directors ‘exist side by side’ and there is both a statutory and fiduciary duty on directors to act in the best interests of the company and not to promote their own personal interests.[60] The test imposed by courts in assessing whether fiduciary duties have been breached is a practical and objective one,[61] although it is not strictly necessary to establish fraud, dishonesty or bad faith.[62]
[60]Courtenay Polymers Pty Ltd v Deang [2005] VSC 318 [90] Whelan J adopting the principles laid out by the South Australian Court of Appeal in Southern Real Estate Pty Ltd v Dellow (2003) 87 SASR 1. See also Mills v Mills (1938) 60 CLR 150, 188.
[61]See Boardman v Phipps [1967] 2 AC 46, 124 (Lord Upjohn); Michael Evans, Bradley L Jones and Theresa M Power, Equity and Trusts (LexisNexis Butterworths, 4th ed, 2016) [13.3].
[62]Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, 137.
In his affidavit affirmed 10 February 2020 in the derivative proceeding, Mr Price deposes to first becoming aware that Mr Edgley had set up Docklands Health as a competing business in late January or early February 2019.[63] It is noteworthy that Docklands Health operates out of 4/860 Collins Street, Docklands, which is approximately 500 metres from the Company’s premises.[64] Mr Price says that at no time did Mr Edgley tell him that he was proposing to set up, or had set up, this competing business.[65]
[63]Price affidavit affirmed 10 February 2020, [95]. Docklands Health was incorporated on 11 September 2018 with Mr Edgley and Ms Wilkinson Le Fevre as its directors and shareholders.
[64]Ibid [96].
[65]Ibid [97].
In response, Mr Edgley denies hiding the fact he had established Docklands Health and says that Mr Price never raised any objection until his solicitors sent Mr Edgley a letter in December 2019.[66] Importantly, Mr Edgley relies on an oral agreement between himself and Mr Price to explain his conduct in establishing and continuing to operate Docklands Health whilst remaining a director of the Company.[67] Mr Edgley alleges that the agreement permitted each party to practise at other (competing) clinics or venues. That agreement is denied by Mr Price. Both parties agree that if the matter were to proceed to trial, a central issue for determination would be whether there was an agreement permitting competition and, if so, the terms of such agreement. Associated questions may include whether Mr Edgley, as a director of the Company, properly disclosed the circumstances of the establishment of the competing business and ever sought informed consent from the Company.
[66]Edgley affidavit affirmed 18 March 2020, [61].
[67]Edgley affidavit affirmed 20 January 2020, [5]-[6], Edgley affidavit affirmed 18 March 2020, [32], [66(a)].
In oral submissions, Mr Edgley’s counsel maintained that it is impossible, at this time, for the Court to attribute blame or to determine whether Mr Edgley comes to the Court with unclean hands. However, the allegations against Mr Edgley, particularly in relation to the incorporation of a competing business, are not trivial in nature. Without in any way prejudging the issue, regardless of whether Mr Edgley and Mr Price have historically worked at other chiropractic clinics, it is difficult to understand why Mr Price and the Company would consent to Mr Edgley setting up a rival business a mere 500 metres from the Company’s premises.
None of this in any way discounts the allegations made by Mr Edgley against Mr Price. However, many of the allegations, including the suggestion that Mr Price has actively diverted patients away from Mr Edgley and to himself appear to relate to a period of time after Mr Price became aware of the existence of Docklands Health. There is enough material before the Court to suggest the dispute between the protagonists may have either had its genesis in, or at least escalated in intensity, following the establishment of the competing business. Although untested under cross-examination, there is sufficient evidence to raise doubt as to whether Mr Edgley, as an applicant for equitable relief, presents to the Court with clean hands.
Civil Procedure Act 2010 (Vic)
The facts of this case bring the Court’s obligations under the Civil Procedure Act 2010 (Vic) (the ‘Civil Procedure Act’) into sharp relief. Pursuant to s 8 of the Civil Procedure Act, the Court must give effect to the ‘overarching purpose’ set out in s 7 of that legislation, namely to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. The Court is also mindful of s 9 of the Civil Procedure Act which provides that the Court must further the overarching purpose by having regard to a number of objects including: the just determination of the proceeding; the efficient conduct of the business of the Court; the efficient use of judicial and administrative resources; minimising delay; and dealing with proceedings in proportion to their complexity and the amount in dispute. The concept of proportionality also features in s 24 of the legislation which obliges parties and their lawyers to ensure the legal and other costs associated with a proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute.
On Mr Edgley’s estimates, the Company’s business is worth between $10,000 and $20,000 with little transferable goodwill. It has not been profitable for the last three years. At the same time, Mr Price suspects that Mr Edgley has diverted hundreds of thousands of dollars of revenue from the Company by virtue of the operation of Docklands Health.[68] Mr Price’s lawyers have recently asserted that the claim against Mr Edgley for breaches of his duties as a director of the Company exceeds $315,000 in quantum,[69] although it is unclear how that figure is arrived at. The short point is that the amount in dispute between the parties is presently unclear.
[68]Reliance was placed on para [163] of the Price affidavit affirmed 10 February 2020 during oral submissions at the hearing in 8 May 2020.
[69]Exhibit MLC-4 to the Carroll affidavit affirmed 22 May 2020.
On the basis of financial information provided in respect of Mr Edgley and Docklands Health, the Price parties accept there is no guarantee of recovering the proceeds of a successful judgment. However, they maintain that the Court should nevertheless determine their claims, and Mr Edgley’s competing claims, in order that the terms of a buyout of the plaintiff’s interest in the Company can be resolved once and for all.
Ultimately, the Court has some misgivings that the claims of both sets of parties are worth the powder and shot. However, it is too early to ascertain whether the further conduct of this litigation would be disproportionate to the amount in dispute. Nor can the Court assess at this stage whether the legal costs being incurred are proportionate to the complexity or importance of the issues in dispute. At the same time, it may be that the immediate winding up of the Company would itself be a disproportionate outcome in the circumstances.[70]
[70]See Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 [70] (‘Host-Plus’).
The content of the overarching purpose set out in s 7 of the Civil Procedure Act also bears repeating. It requires the Court to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. None of these elements should be considered in isolation. Whilst there may be a level of instinctive attractiveness to bringing bitter and overly costly litigation to an end by the just and equitable winding up of the company in question, it is important to ensure that justice is not sacrificed on the altar of cost, efficiency and speed. Instead, litigation should be managed in a way that best accords with the overarching purpose. A proposed way forward in this case is discussed further below.
Financial position of the Company
Mr Edgley submits that the Company is floundering and that the appointment of a liquidator is a practical and just outcome for the parties. At the start of May 2020, the Company had less than $600 in its bank account.[71] Its present liability for rent is approximately $50,000 per annum (over $4,200 per month),[72] although Mr Price has recently negotiated with the landlord to obtain a substantial reduction in rent payable on an interim basis.[73] Accounting for other regular liabilities, and the payment of treating practitioners, the Company operated at a small loss throughout February, March and April 2020. Over $5,000 in expenses were budgeted for the end of May 2020 and Mr Edgley apprehends that monthly expenses cannot be covered by Mr Price’s projected earnings.[74] Mr Edgley attributes the declining performance of the Company to the restrictions imposed as a consequence of the COVID-19 pandemic.[75] Doubtless, that is the case. However, the Price parties submit that the losses over the past few months are minuscule in the context of the pandemic and may also be readily explained by the fact that one of the principals (Mr Edgley) performed very little work for the Company during that period. Documents produced by Mr Edgley under a notice to produce suggest that the competing business, Docklands Health, earned gross revenue of over $19,000 from the start of March 2020 to 6 May 2020. Of course, the Price parties will need to demonstrate that some or all of those earnings arise as a result of Mr Edgley’s alleged breach of duty to the Company and should be repaid. However, in the event a reasonable portion of that revenue represented commercial opportunities wrongfully diverted from the Company by Mr Edgley to Docklands Health, the Company’s financial position would be considerably better.
[71]Affidavit of Michael Thomas Edgley affirmed 6 May 2020 and filed on 8 May 2020, [3] (‘Edgley affidavit affirmed 6 May 2020’) and exhibit MTE-1 to the Edgley affidavit affirmed 6 May 2020.
[72]Affidavit of Michael Thomas Edgley affirmed and filed on 2 April 2020 [12] (‘Edgley affidavit affirmed 2 April 2020’) and exhibit MTE-8 to the Edgley affidavit affirmed 2 April 2020. See also exhibit MTE‑2 to the Edgley affidavit affirmed 6 May 2020.
[73]Carroll affidavit affirmed 22 May 2020, [27].
[74]Edgley affidavit affirmed 6 May 2020, [4].
[75]Ibid [5].
The Company owes each of Mr Edgley and Mr Price approximately $25,000 in respect of director loans.[76] Following the hearing, Mr Edgley made a formal demand on 12 May 2020 that his loan be repaid, asserting that it is payable on call and requiring payment within three days.[77] This is notwithstanding his earlier statement that he and Mr Price ‘agreed that the Company would repay the [director] loans when it could afford to do so’.[78] He has threatened to issue a statutory demand in the event repayment of the loan does not occur.[79] The amount of Mr Edgley’s loan and whether it is repayable on demand are matters of dispute.[80] Accordingly, the existence of the loan should not ultimately determine an assessment of the Company’s financial position. Should Mr Edgley serve the Company with a statutory demand, he will likely be met with an application to set it aside on the grounds of a genuine dispute and an offsetting claim by the Company.[81] It must be said that the commencement of further legal processes would only serve to escalate the legal costs being incurred by all parties. I also note there would be nothing to prevent Mr Edgley from relying upon his loan in the oppression proceeding as part of the determination of the underlying value of the Company and the plaintiff’s shares.
[76]Edgley affidavit affirmed 2 April 2020, [14]
[77]Exhibit MLC-2 to the Carroll affidavit affirmed 22 May 2020. In a letter of demand dated 12 May 2020, Mr Edgley claims a higher amount of $29,237 is owing to him in respect of his loan.
[78]Edgley affidavit affirmed 18 March 2020, [100].
[79]Exhibit MLC-6 to the Carroll affidavit affirmed 22 May 2020.
[80]Carroll affidavit affirmed 22 May 2020, [21] and exhibit MLC-7 to the Carroll affidavit affirmed 22 May 2020.
[81]Ibid.
In any event, it is clear that the Company is not in a strong financial position. But nor is it hopelessly insolvent. There is therefore need to be cautious about the blunt impact of a winding up order on a company that is continuing to trade, albeit in extremely challenging economic conditions.
Utility of liquidation
In their written submissions of 20 April 2020, which were further developed at the hearing, the Edgley parties put forward a number of reasons why the appointment of a liquidator would represent a practical and commercially just outcome for the parties. Firstly, it is argued that a liquidation would enable the parties to avoid any ongoing liability under the lease. This is because a liquidation would entitle the Company’s landlord to serve a default notice and terminate the lease or, alternatively, a liquidator could seek to disclaim the lease. In addition, there would be no restriction on the Price parties from negotiating with the landlord in respect of an assignment of the lease or a new lease. In my view, these arguments have diminished relevance given the resignation of Mr Edgley as a director. Moreover, as expedient as such a scenario may be, it would not, of itself, be sufficient reason to justify a winding up in this case.
Secondly, it is submitted that a liquidator would proceed in the ordinary course to sell the assets of the Company on the open market and all parties would be at liberty to bid for those assets. In this way, a buyout price would be determined by market forces rather than a more costly and drawn out litigation process which would ultimately require the Court to determine the value of the Company’s shares, potentially on the basis of expert evidence. There are a number of shortcomings with this argument. As Judd J noted in Sino International Development Pty Ltd v Mainland Projects (Oakleigh) Pty Ltd,[82] ’[a] winding up order may threaten jobs, valuable goodwill may be lost and productive assets sacrificed in a ‘fire sale’’.[83] Whilst I accept there are not significant assets in the Company which are at risk of a fire sale, what goodwill there is would almost certainly be lost. There is also doubt as to whether the clients of the practice would remain if the business was sold by a liquidator. Further, the ascertainment of value by a liquidator’s sale would not permit any adjustment or compensation on account of breaches of duty by either or both of the directors. In other words, it would not truly represent fair value.
[82][2012] VSC 231.
[83]Ibid [18].
Lastly, the Edgley parties maintain that liquidation would entail an experienced commercial insolvency practitioner determining whether existing litigation should be maintained and allegations investigated. Strong and commercially utile claims would ordinarily be pursued by a liquidator. But this, of course, assumes that a liquidator would have the funds to do so. Because it is unclear whether a liquidator would be funded in this case, there is some prospect that any misconduct will not be brought to account. Moreover, the work of the liquidator would impose an additional layer of cost (on top of legal fees) which would diminish any eventual return to members.
The perceived efficiencies and benefits of a liquidation are, on close examination, unlikely to be realised in this case.
Conclusion on exercise of discretion
It follows from the above analysis that I will refrain from exercising my discretion to order the just and equitable winding up of the Company. However, even if I had determined to exercise my discretion differently, I would still be required to consider the operation of s 467(4) of the Corporations Act before making a winding up order.
Other remedy available
Section 467(4) makes clear that even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, it must consider whether some ‘other remedy’ is available in the circumstances. The ‘other remedy’ referred to in s 467(4) is not restricted to a legal remedy but ‘is to be understood in the wider sense of a course of action otherwise open to the party’.[84]
[84]Host-Plus [2003] VSC 145 [67] (Hanson J).
Here, that ‘other remedy’ is the acquisition of the plaintiff’s shares in the Company by Ms Price on behalf of the Price parties. This would be a far less drastic form of relief than to appoint a liquidator at this time. Whilst the parties cannot presently agree on a fair price for the plaintiff’s shares, as already observed throughout these reasons, the Court has the power to intervene and to fashion a buyout order after first determining the competing claims made by the parties and ensuring that any diverted assets are restored to the Company. Because of the availability of this alternative and less drastic remedy, s 467(4) would likely operate to restrain the making of a winding up order, even if I was of the opinion that a winding up was otherwise appropriate.
Future management of proceedings
Given the Court has determined not to wind the Company up on the just and equitable ground, how should the dispute between the parties be managed in accordance with the Court’s obligations under the Civil Procedure Act?
In my view, the oppression proceeding is the most appropriate vehicle for the agitation and determination of all the questions and issues that arise between the parties. This was also initially the view of the Edgley parties in opposing the application for leave by Mr Price in the derivative proceeding.[85] In their written submissions dated 17 April 2020, the Price parties also suggested that they agreed with this course,[86] and unequivocally confirmed that to be the case through oral submissions made by their counsel at the hearing.
[85]Outline of submissions of the Edgley parties in derivative proceeding dated 25 March 2020, [3]-[4].
[86]Price Submissions of 17 April 2020, [34].
Procedural orders will need to be made to enable, among other things, Mr Edgley and Docklands Health to be joined as parties, the filing of points of claim, points of defence and counterclaim, points of reply and defence to counterclaim and the discovery of essential documents between the parties. The affidavit material filed in each proceeding is already extensive and no further affidavit evidence may be necessary. I agree with the Price parties’ submission that a trial should be expedited, if possible. To contain costs, however, the trial should be limited in duration.
This approach will enable allegations of wrongdoing raised by each party, including the alleged diversion of patients and business of the Company, to be squarely brought before the Court. The allegations will be relevant to not only establishing oppression for the purpose of enlivening the Court’s jurisdiction under the relevant provisions but also in delineating the appropriate form of relief. The scope of the Court’s jurisdiction to grant relief under s 233 of the Corporations Act is particularly broad and versatile.[87] For example, the purchase price for the plaintiff’s shares may be adjusted to reflect any wrongdoing by either party.
[87]Turnbull v NRMA Ltd (2004) 50 ACSR 44, 54 [42].
In Wain v Drapac (No 2),[88] Ferguson J (as her Honour then was) said, after reviewing the authorities:
At the heart of these principles is that the price to be paid is compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct). Consequently, the price to be paid will not always reflect the actual or real worth of the shares that might be obtained on the open market. Whilst the valuation might be conducted on the basis of one of the traditional methods (including net tangible assets or capitalisation of maintainable earnings) the valuation will invariably take into account various adjustments that should be made to remove the effect of the oppression. For example, in United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [(2003) 47 ACSR 514], a number of adjustments were made including an adjustment to the amount of management fees that had been charged [Ibid 529 [80]]. Adjustments might be made if assets or profits have been diverted, with the valuation to be conducted as if there had been no diversion. Yet another example is Dynasty Pty Ltd v Coombs [(1995) 138 ALR 64]. In that case, the Full Federal Court upheld the trial judge’s valuation orders where one of the acts of oppression was the dilution of the Plaintiff’s shares. The trial judge calculated the amount to be paid not on the basis of the shares actually held but rather on the basis of the shares that would have been held had there been no dilution.[89]
[88][2013] VSC 381.
[89]Ibid [39].
There is also scope for the Court to make a compensatory order. In Patterson v Humfrey,[90] Le Miere J explained the position as follows:
The defendants say that what the plaintiffs claim is in effect for orders for monetary compensation of the company whose affairs were conducted oppressively and that such orders are not usually made when the company could have pursued a claim for compensation or leave to pursue a derivative action could have been sought. The court has power under s 233 of the Corporations Act to order compensation in favour of the companies whose affairs are in question, notwithstanding the availability of a derivative action: LPD Holdings (Aust) Pty Ltd v Phillips, Hickey and Toigo [2013] QSC 225 at [44] per McMurdo J referring to (2014) 103 ACSR 152 at 167 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 (Fexuto); Atlasview Ltd v Brightview Ltd [2004] 2 BCLC 191; Re Chime Corp Ltd (2004) 7 HKCFAR 546; Gamlestaden v Baltic Partners Ltd [2007] 4 All ER 164 at 172. In Re North Coast Transit Pty Ltd[2013] NSWSC 1119 Brereton J observed that while he was not aware of any case in which the remedy for oppression has been a monetary compensation order he readily acknowledged that a similar result can be obtained, as it was in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2)(1998) 29 ACSR 290, by requiring accounts to be taken before striking a valuation. In this case, if the court makes a share buy back order then a similar result to an order for monetary compensation can be obtained by ordering that before a valuation of the shares there be an adjustment to the accounts to reflect any unauthorised payments…[91]
[90](2014) 103 ACSR 152, 166-7 [56].
[91]See also Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137 [56]-[57].
As already indicated, one of the critical issues at trial will be the existence and terms of any agreement which permitted Mr Edgley and Mr Price to operate competing businesses outside of the Company. Alleged conduct which may constitute both oppression and/or breach of duty owing by a director to the Company will need to be examined. If liability is established, the quantum of any necessary compensation may be referred to a special referee, after which the terms of any buyout order can then be further explored.
Conclusion
In the exercise of my discretion, I have declined to wind up the Company under the just and equitable ground. The parties are requested to submit proposed timetabling orders to prepare the oppression proceeding for a short trial on an expedited basis. I will hear the parties on the question of costs.
SCHEDULE OF PARTIES
| S ECI 2020 00264 | |
| BETWEEN: | |
| ME HEALTH & WELLBEING PTY LTD (ACN 154 841 148) | Plaintiff |
| - v - | |
| TRAVERS LANDON PRICE | First Defendant |
MICHELLE PRICE | Second Defendant |
| DOCKLANDS CHIROPRACTIC CLINIC PTY LTD (ACN 610 223 437) | Third Defendant |
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