Ziggy Specter Pty Ltd as trustee for the Oriel Trust (Formerly Lopes Family Trust) v Squadron Collective Pty Ltd - [2024] WASC 450

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ZIGGY SPECTER PTY LTD as trustee for THE ORIEL TRUST (FORMERLY LOPES FAMILY TRUST) -v- SQUADRON COLLECTIVE PTY LTD [2024] WASC 450
CORAM:   WHITBY J
HEARD:   28 NOVEMBER 2024
DELIVERED          :   29 NOVEMBER 2024
PUBLISHED           :   29 NOVEMBER 2024
FILE NO/S:   COR 187 of 2024
BETWEEN:   ZIGGY SPECTER PTY LTD as trustee for THE ORIEL TRUST (FORMERLY LOPES FAMILY TRUST)
First Plaintiff
SERGIO PAULO LOPES
Second Plaintiff
AND
SQUADRON COLLECTIVE PTY LTD
First Defendant
SCOTT COLIN WILLIAMS
Second Defendant
LUCKY DOUG PTY LTD as trustee for TWOFOURSIX TRUST
Third Defendant

Catchwords:

Corporations - Resolution by majority shareholder to remove director linked to minority shareholding - Oppressive conduct contrary to s 232 of the Corporations Act 2001 (WA) - Application for interlocutory injunction pursuant to s 1324(4) of the Corporations Act 2001 (Cth) to restrain meeting - Whether prima facie case of oppression - Balance of convenience

Legislation:

Corporations Act 2001 (Cth) s 232, s 233, s 1324

Result:

Application for interim injunction granted

Category: B

Representation:

Counsel:

First Plaintiff	:	A P Hershowitz
Second Plaintiff	:	A P Hershowitz
First Defendant	:	No appearance
Second Defendant	:	W C J Zappia
Third Defendant	:	W C J Zappia

Solicitors:

First Plaintiff	:	HWL EBSWORTH LAWYERS (PERTH)
Second Plaintiff	:	HWL EBSWORTH LAWYERS (PERTH)
First Defendant	:	No appearance
Second Defendant	:	Lavan
Third Defendant	:	Lavan

Case(s) referred to in decision(s):

Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105
Morara Pty Ltd v Kingslane Property Investments Pty Ltd [2024] WASCA 123
Morara v Kingslane Property Investments Pty Ltd [2019] WASC 136
Patel v Agrawal [2024] FCA 997
Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168

WHITBY J:

(This judgment was delivered extemporaneously on 29 November 2024 and has been edited from the transcript).

On 26 November 2024, the plaintiffs commenced these proceedings against the defendants alleging statutory oppression and seeking, inter alia, an order that the second and third defendants purchase the first plaintiff's shares in the first defendant.
By interlocutory process dated 26 November 2024, the plaintiffs seek an interlocutory injunction to restrain the second and third defendants from moving and passing a resolution at the general meeting of the first defendant scheduled to take place on 29 November 2024 at 12.00 pm, which resolution proposes to remove the second plaintiff as a director of the first defendant. It is that application that is before me for determination.
In support of the application, the plaintiffs rely on the affidavit of Sergio Paulo Lopes sworn 26 November 2024 (Lopes Affidavit)[1] and the Supplementary Affidavit of Sergio Paulo Lopes sworn 27 November 2024 (Supplementary Lopes Affidavit). The plaintiffs also filed a Second Supplementary Affidavit of Sergio Paulo Lopes sworn on 28 November 2024 which confirms that the first plaintiff holds shares in the first defendant. The plaintiffs have provided an undertaking as to damages in the usual form.
[1] Save for [81], [82], [83] and the first two sentences of [113] which I ruled to be inadmissible pursuant to O 37 r 6(3A) of the Rules of the Supreme Court of Western Australia 1971 (WA).
In opposition to the application, the defendants rely upon the Affidavit of Scott Colin Williams sworn on 28 November 2024 (S Williams Affidavit), the Affidavit of Jodie Emma Williams sworn on 28 November 2024 (J Williams Affidavit), the Affidavit of Amelia Richmond-Scott sworn on 27 November 2024 and Undertakings of each of Mr Williams and Jodie Williams signed and filed on 27 November 2024.
The parties have each filed written submissions and made oral submissions at the hearing on 28 November 2024.

Background facts

Ziggy Specter is the trustee for the Oriel Trust (formerly the Lopes Family Trust) (Oriel Trust) and is the first plaintiff. Mr Lopes, the second plaintiff, is the appointor and a beneficiary of the Oriel Trust.
Lucky Doug Pty Ltd is the trustee for the twofoursix Trust (TFST) and is the third defendant. Mr Williams, the second defendant, is the appointor and a beneficiary of the TFST.
In June 2021, Squadron Collective Pty Ltd (SQ) (the first defendant) and Fiftyone Capital Pty Ltd (FOC) were incorporated.[2] FOC is a 100% owned subsidiary of SQ.
[2] First Lopes Affidavit [11], pages 40 and 45.
In August 2021, Lance East Holdings Pty Ltd (LEH) provided the initial start-up capital for SQ and FOC of approximately $10 million. Neither Mr Lopes nor Mr Williams contributed capital to SQ.
From October 2022, the first plaintiff had a 16.7% shareholding in SQ and the third defendant had an 83.3% shareholding in SQ. On 5 November 2024, the third defendant transferred one partly paid share in SQ to Ms Jodie Williams. The current shareholding in SQ is:
(1)first plaintiff: 16.7%;
(2)third defendant: 83.2%; and
(3)Ms Jodie Williams: 0.1%.
Mr Lopes and Mr Williams are, and have been since incorporation, the only two directors of SQ and FOC.
SQ operates a group of companies collectively referred to as the SQ Group. Those companies are FOC, Corsair Corporate Pty Ltd (CC), Fortress Private Investments Pty Ltd (FPI) and Warhawk Resources Asset Management Pty Ltd (Warhawk).[3]
[3] First Lopes Affidavit [7].
SQ, by virtue of its 100% shareholding in FOC, also holds an interest in Endeavor Asset Management Pty Ltd (EAM), 51 Asset Management Pty Ltd, WACC Pty Ltd (WACC), 51 Funds Management Pty Ltd (51FM) and 51 Corporate Pty Ltd[4] (SQ Entities).
[4] First Lopes Affidavit [12].
It is not in dispute that SQ was established to be a multi‑disciplinary service provider to ultra-high net wealth families and groups. Those services encompass funds management and investments (51FM and other special purpose investment managers), a specialist legal firm Spitfire Law Pty Ltd (SFL), a multi-family office accounting firm Spitfire Family Office Pty Ltd (SFO) and trustee and financial services (WACC). WACC holds an Australian Financial Services Licence (AFSL).
Mr Williams is responsible for FOC. Mr Lopes is responsible for SFO. Mr Greg Wheatley is responsible for SFL.
SQ is the head entity of the SQ Group. FOC holds the ownership of all the companies in the SQ Group and the SQ Entities. SQ and FOC are not operating entities. The companies in the SQ Group and the SQ Entities are the operating entities.
Since mid-2023, Mr Lopes and Mr Williams have been in conflict as to the ongoing management and operation of SQ and FOC. They have been in negotiations since July 2023 to try to agree upon terms for Mr Lopes to exit the SQ Group. They have not yet been unable to reach agreement.
Mr Lopes alleges that, since the incorporation of SQ and FOC, it was understood by Mr Williams that Mr Lopes had a legitimate expectation to have joint control with Mr Williams over the ongoing day-to-day management of SQ and FOC.[5]
[5] First Lopes Affidavit Affidavit [30], [32].
The catalyst for this urgent application is that SQ has convened a general meeting to be held on 29 November 2024 at 12.00 pm to put forward and pass a resolution to remove Mr Lopes as a director of SQ.[6]
[6] First Lopes Affidavit [62] - [64] and pages 413 - 415.

The proceedings

The plaintiffs allege that Mr Williams and/or the third defendant have conducted SQ's affairs in a manner that is oppressive to, unfairly prejudicial to or unfairly discriminatory against the first plaintiff as a member of the first defendant contrary to s 232 of the Corporations Act 2001 (Cth) (CA).
The primary relief sought by the plaintiffs in these proceedings are orders that the conduct of the affairs of the first defendant is and has been oppressive and that, pursuant to s 233(1) of the CA, Mr Williams and the third defendant purchase the first plaintiff's shares in the first defendant. The plaintiffs also seek an order that the first defendant be permanently restrained, pursuant to s 1324(1) of the CA, from holding a general meeting at which any resolution is put to remove Mr Lopes as a director.
The plaintiffs allege the following acts of oppression on the part of Mr Williams:
(1)the exclusion of Mr Lopes from management of SQ and the SQ Group and SQ Entities and attempts to permanently remove him from any managerial role within SQ, the SQ Group and SQ Entities;
(2)the depletion of capital in SQ and FOC;
(3)the diversion of revenue away from FOC;
(4)unilateral decision-making by Mr. Williams concerning significant business dealings and business decisions, without consultation or agreement;
(5)the incurring of expenditure by Mr Williams in the SQ Group and SQ Entities for his personal benefit or entities associated with him;
(6) removal of access by Mr Lopes to electronic platforms associated with the running and administering of business within SQ, the SQ Group and SQ Entities; and
(7)the breakdown of trust and confidence between the parties.

The application for an interim injunction

The plaintiffs seek an interim injunction in the following terms:
(a)The First Defendant, Second Defendant and Third Defendant be restrained from moving or causing to be moved Resolution 1 (Removal of Sergio Paulo Lopes as Director) and Resolution 2 (Incidental Matters) in the Notice of General Meeting dated 6 November 2024 (Resolutions); and
(b)The Second and Third Defendants and each of them be restrained from voting or purporting to vote in favour of the Resolutions at the General Meeting on 29 November 2024 or at any reconvened General Meeting of the First Defendant.
The application is made pursuant to s 1324(4) of the CA. The plaintiffs say that they have established a prima facie case of oppression and that there is a serious question to be tried. The plaintiffs say that the balance of convenience favours the making of the interim injunction as there is a risk that Mr Williams will dissipate the assets of SQ if Mr Lopes is removed as a director of SQ.
On 27 November 2024, Mr Williams signed and filed an undertaking by which he undertakes to Mr Lopes and to the court that he will:
5.1not take any steps to intentionally diminish [Mr Lopes'] shareholdings in [SQ];
5.2not issue further shares to dilute [Mr Lopes'] shareholding in [SQ];
5.3not sell any significant assets of [SQ] outside of what is within the usual course of business;
5.4not take any steps to remove [Mr Lopes] as a director of [SFO]; and
5.5will agree (if that is [Mr Lopes'] preference) that any valuation of [SQ] that the parties will enter into for the purposes of any proceedings or settlement negotiations, or otherwise for the purpose of valuing [Mr Lopes'] shareholding in [SQ] to be by reference to his shares as at 30 June 2024.
On 27 November 2024, Ms Jodie Williams signed and filed an undertaking by which she undertakes to Mr Lopes and to the court that she will:
8.1not take any steps to intentionally diminish [Mr Lopes'] shareholdings in [SQ];
8.2not approve or support any resolution to issue further shares to dilute [Mr Lopes'] shareholding in SQ;
8.3not approve or authorise any resolution to vary the rights attached to any of the shares held in [SQ];
8.4not approve or support any resolution to authorise the sale of the business or the winding up of the company.
The defendants say that there is no evidence upon which the court could find that there is a serious question to be tried. Further, the defendants say that damages are an adequate remedy given Mr Lopes wants Mr Williams to buy out his shares in SQ and that, in any event, the balance of convenience favours the refusal of an interlocutory injunction given the undertakings provided by Mr Williams and Ms Williams.

Legal Principles on Application for Interim Injunction

The principles governing the grant of an interim or interlocutory injunction are well settled. They are equally applicable to an application made at general law and to an application made for an interim injunction (where the applicant is a private litigant as in this case) pursuant to s 1324(4) of the CA.[7]
[7] Morara v Kingslane Property Investments Pty Ltd [2019] WASC 136 [53].
In determining whether to grant an interim injunction the court must consider whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction.[8]
[8] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 [87].
In order to establish a 'prima facie case', the plaintiff does not have to show that it is more probable than not that the plaintiff will succeed at trial. It is sufficient that the plaintiff shows a sufficient likelihood of success to justify the preservation of the status quo pending the trial.[9]
[9] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 [87].
The court must also consider whether the inconvenience or injury that the plaintiff would likely suffer if an injunction were refused is outweighed by the prejudice that the defendant would suffer if an injunction were granted.[10] The question as to whether damages would be an adequate remedy is an aspect of the balance of convenience. [11]
[10] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 [87].
[11] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 [130] - [131].
The enquiries relating to a prima facie case and the balance of convenience are related, not independent, enquiries.[12] As the strength of the plaintiff's case diminishes, the court will place more weight on considerations of balance of convenience and the practical consequences that flow from the granting of the injunction.
[12] Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] - [12].

Serious Issue to be tried

The plaintiffs allege that the conduct of the affairs of SQ is and has been oppressive to, unfairly prejudicial to or unfairly discriminatory against the members of SQ, that is that the conduct of SQ constitutes a contravention of s 232 of the CA.

Legal principles applicable to oppression

The relevant statutory provisions are contained in pt 2F.1 of the CA:
Part 2F.1 - Oppressive conduct of affair
232Grounds for Court order
The Court may make an order under section 233 if:
(a)the conduct of a company's affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d)contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
…
233Orders the Court can make
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)that the company be wound up;
(b)that the company's existing constitution be modified or repealed;
(c)regulating the conduct of the company's affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company's share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company's property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j)requiring a person to do a specified act.
'Affairs' for the purposes of s 232 (a) is defined in s 53 of the CA.
The general principles applicable to s 232 and s 233 of the CA are also well established. They were summarised in Tzavaras v Tzavaras & Sons Pty Ltd.^{^[1]} Relevant to this application:[13]
(1)the test of oppression is an objective one of commercial unfairness;
(2)conduct may be oppressive even if it is otherwise completely lawful;
(3)it involves a consideration of whether on the balance of probabilities, the objective commercial bystander, being a reasonable director, would be satisfied that the affairs of the company were being conducted unfairly; and
(4)the court has a wide discretion under s 233 as to the appropriate remedy.

Alleged oppressive conduct

[13] Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168 [74]; see also Morara Pty Ltd v Kingslane Property Investments Pty Ltd [2024] WASCA 123 [78].

I will provide brief details of the conduct which the plaintiffs allege is oppressive contrary to s 232 of the CA. The plaintiffs say that the conduct, both independently and collectively, demonstrates that SQ's affairs have been conducted in a manner that is oppressive of and prejudicial to the interests of Mr Lopes as a member of SQ.
Firstly, the plaintiffs allege that Mr Williams excluded Mr Lopes from management of SQ and the SQ Group and SQ Entities and has attempted to permanently remove him from any managerial role within SQ, the SQ Group and SQ Entities.
Mr Lopes refers to the conduct of Mr Williams in causing the third defendant to transfer one partly paid share to Ms Jodie Williams which has the effect of manipulating the voting rights of SQ in favour of Mr Williams. Although this was done otherwise lawfully in accordance with SQ's constitution, Mr Lopes says it is oppressive conduct designed to achieve his removal as a director of SQ.
This conduct has occurred, Mr Lopes says, in the context of his expectation and understanding that he and Mr Williams would have ongoing control and day-to-day management of SQ and FOC, as they had always done.
Secondly, Mr Lopes says that Mr Williams has depleted the capital in SQ and FOC. Mr Lopes says that he and Mr Williams had an understanding and arrangement that each of the companies in the SQ Group and the SQ Entities would operate independently with each bearing their own costs and expenses. Mr Lopes alleges that Mr Williams has paid costs and expenses from FOC regardless of which entity is responsible for those costs and expenses. Mr Lopes says that FOC is a passive holding company, yet it has incurred $1,644,782 between 1 July 2022 and 30 June 2024 in salaries and costs, of which 95% Mr Lopes says is attributable to 51FM and WACC.[14]
[14] First Lopes Affidavit [70].
Thirdly, Mr Lopes says that Mr Williams has diverted revenue away from FOC. Mr Lopes says that Mr Williams has diverted funds and opportunities of FOC to entities he personally owns and controls. Mr Lopes says the following are examples of this oppressive conduct:
(1)Mr Williams directed revenue of $266,000 from a capital-raising project from FOC to WACC in circumstances where FOC funded the salaries associated with the earning of that revenue;[15]
(2)Mr Williams diverted a proposed investment opportunity from FOC to SPV1 Unit Trust, an entity which is controlled by WACC;[16]
(3)Mr Williams diverted FOC's share of performance fees from Collins Street Finance to WACC;[17] and
(4)Mr Williams caused the sale of FOC's shares in EAM to Clever Capital Pty Ltd without consulting Mr Lopes and did not ensure that the proceeds of sale were deposited into FOC's accounts.[18]
[15] First Lopes Affidavit [75] - [76].
[16] First Lopes Affidavit [79] - [84].
[17] First Lopes Affidavit [85] - [91].
[18] First Lopes Affidavit [93] - [95].

Fourthly, Mr Lopes says that Mr Williams has made unilateral decisions concerning significant business dealings and business decisions, without consultation with or agreement of Mr Lopes. Mr Lopes says that Mr Williams unilaterally decided to purchase an investment with FOC funds and that he entered into a consultancy agreement, on behalf of FOC, with Paradigm Biopharmaceuticals.[19]
[19] First Lopes Affidavit [96] - [99].
Fifthly, Mr Lopes says that Mr Williams has incurred expenditure in the SQ Group and SQ Entities for his personal benefit or entities associated with him. Mr Lopes alleges that, between 1 July 2022 and 30 June 2024, Mr Williams has caused FOC to pay $2,006,563 in costs and expenses which are personal costs of Mr Williams or which should have been allocated to 51FM, WACC or CC.[20]
[20] First Lopes Affidavit [71] - [73].
Sixthly, Mr Lopes says that Mr Williams has caused the removal of Mr Lopes' access to platforms associated with the running and administering of business within SQ, the SQ Group and SQ Entities. These platforms include FOC's Netwealth Account[21] and SQ's ANZ Transactive Platform.[22]
[21] First Lopes Affidavit [111] - [114].
[22] Supplementary Lopes Affidavit [10].
The plaintiffs allege that the conduct of Mr Williams has diminished the value of FOC and, by extension, diminished the value of SQ. This in turn adversely affects the first plaintiff as a minority shareholder of SQ.
The plaintiffs allege that, by diverting funds from FOC to entities associated with Mr Williams, Mr Williams has breached his fiduciary obligations to act in good faith and in the best interests of SQ, further oppressing the first plaintiff as a minority shareholder.

Defendants' response to allegations of oppressive conduct

Mr Williams relies upon the requirements of s 232 of the CA to assert that most of the conduct complained of by the plaintiffs is not conduct that falls within that provision. Mr Williams says that this conduct does not enliven the court's jurisdiction under s 233 of the CA.
Mr Williams submits that the evidence of Mr Lopes fails to establish any relevant conduct carried out by Mr Williams in his capacity as a director of SQ, save for the transfer of one partly paid share in SQ from the third defendant to Ms Jodie Williams and the notice of general meeting. Mr Williams submits that there is no evidence which establishes any 'conduct of [SQ's] affairs' (as required by s 232(a) of the CA) or 'an actual or proposed act or omission by, or on behalf of [SQ]' (as required by s 232(b) of the CA).
Mr Williams says that most of the conduct relied upon by the plaintiffs is conduct which Mr Williams has undertaken during the course of business at the subsidiary level, that is through FOC or other companies within the SQ Group. The defendant says this is not conduct that falls within the bounds of the legislative provisions and therefore, the Court cannot exercise its discretion under s 233 based on such conduct.
The defendant submits that only leaves the conduct of Mr Williams in calling the general meeting to move the proposed resolution to remove Mr Lopes as a director of SQ which may give rise to conduct within the meaning of s 232(c) of the CA.
Mr Williams say that there is no evidence before the court which establishes that there was a reasonable basis for the first plaintiff and Mr Lopes to form a legitimate expectation that Mr Lopes would remain as a director of SQ. Mr Lopes did not contribute any capital to SQ or any of the companies within the SQ Group or any of the SQ Entities.
Mr Williams says, that even if the plaintiffs did initially have that legitimate expectation, that fell away in July 2023 when Mr Lopes decided that he wanted to exit the SQ Group.
Mr Williams says that a reasonable director would not consider that the proposed resolution is unfair given that:
(1)SQ is a passive entity that does not carry on any business;
(2)SQ's constitution does not give Mr Lopes any entitlement to maintain a directorship;
(3)the plaintiffs did not contribute any capital to SQ; and
(4)the resolution does not dilute the first plaintiff's shareholding in SQ and does not affect the first plaintiff's right to vote in future meetings of members.

Disposition - Is there a serious question to be tried?

It is not in dispute that contested factual matters ought not be determined on the hearing of this interlocutory application. However, I am required to determine whether the plaintiffs have, taking their evidence at its highest, established a prima facie case of oppressive conduct of the affairs of SQ.
The threshold issue to consider is what is the conduct that may properly be said by the plaintiffs to constitute oppressive conduct. Although I am not required to, and in fact should not, ultimately determine this question on an interlocutory application, I am not persuaded by the defendants' submission that most of the alleged conduct of Mr Williams cannot amount to oppression under s 232 (a) and/or (b) of the CA. That is because Mr Williams' conduct, taken at its highest as alleged by the plaintiffs, had the effect of depleting the value of the first plaintiff's shares in SQ. In my view, there is a serious question to be tried as to whether Mr Williams, as a director of SQ, allowed SQ's wholly owned subsidiary FOC to divert funds outside of the SQ Group and/or for Mr Williams' own personal benefit and therefore, that the conduct of SQ's affairs was oppressive to the first plaintiff.
There is the further conduct of Mr Williams, in attempting to cause the removal of Mr Lopes as a director which the defendants accept can enliven the court's jurisdiction pursuant to s 232(c) of the CA.
Allegations of oppression often arise in circumstances which may be described as a 'quasi-partnership'.[23] I consider the relationship between Mr Lopes and Mr Williams, in the context of SQ, the SQ Group and the SQ Entities, fits this description. That is because I am prepared to accept, based on the evidence, that this was the understanding between Mr Williams and Mr Lopes at the time SQ and FOC were incorporated. I also draw this inference from the way in which the SQ Group and SQ Entities have since been managed. I also consider that Mr Lopes and Mr Williams operated this enterprise with mutual trust and confidence and joint decision-making. I am satisfied, for the purposes of this application, that Mr Lopes had, and continues to have, a legitimate expectation that SQ will continue to operate as a quasi-partnership. It also follows that the first plaintiff, as a minority shareholder of SQ, legitimately would expect to continue, through Mr Lopes' role as director of SQ, to participate in the management of SQ. The denial of that expectation by the third defendant, although strictly in accordance with SQ's constitution, may amount to oppression.
[23] Morara Pty Ltd v Kingsland Property Investments Pty Ltd [2024] WASCA 123 [80] - [81].
I have said 'may' because I accept that is not always the case.
In Patel v Agrawal,[24] the Federal Court of Australia considered an application for an urgent interlocutory injunction preventing a general meeting taking place with proposed resolutions removing certain directors. The basis of the application was that the resolution would be oppressive to those directors. Yates J refused to grant the injunction on the basis that the proposed resolution to remove the director was not oppressive. His Honour did so on the basis that the plaintiff had no entitlement to be a director, there was no shareholder agreement and that Mr Patel's shareholder entity (who was the second plaintiff) would still be entitled to participate in general meetings on matters of general business and its entitlements to do so would continue.30
[24] Patel v Agrawal [2024] FCA 997.
In Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors,[25] Hasluck J held that a breach of an understanding between shareholders that both will be involved in management can give rise to a legitimate expectation that the understanding will be respected and that, in circumstances of unfairness, the court can restrain the exercise of a legal right by the majority shareholder to remove a director on the basis that it would be oppressive.[26] His Honour observed that it was not necessary for this understanding to be established by any signed documents or express agreement.[27] Nor was it necessary for the understanding to have been predicated upon the contribution of capital to the enterprise. His Honour found that it was unfair for a majority shareholder to remove Mr Scott Park as a director from a number of companies, including 'Scott Park Homes Pty Ltd' on the basis that Mr Park had a legitimate expectation that he would be involved in the ongoing management of the companies, the companies had been profitable and that Mr Park's involvement in the companies had been a contributing factor to their success. His Honour was of the view that the defendant was not attempting to rectify a management problem by removing Mr Park as a director, but rather was in pursuit of a collateral purpose contrary to the management agreement.[28]
[25] Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251.
[26] Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251 [132].
[27] Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251 [136].
[28] Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251 [144].
What is evident from these cases is that each application must be determined having regard to the facts of the matter before the court. Given the wide range of circumstances in which these applications are made, those facts must be carefully examined.
The issue is whether the proposed removal of Mr Lopes as a director of SQ, where it is in breach of an understanding of ongoing management of SQ, gives rise to 'unfairness'. It would not give rise to unfairness simply because a majority shareholder exercises its voting rights having regard to its own self-interests. Mr Lopes says that his removal as a director of SQ will have the consequence that Mr Williams has unfettered control over the affairs of SQ, the SQ Group and the SQ Entities.
In the circumstances of this case, I am satisfied that an objective commercial bystander, being a reasonable director, would view the actions of Mr Williams in proposing to cause the removal of Mr Lopes as a director of SQ as unfair. This is in the context of the recent transfer of one partly paid share from the third defendant to Ms Jodie Williams to create an environment where Mr Lopes could be removed as a director and against the background of a breakdown in the relationship of trust and confidence between Mr Williams and Mr Lopes.
In summary, I am satisfied that the plaintiff has made a prima facie case that Mr Willams has conducted the affairs of SQ in a manner that is oppressive, prejudicial and contrary to the interests of the first plaintiff as a shareholder of SQ in contravention of s 232 of the CA.
I must also consider the strength of the plaintiffs' case. I consider the plaintiffs' claim to be strong. That is for the following reasons:
(1)the alleged conduct of Mr Williams has occurred in the context of a breakdown in his relationship with Mr Lopes and lengthy, and so far, unsuccessful attempts to agree upon the terms for Mr Lopes to exit the SQ Group;
(2)the alleged oppressive conduct, whereby Mr Williams has diverted funds and misapplied funds from FOC, is extensive and would have, if found to have occurred, a significant effect on the value of the first plaintiff's shareholding in SQ; and
(3)the recent transfer of a share from the third defendant to Mr Williams' wife has the effect of consolidating Mr Williams' control over voting within SQ.

Balance of convenience

I now turn to consider the balance of convenience.
The plaintiffs say that if the resolution to remove Mr Lopes as a director of SQ proceeds:
(1)Mr Lopes will lose his position as a director of SQ, which is critical to protecting his shareholder rights and ensuring his voice in the governance of SQ and the SQ Group;
(2)Mr Lopes' removal as a director would severely limit his ability to oversee and safeguard his interests in SQ's affairs, leaving him vulnerable to further oppressive conduct by Mr Williams;
(3)once removed, Mr Lopes' reinstatement as a director would require additional legal proceedings, potentially delaying justice and compounding his disadvantage.
The plaintiffs say that conversely, the defendants will not suffer any significant prejudice if the injunction is granted because:
(1)there are significant funds available to the SQ Group and SQ Entities to ensure that they can meet their debts as and when they fall due;
(2)the injunction does not prevent Mr Williams from pursuing lawful remedies or advancing legitimate governance proposals in the future, once the underlying dispute between Mr Williams and Mr Lopes is resolved; and
(3)Mr Williams and Ms Jodie Williams retain their majority influence over SQ.
On the other hand, the defendants submit that the balance of convenience lies with the defendants and that the injunction should be refused. The defendants say that the plaintiffs will not suffer any injury, for which damages could not be adequate remedy, because:
(1)Mr Lopes wants to exit SQ - therefore, damages are an adequate remedy;
(2)Mr and Mrs Williams have provided undertakings to Mr Lopes and to the Court not to dispose of any assets outside the usual course of business, not to dilute or diminish Mr Lopes' shareholding in SQ and, at the election of Mr Lopes, to undertake any valuation of the shares in SQ as at 30 June 2024; and
(3)Mr Lopes is not of such importance to the ongoing success of SQ and FOC given his role is primarily limited to the management of SFO, in his capacity as a registered accountant.
Conversely, the defendants say that Mr Williams will suffer significant prejudice if the injunction is granted because:
(1)SQ will be forced to retain a director who has no direct interest in its business operations, who does not contribute to its business operations and who is currently prioritising his own interests over those of SQ by seeking injunctive, restrictive relief to force a buyout of the first plaintiff's shareholding rather than meaningfully engaging with the defendants in order to identify a mutually beneficial resolution;
(2)SQ may be unable to pay its creditors as and when they fall due from its own funds and may need to sell assets to meet its debts;
(3)the injunction would preserve the lock which is currently in place on the SQ and FOC ANZ bank accounts, which is restricting the payment of debts, including to FOC's staff, in the ordinary course of business;
(4)the plaintiffs' assertion that FOC has access to funds within the other companies within the SQ Group has no merit, particularly in light of the plaintiffs' position that Mr Williams engaged in such conduct and he should not have; and
(5)preserving the locks on the SQ and FOC ANZ bank accounts will give Mr Lopes an unfair strategic advantage in negotiations concerning the buy-out of the first plaintiff's shareholding in SQ.
While I accept that the defendants will be inconvenienced by the lock on the ANZ accounts, it was Mr Williams who initiated that lock being placed on those accounts in the first place. Further, the plaintiffs would be unwise to later allege oppressive conduct on the part of Mr Williams simply by reason of him utilising funds from other SQ Group and SQ Entities to make payments on behalf of FOC given the lock on its bank accounts and the plaintiffs' submissions made in this application.
The most compelling factor in favour of the balance of convenience lying with the defendants, is the undertakings given by Mr Williams and Ms Williams, not only to Mr Lopes but also to the Court. I accept counsel for the defendant's submission that undertakings to the court have considerable weight and there are significant consequences in the event they are breached. They are, however, not a guarantee that the value of the first plaintiff's shareholding in SQ will not be eroded in circumstances which may give rise to a claim for oppression.
Weighing up all the factors relevant to the balance of convenience, I am of the view that granting the injunction preserves the corporate governance status quo of SQ until the substantive dispute between the parties can be resolved. In my view, granting the injunction prevents irreversible consequences that may prejudice the outcome of the proceedings. Given the nature of the alleged past acts of oppression, I do not consider that damages are an adequate remedy to address any future erosion of the value of the shares in the SQ. It is also not an answer to say that the third defendant has an interest in preserving the value of the shares in SQ - the alleged acts of oppression relate to diverting value from the shares of SQ to entities owned and controlled by Mr Williams. I am of the view that the inconvenience or injury that the plaintiff would likely suffer if an injunction were refused is outweighed by the prejudice that the defendant would suffer if an injunction were granted.
Therefore, I find that the balance of convenience favours the granting of the injunction. I note that even if it was evenly balanced between the plaintiffs and the defendants, the fact that I consider the plaintiffs' case for oppression to be strong would tip the balance in favour of granting the injunction.

Conclusion and final orders

I find that the plaintiffs have advanced a strong case that Mr Williams has conducted the affairs of SQ in a manner that is oppressive, prejudicial and contrary to the interests of the first plaintiff as a shareholder of SQ in contravention of s 232 of the CA.
I also find that the balance of convenience favours the grant of an interim injunction in the terms sought by the plaintiffs.
I also consider that it is appropriate that, as proposed by the defendants, the matter be programmed for an urgent mediation and expedited trial.
I will hear the parties as to final orders and costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RP
Associate to the Honourable Justice Whitby
29 NOVEMBER 2024