Victory Projects Pty Ltd v AAA Self Storage Pty Ltd

[2016] NSWSC 1758

Supreme Court

New South Wales

Medium Neutral Citation:	Victory Projects Pty Limited & Anor v AAA Self Storage Pty Limited & Ors [2016] NSWSC 1758
Hearing dates:	23 – 25, 31 August, 1 September, 25 and 28 October 2016
Decision date:	09 December 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Court orders that proceedings be dismissed with costs, and any interlocutory relief previously obtained by the Plaintiffs, or undertakings given to them, be discharged. The parties to bring in short minutes of order to give effect to the judgment within 7 days.
Catchwords:	CORPORATIONS — Oppression claim under ss 232 and 233 of the Corporations Act 2001 (Cth) – where notices of general meetings two companies were issued with the agenda of the meetings being to remove the second plaintiff as director of the companies – where plaintiffs contended that earlier resolutions of the companies had been passed which had the effect that the second plaintiff could not be removed as director – where plaintiffs relied upon the steps to remove the second plaintiff as director and other matters to establish statutory oppression claim – where defendants had made offers to buy out the plaintiffs’ shares in the companies and an offer was still open – whether matters relied upon amount to oppression. CORPORATIONS — Application by plaintiffs for orders for inspection under ss 247A or 290 of the Corporations Act 2001 (Cth) – where evidence did not establish that plaintiffs had been deprived of access to information – whether orders for inspection ought to be made. CORPORATIONS — Membership, rights and remedies — Derivative action — where plaintiffs sought leave to commence proceedings on behalf of two companies against a director of the companies – where issues underlying proposed derivative proceedings could have been but was not canvassed in the oppression proceedings – whether it is in the best interests of companies that the applicant be granted leave in the circumstances.
Legislation Cited:	- Corporations Act 2001 (Cth), ss 9, 53, 232, 233, 237, 241, 247A, 249D, 249E, 249F, 251B, 290, 1322, Pt 2F.1A - Corporate Law Economic Reform Program Act 1999 (Cth) - Companies (NSW) Code, s 320 - Corporations Law, s 260
Cases Cited:	- Belgiorno-Zegna v Exben Pty Ltd (2000) 35 ACSR 305; [2000] NSWSC 884 - Byrne v A J Byrne Pty Ltd [2012] NSWSC 667 - Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 - Chuen v Laredo Pty Ltd [2005] WASC 58 - Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 - Fitzpatrick v Cheal [2010] NSWSC 717 - Grace v Grace [2012] NSWSC 976 - Harding Investments Pty Ltd v PMP Shareholdings - Pty Ltd (No 2) [2011] FCA 567; (2011) 282 ALR 229 - Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586 - John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 - Majestic Resources NL v Caveat Pty Ltd [2004] WASCA 201 - Mathews Capital Partners Pty Ltd v Coal of Queensland Holdings Ltd [2012] NSWSC 462 - McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 - MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367 - Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 - Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 - New South Wales Rugby League Ltd v Wayde (1985) 1 NSWLR 86 - O’Neill v Phillips [1999] 2 All ER 961; [1999] 1 WLR 1092 - Re Akierman Holdings Pty Ltd [2015] NSWSC 1395 - Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568 - Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614 - Re Colorado Products (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 - Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 - Re S & D International Pty Ltd (No 4) [2010] VSC 388; (2010) 79 ACSR 595 - Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 - Thomas v HW Thomas Ltd [1984] 1 NZLR 686; (1984) 2 ACLC 610 - Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 - Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) ACSR 121 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; [2007] 61 ACSR 583 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 - Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459
Category:	Principal judgment
Parties:	Victory Projects Pty Ltd (First Plaintiff) Gerard Francis Kirkpatrick (Second Plaintiff) AAA Self Storage Pty Ltd (First Defendant) Kirco Properties Pty Ltd (Second Defendant) Langwood Pty Ltd (Third Defendant) Portborough Pty Ltd (Fourth Defendant) Anthony Leonard Cooper (Fifth Defendant) Phillip Gregory Prince (Sixth Defendant)
Representation:	Counsel: T J Morahan (Plaintiffs) P Braham SC/M Karam (Defendants)   Solicitors: Haset Sali Corporate Lawyer (Plaintiffs) Deutsch Miller (Defendants)
File Number(s):	2015/219414

Judgment

Background

1. These proceedings were originally commenced by Summons by the Plaintiffs, Victory Projects Pty Limited (“Victory”) and Mr Gerard Kirkpatrick, on 27 July 2015. A Statement of Claim was then filed pursuant to orders made by Bergin CJ in Eq on 4 December 2015, and an Amended Statement of Claim was filed, by leave, on 25 August 2016.

2. By way of background, Victory holds one-third of the ordinary shares in AAA Self Storage Pty Limited (“AAA”) and the Third and Fourth Defendants, Langwood Pty Ltd (“Langwood”) and Portborough Pty Ltd (“Portborough”) each also hold one-third of the ordinary shares in AAA. Mr Kirkpatrick holds one-third of the shares in the Second Defendant, Kirco Properties Pty Limited (“Kirco”) and the Fifth and Sixth Defendants, Messrs Cooper and Prince, each hold one-third of the shares in Kirco. Kirco in turn holds 600,000 Class F redeemable preference shares in AAA. Messrs Kirkpatrick and Cooper are directors of AAA and Messrs Prince, Cooper and Kirkpatrick are directors of Kirco.

The affidavit and other evidence and issues as to credit

3. The Plaintiffs relied on many affidavits in respect of the proceedings, several of which initially appear to have been prepared in respect of applications for security for costs, but which were read in this hearing without any apparent attention being paid to whether they were relevant to it. Large parts of those affidavits were plainly inadmissible, but were pressed over objection, and rejected.

4. The Plaintiffs rely on Mr Kirkpatrick’s affidavit dated 26 July 2015 which referred to the shareholdings in AAA and Kirco, the history of a self-storage business operated by AAA in Hobart, to which I will refer below, and the circumstances in which resolutions for removal of Mr Kirkpatrick as a director of AAA and Kirco were proposed by the Defendants. The Plaintiffs also relied on Mr Kirkpatrick’s further affidavits dated 11 September 2015, 21 September 2015, 23 September 2015, 23 October 2015, 26 February 2016 and his two affidavits dated 26 April 2016 in response to the affidavit evidence of Messrs Cooper and Prince respectively. The Plaintiffs also relied on a further affidavit of Mr Kirkpatrick dated 13 October 2016, parts of which were admitted in reply to Mr Cooper’s evidence, and other parts of which were not admitted, so far as they sought to raise new issues, late in the trial and after the Plaintiffs’ case had closed.

5. I will refer to important aspects of Mr Kirkpatrick’s evidence in outlining the chronology of events below. Mr Braham, who appeared for the Defendants, squarely put to Mr Kirkpatrick that aspects of his affidavit evidence was invented and false. It is not necessary to go that far for the purposes of determining this case, although I do find that the inconsistencies in Mr Kirkpatrick’s evidence to which I refer below are such that his recollection of events is unreliable, whether because he is mistaken, or because he has reconstructed these events, or possibly because he has tailored his evidence to the result for which he contends.

6. The Plaintiffs also relied on the affidavit of Ms Karen Kirkpatrick, Mr Kirkpatrick’s wife, dated 21 September 2015 which contains several paragraphs in substantially identical form to Mr Kirkpatrick’s affidavit of 11 September 2015. Mr Kirkpatrick accepted in cross-examination that his wife had read his affidavits before he swore them (T97–98). He also accepted that his wife had supplied dates and information that was required for his affidavits, including information held on computer which she could access more easily than he could (T98). Mr Kirkpatrick’s evidence in cross-examination was that he had not reviewed Ms Kirkpatrick’s affidavit before she swore it (T98); that is not inconsistent with the identical form of the affidavit evidence, if Ms Kirkpatrick or the solicitor acting for the Plaintiffs had copied her affidavit from Mr Kirkpatrick’s affidavit. Mr Kirkpatrick accepted that he had read his wife’s affidavit after she swore it and had had access to his wife’s affidavit before he swore his affidavits of 26 April 2016 (T99).

7. The extent to which the evidence of Mr Kirkpatrick and Ms Kirkpatrick provides any corroboration of the other’s evidence is undermined by those matters, and by the evidence of the Plaintiffs’ solicitor, Mr Sali, that Mr Kirkpatrick and Ms Kirkpatrick had each looked at the information that was put in their respective affidavits and “agreed on the facts” and each had the opportunity to look at the material proffered by the other (T203). That course was inappropriate, as should have been apparent to Mr Sali, for the reasons identified in the cases to which I referred in Re Colorado Products (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [15]ff. The weight that can be given to Ms Kirkpatrick’s evidence, as providing any corroboration of Mr Kirkpatrick’s evidence, is further undermined by the fact Ms Kirkpatrick remained in Court for the substantial part of Mr Kirkpatrick’s evidence, notwithstanding that the risk to her credit of doing so had been identified by Mr Braham in her presence and that Mr Kirkpatrick was cross-examined as to her presence (T175).

8. The Plaintiffs also relied on the affidavit of Mr Kirkpatrick’s solicitor, Mr Sali, dated 27 July 2015 and an affidavit of the accountant for Victory, Mr Poole, dated 22 September 2015. The Plaintiffs also called Mr Andrew Connolly, a barrister who advised AAA in respect of the prospect of proposed proceedings against Belmorta Pty Ltd (“Belmorta”), who gave oral evidence on subpoena. I will refer to Mr Connolly’s evidence in dealing with the question of the Belmorta proceedings below.

9. The Plaintiffs also relied on an investigation report of Mr Thomas Dawson (Ex P1). There were several difficulties with that report, including the fact that Mr Dawson had not complied with the Expert Witness Code of Conduct and that he indicated that he had relied on books and records provided as part of affidavits filed in the proceedings without identifying the particular information relied upon so as to allow the assumptions that he had made to be identified. Mr Dawson also significantly qualified the opinions which he expressed, observing that there had been (Ex P1, Dawson [7]:

“a restriction of time available to prepare and fully investigate the matters, a limited scope as to the areas to be considered, and a limit as to the availability of some of the documentation.”

10. Many of Mr Dawson’s opinions were also expressed in equivocal terms, identifying matters of possibility rather than reaching any conclusion involving the application of his expertise to identified factual assumptions. For example, Mr Dawson identified a possibility that “inflated rates may have been paid to Mr Cooper for time spent performing accounting services” and that there “may be” issues as to the recording of loans to directors, shareholders and associated companies (Ex P1, Dawson [17]–[18]).

11. The Defendants relied on Mr Cooper’s affidavits dated 30 September 2015, 13 April 2016 and 29 August 2016. The latter affidavit addressed the circumstances leading to the issue of redeemable preference shares in AAA, additional contributions made by Mr Prince in an amount of $136,000 from September 2012 to March 2013 and the accounting for those contributions, AAA’s dealings with Power Dekor Flooring Pty Ltd (“PDF”) and the views expressed by Mr Dawson. Mr Cooper was cross-examined at length and I will address aspects of that cross-examination in dealing with particular issues below. Mr Cooper seemed to me to be a careful witness, who was alert to areas which may be adverse to the Defendants’ interests and at times anxious to provide explanations that might assist the Defendants’ interests. However, his evidence was broadly consistent with the contemporaneous documentation, and I generally accept that evidence.

12. The Defendants also relied on Mr Prince’s affidavits dated 12 April 2016 and 30 August 2016. Mr Prince was also cross-examined at some length. Mr Morahan, who appeared for the Plaintiffs, did not make any criticism of Mr Prince’s credit but suggested that his evidence was unsatisfactory in substance (T404). Mr Prince is a grazier by occupation, and his evidence in cross-examination suggested that he paid limited attention to the investment when he made it and essentially left it to Messrs Cooper and Kirkpatrick to run the business (T248). Mr Prince’s recollection of events, including as to the receipt of documents from Mr Cooper relating to the original investment in AAA and Kirco, was significantly less precise in cross-examination than his affidavit evidence of those events (T251ff). It seems to me that the difference between the relatively precise form of Mr Prince’s affidavit and his less precise recollection on cross-examination is an unfortunate, but innocent, consequence of a solicitor having sought to prepare that affidavit with a degree of precision, where Mr Prince in fact had a less precise understanding of events.

13. Mr Prince was also cross-examined as to whether he had seen Mr Cooper’s affidavit before swearing his affidavit and accepted that he had done so. However, as Mr Braham pointed out in closing submissions, Mr Morahan had not shown the affidavit to which he was referring to Mr Prince during that cross-examination. When Mr Braham did so in re-examination, Mr Prince said that he had not seen that affidavit. As Mr Braham points out, that evidence is at least potentially explicable by the fact that Mr Prince had seen an earlier affidavit, sworn by Mr Cooper in support of a security for costs application, which had been sent to him in late 2015 (Mesiti 1.9.16). I consider that Mr Prince had a limited understanding of the relevant issues and a somewhat imprecise recollection of his involvement in them.

14. The Defendants also relied on an affidavit dated 30 September 2015 of their solicitor, Mr Anderton, only parts of which were read, and a further affidavit dated 1 September 2016 of a solicitor, Mr Mesiti, which related to the circumstances in which Mr Prince’s affidavit of 12 April 2016 was affirmed.

Chronology of events

15. I should now set out a chronology of significant events in the matter. In 2003, Mr Kirkpatrick, the late Mr Terrence Kirkpatrick and Mr Cooper became involved in a self-storage business in Hobart. AAA conducted the business, and Kirco held the lease of the premises, owned the fit-out and acted as trustee of a trust known as the Kirco Property Trust (Cooper 13.4.16 [11]–[14]). The Plaintiffs contend that, about 2003, the directors of AAA agreed that work performed by the directors in relation to AAA’s business would be charged and paid at the rate of $40 per hour and that accounting services provided to AAA by Cooper & Associates would also be charged and paid at the rate of $40 per hour. AAA’s Hobart self-storage business was sold to a third party in mid-2009.

16. In early 2009, Messrs Kirkpatrick and Cooper registered a business name “Sydney Mini Storage” and caused AAA to lease two separate premises at 204 and 216 Wyndham Street, Alexandria, to conduct a self-storage business under the name “Sydney Mini Storage”. The premises at 216 Wyndham Street were leased from Belmorta Pty Limited (“Belmorta”). After the entry of the lease, Messrs Kirkpatrick and Cooper formed the view that a director of Belmorta had misrepresented the outgoings of the leased premises to them (Cooper 13.4.16 [19]–[27]). AAA subsequently took legal advice in relation to a potential claim against Belmorta, and one of the issues in dispute between the parties is the circumstances in which that claim was not pursued. I will address that issue below. From 2009 onwards, AAA was under financial stress and depended upon capital injections reflecting amounts received from the subsequent lease of the fit-out of the Hobart premises to the purchaser of the Hobart business, loan funds from Mr Kirkpatrick and Mr Cooper, and subsequent funds received by equity injection and loans from Mr Prince (Cooper 13.4.16 [26]; Ex D1, Tab 4).

17. The fit-out of AAA’s Hobart business was transferred on 30 June 2010 from Kirco to Kirco Investments Pty Ltd (“Kirco Investments”), as manager of the Kirco Investment Syndicate. The syndicate deed for the Kirco Investment Syndicate, dated 28 June 2010, contained specific provisions dealing with the appointment of directors to represent the interests of the parties and the removal of directors, as follows:

“6.1   Each Syndicate Member shall be entitled to act as a Director or to nominate an appointee as Director. In the case of joint Syndicate Members, one director only may be nominated in respect of that joint interest in the Syndicate Capital; …

6.4   A Syndicate Member or his nominee shall not be removed as a Director except by a unanimous resolution of the Syndicate Members. The Syndicate Member who or whose nominee is sought to be removed by such a resolution shall be entitled to be heard at the meeting convened for that purpose but shall not be entitled to vote thereat.”

18. The Plaintiffs plead (ASC [13]) that the transfer of the fit-out of the Hobart premises was effected by Mr Cooper without Mr Kirkpatrick’s knowledge or approval, although that matter was rightly given little attention in the proceedings, given the time that has passed since the sale of that business and the fact that Kirco Investments is not party to the proceedings. Although the Plaintiffs lead extensive evidence as to dealings between Mr Kirkpatrick and Mr Cooper in respect of the Hobart self-storage business, it does not seem to be necessary to reach findings of fact as to the history of that business in any detail, where no issue in respect of that business is to be determined in these proceedings, or could be determined in these proceedings where Kirco Investments is not party to them.

19. The Plaintiffs plead (ASC [25]) that a resolution was passed by Messrs Cooper and Kirkpatrick as directors of AAA, in about 2009, that Messrs Cooper and Kirkpatrick would share the administrative work for the Sydney self-storage business; that all work performed by them would continue under the arrangements agreed in relation to the Hobart business, including that work performed by Cooper & Associates would be charged and paid at the rate of $40 per hour, subsequently varied to $50 per hour, and that all work performed by the directors and Cooper & Associates for accounting services would be credited to the respective directors’ loan accounts. (Mr Cooper and Langwood denied the latter two matters.) The Plaintiffs describe this agreement as the “2009 Administrative Work Agreement”. Little attention was given to that pleaded agreement in the course of the hearing.

20. In June 2010, a loan agreement with Mr Kirkpatrick’s mother, by which Kirco had borrowed the sum of $178,143.41 from Mrs June Kirkpatrick, was also restructured, so that Kirco Investments assumed liability under it, guaranteed by Messrs Kirkpatrick and Cooper. It is common ground between Mr Cooper and Mr Kirkpatrick and the companies associated with them that that amount was initially repayable on 30 June 2014 and that the time for repayment was extended to 30 September 2014. That loan was not repaid on its due date, but Mr Kirkpatrick subsequently caused it to be repaid in the circumstances to which I refer below.

18. In mid-2010, Mr Prince, who was a client of Mr Cooper’s accounting practice, was introduced to provide funding to the Sydney Mini Storage business. Mr Cooper prepared a draft email to Mr Prince and an information memorandum relating to Sydney Mini Storage, and sent it to Mr Kirkpatrick for his comment and approval on 15 August 2010 (Ex D1, Tab 7). It is plain that Mr Kirkpatrick had read the email dated 15 August 2010 and the draft information memorandum carefully, since he identified a typographical error in it, as he fairly accepted in cross-examination (T159). Mr Kirkpatrick confirmed his agreement with the contents of those documents on the same day (Ex D1, Tab 8). Mr Cooper then sent that information memorandum to Mr Prince, with a copy to Mr Kirkpatrick, also on 15 August 2010 (Ex D1, Tab 9). The proposal put to Mr Prince for his investment in Sydney Mini Storage, in the form approved by Mr Kirkpatrick, contemplated that he or his nominee would be entitled to be a director of both AAA and Kirco, since it invited him to advise who would be the director of those entities (Ex D4, Tab 12), and the information memorandum also referred to the appointment of a “nominated party” as a director in the two business entities, AAA and Kirco.

19. Mr Kirkpatrick’s evidence was that he had a conversation with Mr Cooper, prior to Mr Cooper’s email dated 15 August 2010 to Mr Prince and the draft information memorandum sent to Mr Prince, in which Mr Cooper had accepted that Mr Prince would not be a director of AAA. However, that evidence is impossible to reconcile with the fact that, as I noted above, that email and information memorandum, both approved by Mr Kirkpatrick, provided for Mr Prince or his nominee to be a director of AAA. I am unable to accept Mr Kirkpatrick’s attempt to explain that difficulty, in cross-examination, by the fact that that fundamental inconsistency “got past” him when he reviewed the draft information memorandum (T172), notwithstanding his acceptance that he had carefully read that document and the objective evidence that he had read it sufficiently carefully to pick up a typographical error in it. In cross-examination, Mr Kirkpatrick also sought to explain that inconsistency on the basis that the email dated 15 August 2010 to Mr Prince and the draft information memorandum were prepared prior to his discussion with Mr Cooper. However, that explanation was in turn inconsistent with Mr Kirkpatrick’s evidence that the discussion on which he relied had taken place prior to a meeting with Mr Prince (T173), which had in turn taken place before that email and information memorandum was sent. Mr Kirkpatrick’s account of that conversation is also impossible to reconcile with the fact that he later signed the AAA 2010 resolution (to which I refer below) which provided for the appointment of Mr Prince as a director of AAA, the very matter that Mr Kirkpatrick claims he had agreed with Mr Cooper would not occur. In cross-examination, Mr Kirkpatrick initially accepted that he could not explain the inconsistency; when he later sought to do so, that explanation was both difficult to follow and unpersuasive (T174).

20. Mr Kirkpatrick initially gave evidence of a meeting at Sydney on 11 and 12 September 2010 between Messrs Cooper, Prince and Kirkpatrick which discussed “share transfers, business matters, management and staffing, possible name change, proceedings of Directors [sic], working capital and business marketing” (Kirkpatrick 23.9.15 [9]). It is now common ground that a meeting did not then occur, although Messrs Cooper, Prince and Kirkpatrick met once at AAA’s Sydney premises in mid-2010.

21. The parties devoted substantial attention, in affidavit evidence, cross-examination and submissions, to the circumstances in which two resolutions of the directors of AAA and Kirco, purportedly passed at a meeting on 23 September 2010, were signed by Messrs Cooper and Kirkpatrick and as to whether they were signed by Mr Prince. I will address those matters in dealing with the Plaintiffs claim for declaratory relief in respect of those resolutions below. Portborough and Mr Prince became shareholders of AAA and Kirco respectively on or about 23 September 2010, on payment of the amount of $300,000 (Ex D1, Tab 12).

22. Mr Cooper’s evidence, on which Mr Kirkpatrick relies, is that AAA’s financial position continued to deteriorate through late 2011 (Cooper 13.4.16 [53]) and that, by September 2012, AAA had moved out of the premises leased from Belmorta but was required to continue paying the rent on those premises, and Mr Cooper’s belief was that the business would fail unless it could secure additional funding (Cooper 13.4.16 [55]). Mr Cooper’s evidence is also that he and Mr Kirkpatrick contributed funds as required to “keep the business afloat” until September 2012 (Cooper 13.4.16 [115]).

23. In late 2013, Mr Kirkpatrick moved overseas for an extended period. Mr Cooper’s evidence is that this reduced Mr Kirkpatrick’s direct involvement in the affairs of the companies, although Mr Kirkpatrick contends that he was able to maintain the same level of administrative involvement in the business from overseas, for example, by remote access to business systems. The arrangements which were available to permit day-to-day management of the storage facility, by remote access, do not seem to me to have been sufficient to allow Mr Kirkpatrick to assume any real responsibility for the larger financial and strategic difficulties then facing AAA and Kirco and I accept Mr Cooper’s evidence that he carried the substantial burden of dealing with a number of those issues, including seeking to assess the loss suffered by AAA for the purposes of its claim against Belmorta; negotiations in respect of a sublease, and attempts to recover funds from PDF (Cooper 13.4.16 [80]–[84]).

24. Mr Cooper’s evidence, on which Mr Kirkpatrick also relies, is that AAA’s financial position remained poor through late October 2014, although it eventually subleased the premises rented from Belmorta to a third party (Cooper 13.4.16 [87]). It is common ground that the business relationship between Mr Kirkpatrick and Mr Cooper significantly deteriorated in late 2014 or early 2015 and has now broken down. Mr Cooper’s evidence, which I accept, is that Mr Kirkpatrick’s relocation to Europe, to which I referred above, was a significant contributor to the breakdown of that relationship, and other contributing factors appear to have included a dispute as to fees claimed by Mr Cooper for dealing with PDF, and a dispute arising from the appointment of Mr Cooper’s partner, Ms Johnstone, as a temporary company secretary in order to execute the sublease with a third party to replace PDF as sublessee in the premises at 216 Wyndham Street Alexandria, to which I will refer below.

25. By a lengthy email dated 20 January 2015 from Mr Cooper to Mr Prince and Mr Kirkpatrick, Mr Cooper advanced a proposal for a third party, a larger self-storage company, to manage the Sydney self-storage business, and reiterated his view that there was no advantage to utilising funds in pursuing the proceedings against Belmorta rather than to ensure the future viability and saleability of the business (Ex D4, Tab 10). Mr Kirkpatrick replied on 21 January 2015, agreeing that the current situation was not workable, attributing blame for that situation to Mr Cooper, and otherwise in argumentative terms. Mr Kirkpatrick there raised the possibility that either Mr Cooper or Mr Kirkpatrick should exit the business. By a further email dated 26 January 2015, Mr Kirkpatrick rejected the proposal that the third party storage operator might manage the business.

26. Between January 2015 and April 2015, Mr Kirkpatrick made payments from an account of Kirco, including to members of his family, totalling $19,400 for work performed by his brother and for the costs of a solicitor who he claimed was engaged on behalf of AAA to seek mediation with Mr Cooper (Kirkpatrick 26.7.15 [37]). I am comfortably satisfied that that solicitor was retained to advance Mr Kirkpatrick’s personal interests in the dispute between the shareholders in AAA, and not in respect of any corporate purpose of AAA, and that payment was not properly made from Kirco’s account.

27. The Defendants led evidence of several offers that they subsequently made to allow the Plaintiffs, the Defendants or both parties to exit the business, including proposals for an auction by which each shareholder would be entitled to bid for the companies’ assets; having a third party accountant value the business; or the Defendants purchasing the Plaintiffs’ shares at an independently assessed value; sale of the business on market. By email dated 29 January 2015, Mr Cooper raised several options which might address the then position, including meetings of shareholders or directors which might “temporarily” resolve the issues by a majority decision, although recognising that that course could leave aggrieved parties, unresolved issues and badly impact the business; placing the entities in voluntary administration, to allow sale of the business on market; or conducting an “in-house” auction, where the shareholders bid for the various business components, to be conducted by the solicitor acting for AAA. By a further email dated 10 February 2015, Mr Cooper raised further possibilities to resolve the position, including that Mr Kirkpatrick could appoint an independent accountant to value the business on his behalf, or choose to have Mr Kirkpatrick’s accountant value the business on his behalf and approach the other shareholders to buy or sell, or the parties could conduct an “in-house auction overseen by a solicitor”, which was the approach favoured by Mr Cooper.

28. Further correspondence followed, involving other proposals for division of the assets of the companies in the business, which did not reach a resolution. By email dated 16 March 2015, labelled “without prejudice” but tendered without objection, Mr Kirkpatrick proposed that he receive a payment of $250,000, and retain the AAA entity, as well as being released from liabilities owing by AAA and Kirco. By email dated 16 March 2015, Mr Cooper responded, indicating his view that the business did not have the value contemplated by Mr Kirkpatrick’s offer and repeating an offer that had apparently previously been made to Mr Kirkpatrick in the amount of $129,397, comprising acceptance of liabilities and a cash component of $36,654. Mr Cooper also provided financial information relating to the business and invited Mr Kirkpatrick to have his accountant review that material.

29. By email dated 17 March 2015, Mr Cooper referred to a further offer made by Messrs Cooper and Prince that both parties would have valuations prepared by their respective accountants and the average of those valuations would be adopted, or that a valuation would be prepared by an independent third party and both parties would be bound to accept it, and confirmed that both of those offers remained open. By another email dated 17 March 2015, Mr Cooper advanced a further offer on behalf of himself and Mr Prince, that the business be put up for sale on market, outstanding liabilities be paid, and the company and trust be wound up. That proposal was also not accepted by Mr Kirkpatrick, who advised by email dated 12 April 2015, that he was prepared to move forward for the business, but only if there was agreement as to how to do that, and was “not interested” in any of the previous proposals that had been put.

30. By a further email dated 1 June 2015, again labelled “without prejudice” but tendered without objection, Mr Cooper put a proposal for him and Mr Prince to exit the business.

31. By notice of general meeting dated 3 July 2015, Mr Cooper sought to call a general meeting of AAA to consider a resolution removing Mr Kirkpatrick as a director of AAA and appointing Mr Prince as a director in his stead (Ex D4, Tab 7) (“AAA 2015 resolution”). A further notice of general meeting also dated 3 July 2015 in respect of Kirco provided for the removal of Mr Kirkpatrick as a director of Kirco (Ex D4, Tab 8), which would have left Messrs Cooper and Prince as the directors of Kirco (“Kirco 2015 resolution”). A resolution was proposed to be passed by Kirco appointing Mr Cooper as its proxy to vote at the meeting of AAA in respect of the resolution to remove Mr Kirkpatrick as a director of AAA (Ex D4, Tab 9). The notices of the 2015 general meetings were despatched by Mr Cooper in his capacity as a director of AAA and Kirco, and the constitutions of AAA and Kirco each provide that any director may convene a general meeting whenever the director thinks fit. That power seems to me to be conferred on a director in an individual capacity, rather than requiring any collective action of the board. That has significant implications for the Plaintiffs’ case that that meeting was convened in breach of the 2010 resolutions, if they had taken effect, to which I will refer below.

32. The parties attended a mediation, after these proceedings had commenced, on 25 November 2015 and were unable to reach agreement at that mediation. By letter dated 27 November 2015, the solicitors acting for the Defendants advanced a proposal to appoint Mr Prince as a third director of AAA, and identified a mechanism by which that could be achieved in accordance with AAA’s constitution, by the removal of Mr Kirkpatrick as a director, on the undertaking that, upon Mr Prince’s appointment, Messrs Cooper and Prince would then resolve to appoint Mr Kirkpatrick as a director and also vote in favour of a resolution that at least 72 hours’ notice would be given of any resolution of the board in relation to any material matter outside of the ordinary course of business. Acceptance of that proposal would have had the result that Mr Kirkpatrick was one of three directors on AAA’s board, and would have reflected the board representation contemplated by the information memorandum originally provided to Mr Prince, the directors’ resolutions which the Plaintiffs contend were passed in September 2010, and the economic interests in the companies. That proposal was rejected by a letter from Mr Kirkpatrick’s solicitor dated 30 November 2015.

33. By letter dated 22 January 2016, the Defendants’ solicitor wrote to the Plaintiffs’ solicitor setting out a comprehensive response to the allegations made in the proceedings. That letter referred, inter alia, to the case law as to the circumstances in which the Court would grant relief under s 233 of the Corporations Act; set out the Defendants’ position in respect of the several issues in dispute; referred to costs already incurred by the Defendants in respect of the proceedings and the likely future costs of the proceedings, including the costs of a final hearing; and made a further offer, subject to the preparation of a formal deed, of the separation of the parties’ interests. The further offer contemplated a payment of $130,000 by the Defendants to the Plaintiffs; that assets of the Sydney mini storage business would be transferred to Kirco; a payment by Mr Kirkpatrick to the Defendants, on the basis that Mr Kirkpatrick would acquire Langwood’s and Portborough’s interests in AAA and be able to pursue the proceedings by AAA against Belmorta; and the distribution of certain monies held on trust in relation to the Kirco Investments Syndicate.

34. By letter dated 3 February 2016, the Plaintiffs made an offer that would have allowed the Defendants to acquire the Plaintiffs’ interests in AAA and Kirco, on terms that the Defendants pay Mr Kirkpatrick’s loan account and that he also receive half of the monies held on trust in respect of the Kirco Investment Syndicate. The Defendants responded to that proposal, in positive terms, by letter dated 22 February 2016 which, not surprisingly, sought clarification of what Mr Kirkpatrick considered was the value of Mr Kirkpatrick’s loan account, which had not been stated in the Plaintiffs’ offer. They indicated that they were prepared to accept that offer if Mr Kirkpatrick’s understanding was that the value of his loan account was the amount recorded as such in the ledgers for AAA and the Kirco Property Trust, and identified further terms for a possible settlement, including an option of an exit price determined by an independent valuer. It appears that offer was subsequently rejected by Mr Kirkpatrick. The most recent offer by the Defendants to purchase the Plaintiffs’ shares and units remains open, and will remain open until three months after judgment is given in these proceedings (Ex D5).

35. Mr Kirkpatrick accepted that he rejected each of the proposals between late January 2015 and June 2015 and explained his reasons for doing so (Kirkpatrick 26.4.16 [100] [102]). It appears that Mr Kirkpatrick’s primary position is that he should be able to purchase the shares of Messrs Cooper and Prince and their associated entities and he is less interested in any arrangement which would bring about a sale of his shares or a realisation of the assets of the business, and he also seeks further disclosure of information in that regard. Mr Kirkpatrick also appears to have an understanding that Mr Cooper is in some way seeking to make him a “minority shareholder” (Kirkpatrick 26.2.16 [45], [55]), although that has the difficulty that he has held only a one-third interest in the companies at least since the point of Mr Prince’s investment in them.

36. On 19 May 2016, the Defendants’ solicitors invited the Plaintiffs, without the need for a court order, to appoint an investigator of their choice to undertake an examination of the financial affairs of AAA and Kirco, in parallel with the proceedings. Mr Dawson was appointed by the Plaintiffs to undertake such an investigation and was provided with access to a substantial quantity of documents of the companies. The Plaintiffs submit that Mr Dawson’s report is “preliminary only” and would not replace the appointment of an inspector or such other investigative relief as the court might order. I will address the relief sought by the Plaintiffs in that respect below.

The effect of the 2010 resolutions

40. The Plaintiffs plead that, on or about 23 September 2010, the directors of AAA, Messrs Cooper and Kirkpatrick, resolved that all major decisions affecting AAA and all financial decisions involving expenditure in excess of $5,000 would not be passed or agreed to without the unanimous resolution of the board of directors (“AAA 2010 resolution”) (ASC [26]). Mr Cooper and Langwood admit that such a resolution was circulated but deny that it was passed. The Plaintiffs also plead that, on or about the same date, the directors of Kirco, Messrs Cooper, Kirkpatrick and Prince resolved, inter alia, that all major decisions affecting Kirco and all financial decisions involving expenditure in excess of $5,000 would not be passed or agreed to without the unanimous resolution of the board of directors (“Kirco 2010 resolution”) (ASC [27]). Mr Cooper and Langwood again admit that such a resolution was circulated but deny that it was passed. The Plaintiffs seek a declaration that the AAA 2010 resolution and the Kirco 2010 resolution prevent the calling of a general meeting of AAA and Kirco which has as its agenda the removal of Mr Kirkpatrick as a director of both or each of AAA and Kirco, unless the calling of that general meeting is by unanimous resolution of the directors of the companies. These matters are also relied on to support the Plaintiffs’ oppression claim, which I will address below.

41. The AAA 2010 resolution (Kirkpatrick 26.2.16 Annexure “B”, CB 244) purported to confirm proceedings of the directors of AAA on 23 September 2010 (although it is plain that no meeting had occurred on that date) and resolved to give effect to an issue of shares that would have the result that there would be a one-third shareholding for each of Langwood, Victory and Portborough; that consideration should be given to further capitalising AAA in the future, with such funds utilised in reducing “internal” debt to the Kirco Property Trust; and that Mr Prince be appointed as a director of AAA, effective immediately. A lengthy further narrative under the heading “Business Matters” appears to have reflected a number of matters set out in the information memorandum that was previously sent to Mr Prince, partly in the form of a narrative rather than resolutions. That narrative recorded a resolution to the effect that:

“Proceedings of Directors

Resolved that all major decisions affecting [AAA] and all financial decisions involving expenditure in excess of $5,000 shall not be passed or agreed to without the unanimous resolution of the Board of Directors.”

That resolution is expressly directed to “proceedings of directors”, and to acts of the board of AAA, and not to the act of a single director exercising a power that may be vested in an individual director under AAA’s constitution.

42. The Kirco 2010 resolution (Kirkpatrick 26.2.16, CB 252, 254) differs from the AAA 2010 resolution, since the first page of the resolutions signed by Mr Cooper and Mr Kirkpatrick also includes a resolution, under the heading “Proceedings of Directors”, that:

“Resolved that all major decisions affecting [Kirco] shall not be passed or agreed to without the unanimous resolution of the Board of Directors.”

That resolution is also expressly directed to the proceedings of the directors acting collectively, as a board, and not the act of a single director exercising a power that may be vested in that director under Kirco’s constitution. The subsequent pages also include a similar narrative outline, again in similar form to the information memorandum that was provided to Mr Prince, which also includes the statement in similar but not identical form to the resolution noted above that:

“Proceedings of Directors

“Resolved that all major decisions affecting [Kirco] in its capacity as Trustee and all financial decisions involving expenditure in excess of $5,000 shall not be passed or agreed to without the unanimous resolution of the Board of Directors.”

That resolution is also expressly directed to “proceedings of directors”, and to acts of the board of Kirco, and not to the act of a single director exercising a power that may be vested in an individual director under Kirco’s constitution.

43. Mr Cooper’s evidence was that the relevant clause in the AAA 2010 resolution and the Kirco 2010 resolution was included as an “afterthought” and to protect Mr Prince’s interests. That evidence was contested by the Plaintiffs. I do not find it necessary to reach a finding as to that matter, where a characterisation of that kind would not impact upon the effect of the resolution, had it been passed. It is common ground that the AAA 2010 resolution and the 2010 Kirco resolution were each signed by Mr Cooper and Mr Kirkpatrick at some point. Messrs Kirkpatrick, Prince and Cooper were each cross-examined at some length as to the signature of these resolutions and whether they were returned to Mr Cooper’s office. The evidence as to this matter was of real significance as to credit, particularly in respect of Mr Kirkpatrick, and I will deal with it at some length.

44. On 15 September 2010, Mr Cooper sent emails to Messrs Kirkpatrick and Prince which attached transfer documents and directors’ resolutions for AAA and Kirco relating to the proposed investment by Mr Prince (Ex D1, Tabs 10–11). Mr Kirkpatrick’s evidence was that his wife had returned the signed transaction documents including the directors’ resolutions to Mr Cooper by express post, although that would not have been consistent with Mr Cooper’s request in his email that the documents be returned with a shorter timeframe to allow them to be provided to Mr Prince (Kirkpatrick 21.9.15 [5]), and Mr Kirkpatrick first annexed copies of the resolutions signed by Mr Cooper to his affidavit dated 26 February 2016. In Mr Kirkpatrick’s affidavit dated 11 September 2015 (paragraph 4), he stated that Mrs Kirkpatrick “drew [his] attention” in 2015 to the AAA 2010 resolution and the Kirco 2010 resolution, and that affidavit plainly implied that Mr Kirkpatrick had previously forgotten the existence of those resolutions. However, Mr Kirkpatrick’s evidence in cross-examination (T109) was, to the contrary, that he had always recalled those resolutions and that the relevant paragraph of his affidavit was simply poorly phrased. Mr Kirkpatrick subsequently denied that he was reminded of the resolution by his wife, notwithstanding the statement to that effect in paragraph 4 of his affidavit dated 11 September 2015 (T163). I am unable to accept Mr Kirkpatrick’s evidence as to these matters.

45. Mr Kirkpatrick’s evidence as to these matters is further weakened by the position taken in paragraph 7 of his affidavit dated 21 September 2015, where he denied Mr Cooper’s evidence that there was no physical meeting convened for the execution of the resolutions and the share transfers, and claimed that such a meeting took place in September 2010. He then varied that evidence in cross-examination, suggesting that such a meeting occurred in July or August 2010 (T167), and explained his earlier evidence by the fact that he had lost emails from his computer and had previously been “convinced” that the meeting had occurred in September 2010 (T168). If that explanation could be accepted, it nonetheless casts significant doubt on the strength of Mr Kirkpatrick’s recollection of the only occasion on which he met with Mr Prince.

46. Mr Kirkpatrick’s affidavit evidence also indicated that the 2010 resolutions reflected his concern to ensure that he was not removed as a director, in part, because his mother had previously advanced funds to the companies. However, that proposition faced the difficulty that Kirco Investments had assumed liability for the loan to Mr Kirkpatrick’s mother in connection with Mr Prince’s investment in AAA, in a rearrangement which was plainly sensible to facilitate that investment without Mr Prince assuming part of that liability. Mr Kirkpatrick did not accept that proposition in cross-examination (T126), although that may have reflected a lack of understanding of the commercial logic of the arrangements, as distinct from a deliberate refusal to acknowledge a matter that he in fact appreciated.

47. In cross-examination of Mr Prince, Mr Morahan sought to establish that the documents sent by Mr Cooper to Mr Prince for signature included the draft board resolutions attached to an email dated 15 September 2010 from Mr Cooper. It was plain from Mr Prince’s cross-examination that he had no real recollection of which documents he had received, and his evidence indicated that he had little interest in the detail of the documentation and paid little attention to it since, as he explained in cross-examination, in respect of the reference to unit transfers referred to in his affidavit, he was “not up in the paper world” (T260). I accept that that was a fair description of Mr Prince’s attitude to the documentation of the transaction. The evidence does not establish that Mr Prince had signed the draft board resolutions. That matter is ultimately of little significance to the outcome of the proceedings, both because he was not then a director of the companies so his signature was not required for the passage of the resolutions, and given the findings that I reach on other grounds below.

48. In support of the proposition that the resolutions took effect, the Plaintiffs also rely on an email dated 9 January 2015 from Mr Cooper to Mr Kirkpatrick (Kirkpatrick 26.2.16, Annexure “A”) which stated that:

“When [Mr Prince] came on board as an investor, he was given a written undertaking by us that he would not be required to contribute any further funds. Since then, he has contributed a further $136,000 at my request, and I am not prepared to go back on my word again.”

Mr Cooper’s evidence was that the “undertaking” referred to in that email was given in the email attaching the information memorandum provided to Mr Prince, which referred to the fact that Messrs Kirkpatrick and Cooper were currently topping up the monthly cash flow to meet operating costs, and indicated they would continue to do so until the break-even point was achieved, and represented that “a new equity partner will not be required to contribute funds for this purpose” and also represented that “no further capital input will be required” on the part of that new equity contributor. A similar statement was contained in the AAA 2010 resolution.

49. Mr Morahan submits that the reference to the “undertaking” in the email dated 9 January 2015 was more probably to the contents of the AAA 2010 resolution than to the statement in the email attaching the information memorandum to similar effect. It seems to me that a board resolution would not ordinarily be described as a “written undertaking” and, at best, the reference to a “written undertaking” could refer either to the statement in the email attaching the information memorandum or to the AAA 2010 resolution. This matter provides little assistance in determining whether the resolutions were passed. The Plaintiffs also rely on the fact that Mrs Colleen Cooper was not called to give evidence as to the return of the signed 2010 resolutions. There is no evidence to support a finding that Mrs Cooper, who appears to be Mr Cooper’s former wife, can be described as within the Defendants’ “camp” for the purposes of these proceedings and I do not draw any inference from the Defendants’ failure to call Mrs Cooper.

50. The Plaintiffs’ submitted, in written closing submissions, that it is more probable than not that the AAA 2010 resolution and the Kirco 2010 resolution were signed by Mr Kirkpatrick, Mr Cooper and probably Mr Prince. It is common ground that the resolutions were signed by Mr Kirkpatrick and Mr Cooper, but I am not persuaded that the evidence establishes that they, as distinct from other transaction documents, were signed by Mr Prince. The resolutions therefore do not take effect on the basis for which the Plaintiffs contended, that they were signed by each of Messrs Kirkpatrick, Cooper and Prince, albeit not at a physical meeting. The Plaintiffs did not submit that the resolutions took effect on the basis that they were circulating resolutions signed by both of the then directors of AAA and Kirco, Messrs Kirkpatrick and Cooper. The evidence does not suggest that the parties intended to proceed in such a fashion, rather than by seeking Mr Prince’s assent to the resolutions, although he had not yet been appointed as a director of the companies, since that was to occur by the terms of those resolutions. The Plaintiffs also did not suggest that the resolutions could take effect on any other basis than by all parties’ assent to them, or seek to have them treated as effectively passed by Messrs Kirkpatrick and Cooper alone by any operation of s 1322 of the Corporations Act.

51. Even if the case put by the Plaintiffs as to the manner in which the AAA 2010 resolution and the Kirco 2010 resolution took effect had been established, contrary to the finding that I have reached above, the parties thereafter seem to have paid no attention to those resolutions. The AAA 2010 resolution provided for Mr Prince’s appointment as a director of both AAA and Kirco, but Mr Prince was subsequently treated by the parties as being a director of Kirco only and not as a director of AAA. There is no evidence that the parties thereafter sought to pass unanimous resolutions, or sought unanimous approval even by informal means, before making payments in excess of $5,000. Mr Kirkpatrick himself made payments in excess of that amount, without a unanimous resolution of directors or the consent of Messrs Cooper or Prince, in making the payments to his brother and his solicitor to which I referred to paragraph 29 above.

52. Mr Braham also points out that the AAA 2010 resolution and the Kirco 2010 resolution, by contrast with the position in respect of the syndicate deed for the Kirco Investment Syndicate, were not specifically directed to a removal of a director of those companies. Even if, contrary to the finding that I have reached above, the AAA 2010 resolution and the Kirco 2010 resolution took effect in the manner for which the Plaintiffs contended, Mr Braham also points out that clause 19.1 of the constitutions of AAA and Kirco permits any director to convene a general meeting whenever the director thinks fit and clause 21.2 provides for the appointment and removal of directors by shareholders by ordinary resolution. Those resolutions were not structured as an agreement between shareholders and do not, in their terms, restrict the ability of the shareholders of AAA or Kirco to change the composition of the board at a general meeting of shareholders; indeed, the shareholders of AAA, which are Victory, Langwood and Portborough rather than the individual directors, were not party to the AAA 2010 resolution.

53. Even if the 2010 resolutions took effect, they seem to me to have applied only to decisions to be made by the board of directors of AAA, and not to decisions made by an individual director in his personal capacity or by shareholders. It is, of course, clear that powers in respect of the governance of a company may be conferred on individual directors, as distinct from a board; or on the directors collectively, acting as a board; or on shareholders in general meeting under the Corporations Act and under a company’s constitution. It does not seem to me that the AAA 2010 resolution or the Kirco 2010 resolution could be read as having effect that each of the rights conferred on an individual director or on a shareholder of AAA or Kirco could only be exercised by the agreement of other directors or other shareholders respectively. That proposition can be illustrated by a straightforward example. The Plaintiffs’ decision to commence these proceedings was plainly a “major decision” affecting AAA and Kirco, which would fall within the language of those resolutions, but the Plaintiffs rightly did not consider that they were required to obtain a unanimous resolution of the board of directors of AAA or Kirco before they brought these proceedings. It seems to me that a decision of an individual director of AAA or Kirco, acting in his own right and not as a member of the board, to call a general meeting or a decision of a shareholder as to how to exercise a voting right conferred on that shareholder in its individual capacity, cannot properly be characterised as a decision of director acting collectively or as a board within the scope of the 2010 resolutions.

54. The construction of the AAA 2010 resolution and the Kirco 2010 resolution for which the Plaintiffs contend, so far as it seeks to prevent an individual director calling a meeting for the removal of a director under clause 19.1 of AAA’s and Kirco’s constitutions without the consent of all directors, is potentially inconsistent with s 249D of the Corporations Act which requires the directors of a company to call and arrange to hold a general meeting at the request of members with at least 5% of the votes that may be cast at the general meeting. The construction for which the Plaintiffs contend would also provide little protection for Mr Kirkpatrick’s interests where members with more than 50% of the votes of all of the members who made the relevant request under s 249D of the Corporations Act could themselves call and arrange to hold a general meeting if the directors did not do so under s 249E of the Corporations Act, and members with at least 5% of the votes that may be cast at a general meeting could call, and arrange to hold, such a meeting under s 249F of the Corporations Act.

55. In his closing submissions, Mr Morahan submits that it cannot seriously be submitted that the calling of a general meeting to remove a director was not a “major” decision. The proposition does not assist the Plaintiffs since, assuming that such a decision was a “major” decision, it would not have been a decision of the directors, acting collectively or as a board within the scope of the AAA 2010 resolution or the Kirco 2010 resolution, as distinct from a decision of Mr Cooper in exercising his right, as an individual director, to call a meeting of shareholders under cl 19.1 of the companies’ constitutions and a decision of shareholders in general meeting as to how to exercise their votes.

56. In summary, although it is clear that the AAA 2010 resolution and the Kirco 2010 resolution were signed by Messrs Kirkpatrick and Cooper, the Plaintiffs have not established that they were also signed by Mr Prince and took effect when signed by all parties, as they contended. The Plaintiffs did not submit that the resolutions took effect as a circular resolution of directors when signed by Messrs Kirkpatrick and Cooper alone, and that does not appear to have been the parties’ intent. The parties, including Mr Kirkpatrick, did not subsequently act in accordance with the AAA 2010 resolution or the Kirco 2010 resolution. Those resolutions were, on their proper construction, directed to the exercise of powers vested in the directors as a board and not to the exercise of an individual director’s right to call a shareholders meeting under clause 19.1 of the companies’ constitutions or to the exercise of shareholders’ votes at such a meeting. The declarations sought by the Plaintiffs therefore should not be made.

The oppression claim

57. The Plaintiffs also seek a declaration that the affairs of AAA and Kirco are being conducted in a manner oppressive to, or unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs. This claim turns on allegations of oppression pleaded against Mr Cooper and no allegations of oppressive conduct are pleaded against Mr Prince or Portborough, which are shareholders in Kirco and AAA respectively. The Plaintiffs allege that the conduct of the companies’ affairs is oppressive, for the purposes of s 232(a) of the Corporations Act in respect of a number of matters; and also allege that an act or proposed act or omission by or on behalf of the companies, or a resolution or proposed resolution is oppressive, for the purposes of s 232(b)–(c) of the Corporations Act, namely the proposed resolution to remove Mr Kirkpatrick as a director of AAA and Kirco.

58. Before turning to the range of matter relied on to support this claim, I should first refer to the applicable legal principles. I have drawn upon my summary of those principles in Byrne v A J Byrne Pty Ltd [2012] NSWSC 667 and Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 in that respect. Section 232 of the Corporations Act provides that the Court may make an order under s 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.”

59. A reference to orders in respect of oppression where the affairs of a company were being conducted in, or an act or omission was, “contrary to the interests of the members as a whole” was introduced into Australian companies legislation by amendments to s 320 of the Companies (NSW) Code made in 1983, and s 260 of the Corporations Law continued that reference, which then appeared in the same section as the other bases for relief in oppression. In New South Wales Rugby League Ltd v Wayde (1985) 1 NSWLR 86 at 96, the Court of Appeal noted that that formulation “reflects recognition of a long established principle of company law”. The language of the section was amended by the Corporate Law Economic Reform Program Act 1999 (Cth) to separate the concepts which now appear in s 232(d) and (e) respectively. Section 53 of the Corporations Act in turn identifies the “affairs of a body corporate” for several provisions of the Act, including s 232, as including the “promotion, formation, membership, control, business, trading, transactions and dealings of the body” (s 53(a)) and “the internal management and proceedings of the body” (s 53(c)). The orders which may be made include, relevantly, an order for the purchase of any shares by any member (s 233(1)(d)) and an order that the company be wound up (s 233(1)(a)).

59. These sections and their predecessors extend to conduct involving “commercial unfairness” or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459. In Thomas v HW Thomas Ltd [1984] 1 NZLR 686; (1984) 2 ACLC 610, Richardson J observed (at 618) that

“Fairness cannot be assessed in a vacuum or simply from one member’s point of view. It will often depend on weighing conflicting interests of different groups within the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and s 209 [the NZ provision] in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that s 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member’s interests arising from the acts or conduct of the company in that way is justifiable.”

61. In Morgan v 45 Flers Avenue Pty Ltd above at 704, Young J (as his Honour then was) formulated this aspect of the test for oppression by reference to the nature of the business carried on by the company and the nature of the relations between its participants and as:

“whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.”

62. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 Spigelman CJ observed (at [4]) that the statutory formulation of "oppression" confers a wide-ranging remedial jurisdiction on the court and that jurisdiction should not be confined by technical distinctions. Unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair" and can be established by wrongful exclusion from participation in a company’s management or by conduct in breach of a shareholders or services agreement even if the person undertaking that conduct thinks he or she is acting properly: Morgan v 45 Flers Avenue Pty Ltd above at 704; Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [176]; Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd (No 2) [2011] FCA 567; (2011) 282 ALR 229 at [10]. The emergence of irreconcilable differences between shareholders does not on its own necessarily establish oppression: McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603 at 614; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above at [89]; Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) ACSR 121 at [199]. Exclusion from a legitimate expectation of participation in a company’s management may be oppressive, when combined with a failure to make a reasonable offer to buy the plaintiff’s shares: O’Neill v Phillips [1999] 2 All ER 961; [1999] 1 WLR 1092 at 1104; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [109]–[110]; Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 per Austin J at [42]. On the other hand, in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above, the Court of Appeal held that oppression was established where the parties had agreed but failed to implement an arrangement for separation of their respective interests so that the value of one party’s equity was locked in the companies, the income attributable to that equity had ceased, there was no ready prospect that that party could sell that equity to anyone else for fair value and the resumption of cooperation between the parties was not possible.

63. The principles applicable to a claim for oppression were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd above at [39], and the Court of Appeal noted the parties did not challenge that summary of the applicable principles in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above at [140]. His Honour observed that:

“(a)   consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [182]; [2009] HCA 25;

(b)   unfairness is assessed by reference to whether “objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair”: eg, Campbell v Backoffice Investments Pty Ltd (2008 66 ACSR 359, per Basten JA at [181]; [2008] NSWCA 95;

(c)   while it is recognised that conduct may be oppressive if inconsistent with the “legitimate expectations” of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, at [96]; [2009] NSWSC 342 per Barrett J;

(d)   “it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower”: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, Young J at 739; [1998] NSWSC 413;

(e)   a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has “baited” the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, at 741; [1998] NSWSC 413 …”

64. The Defendants submit, and I accept, that the existence of irreconcilable differences, without unfair conduct on the part of the other party, is not sufficient to establish a claim in oppression: O’Neill v Phillips above. The Defendants also draw attention to the decision in Nassar v Innovative Precasters Group Pty Ltd above, which seems to me to have a close analogy with the present facts, where the Court held that, even where a company was formed on the basis that shareholders would participate in management and irreconcilable differences subsequently developed, oppression may not be established where the majority acts reasonably in affording an opportunity for a negotiated exit from the business to the minority (at [96], [110]–[111]; see also Belgiorno-Zegna v Exben Pty Ltd [2000] NSWSC 884; (2000) 35 ACSR 305 at [139]. The Defendants also submit that the removal of a director, associated with a minority interest, may not amount to oppression where any expectation of ongoing participation in management has been displaced by the differences between the parties: Nassar v Innovative Precasters Group Pty Limited above at [96], [111], [117]–[119]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above at [85]–[90], [175]; Re Ledir Enterprises Pty Ltd above at [185], [188].

65. I have also borne in mind the observation in Tomanovic v Global Mortgage Equity Corporation Pty Ltd above that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole. While I will address each of the matters on which the Plaintiffs rely in turn, I bear in mind that I must also have regard to their collective impact.

Whether the AAA 2015 resolution and the Kirco 2015 resolution amounted to oppression

66. The Plaintiffs identify several aspects of Mr Cooper’s alleged conduct in conducting the affairs of AAA and Kirco that are said to constitute oppressive conduct for the purposes of s 232(d) and (e) of the Corporations Act. Mr Kirkpatrick submits, and I accept, that Mr Kirkpatrick placed trust in Mr Cooper over the relevant period (T153) where Mr Cooper was his accountant, and Mr Kirkpatrick had a background in construction and development, whereas Mr Cooper had accounting qualifications. Mr Kirkpatrick also submits, and I accept, that Mr Cooper exercised substantial control over financial aspects of the business, at least in the relevant period. The Defendants also submit, with considerable force, that it was not unfair for Mr Cooper to exercise discretion as to matters, without consultation with Mr Kirkpatrick, where that appears to have been the practice adopted, without objection by Mr Kirkpatrick, over a number of areas of the companies’ activities over the relevant period. I have regard to these matters in addressing the particular issues on which the Plaintiffs rely below.

67. First, the Plaintiffs plead (ASC [38]) that the calling of the general meeting to approve the AAA 2015 resolution and Kirco 2015 resolution constituted conduct that is contrary to the interests of the members of AAA and Kirco as a whole and is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member of AAA and Kirco namely, Victory and Mr Kirkpatrick. The Plaintiffs also plead, and the Defendants deny, that the calling of the general meetings to remove Mr Kirkpatrick as a director of AAA and Kirco were major decisions affecting AAA and Kirco; that they were contrary to the AAA 2010 resolution and the Kirco 2010 resolution; and that they constituted conduct of the affairs of AAA and Kirco in a manner oppressive to or unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs. The Plaintiffs seek an order that AAA, Kirco, Langwood, Portborough and Messrs Cooper and Prince be permanently restrained under s 233(1)(c) of the Corporations Act or alternatively under s 233(1)(i) of the Corporations Act from moving or causing to be moved the AAA 2015 resolution and the Kirco 2015 resolution, and that the relevant companies, Langwood and Portborough, be restrained from voting in favour of the AAA 2015 resolution and that Messrs Cooper and Prince be restrained from voting in favour of the Kirco 2015 resolution. The Plaintiffs also seek an order that general meetings of members of AAA convened by notice to members dated 3 July 2015 not be held and that resolutions in the form of the AAA 2015 resolution and the Kirco 2015 resolution not be included in any general meeting of AAA and Kirco.

68. In written closing submissions, Mr Morahan submitted that the calling of the general meeting in July 2015 by Mr Cooper to remove Mr Kirkpatrick from the boards of AAA and Kirco amounted to the “primary act of oppression” at issue in the proceedings. He submits that the decision to call the general meeting was Mr Cooper’s and that Mr Prince had little idea of the detail of the disagreements between Messrs Cooper and Kirkpatrick. As I noted above, the Plaintiffs submit that the 2010 resolutions provided that no major decision relating to the companies would be made without a unanimous decision by the directors. The Plaintiffs submit that a decision to remove a director who was a founding director and had been involved in the foundation and development of the business was a major decision of both companies.

69. The Defendants respond to the claim for oppression on this basis by contending, as I also noted above, that the 2010 resolutions never became effective; or, even if they became effective, they were thereafter forgotten and ignored; Mr Cooper, as a director of the companies, was entitled to call the meetings, pursuant to the constitutions of AAA and Kirco, and the 2010 directors’ resolutions, even if operative, do not prevent that course or prevent shareholders exercising their right to vote on such resolutions; and, if irreconcilable differences emerged between directors, it was not oppressive for one director to seek to remove another after other options had been explored, in order to restore proper corporate governance to the company. The Defendants submit that, on the present facts, the calling of those meetings did not amount to oppression where the relationship between Mr Kirkpatrick and Mr Cooper had broken down, there had been several failed attempts to negotiate a separation of the parties’ interests and the existing position both excluded Mr Prince from participating in decisions at board level in AAA and created a deadlock in that entity.

70. I have held above that the calling of the general meetings of AAA and Kirco was not contrary to the AAA 2010 resolution and the Kirco 2010 resolution. It does not seem to me that conduct was otherwise oppressive to, or unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs, where Mr Kirkpatrick otherwise had no better entitlement to be a director of AAA or Kirco than, for example, Mr Prince. Mr Braham also submits, and I accept that, even if (contrary to my finding) the 2010 resolutions had been breached by the attempted removal of Mr Kirkpatrick as a director, that was not oppressive in the circumstances. It seems to me that events had developed to the point that it was plainly necessary that one or other of Messrs Cooper or Kirkpatrick be removed, or a new director appointed, given the extent of the breakdown in the relationship between Messrs Kirkpatrick and Cooper. Once that relationship had broken down, and it was plain that agreement would not be reached between Messrs Kirkpatrick and Cooper in respect of the management of AAA, leaving that company in a state of deadlock, Mr Kirkpatrick had no proper expectation that he should retain a permanent veto right in respect of any business decision of AAA, or that AAA should be forced into the position where its only alternative might, for example, be the appointment of a provisional liquidator.

71. It does not seem to me that the calling of the relevant general meeting to approve the relevant resolutions could, on any view, be contrary to the interests of the members of AAA and Kirco as a whole, for the reasons that I have set out above. It also does not seem to me that that conduct is oppressive to, unfair prejudicial to, or unfairly discriminatory against either Victory or Mr Kirkpatrick.

Alleged failure to produce financial records and minute books

72. The Plaintiffs allege (ASOC [39(o)]) that AAA and Kirco have refused or neglected to produce financial records of AAA and Kirco to the Plaintiffs despite requests and contrary to AAA’s and Kirco’s obligations to do so under s 290(1) of the Corporations Act. The Plaintiffs also allege (ASOC [39(p)]) that AAA and Kirco have refused or neglected to provide copies of minute books of those companies to the Plaintiffs, or provide those minute books for inspection by the Plaintiffs, contrary to the companies’ obligations under s 251B of the Corporations Act. The Defendants accept that denial of access to financial information could amount to oppression in an appropriate case: Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614; Re Ledir Enterprises Pty Ltd above at [194]. Their response is that they provided all relevant corporate and financial records relating to the companies to the Plaintiffs. The factual basis of this allegation has not been established, where the evidence indicates that AAA and Kirco have in fact offered to make available, and have made available, such records to the Plaintiffs.

Appointment of Ms Johnstone to execute document

73. The Plaintiffs allege (ASOC [39(q)]) that Mr Cooper appointed his de facto partner, Ms Johnstone, as secretary of AAA on or about 19 December 2014 without Mr Kirkpatrick’s agreement or a resolution of the board of directors. Mr Cooper leads evidence to explain the circumstances in which Ms Johnstone was purportedly appointed as AAA’s company secretary, for a short period, to allow execution of an otherwise uncontroversial document (Cooper 13.4.16 [90]–[91]). That conduct does not seem to me to rise to the level necessary to establish a claim in oppression.

Expenditures on Lygon Street property

74. The Plaintiffs also allege (ASOC [39(r)]) that Mr Cooper used monies belonging to AAA to fund a project at Lygon Street, East Brunswick in Victoria exclusively for his benefit and contrary to the interests of AAA.

75. Mr Cooper, through an associated entity, owned the Lygon Street property. Mr Kirkpatrick undertook work on that property between January and April 2010 and charged amounts for materials for that work to his AAA credit card (T352–353). Mr Cooper did not make the payments to which this allegation refers from the companies in relation to the Lygon Street property (Cooper 29.8.16, [35]). The sums paid were treated as a debit to Mr Cooper's loan account. Mr Kirkpatrick was paid, albeit not in cash, by Mr Cooper for his time in working on this project and expenses relating to the project were adjusted in the “squaring up” of Messrs Kirkpatrick’s and Mr Cooper’s loan accounts in September 2010 (Ex D1, Tab 99). There is no evidence of any complaint by Mr Kirkpatrick as to these arrangements prior to the commencement of the hearing.

76. In Mr Cooper’s cross-examination, on the second last day of the hearing, Mr Morahan put to Mr Cooper that he had breached a promise to Mr Kirkpatrick to reimburse the sums to AAA (T353), as distinct from their being charged to the loan account. Mr Kirkpatrick had not led evidence in chief of such a promise. Mr Cooper denied in cross-examination that he had instructed Mr Kirkpatrick to put the charges incurred by Mr Kirkpatrick in relation to the Lygon Street property on AAA’s credit card or that there was any discussion as to whether Mr Cooper would deposit money back into the AAA account (T353). Mr Cooper accepted that he had not reached any agreement with Mr Kirkpatrick that the amounts should be debited to Mr Cooper’s loan account (T354), presumably as distinct from being reimbursed by Mr Cooper as they were incurred. Mr Cooper’s evidence in cross-examination was that he consolidated the loan accounts at the end of the year in accordance with the usual practice (T355).

77. There is no room for a proposition that Mr Kirkpatrick did not consent to the expenditures that he had himself made from AAA’s credit card in respect of the Lygon Street property, although for Mr Cooper’s benefit, and there is no evidence of impropriety in the way in which these payments were treated in the loan accounts or in the “squaring up” of those accounts before Mr Prince invested in the companies. Mr Kirkpatrick’s case in respect of the expenditure of funds on the Lygon Street property shifted somewhat, in reply and closing submissions, presumably in recognition of the fact that the relevant expenditures were made by him rather than without his knowledge, to rely on the unpleaded case that the use of these funds was in breach of Mr Cooper’s undertaking to pay those funds back to AAA, rather than record them in his loan account. That case is not properly open to the Plaintiffs where the Defendants did not have a proper opportunity to meet it, and I did not allow the evidence to advance it to be read for the first time in reply.

78. I will refer below to the fact that Mr Cooper, as well as Mr Kirkpatrick, advanced substantial funds to AAA and Kirco on an ongoing basis throughout the period prior to Mr Prince’s investment in the companies. In those circumstances, it has not been established that it was oppressive to debit the expenditures made by Mr Kirkpatrick in respect of the Lygon Street property, for Mr Cooper’s benefit, to Mr Cooper’s loan account. I recognise that that course, by contrast with a reimbursement as expenditures were incurred, potentially reduced the cash resources then available in AAA. However, there is no evidence that that caused any detriment, despite their difficult financial position, where Messrs Cooper and Kirkpatrick continued to fund the companies over the period prior to Mr Prince’s involvement. The position might, of course, have been different had material expenditures been made by Mr Cooper on the Lygon Street property without Mr Kirkpatrick’s knowledge and charged to Mr Cooper’s loan account, but that case was not established by the Plaintiffs. I am not satisfied that this matter, alone or with other matters, establishes a claim in oppression.

Claim in respect of issue of redeemable preference shares to Kirco

126. Next, it is alleged (ASOC [39(dd)]) that Mr Cooper caused the issue of 600,000 redeemable preference shares in AAA to Kirco on or about 30 June 2011 without proper authority, altering the ownership and control of AAA. The Plaintiffs particularise that allegation by particulars that, prior to the issue of the 600,000 shares, Victory, Langwood and Portborough each had one-third of the voting rights at general meetings of AAA; the issue of the 600,000 redeemable preference shares allowed Kirco voting rights at a general meeting, diluting the voting power of each of the members of Victory, Langwood and Portborough in AAA; and the 600,000 redeemable preference shares would rank ahead of ordinary shares in a winding up of AAA. The Defendants accept that the issue of 600,000 Class F redeemable preference shares in AAA to Kirco, which rank ahead of ordinary shares on a winding up and carry a right to vote in general meeting under clauses 5.1 and 5.3(d) of AAA’s constitution, have the result that AAA is effectively controlled by Kirco.

127. The Plaintiffs submit that the issue of 600,000 class F redeemable preference shares in AAA on 30 June 2011 to Kirco was undertaken without Mr Kirkpatrick’s knowledge or concurrence. This share issue was recorded in the financial statements of AAA and Kirco for each of the financial years ending 30 June 2011–30 June 2014 (Cooper 29.8.16 [7]–[11]). Mr Kirkpatrick was also informed, by email dated 6 January 2012 copied to him, that Kirco Property Trust had been advancing loan funds of between $9,000 and $11,000 per month to AAA, but that $600,000 of those loans had been capitalised into redeemable preference share capital in order to give financial stability to the company from a balance sheet perspective (Cooper 29.8.16, Annexure “A” Ex D2). Mr Kirkpatrick accepted in cross-examination that he was aware of that matter since that date (T183). Mr Kirkpatrick made no contemporaneous complaint as to this matter.

128. There appears to have been a lack of formality about the process of authorising the issue of redeemable preference shares, but that is consistent with the parties’ approach to the management of the companies as a whole; those redeemable preference shares were allocated to an entity in which the economic interests were the same as the economic interests in AAA; and it does not seem to me that there was any reason to expect that that allocation would have control implications, unless it were accepted (which I do not) that there was an agreement that allowed Mr Kirkpatrick to veto Mr Prince’s appointment as a director of AAA. I am not satisfied that this matter, alone or with other matters, supports the relief sought in respect of oppression.

The Buy–Sell Agreement

129. For completeness, I should note that the Plaintiffs also referred to a Buy–Sell (Shareholders) Agreement for AAA and Kirco (Ms Kirkpatrick 21.9.15 [7]), which it appears was not updated when Mr Prince invested in the companies. Mr Braham submitted, and I accept, that no pleaded issue was raised in respect of that agreement. The Plaintiffs relied on the failure to update that agreement as an example of ignoring, when Mr Prince came on board, the “protective elements” that were put in place at the time AAA was founded. It does not seem to me that the evidentiary basis for that submission was established, where it is equally possible that that agreement was simply not updated by reason of more pressing concerns in addressing AAA’s day-to-day financial and operational issues. Even if this unpleaded matter could properly be relied on in an already complex case, it does not assist the Plaintiffs.

Remedies in respect of oppression claim

130. Although I have held that a claim in oppression is not established, I should briefly address the question of remedies as to which the parties made submissions. The Plaintiffs refer to the observation of Young J (as his Honour then was) in John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’Asia) Pty Ltd (1991) 6 ACSR 63 that:

“It is incumbent on the court when making an order under [s 233] to endeavour to find a scheme, short of winding up … which will ‘put the company back on the rails’ and avoid the causes of conflict and oppression, yet will as far as possible allow members to participate in the business.”

131. Mr Morahan submits that the court frequently orders the purchase of shares by the oppressor from the oppressed under s 233(1)(d) of the Corporations Act at a fair price, and that a broad discretion is given to the court as to the mode of valuation, and that the court may adopt a valuation of the shares that has regard to their value but for the oppression. Mr Morahan also acknowledges that, in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above, the Court of Appeal declined to make an order that the majority’s shares be sold to the minority, although he submits that that does not preclude this Court from ordering such relief if it is seen as the fairest method of achieving a just and equitable remedy for the oppression. It seems to me that, for the reasons the Court of Appeal indicated, it would be an unusual case where a majority was required to sell its shares to a minority, and this is not that case. I am also not satisfied that the matters to which I have referred above support an order that the Defendants buy the Plaintiffs’ shares other than for fair value, which they have already offered to do.

132. In closing written submissions, the Plaintiffs proposed a “two-step” process for relief, and characterised the first step as involving a determination whether oppression has occurred and whether there is enough evidence to warrant a further detailed investigation by a competent and appropriate person. They submitted that that course was appropriate given Mr Cooper’s position as Mr Kirkpatrick’s former accountant and the companies’ accountant, and the fact that documents were retained by him and that he was the author of those documents, and submitted that Mr Dawson’s preliminary report suggested that further investigation was required.

133. Mr Morahan also submitted that:

“This is a difficult matter where the oppressed party does not have the expertise or the powers to investigate properly what has occurred in this complicated corporate structure without the assistance of the Court.”

Mr Braham submits, and I accept, that the Plaintiffs’ reliance on Mr Kirkpatrick’s lack of financial sophistication is undermined, to some extent, by the fact that Mr Kirkpatrick has been advised by an independent accountant, Mr Poole, since at least June 2010, and I have referred to Mr Poole’s affidavit filed in the proceedings above. The Plaintiffs have also been legally represented throughout these proceedings and Mr Dawson has undertaken his investigation on their behalf and they have had access to his report. A second difficulty with that submission is that the characterisation of the Plaintiffs as the “oppressed party” depends upon what has occurred, and one cannot proceed on the basis of an assumption that the Plaintiffs are oppressed, in order to determine whether an investigation should be conducted as to whether they are oppressed. A third difficulty is that, as the Defendants point out, s 233 of the Corporations Act does not contain provision for the appointment of an investigator. I will address the question whether such an order should be made under s 241(1)(d) of the Corporations Act below.

134. The Defendants also point out that the Court retains a discretion whether to grant relief in an oppression claim, which should have regard to the overall circumstances: Re Ledir Enterprises Pty Ltd above at [214]–[215]. It is not necessary to address the exercise of such a discretion separately where I have not found that oppression was established in the relevant circumstances.

Breach of fiduciary duty

135. The Plaintiffs also plead (ASOC [40]) that several allegations of oppressive conduct “may constitute” a breach of fiduciary duty to AAA and Kirco by Mr Cooper. That allegation falls short of alleging the fact of a breach of fiduciary duty, and there is no proper basis on which the Court can or should determine whether there is a possibility of such a breach, as distinct from whether such a breach in fact occurred.

The claim for orders for inspection under s 247A or s 290 of the Corporations Act

136. The Plaintiffs seek an order under s 247A or alternatively under s 290 of the Corporations Act that AAA and Kirco produce to the Court their books, records, financial statements and minute books and that AAA and Kirco make those documents available for inspection by the Plaintiffs.

137. Section 247A(3) of the Corporations Act provides that, relevantly, a person who applies for leave under s 237 of the Corporations Act or is eligible to apply for such leave may apply for an order for inspection of documents under s 247A of the Corporations Act. Section 247A(4) in turn provides that, in such an application, the Court may make an order authorising the applicant to inspect books of the company. The term “books” is particularly defined in s 9 of the Corporations Act as including registers, records of information, financial reports or records and other documents.

138. The Court is able to make such an order only if it is satisfied that the applicant is acting in good faith and that the inspection of the books is to be made for a purpose connected with the application for leave under s 237 or bringing the relevant proceedings pursuant to leave under that section: 247A(5) of the Corporations Act; Chuen v Laredo Pty Ltd [2005] WASC 58. The exercise of the court’s discretion whether to make an order under that section requires the court to consider both whether it should make such an order and also which of the books of the company should be made available under that order: Majestic Resources NL v Caveat Pty Ltd [2004] WASCA 201 at [21]; Mathews Capital Partners Pty Ltd v Coal of Queensland Holdings Ltd [2012] NSWSC 462 at [56]. The circumstances in which such an order should be made have also been considered in, for example, Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; [2007] 61 ACSR 583 and Re Akierman Holdings Pty Ltd [2015] NSWSC 1395 at [34]ff, on which I have drawn for the outline of these principles. Section 290 of the Corporations Act establishes a director’s right of access to a company’s financial records, and allows the Court to authorise a person to inspect a company’s financial records on a director’s behalf.

139. I am not satisfied that an order should be made under these sections, where the evidence does not establish that the Plaintiffs have been deprived of such access, and Mr Dawson has already been permitted access to the companies’ financial records on the Plaintiffs’ behalf without the need for such an order.

Order for the purchase of the majority’s shares

140. The Plaintiffs initially sought an order under s 233(1)(d) of the Corporations Act that Victory or Mr Kirkpatrick purchase the shares of Langwood and Portborough in AAA and the shares of Messrs Cooper and Prince in Kirco on such terms as the Court thinks fit. No evidence was led to identify the basis of the terms on which such an order could be made, or to establish the financial capacity of either Victory or Mr Kirkpatrick to purchase the shares if such an order was made. The “two-step” process proposed by the Plaintiffs, to which I referred above, seemed to be advanced in substitution for this order. I am not satisfied that such an order should be made, if the application for it is pressed.

Removal of Cooper & Associates as accountants of AAA and Kirco

141. The Plaintiffs sought an order that Cooper & Associates be removed as accountants of AAA and Kirco and that the firm be replaced by accountants “deemed appropriate by the Court”. The question of how the Court might determine, without assistance from the Plaintiffs, which accountants might be “appropriate” for such an appointment was not addressed. I do not consider that the Court could or should make such an order.

Application for leave to bring proceedings under s 237 of the Corporations Act

142. The Plaintiffs seek an order that, if the Court finds it warranted, and under s 237 of the Corporations Act, Mr Kirkpatrick have leave to commence and continue proceedings in the name of and on behalf of AAA and Kirco against Mr Cooper for an alleged breach of Mr Cooper’s duty to AAA and Kirco under the Corporations Act. An immediate problem with that application is that the Court has not been provided with a draft Statement of Claim in respect of such a proceeding, and it is therefore uncertain whether the claim sought to be brought, once pleaded, would raise a serious question to be tried or whether bringing it would be in the best interests of the companies. I would not have dismissed the application for such leave on that basis alone, without allowing Mr Kirkpatrick the opportunity to bring in a draft Statement of Claim and the parties the opportunity to make submissions about it. However, there is no utility in allowing that opportunity given the conclusions that I have reached on other grounds.

143. The matters relevant to the grant of leave under s 237 of the Corporations Act are well established. The first requirement is that it is probable that AAA and Kirco will not itself bring the proceedings or properly take responsibility for them or for the steps in them. That matter is plainly established where the board of AAA is deadlocked, and the likelihood of such proceedings by AAA will be further reduced when the restraint on the removal of Mr Kirkpatrick as a director of the company is removed, and Messrs Cooper and Kirkpatrick constitute the majority of directors on the board of Kirco.

144. The second requirement under s 237 of the Corporations Act is that Mr Kirkpatrick is acting in good faith. The factors relevant to that requirement include whether Mr Kirkpatrick has an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief, and whether he is seeking to bring the action for a collateral purpose. In Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [36], Palmer J observed that:

“[T]here are at least two interrelated factors to which the courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.”

The Court does not consider the merits of the claim in deciding whether the applicant has satisfied s 237(2)(b) of the Corporations Act, since the merits are considered in respect of the question whether there is a serious question to be tried, which arises under s 237(2)(d) of the Corporations Act: Fitzpatrick v Cheal [2010] NSWSC 717 at [41]. I will assume, without deciding, that Mr Kirkpatrick is acting in good faith, in that he at least subjectively believes that the companies have claims against Mr Cooper, although I find it difficult to see that, with the benefit of adequate legal advice, Mr Kirkpatrick could have formed the view that those claims would lead to recoveries that warranted the costs of pursuing them.

145. The third requirement under s 237 of the Corporations Act is that it is in the best interests of AAA and Kirco that Mr Kirkpatrick be granted leave. In Swansson v RA Pratt Properties Pty Ltd above, Palmer J noted that that paragraph required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the company’s best interests. In Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the benefit to be gained by the action; and the likely consequences to the company if the action is unsuccessful. In Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586, Bathurst CJ observed (at [59]) that, in the case of a solvent company, whether the proceedings are in the company’s best interests will have regard to the interests of shareholders in that capacity, and a collateral benefit to a particular shareholder from bringing proceedings is irrelevant. I am not satisfied that the grant of such leave is in the best interests of the companies, where the issues that underlie the proposed derivative proceedings have been, or could have been, canvassed in these proceedings. It does not seem to me that it would be in the companies’ interests to make such an order, or expose the companies to the cost of a further hearing as to substantially the same matters that have already been the subject of this hearing.

146. The next question is that there is a serious question to be tried. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson v RA Pratt Properties Pty Ltd above at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [147], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. In Re Gladstone Pacific Nickel Ltd above, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]):

“The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. … Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result.”

It is not possible to determine whether a serious question to be tried is established in the absence of a proper identification of the claims that the Plaintiffs seek leave to pursue. It is not necessary to do so where I am not satisfied that the grant of leave is in the companies’ best interests for the reasons noted above.

147. The last requirement relates to the giving of notice before making the application, or the Court’s satisfaction that it is appropriate to grant leave although such notice was not given. I would not have treated any failure to give such notice as preventing the grant of leave, if it were otherwise warranted, where the parties are plainly on notice of the relevant issues..

148. The Court must decline leave to bring a derivative action where the requirement that that action is in the companies’ best interests is not satisfied, and I decline that leave on that basis.

Appointment of independent investigator

149. The Plaintiffs seek an order under s 241(1)(d) of the Corporations Act that a qualified and independent person be appointed to investigate and report to the Court on the financial affairs of both AAA and Kirco. Such an order can be made in proceedings brought or intervened in with leave, or in an application for leave under Part 2F.1A of the Corporations Act, dealing with a statutory derivative action. The jurisdiction to make this order is available prior to a grant of leave to bring a derivative action, at least where that application has not been pressed (as occurred here) and dismissed.

149. The Plaintiffs suggest that the Court may receive evidence and then determine if further investigations in respect of the conduct of the companies’ affairs are warranted or a valuation of the company should be undertaken as a court-directed exercise. The Plaintiffs also submit that an “investigator” should be appointed under s 241(1)(d) of the Corporations Act, because Mr Cooper has been in control of the financial affairs of both companies and has prepared annual returns and financial reports and retained relevant documentation. I am not persuaded that that course is appropriate. The Defendants have offered access to the Plaintiffs to documentation held by Mr Cooper; the Plaintiffs have had access to the compulsory process of the Court in these proceedings, for an extended period, to obtain documentation if they wished to do so; the Plaintiffs had previously appointed an investigator, Mr Dawson, who has made some investigations, and expressed some views, with significant qualifications; and it seems to me that the Plaintiffs have had the opportunity to raise any challenges to the approach adopted by Mr Cooper in respect of the companies’ accounting, and have done so. The Plaintiffs also seek a consequential order that the investigator’s reasonable costs be paid by AAA and Kirco. That order should not be made where no such investigator is to be appointed.

Orders and costs

151. Any interlocutory relief previously obtained by the Plaintiffs, or undertakings given to them, should be discharged and the proceedings should be dismissed with costs. The parties should bring in short minutes of order to give effect to this judgment within 7 days.

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Decision last updated: 09 December 2016