Sellar v Lasotav Pty Ltd

Case [2008] FCA 1766

FEDERAL COURT OF AUSTRALIA

Sellar v Lasotav Pty Ltd; In the Matter of Lasotav Pty Ltd [2008] FCA 1766

OPPRESSION suit – payment of legal fees and expenses of the majority shareholders – interlocutory injunction refused

Corporations Act 2001 (Cth), s 233
Federal Court of Australia Act 1976 (Cth) (as amended), s 53A
Federal Court Rules, O 72

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 applied
Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 cited
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 cited
Food Improvers Pty Ltd v BGR Corp Pty Ltd (No 3) [2007] FCA 97 cited
Grace v Grace (2007) 25 ACLC 141; [2007] NSWSC 6 cited
Re A Company (No 001126 of 1992) [1994] 2 BCLC 146 cited
Re DG Brims and Sons Pty Ltd (1995) 16 ACSR 559 cited
Spry, Principles of Equitable Remedies, 5th ed (1997) cited   

IN THE MATTER OF LASOTAV PTY LTD ACN 002 726 392 AND COMO MARINA PTY LTD ACN 002 709 784
STUART SELLAR AND LOUISE JOY SELLAR v LASOTAV PTY LTD ACN 002 726 392, COMO MARINA PTY LTD ACN 002 709 784, ACN 063 456 011 PTY LTD ACN 073 456 011, JOCELYN ORBELL BUSKENS and ROGER BUSKENS

NSD 772 of 2006

FOSTER J
25 NOVEMBER 2008
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 772 of 2006

IN THE MATTER OF LASOTAV PTY LTD ACN 002 726 392 AND COMO MARINA PTY LTD ACN 002 709 784

BETWEEN:

IAN STUART SELLAR AND LOUISE JOY SELLAR
Plaintiff
AND:

LASOTAV PTY LTD ACN 002 726 392
First Defendant

COMO MARINA PTY LTD ACN 002 709 784
Second Defendant

ACN 063 456 011 PTY LTD ACN 073 456 011
Third Defendant

JOCELYN ORBELL BUSKENS
Fourth Defendant

ROGER BUSKENS
Fifth Defendant

JUDGE:

FOSTER J

DATE OF ORDER:

25 NOVEMBER 2008

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The balance of the Notice of Motion filed by the plaintiffs on 16 October 2008 be dismissed.

2.The plaintiffs pay the costs of the first, second, fourth and fifth defendants of and incidental to the relief sought in par 2 of the said Notice of Motion.

3.Pursuant to s 53A of the Federal Court of Australia Act 1976 (Cth) (as amended), the proceedings be referred to a mediator for mediation by such mediator in accordance with O 72 of the Federal Court Rules, such mediation to take place by no later than 23 December 2008.

4.There be liberty to the parties to apply on three days’ notice.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 772 of 2006

IN THE MATTER OF LASOTAV PTY LTD ACN 002 726 392 AND COMO MARINA PTY LTD ACN 002 709 784

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Details
AGLC
Sellar v Lasotav Pty Ltd [2008] FCA 1766
Case
[2008] FCA 1766
Decision Date

CaseChat Overview and Summary

The case of Sellar v Lasotav Pty Ltd involved the plaintiffs seeking an interlocutory injunction against the first, second, fourth, and fifth defendants to restrain them from continuing to use company funds to pay for the legal defence against the plaintiffs' claims for oppression. The plaintiffs alleged that the defendants had misused company funds to defend the proceedings, which constituted oppressive conduct. They argued that this misuse of funds created an uneven playing field and that the defendants should not be allowed to continue to use company resources for their defence. The defendants, on the other hand, asserted their right to use company funds to defend the claims and pointed to open offers made to purchase the plaintiffs' shares as part of the context in which the application should be assessed.

The court had to determine whether the plaintiffs had established a serious question to be tried, whether they would suffer irreparable injury without the injunction, and whether the balance of convenience favoured granting the injunction. The court applied the ordinary test for interlocutory injunctions, which required the plaintiffs to demonstrate the likelihood of success at trial, irreparable harm in the absence of an injunction, and a favourable balance of convenience. The court found that while the plaintiffs had established a serious question to be tried, the balance of convenience did not favour granting the injunction due to the absence of evidence of an uplift in the value of the plaintiffs' shares due to oppression.

The court dismissed the balance of the plaintiffs' Notice of Motion and ordered that the proceedings be referred to a mediator for mediation. The plaintiffs were also ordered to pay the costs of the first, second, fourth, and fifth defendants. The parties were granted liberty to apply on three days’ notice.

Orders

Orders of the court

1. The balance of the Notice of Motion filed by the plaintiffs on 16 October 2008 be dismissed.

2. The plaintiffs pay the costs of the first, second, fourth and fifth defendants of and incidental to the relief sought in par 2 of the said Notice of Motion.

3. Pursuant to s 53A of the Federal Court of Australia Act 1976 (Cth) (as amended), the proceedings be referred to a mediator for mediation by such mediator in accordance with O 72 of the Federal Court Rules, such mediation to take place by no later than 23 December 2008.

4. There be liberty to the parties to apply on three days’ notice.

Note:

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The complaints embodied in pars 88E to 88G were added to the Statement of Claim on 28 October 2008 after I granted leave to the plaintiffs to add those paragraphs to that pleading. THE EVIDENCE The evidence before me establishes the following:(a)The second defendant has paid the total amount of the legal fees and disbursements (including experts’ fees) incurred to date by the defendants in respect of these proceedings being an amount of approximately $160,000.00.(b)Unless restrained from doing so, the second defendant will continue to pay the legal expenses of the first and second defendants as well as those of Mr and Mrs Buskens;(c)The amount likely to be spent between now and the end of the trial is between $150,000.00 and $175,000.00;(d)The fact that it was the second defendant which was actually paying these legal expenses was apparent from the Financial Statements of the second defendant for the financial years ended 30 June 2007 and 30 June 2008;(e)Each of those Financial Statements was provided to the plaintiffs soon after each of them was approved and signed by the directors;(f)Mr Burrell, the solicitor for the plaintiffs, did not appreciate the significance of the items of expenditure on account of legal costs shown in those Financial Statements until he read the 2008 Financial Statements in mid to late September 2008 and discussed those Statements with the first plaintiff;(g)The plaintiffs contend that the value of their shares in the first and second defendants for the purposes of a Court-ordered buy-out by those defendants or by the shareholder defendants is (at its highest) $874,000.00 plus interest;(h)The defendants contend that the value of those shares is approximately $121,725.00; (i)The current market value of the net assets of the first and second defendants is probably between $2,000,000.00 and $4,000,000.00; and (j)The defendants (or, perhaps more accurately, some of them) made open offers to purchase the plaintiffs’ shares in the first and second defendants, the first in June 2006 and the second in July 2007. The best of those offers was for a sum of $250,000.00 plus costs. This was the offer made in July 2007. THE SUBMISSIONS OF THE PARTIES The plaintiffs submitted that:(a)It is well established that the use of company funds to defend oppression proceedings may, in certain circumstances, constitute oppression (see Re DG Brims and Sons Pty Ltd (1995) 16 ACSR 559 at 591–592; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 733; and Cassegrain v CTK Engineering Pty Ltd (2005) 54 ACSR 249 at [90] to [99] (pp 267–269); and Food Improvers Pty Ltd v BGR Corp Pty Ltd (No 3) [2007] FCA 97 at [250] to [258]).(b)Where the issue has been raised prior to the final determination and there is a significant risk of the company’s resources being expended in the defence of the interests of the majority, there is no reason why the Court would not step in at the interlocutory stage and make appropriate orders. In support of this submission, Counsel for the plaintiffs relied upon certain observations made by Brereton J in Grace v Grace (2007) 25 ACLC 141; [2007] NSWSC 6 at [52] and at [61] (second dot point).(c)The normal test for the grant of an interlocutory injunction applies in the circumstances of the present case;(d)The plaintiffs have established a strong case that there is a serious question to be tried; and(e)The balance of convenience favours the grant of an injunction because “ … there is a decidedly uneven playing field …” in the sense that the plaintiffs are compelled to fund the litigation in circumstances where they have no assets of any significance whereas their protagonists, the Buskens, have access to company funds.

Decision

Reasons for decision

FOSTER J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: FOSTER J

The first, second, fourth and fifth defendants have resisted the making of any interlocutory orders. It was submitted on their behalf that:(a)The first and second defendants are the subject of claims for relief in the proceedings and are legitimately entitled to expend their own assets in defence of the proceedings. Implicit in this submission is the proposition that, contrary to the plaintiffs’ submissions in this regard, the Buskens are not the object of most of the allegations made in the Statement of Claim;(b)Open offers have been made which constitute part of the setting in which the present application should be assessed. In addition, the first, second, fourth and fifth defendants have made clear in their Defence that they are prepared to submit to a Court-ordered purchase of the plaintiffs’ shares provided that the purchase price is reflective of the current market value of the plaintiffs’ shares. Presumably, what is intended is that the shares will be valued upon the basis that no oppressive conduct has occurred; and(c)In the absence of evidence justifying an uplift in the current market value on account of oppression, the balance of convenience is clearly against the grant of any relief.CONSIDERATION It is common ground between the plaintiffs on the one hand, and the defendants for whom Mr Thomson appears on the other hand, that the test which I should apply in determining the present application is the ordinary test applicable when the Court is considering the grant of an interlocutory injunction in aid of private rights. This test is captured in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at [8] to [21] (pp 216–220) (per Gleeson CJ); at [59] to [61] (pp 231–232) (per Gaudron J); and at [86] to [92] (pp 239–242); at [98] to [100] (pp 244–246); and at [105] (p 248) (per Gummow and Hayne JJ). Gleeson CJ (as he then was) also specifically cited with approval Spry, Principles of Equitable Remedies, 5th ed (1997) pp 446–56. It is sufficient for present purposes for me to cite and rely upon a passage from the judgment of Mason A-CJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153. In that case, his Honour said:In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction. The plaintiffs have chosen to found the present application upon one only of the grounds of oppression pleaded in their Statement of Claim. The ground relied upon is the ground pleaded in pars 88E to 88G of the Statement of Claim. The plaintiffs have established that the legal expenses of the first, second, fourth and fifth defendants are all being paid by the second defendant and that those expenses will continue to be paid by the second defendant unless interlocutory relief along the lines of that which is sought by the plaintiffs is granted.