Territory Realty Pty Ltd v Garraway

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FEDERAL COURT OF AUSTRALIA

Territory Realty Pty Ltd v Garraway [2009] FCA 292

CORPORATIONS – Articles gave pre-emptive rights to existing members in proposed share transfers – shares to be transferred to non-member – transferee of legal title in shares to member to avoid concern about pre-emptive rights – beneficial owners of shares deliberately not made apparent – construction of Articles – whether share transfers inconsistent with pre-emptive rights in Articles – subsequent share transfers – whether failure to assert pre-emptive rights under Articles once aware of earlier share transfers amounts to acquiescence or election – whether participating in conduct of company amounted to election to deal with new shareholders – whether waiver of pre-emptive rights under Articles

CORPORATIONS – whether intentional and wrongful interference with contractual relationship by procuring or participating in breach of contract between members constituted by Memorandum and Articles

CORPORATIONS – various dispositions of assets made and series of decisions and implementation of those decisions in conduct of company – capital raising by share issue accompanied by offer to minority shareholders at substantial undervalue – whether conduct of company contrary to interests of members as a whole, or oppressive to or unfairly prejudicial to or unfairly discriminatory against applicants – whether amounts to oppressively conducting affairs of company within meaning of s 232 of Corporations Act 2001 (Cth)

CORPORATIONS -  misleading and deceptive conduct – whether statements associated with share transfers and conducting affairs of company amounts to misleading and deceptive conduct contrary to Consumer Affairs and Fair Trading Act (NT)

LIMITATION OF ACTIONS – extension of time – breach of contract, claim for damages for tort of intentionally interfering with contractual relations and misleading and deceptive conduct claims out of time under Limitation Act (NT) – whether extension of time appropriate – whether material fact ascertained within 12 months of institution of proceedings – whether failure to institute proceedings within limitation period resulted from representations or conduct of respondents, and whether such failure was reasonable in view of representations or conduct

Companies Ordinance 1963 (NT)
Corporations Act 2001 (Cth) s 232, 233
Planning Act (NT)
Consumer Affairs and Fair Trading Act (NT)
Limitations Act (NT)

Lennard’s Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705
A/S Rendal v Arcos Ltd [1937] 3 All ER 577
Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199
Lyle & Scott Ltd v Scott’s Trustees [1959] AC 763
Hunter v Hunter [1936] AC 222
Hagan v Waterhouse (1991) 34 NSWLR 308
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Adelaide Building Co Pty Ltd (in liq) v ABC Investments Pty Ltd (1990) 8 ACLC 445
Safeguard Industrial Investments Ltd v National Westminster Bank Ltd [1981] 1 WLR 286
Safeguard Industrial Investments Ltd v National Westminster Bank Ltd [1982] 1 WLR 589
Orr v Ford (1989) 167 CLR 316
Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1
Sargentv ASL Developments Ltd (1974) 131 CLR 634
Commonwealth…

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Details
Case
[2009] FCA 292
Decision Date

CaseChat Overview and Summary

In the case of Territory Realty Pty Ltd v Garraway, the primary issue was whether the conduct of the board of directors of Dundee Beach P/L, and consequently the company itself, was oppressive or unfairly prejudicial to Territory Realty, a minority shareholder. The dispute centered on various actions taken by the board, including the issuance of new shares and the offer to purchase Territory Realty’s shares at a price deemed grossly unfair by the latter. Territory Realty argued that these actions amounted to oppressive conduct under sections 232(d) and (e) of the relevant statute. The court had to determine if the decisions made by the board were unreasonable, oppressive, or unfairly prejudicial, particularly focusing on the 2007 share issue and the buyout offer made to Territory Realty.

The court examined the nature and context of the board’s decisions, particularly those made in 2007, to ascertain whether they fell within the ambit of oppressive or unfairly prejudicial conduct. It found that while some earlier actions did not constitute oppressive conduct, the 2007 share issue and the buyout offer were unreasonable and unfairly prejudicial to Territory Realty. The court concluded that the board’s decisions were made with the intent to procure a buyout at an unfairly low price while simultaneously proposing a capital raising that was not immediately necessary, thereby disadvantaging the minority shareholder. This conduct, according to the court, amounted to oppression under section 232(e).

Following its findings, the court ordered that the matter be stood over to a later date for the making of orders to give effect to the reasons for judgment. This decision highlighted the importance of the board's duty to act in the best interests of all shareholders, particularly minority shareholders, and underscored the court's role in ensuring that oppressive or unfairly prejudicial conduct is appropriately addressed.

Orders

Orders of the court

1. The matter be stood over to a date to be fixed for the making of orders to give effect to these reasons for judgment.

Note:

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

MANSFIELD J
Although Crown Lease Term 2881 was due to expire in August 2008, both Phippin and Mooney proceeded on the assumption that it would be renewed. In the absence of any evidence suggesting the contrary, in my view that was an appropriate assumption to make.(iv) Conclusion as to land value For the reasons I have given, in my judgment the value of the Dundee Beach P/L real estate at 31 December 2007 was as follows:Subdivided stock $ 6,344,400Stage 4 land $ 2,225,000Tourist Commercial land $ 4,400,000__________TOTAL $12,979,400(3) The value of Dundee Beach P/L As at 30 June, the assets of Dundee Beach P/L comprised cash at the bank and a deposit totalling $4,077,554 and its interest in real estate, said to be $226,426. It is common ground that that simply reflects historical cost. Its liabilities totalled $209,956. After deducting the funds paid by Bishop Estate and Excess in subscribing for further shares to the sum of $2,000,000, so as to put aside the 2007 share issue, and adjusting the value of the interest in real estate to the sum I have determined in the preceding section of these reasons, I consider the equity value of Dundee Beach P/L is as follows, as at 31 December 2007:Cash including money on deposit $ 2,077,554Interest in real estate $12,979,400$15,056,954Less liabilities $ 209,956Shareholders’ Equity $14,846,998So each of the 48 shares had a value of (say) $309,312, and the 16 shares held by Territory Realty at that date would have a value of $4,948,992. That calculation adopts the calculation made on behalf of the respondents, except as to the value of the interests in real estate, with one qualification. The respondents have sought to reduce the value of the interests in real estate held by Dundee Beach P/L by the goods and services tax which, they say, will be payable on the realisation of those interests and by the amount of income tax that will be payable on their realisation. The question of GST and income tax being so payable was not addressed in evidence. It emerged only in the final submissions. The applicants acknowledge some allowance should be made for income tax, but only as included in the financial statements. The statement of assets and liabilities of Dundee Beach P/L at 30 June 2007 included a liability for income tax of $206,804 in the total liabilities of $209,956 so – at least to that extent – that liability has already been taken into account. I do not propose to make the further adjustments sought by the respondents. In relation to income tax, I note that the realisation of much of the interests in real estate of Dundee Beach P/L will depend upon the timing of the disposition of those interests and upon the expenditure incurred from time to time in relation to it. I consider it is too speculative to make such a deduction, particularly in the absence of clear evidence from the valuers that such an allowance was an appropriate one or how it would be calculated. It appears to depend on the particular valuation method chosen. Also, I have adopted a date for the valuation of the shares in Dundee Beach P/L which, apart from fixing a different value for the real estate, adopted the figures put forward by the respondents. That included provision for income tax. How that provision was fixed, and what it allowed for, is not clear. The submission in this regard is, in my judgment, not sufficiently founded in the evidence to be accepted.

Ratio Decidendi

Legal Principle Established

Established by: MANSFIELD J

The other conduct which may enliven s 232(d) or (e) referred to in [293] above is, in my view, to be measured in that context. It may be measured against a standard of whether the board’s decisions were so unreasonable that no reasonable board could have considered the decisions to be in the best interests of the company as a whole: Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386. However, that standard may be affected where the allegation (and in this case the finding) is that the conduct complained of is oppressive to, or unfairly discriminatory of, a minority shareholder. For instance, conduct which has the purpose or effect of ensuring that the interest of the minority shareholder is rendered valueless in practical terms may be caught within the web of s 232(e): Kirwin v Cresvale Far East Ltd (2002) 44 ACSR 1; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285.(2) Consideration and conclusion As the applicants acknowledged, it is necessary to consider whether the conduct of Dundee Beach P/L through its board in the four respects discussed at [293] leads to a finding that the conduct of its affairs fell within s 232(d) or (e). I do not consider that the circumstances surrounding the 4 May 1999 share transfers, or those share transfers themselves, provide a reason to attract the operation now of either of those placita. In my view, the effects of that conduct have been spent by the 2003 share transfers and the 2004 share transfers in which the applicants have acquiesced. The reality is that Territory Realty accepted, at least since 2003, that Bishop Estate and Excess are significant shareholders in Dundee Beach P/L and that it is a minority shareholder. The applicants also accepted that the quasi-partnership relationship which existed up to May 1999 did not continue thereafter, albeit that for some years they believed that Hassall personally and through H & K Earthmoving controlled the majority shareholding. There is nothing inherently contrary to the interests of the members as a whole or oppressive or unfairly discriminatory of a minority shareholder that the majority shareholder or shareholders who together operate as a majority (as obviously Bishop Estate and Excess do) should appoint the board and through it conduct the affairs of the company. It is not oppressive to or unfairly prejudicial to, or unfairly discriminatory against Territory Realty that it is a minority shareholder. I have also rejected the proposition that Territory Realty, as a minority shareholder, has (except in the specific respects that I have mentioned) been deprived of the flow of information concerning the affairs of Dundee Beach P/L to which, as a minority shareholder, it was entitled. In my view, however, the 2007 share issue, together with the nature and terms of the offer made on 2 May 2007, do amount to the conduct of the affairs of Dundee Beach P/L in a way which is oppressive to Territory Realty. For the reasons I have given, I am satisfied that the decisions relating to the 2007 share issue, in the context of the more or less contemporaneous decision as to the terms and timing of the offer to purchase the shares of Territory Realty made on 2 May 2007, terminating just before the expiry of the time in which the share issue could be taken up, are so unreasonable that no reasonable board could have considered them to be in the best interests of the company as a whole at that time. Moreover, I find that the effect of those decisions of the majority at that time is unfairly prejudicial to Territory Realty. It was, in essence, to propose capital raising by share issue at the same time as a grossly low buyout figure was proposed to the minority shareholder in circumstances where, at the time, the need for future capital was not immediately apparent and the proposal for the need for future capital was undeveloped and somewhat speculative. I shall not repeat the findings I have made about that. Hence, the 2007 share issue was in the context of the majority shareholders, that is Bishop Estate and Excess, through the board which they had appointed, endeavouring to procure a buyout at a grossly unfair price in the face of the option, which they did not consider that Territory Realty would accept, of a very substantial and premature capital raising proposal. Consequently, whether I apply the “business judgment” test or a test more apt to oppression or unfair discrimination because of the motivation which I attribute to that composite set of decisions, in my view s 232(e) is enlivened.