Solanki v Cufari
[2014] VSC 345
•22 JULY 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 03197
| JOSEPHINE SHAESTA SOLANKI & ANOR | Plaintiffs |
| v | |
| BRUNO CUFARI & ORS | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 22 JULY 2014 |
DATE OF JUDGMENT: | 22 JULY 2014 |
CASE MAY BE CITED AS: | SOLANKI v CUFARI |
MEDIUM NEUTRAL CITATION: | [2014] VSC 345 |
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CORPORATIONS – Oppression – sole director and secretary – equal shareholders – affairs being conducted to exclusion of other shareholder – conflict of interest – breach of director’s duties – removal of director – Corporations Act 2001 (Cth), ss 53, 181, 182, 185, 232, 233, 247A and 290 – Civil Procedure Act 2010 (Vic), ss 8 and 26.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | Mr MJ Campbell | Henderson & Ball |
| For the defendants | No appearance |
TABLE OF CONTENTS
A.. Introduction................................................................................................................................... 1
B.. Service and non-appearance...................................................................................................... 2
C.. Principal relief sought................................................................................................................. 3
D.. Background................................................................................................................................... 4
D.1... 218 Lygon Street................................................................................................................... 4
D.2... 32-34 Lygon Street............................................................................................................... 7
E... Obligations and duties of B Cufari......................................................................................... 10
F... B Cufari's breaches of duty...................................................................................................... 11
G. B Cufari’s oppressive conduct................................................................................................. 13
G.1... The principles.................................................................................................................... 13
G.2... Application to the facts..................................................................................................... 15
H.. Extent of the court's powers..................................................................................................... 16
I.... Relief............................................................................................................................................. 16
I.1.... Removal of B Cufari and appointment of Solanki....................................................... 16
I.2 ... Access to books and records............................................................................................ 17
J.... Other matters............................................................................................................................... 18
HIS HONOUR:
A. Introduction
By originating process dated 26 June 2014, the plaintiffs, Josephine Shaesta Solanki (“Solanki”) and her father, Jamal Ud Din (“Ud Din”) seek orders, amongst other things, that the 1st defendant, Bruno Cufari (“B Cufari”) be removed as a director of the 4th defendant, Postcode Lygon Developments Pty Ltd (“Postcode Lygon”) and that Solanki be appointed in his stead. B Cufari is the sole director of Postcode Lygon.
The remaining parties to the proceeding are the 2nd defendant, BGC Global Property Investments Pty Ltd (“BGC Global”) and the 3rd defendant, 218 Lygon Street Pty Ltd (“the 218 Trustee”).
The principal orders sought rely on ss 232 and 233 of the Corporations Act 2001 (Cth) (“the Act”), which provide as follows:
Section 232: Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
Section 233: Orders the Court can make
(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.
…
The plaintiffs also issued an interlocutory process seeking orders for access to the books and financial records of Postcode Lygon and of and relating to the 218 Trustee. Both the originating process and the interlocutory process, when issued, were made returnable on 18 July 2014.
B. Service and non-appearance
The form of the originating process and interlocutory process is in accordance with forms 2 and 3 respectively, as required by chapter V of the Supreme Court (Corporations) Rules 2003 (Vic). Each contains a statement to the effect that if the defendants did not appear before the court on 18 July 2014, the applications could be heard and relief given in their absence.
On 2 July 2014, De Marco Lawyers wrote to the plaintiffs’ solicitors stating that they had instructions to accept service of both the originating process and the interlocutory process on behalf of B Cufari, BGC Global and Postcode Lygon. They did not purport to act for the 218 Trustee.
On the same day, the plaintiffs’ solicitors sent the originating process, the interlocutory process and the supporting affidavit, together with exhibits, to De Marco Lawyers. Service on the 218 Trustee has not been effected.
On 18 July 2014, the matters were listed before me. None of the served defendants appeared. An affidavit of service was put into evidence, deposing to the service of the documents.
After the matter had been mentioned in court, but before the applications were dealt with substantively, the plaintiffs’ solicitor contacted De Marco Lawyers. He then gave sworn evidence of a telephone conversation he had with Joseph De Marco (“De Marco”) to the effect that he had told De Marco that the plaintiffs intended to seek final relief in accordance with the originating process, together with relief on the interlocutory process, in the absence of any appearance by B Cufari, BGC Global and Postcode Lygon. De Marco responded by saying words to the effect that he had no instructions to appear.
C. Principal relief sought
On 18 July 2014, after some discussion, the orders to be sought presently on the originating process were limited to B Cufari's removal as a director of Postcode Lygon, and Solanki's appointment as a director in his stead.
As counsel for the plaintiffs had not anticipated moving the court for final relief, consideration of that issue, together with the interlocutory application, was adjourned to today.
Principally, Solanki contends that B Cufari's conduct of Postcode Lygon's affairs, in his capacity as its sole director and as a member, is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members, whether in that capacity or in any other capacity in accordance with s 232 of the Act, so as to enliven the court's jurisdiction to make orders pursuant to s 233. Solanki also alleges breaches of duty in B Cufari’s role as a director. Access to certain financial records is sought by reason of B Cufari’s conduct.
D. Background
D.1 218 Lygon Street
In December 2007, Solanki migrated to Melbourne from Fiji with her 2 children, following a divorce. In her divorce settlement, Solanki was given 2 neighbouring apartments at Southbank, numbered 275 and 276. Neither apartment was encumbered and, according to Solanki, each was worth approximately $1 million.
Solanki's only source of income then was the rent she received from apartment 276, which had been rented to B Cufari before Solanki arrived in Melbourne. Solanki and her children lived in apartment 275.
In January 2008, Solanki first met B Cufari as her tenant and neighbour. B Cufari told Solanki he was a property developer and had built several housing developments in Melbourne through his company, B & M Property Developments Pty Ltd (“B & M Property”).
B Cufari became a friend and over time started to advise Solanki. Solanki was looking for a job. She had little money. B Cufari suggested to Solanki that, instead of finding a job, she should invest in his next building project at 218 Lygon Street, Brunswick East (“the 218 Development”).
B Cufari said the investment would give Solanki the same or even a higher monthly return than what she could earn by taking on a full-time job. B Cufari said that Solanki would be able to stay at home and concentrate on looking after her 2 children with income from her investment with him. Further, B Cufari suggested that Solanki could raise a loan of $650,000 against apartment 276 (that he was still renting[1]) and invest that money in his project. B Cufari said he would have a joint venture agreement drawn up by his lawyers to protect her investment and, accordingly, she could be reassured that her return would be as per his promise.
[1]B Cufari remained at apartment 276 until February 2014.
On 21 July 2009, Solanki and Ud Din executed a trust deed prepared by B Cufari's lawyers entitled the “218 Lygon Street unit trust" (“the Trust”). The 218 Trustee is the trustee of the Trust. The plaintiffs jointly hold 1 of the 2 issued shares in the 218 Trustee. B Cufari's company BGC Global holds the remaining share. B Cufari is BGC Global’s sole director and shareholder.
On 10 August 2009, Solanki paid $600,000 to the 218 Trustee. Solanki mortgaged apartment 276 in order to raise those funds. In exchange for the payment of $600,000, the plaintiffs jointly received 1 A class unit in the Trust. In exchange for a payment of $1, BGC Global received 1 B class unit.
On or about 21 September 2009, Solanki entered into a loan agreement with B & M Property, pursuant to which Solanki lent $50,000 to be applied to the 218 Development. B Cufari guaranteed repayment of the loan.
The terms of the trust deed for the Trust expressly contemplated that the 218 Development would proceed in accordance with the terms of a joint venture agreement to be executed between the Trust’s unit holders. On 21 October 2009, the unit holders, namely, BGC Global, Solanki and Ud Din, entered into a joint venture agreement (“the Previous Joint Venture Agreement”). Clause 8.6 of the trust deed provided that a class A unit entitled the unit holder to share in the distribution of the proceeds of the Trust as described in the Previous Joint Venture Agreement. Pursuant to the Previous Joint Venture Agreement, the returns to be made to Solanki were fixed, namely:
(1)$2,000 per week deducted off a total of $680,000; plus
(2)$600,000, being repayment in full of her initial investment, totalling a return of $1.2 million.
Clause 3.1 of the Previous Joint Venture Agreement provided that the 218 Trustee shall be responsible for supervising, managing and coordinating the 218 Development and would, amongst other things, ensure the maintenance of correct accounts and records of the joint venture activities in accordance with procedures, accounting standards and generally accepted accounting practice.
The 218 Trustee engaged BGC Global to manage the 218 Development and to hold all titles to the constructed units on trust on behalf of the 218 Trustee. BGC Global purchased the property at 218 Lygon Street and commenced the development of the site in purported performance of the Previous Joint Venture Agreement and the terms of the trust deed.
The 218 Development was completed in December 2012. Between 10 August 2009 and October 2013, $241,500 was paid to Solanki. These payments then ceased despite the terms of the Previous Joint Venture Agreement and B Cufari's assurances to the effect that she would be paid. Obviously, the returns to Solanki were insufficient to repay the principal borrowed pursuant to the mortgage she had entered into to provide the funds used for the 218 Development. No payments have been made to Solanki since October 2013.
In late 2013, B Cufari told Solanki that the proceeds of sale of the units were insufficient to pay out registered mortgagees that had provided funds for the 218 Development. B Cufari told Solanki that he was only able to pay out his 2 brothers from the proceeds of sale of the units, being Frank Cufari (“F Cufari”) and Pasquale "Pat" Cufari (“P Cufari”), because B Cufari had borrowed money from them.
This was the first occasion that Solanki had heard that B Cufari had borrowed money from his brothers. Solanki asked him for details of the amounts borrowed from the brothers and the amounts that had been paid to them. B Cufari refused to give that information. B Cufari told Solanki "not to worry", that her money would be repaid to her out of sales of a development at 32-34 Lygon Street, Brunswick East (“the Development”) and that if she wanted to recover the amount of her investment in the 218 Development, Solanki would have to “roll” her investment into the Development.
On numerous occasions, Solanki asked B Cufari to provide her with a full accounting of income and expenditure for the 218 Development so that she could see exactly where the money had gone. However, apart from "a few scratchy notes" on pieces of paper, B Cufari never provided Solanki with the information requested.
D.2 32-34 Lygon Street
In October 2009, Solanki, B Cufari and Postcode Lygon entered into a joint venture agreement for the development of the land at 32-34 Lygon Street, Brunswick East (“the Property”).
On 20 October 2009, Solanki borrowed the sum of $580,000 from Owenlaw Mortgage Managers Limited (“Owenlaw”) and granted a mortgage to Owenlaw (“the Owenlaw Mortgage”) over her apartment 275 to secure that loan. On that date, the loan funds were paid to Postcode Lygon and, according to Solanki, were to be applied by Postcode Lygon to the Development.
Around 27 April 2012, Solanki varied the Owenlaw Mortgage by increasing the borrowings by a further $120,000 (that is, from $580,000 to $700,000) and also by extending the repayment date to 28 March 2014.[2] Solanki made a further loan to Postcode Lygon of $108,000 on 28 April 2012 from those additional funds.
[2]By this date, the Owenlaw Mortgage had been transferred from Owenlaw to Owenlaw Trust Limited.
Postcode Lygon duly purchased the Property.
In summary, over the period between 10 August 2009 and 28 April 2012, Solanki has paid a total of $1,338,000 towards the 218 Development and the Development as follows:
(1) $600,000 paid on 10 August 2009 to be applied to the 218 Development.[3]
[3]See par 19 above.
(2) $50,000 paid on 21 September 2009 to be applied to the 218 Development.[4]
[4]See par 20 above.
(3) $580,000 paid on 20 October 2009 to be applied to the Development.
(4) $108,000 paid on 28 April 2012 to be applied to the Development.[5]
[5]It is unclear, from the evidence before the court, as to whether the remaining funds borrowed by Solanki from Owenlaw (which total $12,000) were applied to the Development. If those funds were so applied, the total amount contributed by Solanki to the 218 Development and the Development is $1,350,000.
Since October 2009, B Cufari has been, and remains, Postcode Lygon’s sole director. B Cufari and Solanki are Postcode Lygon’s equal and only shareholders. There is no trust as part of Postcode Lygon’s arrangements.
On 26 October 2009, Solanki, B Cufari and Postcode Lygon entered into a joint venture agreement (“the Joint Venture Agreement”). Pursuant to cl 2.1 of the Joint Venture Agreement, the joint venturers were to participate as equal shareholders in Postcode Lygon for the purpose of facilitating the "Project", namely the development of the Property on the terms and conditions set out in the Joint Venture Agreement.
Pursuant to cl 3.1 of the Joint Venture Agreement, Postcode Lygon appointed BGC Global to manage the Project.
Pursuant to cl 3.4 of the Joint Venture Agreement, B Cufari's obligations as Postcode Lygon's sole director were, amongst other things, to:
(1) Ensure that Postcode Lygon performed its obligations under the “Project” and the Joint Venture Agreement.
(2) Ensure that Postcode Lygon did not "Dispose" of or deal with any right, title or interest held by Postcode Lygon in the Property or under the Project, without the prior written consent of the joint venturers.
The words "Dispose" and "Disposal" were defined in the Joint Venture Agreement. Relevantly, they were defined to mean, in relation to the Property, to sell, transfer, assign, create a security interest over, to declare oneself a trustee of, or part with the benefit of, or otherwise dispose of the Property (or any interest in it or any part of it).
As part of the arrangements pursuant to which Solanki borrowed moneys to be invested in relation to the Property, B Cufari personally guaranteed the further loan of $580,000 and told Solanki that he would make the monthly interest payments on the loan with the principal to be repaid from the sale of the units in the Development.
A number of interest payments of $5,600 per month were paid by B Cufari to Owenlaw. However, B Cufari told Solanki in December 2013 that no more payments would be made unless she withdrew caveats lodged over the Property. Caveats had previously been lodged by Solanki in order to protect her interests (“the Caveats”). The Caveats remain in place to this day.[6]
[6]Sylina Pty Ltd v Solanki [2014] VSC 2.
As a result of B Cufari's change of position, Solanki’s loan fell into default and Owenlaw started to charge Solanki interest at a default rate, which required monthly payments of $8,000. Solanki was forced to refinance that loan with Westpac Bank. Since then, she has been meeting monthly interest payments on the Westpac loan, which, to this point, total approximately $30,000.
Postcode Lygon has borrowed $4,498,000 from Owenlaw and other amounts from a 2nd mortgagee, Double David Pty Ltd, and a 3rd mortgagee, Sylina Pty Ltd (“Sylina”). Each of these entities holds a registered mortgage over the titles to the Property. Solanki is uncertain as to the total amounts of moneys borrowed by Postcode Lygon in relation to the 2nd mortgage and the 3rd mortgage, as, despite numerous requests by her, B Cufari has never provided her with precise figures or satisfactory supporting documentation.
Sylina is a company owned and controlled by P Cufari. In or about October 2013, B Cufari said to Solanki that there would be no funds available after the sale of the units at the Property to pay her or to repay her loan, and that, in order for her to recover her investments in both the 218 Development and the Development, she would need to “roll” her investments into his new project in Northcote.
B Cufari also said that he was now "out of" the Development and that his brother P Cufari had taken over. Understandably, this caused Solanki significant alarm. Despite Solanki's further request, B Cufari has not provided her with any meaningful documentation in respect of any of these matters. On a later occasion, B Cufari stated that his brother, P Cufari, “now owns” the Development. Again, no explanation was given when sought by Solanki.
Many requests for relevant information have been sought by Solanki from B Cufari over many months. The details are set out extensively in the affidavit in support.[7] It is unnecessary to recount the unsatisfactory responses. Perhaps the best illustration of B Cufari’s attitude is a text message he sent to Solanki on 16 May 2014 in which B Cufari stated, in substance, that he was the sole director and secretary of Postcode Lygon and that he could, therefore, do anything he liked. The message also stated that Solanki was just a shareholder, that she should stop interfering, that she was not to make any further contact with the 1st and 2nd mortgagees and that he would instruct them not to give her any further information.
[7]Affidavit of Solanki sworn 23 June 2014.
The already significant concerns of Solanki were heightened even further when, in June 2014, she became aware of the fact that Sylina was acting as a trustee for a family trust in which B Cufari had an interest as a beneficiary. At the same time, Solanki also received information which suggested that B Cufari may have used some of the funds raised from the mortgage with Sylina to pay his private debts. In these circumstances, Solanki has sworn that any trust she once had in B Cufari is now gone.
E. Obligations and duties of B Cufari
The contractual obligations owed by B Cufari, as set out above,[8] are in addition to the specific statutory duties he owed.[9] The statutory duties owed by B Cufari as a director included:
(1)In the exercise of his powers and the discharge of his duties, to at all times act in good faith, in the best interests of Postcode Lygon and for a proper purpose.[10]
(2)Not to make improper use of his position to gain an advantage for himself or someone else, or to cause detriment to Postcode Lygon.[11]
[8]See par 36 above.
[9]The Act, s 185.
[10]The Act, s 181.
[11]The Act, s 182.
In Australian Securities and Investments Commission v Adler,[12] Santow J summarised the principles applicable to the statutory duties imposed by ss 181 and 182 of the Act, which included the following:
(1)a director (as a fiduciary) is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances where there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the company.[13] This is both at general law and by statute (s 181 and as applicable ss 182 and 183). Such promotion would not be to act in good faith in the best interests of the corporation, or for proper purposes: s 181. If the director has improperly used his position or information to gain such advantage ss 182 and 183 respectively are breached;
(2)in order to assess whether or not there is a real sensible possibility of conflict one must adopt the position of the reasonable person looking at the relevant facts and circumstances of the particular case …[14]
[12](2002) 41 ACSR 72, 232 [735].
[13]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 103.7 (Mason J).
[14]Boardman v Phipps [1967] 2 AC 46, 124B (Lord Upjohn); Queensland Mines Ltd v Hudson (1978) 18 ALR 1, 3.7 (Lord Scarman).
F. B Cufari's breaches of duty
In September 2012, B Cufari caused Postcode Lygon to enter into a loan agreement with Sylina. Postcode Lygon also gave a mortgage over the Property as security for the repayment of that loan. Those arrangements were made without Solanki's knowledge. Accordingly, the transactions entered into were in breach of the express terms of the Joint Venture Agreement.[15] Solanki was not aware of these arrangements until December 2013 or early January 2014, when Sylina applied to the court to have the Caveats removed.
[15]See par 36 above.
It is plain on the facts set out above that there was clearly a conflict of interest or a real or substantial possibility of a conflict of interest between B Cufari's personal interests on the 1 hand, and those of Postcode Lygon and Solanki on the other, in engaging in this transaction in September 2012. This conclusion arises from the following:
(1) Sylina is a company controlled by P Cufari.
(2) Sylina is the trustee company of the Sylina Family Trust No 2.
(3)The terms of the trust deed of the Sylina Family Trust No 2 provide that B Cufari, as P Cufari's brother, is within the class of beneficiaries under that trust.
(4) The trust is discretionary.
(5)B Cufari is potentially entitled to a distribution of the trust fund in the exercise of the trustee's discretion.
(6)As noted above, B Cufari, in breach of cl 3.4 of the Joint Venture Agreement, “disposed” of Postcode Lygon's interest in the Property by mortgaging it to Sylina, without Solanki's knowledge. (The terms of the mortgage between Postcode Lygon and Sylina are not before the court.)
Solanki has a well-founded fear that any profits otherwise returnable to Postcode Lygon and to her as a shareholder and a joint venturer may be siphoned off by B Cufari under the guise of loan repayments to Sylina (and may possibly be returned to him via a distribution under the trust).[16]
[16]On 9 May 2014, a statement of adjustments sent to Solanki’s solicitors proposed that part of settlement proceeds be paid to Sylina in preference to the 1st and 2nd mortgagees.
Solanki's concerns are understandably amplified by:
(1)B Cufari's persistent refusal to provide access to Postcode Lygon's financial records and books of account, together with a failure to provide any cogent explanation of the financial position of Postcode Lygon.
(2)The undisclosed involvement of B Cufari's brothers, P Cufari and F Cufari, in the 218 Development, which, according to B Cufari, also failed to return a profit.
(3)The suggestion by B Cufari that Solanki "roll” her investment in Postcode Lygon and the Development into a further development project B Cufari is involved in in Northcote, being undertaken by the Cufari brothers, following a like suggestion at the completion of the 218 Development, is suggestive of a pattern of behaviour to “string her along”.
In addition, B Cufari has taken the same attitude to providing information to Solanki in relation to the Development that he took in relation to the 218 Development. He continually refuses to provide any meaningful response to requests for information.
On the evidence it is irrefutable that B Cufari has breached an essential term of the Joint Venture Agreement concerning his obligations as a director and has not acted in accordance with his statutory duties as a director.
G. B Cufari’s oppressive conduct
G.1 The principles
The language and history of s 232 of the Act[17] and its predecessors indicate the section is to be read broadly.[18]
[17]See par 3 above.
[18]Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 330-331 [61]-[65], 334 [72] (French CJ), cf 360 [176] (Gummow, Hayne, Heydon and Kiefel JJ); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 675 [4] (Spigelman CJ), 763 [527] (Priestley JA).
For the purposes of s 232(a), amongst other sections, “affairs” is non-exhaustively defined[19] in s 53 of the Act to include “control, business, trading, transactions and dealings … of the body”.[20] The definition provides “an expanded identification” [21] of “affairs”, which includes the “internal management and proceedings of the body”.[22]
[19]This observation was made in Australian Securities Commission v Lucas (1992) 36 FCR 165, 184.3 (Drummond J), where it was said that “the concept of the affairs of a corporation is a very wide one indeed”.
[20]Section 53(a).
[21]Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 359 [173] (Gummow, Hayne, Heydon and Kiefel JJ).
[22]The Act, s 53(c).
The words “contrary to the interests of the members as a whole” in s 232(d) may overlap with the conduct referred to in s 232(e), however, the words must be given a separate and independent operation.[23] In short, the language is not confined to “commercial unfairness” as that term is understood by reference to s 232(e).[24]
[23]Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, 400 [182] (Basten JA), referring with approval to Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44, 52 [32] (Campbell J); see also 430-431 [363]-[364] (Young CJ in Eq).
[24]Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44, 54 [39] (Campbell J).
The phrase in s 232(e) “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member” is to be viewed as a whole to ascertain whether there has been a degree of commercial unfairness that would justify the court making an order under the section.[25]
[25]Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459, 472.7-473.3 (Brennan J); see also 467.8-468.2 (Mason ACJ, Wilson, Deane and Dawson JJ); Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704.4 (Young J) (referred to with approval in Joint v Stephens [2008] VSCA 210, [135] (Nettle, Ashley and Neave JJA)).
The task of determining whether or not there has been commercial unfairness must be considered in the context of the particular relationship in issue, which will not infrequently involve a balancing exercise between competing considerations, including examination of the conduct of the applicant.[26] The mere fact that there are irreconcilable differences between the parties is not sufficient to establish oppressive conduct.[27]
[26]Joint v Stephens [2008] VSCA 210, [136] (Nettle, Ashley and Neave JJA), referring to Austin and Ramsay, Ford’s Principles of Corporations Law, 13th ed. [11.450], [137] referring to Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 706.9 (Young J).
[27]Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 84 ACSR 121, 193 [331(B)] (Young JA); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 687-689 [89]-[104] (Spigelman CJ).
In summary, the authorities make it clear that the court must carefully consider the conduct of both applicant(s) and respondent(s) before making any determination about first, whether the section has been contravened and, secondly, if so, whether, and what, relief ought to be granted.
Relevantly, decisions made by the board of a company for the benefit of related companies or for the benefit of certain shareholders, and which are not in the best interests of the company, may amount to oppressive conduct under s 232 of the Act.[28] Further, a denial or refusal to provide access to the books and records of the company may, similarly, amount to oppressive conduct.[29]
[28]See, for example, In the matter of Companies (Western Australia) Code and in the matter of Spargos Mining NL (1990) 3 WAR 166, 190.5–193.3 (Murray J); Re Bright Pine Mills Pty Ltd [1969] VR 1002, 1008.8-1013.5 (Full Court).
[29]Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 74 ACSR 282, 308 [77] (Davies J).
G.2 Application to the facts
It is abundantly clear, from the matters set out above,[30] that the affairs of Postcode Lygon have been conducted by B Cufari contrary to the interests of the members as a whole and in a manner which is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member of Postcode Lygon. The elements of s 232 have been satisfied.
[30]See pars 48-53 above.
B Cufari's procurement of the secured loan agreement with Sylina, in circumstances where he gained a potential collateral benefit, and, it appears, also a direct personal benefit, constituted conduct that was either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members, whether in that capacity or in any other capacity.
Further, the fact that B Cufari refuses to provide any meaningful information concerning the financial affairs of Postcode Lygon, including its dealings with Sylina, means that some of the relevant conduct is ongoing. Without some relief being ordered by the court, there appears to be little doubt Solanki will continue to be deprived of information concerning Postcode Lygon and will be shut out of the management of that company.
Significantly, there is no evidence of any conduct by Solanki before the court which might suggest that, in all the circumstances, B Cufari’s conduct in the affairs of Postcode Lygon could not properly be characterised as oppressive or that relief ought not be granted.
H. Extent of the court's powers
The power conferred by s 233 is to "make any order under this section that it considers appropriate in relation to the company". As was noted by Campbell J in Turnbull v NRMA:[31]
That is a power conferred in extremely wide terms, which would be confined as a matter of construction only to the extent that the scope and purpose of the statutory enactment may enable the court to see that some exercises of the power would be definitely extraneous to any objects the legislature could have had in mind.
[31](2004) 50 ACSR 44, 54 [42].
The power includes the power to remove and appoint directors.[32]
[32]In the matter of Companies (Western Australia) Code and in the matter of Spargos Mining NL (1990) 3 WAR 166, 195.9 (Murray J). See also, Re Hua Cheng Property Pty Ltd [2014] NSWSC 533, [107] (Lindsay J).
Relief
I.1 Removal of B Cufari and appointment of Solanki
In the circumstances, it is important the management of Postcode Lygon should be undertaken by someone who has no possibility of obtaining a collateral benefit from a relationship with Sylina. This is particularly so as the ongoing sales of units within the Development fall due for settlement and decisions must be made concerning the application of the settlement funds. There are still a number of units to be sold.[33]
[33]One of the units not sold is apartment 202. B Cufari has been living in this apartment since February 2014 when he moved out of apartment 276, owned by Solanki. As far as Solanki is aware, B Cufari has not been paying rent to live in apartment 202.
At this point in time, at least, Solanki has submitted that the appointment of a receiver and manager is not desirable. This is put not only on the basis of the costs involved, but also because it would be likely to trigger the default provisions in security documents with possible adverse consequences for Postcode Lygon. The court has not been taken to the relevant security documents; however, this does seem to be a likely consequence of any such appointment. In any event, at least presently, the court will not make this form of order.
The removal of B Cufari as a director will allow Solanki to conduct the affairs of Postcode Lygon in a manner consistent with the interests of all the members. Given the very unfortunate history of this matter, in my opinion, anything less than the removal of B Cufari is likely to result in the affairs of Postcode Lygon being conducted to the exclusion of Solanki as a member of the company.
However, the removal of B Cufari will not necessarily ensure that Solanki will have access to all the relevant information required to properly conduct the affairs of Postcode Lygon.
I.2 Access to books and records
In the interlocutory process, the plaintiffs seek certain orders or directions pursuant to s 247A of the Act for access to financial records of Postcode Lygon. Further, the plaintiffs seek orders or directions, pursuant to s 290 of the Act, for access to the financial records of the 218 Trustee and the Trust.
Section 247A of the Act provides that, on application by a member of a company, the court may make an order authorising the member, or another person on her or his behalf, to inspect the books of the company. The “books” of a company include its financial records.[34] When making such an order, the court must be satisfied that the member is acting in good faith and for a proper purpose.[35]
[34]The Act, s 9.
[35]As to the approach the court should adopt see, for example, Acehill Investments Pty Ltd v Incitec Ltd (2002) 233 LSJS 97, 105 [29] (Debelle J).
Solanki is a shareholder of Postcode Lygon.[36] Further, Solanki is seeking access to the books of Postcode Lygon in circumstances where B Cufari has refused to provide meaningful or complete information in relation to the Development to Solanki over an extended period of time, despite repeated requests. In those circumstances, I am satisfied that Solanki is acting in good faith and would inspect the books of Postcode Lygon for a proper purpose. Accordingly, the court will make orders for the provision of the books of Postcode Lygon pursuant to s 247A of the Act.
[36] See par 33 above.
Further, s 290(1) of the Act provides that a director of a company has a right of access to the financial records at all reasonable times. Pursuant to s 290(2) of the Act, the court may, on application by a director, authorise a person to inspect the financial records on a director’s behalf.
While Solanki is, and has at all times been, a director of the 218 Trustee, that company is yet to be served. Accordingly, I will refrain from making the orders sought by the plaintiffs for access to the financial records of the 218 Trustee and the Trust. Once service of the 218 Trustee is effected, the plaintiffs, if so advised, may seek orders for access to information in the future.
For completeness, the court also has power under the Civil Procedure Act 2010 (Vic) to make orders requiring Solanki be given access to the financial records of Postcode Lygon. Since late 2013, Solanki and B Cufari have been in dispute in relation to the Development and the affairs of Postcode Lygon in that regard. The documents sought may properly be described as documents critical to the resolution of the dispute.[37]
[37]Civil Procedure Act, ss 8 and 26.
J. Other matters
The plaintiffs have sought further relief, including declaratory relief against the defendants. I propose to adjourn the hearing of the proceeding to a date a few weeks hence, in case any further relief might be sought in the future. I will also grant liberty to apply.
In the meantime, orders will be made in accordance with the reasons above.
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