Byrne v AJ Byrne Pty Limited

Judgment (Ex tempore) 1HIS HONOUR: The first plaintiff North Coast Transit Pty Limited ("NCT") is presently a ten percent shareholder in a number of companies that form part of what can conveniently be called the Busways Group. In essence, North Coast Transit holds a ten percent shareholding interest in the group. The second plaintiff George Mahendra Tisseverasinghe is the director, company secretary and a shareholder in North Coast Transit, and also a director and secretary of various companies in the Busways Group. 2The Busways Group was held by five interests, one representing North Coast Transit and Mr Tisseverasinghe, and the other four being constituted by the fourteenth defendant Richard Mark Rowe and two companies associated with him (namely the tenth defendant Bhaajau Pty Limited and the twelfth defendant Gabate Pty Limited); the fifteenth defendant Stephen Grant Rowe and two companies associated with him (namely the eleventh defendant South Pty Limited and the thirteenth defendant Verugu Pty Limited); the sixteenth defendant Richard William Rowe and a company associated with him (namely the eighth defendant Busways East Pty Limited); and formerly - until he sold his interest in 2007 - one David Stuart Rowe and two companies associated with him (Westbat Pty Limited and Snowbat Pty Limited). 3Those five interests entered into an agreement, called a Holders' Agreement, on 30 June 2006. Relevantly for present purposes, that agreement contained a provision which was called an "Either you buy me out or I buy you out "auction" provision, which entitled any interest at any time by notice to the other interests to require that a private auction be held for sale and purchase of each respective interest's units, shares and interest in any related real estate, the outcome of which would be that the highest bidder would be bound to purchase all the combined holdings of the other respective interests for a price equal to the amount of the last and highest bid. That provision was contained in clause 9.1A of the Holders' Agreement, and was as follows: 9.1A EITHER YOU BUY ME OUT OR I BUY YOU OUT AUCTION (a) Each Respective Interest shall have the right at any time, by Notice to the other Respective Interests, to require that a private auction (the "Auction") be held for the sale and purchase of each Respective Interest's units, shares in a Relevant Entity and any share in any Relevant Real Estate used by that Relevant Entity ("Combined Holding") and in the event that such Notice is sent, all of the Respective Interests shall attend and participate in the Auction in accordance with this clause. (b) Each Respective Interest hereby grants to each of the others the right at any Auction to purchase or sell, as the case may be, its Combined Holding in the Relevant Entity, whether or not it attends the Auction. (c) The Auction shall be conducted in accordance with the following provisions: (i) The Respective Interest calling the Auction ("Prospective Seller") shall do so by giving Notice to the other Respective Interests of the date of the Auction, which shall not be earlier than 60 days nor later than 90 days of the date of service of the notice on the other Respective Interests. (ii) The Auction shall take place at 10.00am at the offices of the Relevant Entity's accountant, unless all Respective Interests otherwise agree. (iii) The Relevant Entity's accountant shall be directed to appoint an auctioneer ("Auctioneer") (who maybe that accountant or a partner of his accountancy firm) to conduct the Auction. (iv) Each Respective Interest shall be entitled to have three persons attend the Auction. (v) All bids shall be in writing on a bid form to be prepared by the Auctioneer, and shall be signed by the nominee on behalf of the Respective Interest submitting the bid. Nothing shall be added to the bid form except the price bid per share or unit, the bidder's statement of the value of the Relevant Real Estate used by that Relevant Entity ("Selling Real Estate") and the signature of the Nominee of the Respective Interest submitting the bid. A bid shall only be valid when handed to the Auctioneer in conformity with the provisions hereof and after the Auctioneer has announced to all present the amount of the bid. (vi) The initial bid may be in any amount. Each subsequent bid shall be made within twenty minutes of the immediately preceding bid. The amount per unit or share and the price of the Selling Real Estate bid shall be greater than the immediately preceding bid by an amount of not less than one precent. (vii) The bidding shall be deemed to be terminated if 20 minutes have elapsed during which time no valid bid has been made, in which case the last bid shall be deemed to be a valid offer by the Respective Interest submitting the last bid, to purchase all the Combined Holdings of the other Respective Interests for a price equal to the amount of the last bid, and the other Respective Interests shall be deemed to have accepted such offer. (viii) If any dispute or disagreement arises with respect to any matter pertaining to the Auction or the conduct thereof, the determination by the Auctioneer with respect thereto shall be final and binding on the Respective Interests and there shall be no appeal or review therefrom. (ix) The fees and expenses (including legal fees) of the accountants and Auctioneer shall be borne by the Respective Interests equally. (x) Notices or bids for a Respective Interest must be signed by the nominee of the Respective Interest or his attorney as provided hereafter. (xi) The Purchase Price payable by any one Respective Interest to any other or others, and the Loan Account of the selling Respective Interest payable by the Relevant Entity shall be payable in 24 equal monthly instalments commencing on the first day of the first month immediately following the date of the Auction, together with interest thereon at the Interest Rate calculated daily from the date of the Auction. Any payments made shall be applied firstly to accrued interests and only the balance in reduction of principal Any instalments in arrears whether of principal or interest shall bear interest at the Interest Rate from the date the same accrues due to the date of payment of the same. Should any instalment of the Purchase Price of shares or the relevant Loan Account be unpaid for more than 30 days the whole of the Purchase Price and the Relevant Loan Account shall become immediately payable and interest at the Interest Rate shall accrue thereon from the time that the same becomes payable until the payment of the same calculated on daily rests. 4Clause 11 of the Holders' Agreement (Restriction, Amendments and Consensual Cancellation) provided as follows: No amendment or consensual cancellation of this agreement or any provision hereof shall be valid or binding unless recorded in writing and signed by the parties hereto. 5Clause 12 (Good Faith) provides as follows: Although the relationship between the parties shall not be that of a partnership, they hereby agree and undertake each to the other to display the good faith which partners are obliged to display to one another and the parties acknowledge their continuing duty to reveal to one another all facts of whatsoever nature which may be material to a Relevant Entity or the value of interests in it or to any sale or proposed sale or value or price of any holding in any of the Entities and facts which may be relevant to the any questions which under this agreement are matters to be dealt with by Policy Resolution. 6Clause 13 provided that any dispute arising out of or in connection with the Holder's Agreement or its termination or arising from the operation of the business - and, it would seem, of any relevant entity - be dealt with by mediation according to the provisions that it contained. 7As I have said, the interests associated with Mr David Stuart Rowe, which were held by Westbat and Snowbat, were sold in 2007. It was essentially as a result of that 2007 transaction that the interest of Mr Tisseverasinghe and NCT - which had, until that point, been much smaller - increased to a ten percent interest in the group. 8Mr Tisseverasinghe alleges, and the evidence establishes on a prima facie basis, that over the period of approximately six months from about December 2012 until June 2013, the other shareholding interests and the directors who represented them engaged in conduct which can conveniently be described as exclusionary conduct having the effect of reducing his involvement in management to the point of relegating him to very minor tasks and responsibilities and excluding him from access to information about corporate affairs. This conduct has taken place in a context where it appears that at least some of the other directors have formed the view that a ten percent interest for Mr Tisseverasinghe's interest is excessive and that he should only have a five percent interest, and has been accompanied by various proposals whereby he might divest himself in their favour of half of his shareholding. 9Ultimately, the proposals were accompanied by a threat to invoke the auction process under clause 9.1A of the Holders' Agreement, and then on 29 May 2013 Mr Richard Mark Rowe and his associated interests gave notice to the Stephen Grant Rowe interests, the Richard William Rowe interests and the Tisseverasinghe interests invoking clause 9.1A and providing that the auction was to take place on Tuesday 30 July 2013 at 10am and nominating the place of auction. 10On 3 July 2013, the plaintiffs approached the Court ex parte (but having given notice of their intention to do so to the defendants) and obtained leave to file an originating process claiming a declaration that the conduct of the affairs of companies in the Busways Group was oppressive to, unfairly prejudicial to, or unfairly discriminatory against NCT and an order that those companies be wound up under (Cth) Corporations Act 2001, s 233(1)(a) (that is to say on the oppression ground), alternatively s461(1)(e) or (k) (that is to say on the grounds that it is just and equitable to do so, or that directors have acted in their own interests and not in the interests of the company as a whole). In addition, or in the alternative - it is not quite clear which - an order was sought that the shares of North Coast in each of the seven nominated companies be purchased by the remaining members at a price equal to the market value of the shares as a whole without discount for the fact that the shareholding is a minority shareholding. As the case was presented, it seems that this is the relief principally sought by the plaintiffs. Further, a declaration was sought that the notice of 29 May 2013 invoking clause 9.1A of the Holders' Agreement was void and of no effect, and that the operation of the Holders' Agreement came to an end on or about 1 July 2007 (at the time of the sale of the shares of the David Stuart Rowe interests). 11By paragraph 8 of their application, the plaintiffs sought an interlocutory injunction restraining the holding of the auction referred to in the notice and it is that application which is presently before the Court for determination. 12On an application for an interlocutory injunction of this kind, the test is whether the plaintiff has a seriously arguable case for a final injunction and if so whether the balance of convenience favours the granting over the withholding of an interlocutory injunction in the meantime. The strength of the case for a final injunction is relevant to what is required to tilt the balance of convenience, in that the stronger the case for final relief, the less may be required to tilt the balance in favour of an interlocutory injunction; whereas the weaker the case for final relief, the more that will be required to show that an interlocutory injunction is, on balance, convenient. However, that is not always the case. 13The plaintiffs put their case for final relief on two bases: first, oppression under Corporations Act, s 232; and secondly, on the basis that there is no entitlement to invoke the auction process at all because, so it is said, the Holders' Agreement came to an end when the interests of David Stuart Rowe were sold in 2007. On the balance of convenience, it is said that interlocutory relief is necessary in order to preserve the plaintiffs' entitlement to final relief, whether in the form of a final injunction restraining the auction, or in the form of a compulsory purchase order under Corporations Act s 233. 14I will deal first with the case under the Holders' Agreement. In my view, on the current state of the evidence, there is no basis for supposing that the Holders' Agreement somehow came to an end upon there being a change in the way that the interests were held and the exit from the company of one of those interests. 15Clause 11 of the Holders' Agreement, to which I have referred, provided that no cancellation or variation would be effective unless documented in writing. There was no documentary record of any cancellation or variation. The fact that some inter parties communications at the time referred to a need to review the Holders' Agreement does not suggest for a moment that it had come or would come to an end as a result of changes in the holdings. It suggests no more that it was recognised that a change in the holdings might warrant reviewing the terms of the Holders' Agreement with a view to amending them. 16The Holders' Agreement envisaged that one interest, or more, might wish to sell its holdings and provided for means by which it could do that. Whether or not those means were actually invoked, this illustrates that it was contemplated that there could be changes in the way that the interests were held. Ordinarily, the result of any of the processes referred to in the Holders' Agreement would be that shares would remain held by the extant interests, albeit fewer of them in different proportions. In those circumstances, all of the shareholders would already be bound by the Holders' Agreement. 17It is true that there are some circumstances in which an external party might acquire a shareholding, and the Holders' Agreement contained no provision for a "Deed of Adherence" by an incoming shareholder. That might have created difficulties in the event that a new shareholder whose interest was not already bound by the Holders' Agreement joined the company, but that is an eventuality which has not arisen. In my view, there is little difficulty in concluding that the Holders' Agreement continues to bind the parties to it, and the corollary is that there is not a seriously arguable case that the Holders' Agreement came to an end in 2007. 18That does not foreclose argument on the issue at the final hearing. It may be that further evidence may emerge, surprising as it might be, that the parties agreed that the Holders' Agreement would come to an end in 2007. But there is nothing to suggest that at the moment. Accordingly, on that basis, I am not persuaded that there is a seriously arguable case for a final injunction restraining the defendants from proceeding with the auction. 19I turn therefore to the main basis on which the case was put, that of oppression. 20It is not necessary that I recite in detail the evidence in this respect as it was not in issue at this stage of the proceedings, and for the purposes of this application only, that there was a seriously arguable case that the defendants had engaged in exclusionary conduct of the type that could constitute oppression within s 233. Nor was it disputed that there was a seriously arguable case of oppression under s 233. 21That is not the whole of the question, though, because a seriously arguable case of oppression does not necessarily equate to a seriously arguable case for a final injunction. In particular, the fact that there may have been oppressive conduct does not necessarily mean that it would be oppressive to require the first plaintiff to adhere to arrangements in connection with its shareholding that had been made at the time when it acquired its shareholding in respect of being exposed to the potential for compulsory acquisition by another shareholder pursuant to the private auction process referred to in clause 9.1A of the Holders' Agreement. 22Thus, two remaining issues really require consideration. The first is whether, in circumstances where the plaintiffs seek a compulsory purchase order, there is a seriously arguable case for an injunction restraining the auction sale; and the second is whether, if so, the balance of convenience favours that course. 23It is true that when valuing a company for the purposes of fixing the price for a compulsory purchase order under s 233, the Court usually does not provide for a discount for minority interest for the minority shareholder and the Court may disregard procedures for sale fixed under the articles of association such as those that typically require a shareholder who wishes to sell to offer the shares first to the other shareholders under a transfer notice process and for a price to be fixed by the company accountant or auditor, and often to include a discount for minority interest. In this respect, see, for example Re Dalkeith Investments Pty Limited (1984) 9 ACLR 247; Dynasty v Coombs (1995) 138 CLR 64; Byrne v AJ Byrne Pty Limited [2012] NSWSC 667. But while these cases indicate the general approach of the Court, I do not think they say that in the case of a compulsory purchase order the price must invariably be the market value without discount. All of these cases express the position in terms of the Court's "usual" (as distinct from invariable or only) approach. This was particularly illustrated by the judgment of Nourse J (as he then was) in Re Bird Precision Bellows Ltd [1984] 1 Ch 419 where his Lordship held that, in considering the fair price to be paid for minority shareholdings upon the making of a compulsory purchase order, there was no rule of universal application as to whether the price to be paid should be fixed on a pro rata or on a discount basis, though there was a "general" rule that where the purchase order was made in respect of the shares of a quasi-partnership, where the conduct of the majority had been unfairly prejudicial to the interests of the minority or there had been an agreement that the fair price should be determined by the Court without admission of unfairly prejudicial conduct, the fair price should be determined on a pro rata basis. Ultimately, if there was to be a discount, the amount was a question of valuation; but the question of whether there should be a discount was a question of law for the Court. 24It seems to me that the fundamental principle in this area is that the remedy under s 233 is one that must be calculated to alleviate the consequences of the oppressive conduct and no more; that is to say, to place the oppressed minority in a position equivalent to that in which it would have been but for the oppression, but not to improve its position over and above that which would have prevailed but for the oppression. The cases that hold that the Court is not bound by and may disregard internal rules in respect of pre-emptive rights and the fixing of prices have been concerned with the position of a minority shareholder who is an unwilling seller because of the oppressive conduct. This has been illustrated, for example, in the judgment of Black J in Byrne v AJ Byrne Pty Limited, particularly at [70]. The present case is different, because whereas in the ordinary case the minority, if it wishes to sell its shares, may do so but only pursuant to the restrictions on transfer contained in the articles, normally the minority is not in a position where it can, in any event - oppression or no oppression - be compelled to sell its shares. But here, under the Holders' Agreement, the interest of any minority has always been liable to compulsory acquisition by another interest willing to pay for it pursuant to the auction process, at the election of any other interest in the Group. Thus, even assuming all the matters of oppression alleged were established, in this case from the outset the Holders' Agreement entitled the other shareholders to invoke the auction process at any time. It is easy to see why, in the case of an oppressed minority shareholder whose shares are not otherwise liable to be compulsorily acquired, the Court would not invoke or be bound by the transfer processes in articles of association, the effect of which is to produce a discounted value. That is because, in effect, the Court is requiring a shareholder who otherwise would not wish to be bought out but for the oppression to be bought out and the Court is doing what it can to place that shareholder, at least economically, in the same position it would have been in but for the oppression. It is not so easy to see why an oppressed minority shareholder whose shares were in any event liable to compulsory acquisition by others should, on account of oppression, be able to secure a result superior to that which would have prevailed under the auction process to which it was in any event explained. 25In short, it seems to me strongly arguable that there is nothing oppressive in the first plaintiff's shares being acquired pursuant to arrangements to which the plaintiff agreed when it acquired its shareholding. But that, in turn, must be subject to some qualifications. First, if the effect of the oppression had been to depress the value of the company, it can be seen that to require the oppressed minority to participate in an auction where the value of the subject matter had been depressed by oppression could itself be oppressive. Secondly, it is at least arguable that if the oppressive conduct had the effect of excluding the minority from information about the market and the subject matter of the auction which would inform a bidder, while such information remained available to the majority, that might well itself be oppressive. 26Thirdly, the concept of an auction process depends on competition setting the market value. In many oppression suits, particularly where the shareholdings are equal, the matter can be resolved by establishing which shareholder is prepared to pay more for the other's interest. In the present case, the rationale for the auction process is that there will be multiple parties willing to bid to acquire the whole interest in one or more of the companies in the group. Where oppression has made it practically impossible for a minority shareholder to be a purchaser, then the auction process may itself be an instrument of oppression. In the context of a group of companies such as the Busways group, the notion that in order for there to be a viable auction the plaintiff would have to be a bidder and might end up holding all of the interest in one or more companies in a group otherwise controlled by the alleged oppressors, would effectively be to require the plaintiff to be locked in to the situation of oppression. In that way the auction process, might itself be an instrument of oppression. 27There is in this case no evidence that the oppressive conduct has impacted adversely on the value of the company. There is certainly some evidence to suggest that the plaintiff has been excluded from information or access to information available to the other interests which would inform an intelligent bidding process. And, it seems to me, it is arguable that as the auction process contemplates multiple parties willing to bid, then for the plaintiff to derive value from the auction process it might well have to embark on a course which would leave it locked into a group in which it was being oppressed. 28In the present case there is a further consideration, namely that the invocation of the auction process was the culmination of what the plaintiff contends was a course of oppression calculated to compel the plaintiff to give up effectively half of its ten percent interest in the group. In that way also, it is at least arguable that invoking the auction process was itself a step in an entire oppressive course of conduct. 29That analysis leaves me in the position where I recognise a strongly arguable case that there is nothing oppressive in requiring the plaintiff to suffer compulsory acquisition of its shares pursuant to the auction process to which it agreed at the outset, but also recognise that there is an arguable case that to do so would itself be oppressive. It is unnecessary on the present application that I resolve that tensions which of itself shows that, while there are considerations in both directions, the plaintiffs' case is at least a seriously arguable one, sufficient to surmount the test for interlocutory relief. 30On the balance of convenience, it was contended that it was not necessary to restrain the auction because, if it were ultimately found that the plaintiff were entitled to a compulsory purchase order at a price higher than that secured at the auction, it would be open to the Court under s 233 to make an order of a monetary character to require payment to the plaintiff of the difference between the price at auction and the price that the Court would have fixed under a compulsory purchase order. Initially I found this argument attractive, but it has a number of difficulties. Not least is that approaching an oppression suit in that manner is unprecedented, and the remedy is at least not specifically authorised by s 233. If s 233 were intended to authorise monetary compensation orders, then it is surprising to say the least that they are not referred to amongst the specific remedies listed in the section, especially given that the Corporations Act otherwise makes contravention of various of its provisions amenable to compensation orders under s 1317H. There is no such conflict as a contravention of s 232. The way in which the section works is that s 232 describes certain types of conduct in respect of which the remedies under s 233, which must be designed to relieve of the effects of that conduct, may be granted. But I am not aware, and counsel has not been able to refer me, to any case in which the remedy for oppression has been a monetary compensation order, although I readily acknowledge that a similar result can be obtained, as it was in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) (1998) 29 ACSR 290, by requiring accounts to be taken before striking a valuation. 31Assuming that such an order could be made, the question remains, against whom it would be made. The consequence of the auction provisions in clause 9.1A appears to be that one of the four remaining interests will have to buy out the other three interests. It is unclear at this stage whether a compensation order, if available, would be made against the purchaser (who might not be one of the oppressors) or against the oppressors (who might not be the purchaser at the auction). 32Thirdly, the possibility cannot be disregarded that the plaintiffs' interests might be a purchaser at the auction, if not of all the companies in the group, then at least of one or more of the companies. How compensation would be calculated in that eventuality remains entirely unclear. Fourthly, were one of the defendants to be a purchaser, it is very likely that security over the assets and undertaking of the company would be required to fund the purchase price, and third party rights might intervene in that respect. 33Accordingly, despite the offer of an undertaking on the part of the defendants not to dispute jurisdiction to make a compensation order of the sort contemplated, it seems to me that if I were wrongly to decline an interlocutory injunction, then the entitlement of the plaintiff to effective relief in the form of a compulsory purchase order might be jeopardised. 34Against that, the defendants argued on the balance of convenience that were I wrongly to grant an interlocutory injunction, then the consequences would be depriving the parties of an opportunity for immediate resolution of their dispute on the basis that the auction might produce a satisfactory result; secondly, leaving the company in a state of internal dispute at a time when it was tendering for major contracts and its ability to secure them might be jeopardised by the pendency of that dispute; thirdly, increasing the potential for there to be multiple disputes between the parties; and finally, by avoiding the alternative dispute resolution process envisaged by the Holders' Agreement. 35As to the first, it seems to me that it counts for very little in the balance of convenience. There are many ways in which an early resolution could be achieved between the parties of which pursuing the auction process is only one. The likelihood of the auction process producing a satisfactory outcome in circumstances where realistically the plaintiff is not a bidder to acquire the whole of the interest in the group is, it seems to me, very slight. 36As to the second, this is of some weight. It is true that the pendency of an internal dispute in the company might be a factor affecting its attractiveness to the State Government and others in respect of the contracts for which it is currently tendering. That said, it is only a possibility that that would be so. Insofar as the pendency of these proceedings is within the definition of "insolvency event", in some of the contracts in question it is arguable that it is not within that definition as, while the definition refers to an application for a winding up order, in the context in which it appears it may well be that that would be read down to be limited to one based on grounds of insolvency. But if it is within the definition, then the event has already happened and granting or declining interlocutory relief will make no difference to that. 37As to the third, there is already ample potential for multiple disputes and I do not consider that allowing the auction to proceed before the final hearing will significantly exacerbate that. 38Finally as to the opportunity for alternative dispute resolution, I do not see how granting or withholding interlocutory relief makes any difference to the availability of the alternative dispute resolution procedures contained in the Holders' Agreement to which I have referred. 39Accordingly, it comes down to weighing some real potential jeopardy to the plaintiffs' ability to obtain an effective compulsory purchase order at final hearing (or, for that matter, an order restraining the auction itself on the basis that it was part of a course of oppressive conduct) against the possibility that there might be some detriment to the group's attractiveness as a tenderer in respect of the various contracts. On that balance, it seems to me clear that the balance of convenience favours the granting rather than the withholding of interlocutory relief. 40Accordingly, I order that until the hearing or earlier further order, the defendants be restrained from, by themselves, their servants, or agents, proceeding with the auction referred to in the notice dated 29 May 2013 signed by Richard Mark Rowe. That order is made upon the plaintiffs, by their counsel, giving to the Court the usual undertaking as to damages and undertaking to prosecute the proceedings with all due expedition. 41I propose to abridge the time for filing a defence to the statement of claim to 14 days from today's date. 42It seems to me that the proper costs order, when a case of this kind is really fought over the balance of convenience and if is reasonably contestable, is that costs of the interlocutory application be costs in the proceedings.