Campbell v Backoffice Investments Pty Ltd [2019] NSWSC 1847 | Case summary

Campbell v Backoffice Investments Pty Ltd [2019] NSWSC 1847 | Case summary | Zoe

Nature of the proceedings, parties and some preliminary matters

By Originating Process filed on 28 November 2018, the Plaintiffs, Seaham Grange Pty Ltd ("Seaham Grange") as trustee for the John Farragher Trust and Ms Elizabeth Farragher (to whom I will refer, without disrespect, as "Elizabeth") as trustee for the Elizabeth Farragher Trust seek an order under s 233 of the Corporations Act 2001 (Cth) that the Second and Third Defendants, Ms Francene Farragher (to whom I will refer, without disrespect, as "Francene") and Ms Donna Farragher (to whom I will refer, without disrespect, as "Donna") be removed as directors of John Farragher Pty Ltd ("Company"). They also seek an order that Mr John Farragher (to whom I will refer, without disrespect, as "John") and Elizabeth (assuming that the reference to the Third Plaintiff is intended to be a reference to the Second Plaintiff) be appointed as directors of the Company. The Plaintiffs sought to amend the Originating Process after the close of evidence to seek alternative relief, including an order for the winding up of the Company, but I did not permit that amendment for reasons given in a separate judgment.
Seaham Grange is, as I noted above, the trustee for the John Farragher Trust and holds 1255 ordinary shares in the share capital of the Company and John is the primary beneficiary of that trust. Elizabeth is the trustee for the Elizabeth Farragher Trust and also holds 1255 ordinary shares in the share capital of the Company. Francene, Donna and the Fourth Defendant (to whom I will refer, without any disrespect, as "Therese") are the trustees for the Francene Farragher Trust, the Donna Farragher Trust and the Therese Wildshut Trust and each hold 1255 ordinary shares in the share capital of the Company. John, Elizabeth, Francene, Donna and Therese and Catherine Farragher (to whom I will refer, without disrespect, as "Catherine") are the children of the late Marjorie Mary Farragher ("Marjorie"). I will refer to them collectively as "the family members", to avoid the oddity of referring to mature adults as "the children".
Mr Katekar, who appears for the Defendants, initially submitted that the Plaintiffs' claim was not properly constituted, so far as it was brought by Seaham Grange and Elizabeth "as trustee for" the respective trusts against Francene and Donna "as trustee for" their respective trusts, but complained of conduct in Francene's and Donna's personal capacities as directors of the Company. Mr Katekar also submitted that John (or, more precisely, Seaham Grange) and Elizabeth seek orders in their favour (appointing themselves as directors of the Company) against Francene and Donna (removing them as directors of the Company) which each affect those persons in a personal capacity, but none of those persons had been joined in that capacity. I do not accept this submission. The Plaintiffs and Defendants are each joined in their personal capacity (although Seaham Grange rather than John is a party), although they are identified as being trustees of the relevant trusts and they may or may not have rights of indemnity as against those trusts in respect of any orders, including as to costs, that may be made against them.
I also note that Catherine was not joined as party to the proceedings although her legal interests would arguably be affected by the relief sought. Had a basis for that relief otherwise been established, I would have adjourned the proceedings briefly to allow the Plaintiffs an opportunity to seek Catherine's consent to be joined as a Defendant to the proceedings and to the relief sought, nunc pro tunc. It is not necessary to do so given the conclusions that I reach below.

[3]

Affidavit evidence and chronology

The Plaintiffs relied on John's affidavit dated 15 November 2018. John's affidavit addressed Marjorie's death and the terms of her will; the administration of Marjorie's estate; the assets of the Company; the Company's annual general meeting ("AGM") held on 28 March 2018; and further communications between John's solicitors and solicitors acting for the Defendants. Parts of that affidavit were inadmissible and were not read or were admitted with limiting orders under s 136 of the Evidence Act 1995 (NSW) as evidence of John's understanding only, or as submission. I will refer to John's cross-examination below.
The Plaintiffs also relied on Elizabeth's affidavit dated 18 July 2019. Parts of Elizabeth's affidavit were also not in admissible form and were admitted with limiting orders under s 136 of the Evidence Act as submission only, or as evidence of Elizabeth's understanding rather than evidence of the relevant fact. I will also refer to Elizabeth's cross-examination below.
Francene and Donna did not give evidence. Mr Raftery, who appears for the Plaintiffs, submits that I should draw an inference that their evidence would not assist them. I recognise that, where a party would be expected to, but does not, call a witness who could give evidence on a relevant matter, and the failure to call that evidence is unexplained, an inference may in appropriate circumstances be drawn that the uncalled evidence would not have assisted the party's case: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63]-[64]; MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 at [53]. That inference is of limited significance in this case, given the nature of the issues between the parties.
Turning now to a broad chronology of events, the Company was initially incorporated in 1955 as TJ Farragher Pty Ltd. From 26 October 1998 to 28 July 2014, Marjorie and Elizabeth were the directors of the Company and, on 28 July 2014, Elizabeth resigned as a director of the Company and Francene was appointed (or, as the Plaintiffs put it, "purportedly appointed") a director of the Company (APC [7], [16], APD [7])). John was placed in bankruptcy on 20 August 2015, with substantial debts to National Australia Bank and the Australian Taxation Office, and was not discharged from bankruptcy until 17 August 2017, after the payment of a small proportion of those debts by his wife (Ex D2, 34, 51; Ex P2).
Marjorie died on 26 August 2016 (APC [10]). By her will, she established six separate testamentary trusts, one for each of the family members; each of them was appointed as trustee of his or her trust and was also named as the primary beneficiary of the trust; a one-sixth interest in the shares held by Marjorie in the Company was bequeathed to each testamentary trust; and Donna, Elizabeth and Francene were appointed as joint executors of the estate, subject to a requirement that their decisions be unanimous (APC [11]).
The Plaintiffs contend, and it is common ground (APC [14]; APD [14]) that: "During the administration of Marjorie's estate, the relationships between her children irretrievably broke down. At all material times there were two camps. On the one side there was Catherine, Elizabeth and John and on the other there was Francene, Donna and Therese." John's affidavit evidence is also that, during the administration of Marjorie's estate and in the period after its finalisation, relations between the Plaintiffs and the three individual Defendants had "irretrievably broken down" and that there were two camps, involving three shareholders in one camp (including Catherine, Elizabeth and John) and three shareholders (namely Francene, Donna and Therese) in the other (John 15.11.18 [10]). John sought to avoid the obvious implication of that evidence, mainly that a board comprised of two representatives of each camp could not function, in cross-examination to which I refer below. I do not accept John's evidence as to that matter. I will return to the significance of these matters for the relief to be granted below.
The Plaintiffs contend (APC [21]) that "On 15 September 2016, Francene, as the then sole director of the [Company] … appointed Donna to be a director of the [Company] and on 4 November 2016, Francene appointed herself to be a company secretary of the [Company]."
By an email dated 18 October 2016 to Donna and others (Ex D1, 326), John contemplated the possibility that, if Donna was happy to step down as a second director "as indicated last night" and Elizabeth would take that role with Francene, that would make the "most amount of sense in their role of managing financial affairs of Mums estate" and indicated his support for Elizabeth as second director. That email also addressed questions as to the terms of a loan made by the Company to John, which I address below.
Family members then confirmed their consent to Donna's appointment as a director of the Company at a family meeting held on 10 November 2016, albeit at a time the estate rather than the family members or their associated entities were shareholders in the Company (Ex D1, 334). Elizabeth reacted adversely to the fact that she was not appointed as an additional director of the Company at or following the November family meeting. By email dated 20 December 2016, Elizabeth advised Therese, Francene and Donna (Ex D1, 350) that: "I have thought long and hard over the lack of support for my nomination for Directorship of [the Company]. Your attitude toward this nomination has been a personal insult and given me an insight into your assessment of my character. We are siblings but a friendship we do not have. I will be relieved when the estate is finalised and there is no need to be involved with each other." Elizabeth was cross-examined as to this correspondence (T116-117). By email dated 22 December 2016, she refused to attend any future meetings in respect of the estate (Ex D1, 351; T117-118).
By email dated 20 January 2017 (Ex D1, 357) to "Directors, Executors and Beneficiaries", which addressed a number of matters relating to the estate, Francene advised that the directors of the Company would be applying to have the shares in the Company registered in the name of each testamentary trust. Francene signed that email as "permanent director" of the Company and as an executor of the estate, and I will address an issue in respect of her claim to that position below.
On 11 February 2017, Elizabeth indicated that she would resign as an executor, although it appears that she ultimately did not do so. On 17 February 2017, Francene advised that share transfers and other ancillary documents had been delivered to Sparke Helmore for collection by John, Elizabeth and Catherine and, once the documents had been signed, Francene would forward them to the accountants for registration. An issue then arose as to whether the share transfers could occur without Elizabeth's authority, where, as I noted above, she had indicated she would resign as executor but had not done so. That issue was subsequently resolved when Elizabeth became party to the arrangements necessary to implement those transactions. Also on 17 February 2017, Francene sent an email to Donna, Catherine, Therese, Elizabeth and John (Ex D1, 363) which stated that: "[The accountants] have now prepared the necessary documentation to proceed with the transfer of shares for [the Company] to be registered with ASIC. Such documents include… which require your signatures… Once all documentation has been signed I will collect from [the estate's solicitors] and forward to [the accountants] for registration and filing."
By letter dated 20 February 2017 (Ex D1, 364), solicitors acting for Elizabeth advised the solicitors acting for the estate that the will required the executors to act unanimously; indicated that Elizabeth was considering her position in relation to the testamentary trust to be established for her under the will and requested documentation and information.
By email dated 24 February 2017 (Ex D1, 370), Donna sent a letter to other family members indicating her understanding that Elizabeth was "taking legal action" against the other executors, and noting the executors' solicitors advice that they now could not communicate directly with Elizabeth but only through her solicitors. Donna in turn observed that: "What I can't understand is what is driving this. I would suggest Libby that you are just flatly refusing to accept the decision of the other beneficiaries that only two directors are required for [the Company], which is only a minor issue in the scheme of things. You have taken this personally when you shouldn't. Libby this is not a reflection on your ability as a business woman or your integrity; it was for practical reasons only. This does not preclude you from the other 99.9% of decision making and WORK required on a daily basis that you have removed yourself from. It also doesn't preclude you from access to ANYTHING you want to see, including all those items listed by your lawyer. … Nothing is a secret and information has always been freely available when asked." The letter also made several observations indicating the deterioration of relationships between family members, referring to the "complete lack of trust and respect" demonstrated by family members to Francene and Donna and to the "lack of appreciation and the utter disrespect" that was directed to them from family members, and inviting requests for information to be made by telephone rather than by email.
Catherine responded, by a measured email dated 25 February 2017 (Ex D1, 372) recognising the "anger, frustration and hurt from past grievances between siblings" and suggesting that Elizabeth should "let … go" her complaint as to not having been appointed a director of the Company, and noting that, although Catherine had supported her initial request for a directorship, "some family members did not" and the directorship would not go ahead without their support.
On 1 March 2017, Francene sent an email (Ex D1, 374) to Donna, Catherine, Therese, Elizabeth and John which relevantly stated that: "All shares were distributed to the nominated shareholders and registered with ASIC on 17 February 2017, facilitating the declaration of a dividend out of funds held with [the Company] to each shareholder." By that email, Francene also advised that: "At a recent meeting of Directors, it was resolved to declare a dividend out of the profits recorded in the books of the company. That dividend of $300.00 per share equates to a payment to all shareholders of $376,500 each. Shortly, you will receive a cheque in the mail along with a Dividend Statement…"
By letter dated 2 March 2017 (Ex D1, 375), Elizabeth's solicitor requested that the estate's solicitor conduct no further work in respect of the Company, including in respect of any payment of dividends from the Company, until Elizabeth had authorised such work to be performed, on the basis that the shares and any distributions were assets of the estate. Elizabeth's current criticism of the delay in making such a distribution, to which I refer below, is starkly inconsistent with her then position that the distribution should not proceed without her consent. The implementation of the distribution was also, no doubt, not assisted by a threat subsequently made by John (Ex D1, 471; T80-82) to bring proceedings against the solicitors for the estate, unless the Company's directors agreed to release him and his wife from claims under the Company's loan agreement to him, to which I refer below.
On 24 July 2017, Francene asked the estate's solicitors to finalise the interim distribution "without any further stalling or delays" (Ex D1, 470). It is difficult to see how Francene or Donna can be criticised for delays in making the distribution which they had sought to have made promptly. I will return to that issue below.
By email dated 18 November 2017 (Ex D1, 488), Elizabeth requested Francene and Donna to provide shareholders, within six days, with financial statements and taxation returns for the Company for the years ending 2015, 2016 and 2017 and bank statements for over 3 years from 1 July 2014 to date. By email dated 20 December 2017 (Ex D1, 498), Catherine indicated her wish to be advised of costs for the subdivision of the land to date, which she acknowledged had been provided, new projected costs going forward and an estimated final sale price of the property or its separate parts or lots. Elizabeth followed up on the request for financial information by email dated 16 January 2018 (Ex D1, 501).
On 19 January 2018 (Ex D1, 504), the solicitor acting for John, Elizabeth and Catherine threatened the commencement of winding up proceedings in respect of another family company, Intruder Holdings Pty Ltd ("Intruder Holdings") if other shareholders did not accept an offer made by them to purchase a relevant property. He also demanded documents previously requested by John, Elizabeth and Catherine, namely: "the financial accounts for FY 16 and FY 17, including P&L Balance Sheets, Accounts Payable and Receivables, Bank Statements and Annual Tax Returns." He rightly referred to shareholders' ability to seek access to information under s 247A of the Act, but no such application was brought.
The extent of deterioration of the relationship between family members (a matter that is relevant to the question of relief which I address below) is emphasised by Elizabeth's email dated 8 February 2018 (Ex D1, 512), in relation to the dispute between the two shareholder "camps" concerning Intruder Holdings, which observed that the relationship between the directors and shareholders of Intruder Holdings had "reach[ed] a level that is untenable" and that, in view of the dysfunction of directors and shareholders, Elizabeth did not think there was any other alternative than to sell that company's property and liquidate that company. By a further letter dated 14 February 2018 (Ex D1, 515) in respect of Intruder Holdings, the solicitor for John, Elizabeth and Catherine also referred to "a complete breakdown of mutual trust and confidence" between the family members who were the shareholders and directors of that company.
An AGM for the Company was held on 26 March 2018. I will address issues raised by the Plaintiffs in respect of that AGM below.
The Plaintiffs commenced these proceedings on 28 November 2018. Further documentation has been requested by John and Elizabeth since the commencement of these proceedings (Ex D1, 675-677, 680, 729, 737-738). I give little weight to those requests, where, as I will note below, the question of oppression should be determined as at the date of the commencement of the proceedings. I note, however, that correspondence between John and Donna on 9 and 10 April 2019 (Ex D1, 674-675), including adverse comments made by Donna as to John's business history and John's reference to Donna's "bitter bigoted self showing it[s] ugly head again" and that "this is all we have learnt to expect from you" amply demonstrates the extent to which the family members' relationship had deteriorated, and is starkly inconsistent with John's evidence in cross-examination of their ability to work together if John and Elizabeth were appointed to the Company's board.

[4]

John's and Elizabeth's evidence on cross-examination

John was cross-examined at some length. John accepted in cross-examination that his relationship with Francene had broken down (T24). His evidence in cross-examination, contrary to the relief sought in the Originating Process, was that his proposal was that Francene and Donna and Elizabeth and he "share the board" and that the removal of Francene and Donna from the board was only "one of the alternatives" and that the Plaintiffs were "not necessarily" seeking that result (T25). He accepted that there were two camps of shareholders, comprising himself, Elizabeth and Catherine on the one hand and Francene, Donna and Therese on the other but claimed that his and Elizabeth's experience was such that they could "make it work" if they were appointed to the board together with Francene and Donna (T25, see also T82). Having regard to the content and tone of the correspondence between the parties, over a long period, I am unable to accept that evidence. Mr Katekar put the proposition to John in cross-examination that his and Elizabeth's intention, if they obtained control of the Company's board was to contend that the majority of legal and other costs incurred by Francene and Donna to progress the subdivision of the Company's property were unnecessarily or unreasonably incurred. John was non-committal in respect of that proposition (T27). It seems to me that the existence of that intention would not prevent John's and Elizabeth's appointment to the board, if such an order were otherwise justified.
Aspects of John's evidence were, at best, imprecise and, on occasion, evasive. He initially denied that he had been advised of his ability to seek access to the Company's books under s 247A of the Corporations Act, although his solicitor had sent correspondence referring to shareholders' rights under that section, presumably on his instructions (T27-28). His evidence was plainly evasive when he initially denied that there had been a dispute in relation to the property owned by Intruder Holdings, notwithstanding aggressive correspondence sent by his solicitor in relation to that matter, and sought to characterise that position as no more than a buyer's and seller's negotiations over price as to property of that company. It seemed to me that John was not giving honest evidence when he denied having understood that his wife had agreed to mortgage their residence, which was held in her name, as security for repayment of a loan made by the Company to John and his wife, although the loan and mortgage documents plainly provided for such a mortgage and that was not a matter that he was likely to have forgotten with the passage of time, given the extent of disputes as to that arrangement (T33). John's evidence was often self-serving, for example asserting on many occasions that matters had been agreed with Marjorie, but seeking to avoid any exploration of the content or circumstances of any such agreement by asserting the frequency of his communications with her (for example, T35, T38). Mr Katekar also cross-examined John as to his business history and the fact that several companies with which he has been associated had variously been placed in administration, become subject to deeds of company arrangement and placed in liquidation. That matter could have raised difficulty for an order appointing John to the Company's board, had an order for that appointment otherwise been justifiable. It is not necessary for me to address that issue, where I am not persuaded that that appointment would be justified on other grounds.
John also gave evidence, implausibly, in cross-examination, denying that he had agreed to pay a higher interest rate after his default in repayment of the loan made by the Company to him and his wife, despite evidence that repayments had in fact been made at the higher rate for a period before John ceased to make them (T50). By contrast, Elizabeth frankly acknowledged that agreement in her cross-examination. John also characterised correspondence with Francene in which she was seeking in increasingly strong terms to have John perform his obligations in respect of the Company's loan to him and his wife as merely a "commercial agreement" and "the normal course of business" and contended that it "doesn't necessarily mean there's a dispute" (T52). I did not find that evidence to be persuasive. While I recognise that issues as to non-payment or delayed payment of debts do arise in the normal course of business activity, it does not seem to me that the non-payment of amounts due under a loan advanced by John's mother through a family company can fairly be described in that way.
John was, at best, evasive as to whether he did not repay the amounts due to the Company in early 2015, shortly before he was placed in bankruptcy with substantial debts owed to the Deputy Commissioner of Taxation and National Australia Bank, because of his inability to do so (T52). John accepted in cross-examination that he had not advised Francene or Donna of his bankruptcy when it occurred (T55) and that he did not disclose his bankruptcy at early meetings in respect of the administration of Marjorie's estate, including through to mid-October 2016 (T60-61). That is a matter of significance to complaints now made by John and Elizabeth as to the transfer of shares in the Company at that time, to which I refer below. John accepted that it had originally been contemplated that he would work with Donna on the subdivision of the Company's property (T63). He also accepted that, at a family meeting on 10 November 2016, all family members agreed that Francene and Donna would remain as directors of the Company (T65).
John again gave unpersuasive evidence when asked whether he had instructed his solicitor to advance threats of bringing proceedings against the estate's solicitors, initially seeking to deflect the responsibility for that threat to his solicitors; then indicating that he had accepted his solicitor's recommendation in that regard; then denying that he had instructed that that threat should be made, before ultimately accepting that he had done so (T82). John maintained his evidence throughout his cross-examination that he considered that it would be a workable outcome for him and Francene to be together on the Company's board (T82), and I have noted above that I do not accept that evidence. John also accepted that Donna "may have" regularly invited him onto the project team dealing with the subdivision of the land without response (T94). John confirmed in cross-examination that he continued to take the view expressed in his correspondence with Donna that she was "bitter and bigoted" (T97), which makes it more difficult to accept his evidence as to his ability to work with her if he and Elizabeth were appointed to the Company's board without Francene and Donna being removed from it. John also referred in cross-examination to the "lack of trust between the parties" and gave evidence that "the shareholders have not been included in this process" (T101). It seems to me that the evidence generally supported the former but not the latter proposition, where there was a range of consultation with and reporting to family members, although John and Elizabeth had plainly not been appointed to the Company's board. Having regard to the matters to which I have referred above, it seemed to me that John's evidence in cross-examination was directed to advancing his interests in the proceedings and that he answered or sought to avoid questions in a manner that he perceived would have that result. I approach his evidence with caution.
Elizabeth was also cross-examined at some length. She fairly accepted in cross-examination that John had paid amounts in respect of the loan made by the Company to him and his wife at the higher interest rate charged after he had failed to repay the principal when due, and that there were also times he was behind with those payments and that that interest rate had been increased by agreement with Marjorie, notwithstanding John's denial of that matter (T111). Elizabeth also acknowledged that it had been agreed at a meeting in respect of Marjorie's estate, in October 2016, that family members would proceed with the subdivision of the Company's property and that John was to work with Donna in respect of that subdivision, and that Marjorie had left a gift of $200,000 to the Company in her will to fund it to carry out that subdivision (T115). She accepted that an early distribution of funds in the estate, largely held in the Company, had also been agreed at that meeting (T116).
Elizabeth also accepted that it was agreed that Francene and Donna would remain as directors of the Company at a family meeting on 10 November 2016 and that, after that meeting, she had asked to be added as a director of the Company and Donna and Francene and Therese had not supported that request (T116). She accepted that she had treated that position as a negative assessment of her character by Francene (T117). She also referred to "abusive phone calls" and "abusive texts" between family members (T117), a matter that again does not support a view that they could work together as directors on the Company's board. Elizabeth's evidence was also that, while family meetings have been productive, they have also been "full of emotion and accusations" and had not been "healthy meetings emotionally" (T118) and I accept that that evidence genuinely reflected her perception of these matters. That also does not support a view that Elizabeth and John could work together with Francene and Donna as directors on the Company's board.
Mr Katekar impliedly criticised Elizabeth's use of a solicitor to communicate with other family members in respect of issues in relation to the administration of the estate. I accept that those issues could reasonably be addressed by correspondence from the solicitor from whom Elizabeth was taking advice about them. Elizabeth was also cross-examined as to her reaction to the fact that John's trustee in bankruptcy had become aware of what she understood to be, apparently incorrectly, his ownership of a motor vehicle and a boat (T125ff) and of her criticism of other family members who she believed had disclosed that matter to the trustee in bankruptcy. It is not necessary to address that issue further, given the findings that I have reached on other grounds.
Elizabeth accepted that her solicitor had communicated, on her behalf, that there had been a complete breakdown of mutual trust and confidence between family members in respect of Intruder Holdings. Her evidence was that she did trust Donna and Francene but considered that family members were equal shareholders and should have "equal input" into the affairs of the companies (T131). She accepted that, in seeking access to all invoices and accounts for the Company, she contemplated that invoices would not be paid unless they were agreed by all shareholders, and that would require the six shareholders' approval (T132). She did not accept that it would be impracticable for a company seeking to complete a complex subdivision of several properties to get approval from each of six shareholders for each and every invoice that it received (T133).
Elizabeth also fairly accepted in cross-examination that there was a division between family members, with her, John and Catherine in one camp and Therese, Francene and Donna in the other (T134). She did not accept that the intent of later demands for information, after the proceedings were commenced, was to advance a claim that Francene and Donna had misspent Company money by progressing the proposed subdivision of the land and she supported those requests for information on the basis that shareholders had "every right to know" what funds were being spent. That proposition is, of course, a reasonable one, although such information can be provided by a company's accounts or, in a proper case, following an application under s 247A of the Corporations Act. Elizabeth denied that she was seeking access to the documents because she disliked Donna and Francene, or to bring a claim against them that they were exercising their powers as company directors improperly, or to claim they had breached their duties to the Company, or to reduce their share of the proceeds of sale of the properties by a claim for misconduct against them (T136). On balance, I accept her evidence in that respect. I also note that it would not have been improper for John or Elizabeth to seek access to documents for the purpose of advancing a proper claim against directors of the Company.

[5]

The applicable legal principles

Before turning to the specific matters on which the Plaintiffs rely, I should first identify the applicable legal principles. I have drawn upon Counsel's submissions and my summary of those principles in Re ICB Medical Distributors Pty Ltd [2018] NSWSC 1315, to which Mr Raftery referred.
Section 233 of the Corporations Act relevantly provides that the Court may make specified orders where the matters specified in s 232 of the Corporations Act are established. 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."
Section 232 of the Corporations Act and its 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 Morgan v 45 Flers Avenue Pty Ltd above at 704, Young J observed that the phrases "oppressive", "unfairly prejudicial" or "unfairly discriminatory" in a predecessor to s 232 of the Corporations Act should be construed as "a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness". His Honour also there noted that whether oppression was established was to be determined by reference to the nature of the business carried on by the company and the nature of the relations between its participants and: "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."
Mr Raftery also referred to Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [175] as authority for the uncontroversial proposition that wrongful exclusion from participation in a company's management may constitute oppressive conduct. Mr Raftery also referred to Dodrill v The Irish Restaurant and Bar Co Pty Ltd [2009] QSC 317 at [21] where Daubney J observed that: "As McPherson J (as his Honour then was) said in Re Dalkeith Investments [(1984) 9 ACLR 247 at 253], it is enough "that there is action, which if not "oppressive" is at least "unfairly prejudicial to" or "unfairly discriminatory against" a particular member". The mere fact that a majority shareholder exercises its power consistently with the articles of association is not of itself oppressive conduct. However, a majority shareholder cannot simply disregard the interests of the minority and ride roughshod over them. Conduct which is legal may still be oppressive. In Re HR Harmer Ltd [[1959] 1 WLR 62 at 84-85] Jenkins LJ accepted a submission that: … If a person, relying on majority control in a point of voting power dispenses with the proper procedure for producing the result he desires to achieve, and simply insists on this or that being done or omitted, his conduct is oppressive because it deprived the minority of shareholders of their right as members of the company to have its affairs conducted in accordance with its articles of association …. Adopting the oft-cited approach of Lord Cooper in Elder v Elder & Watson Ltd [(1952) SC 49 at 55], the approach of the court is to view the conduct objectively to see whether it involves at the lowest "a visible departure from the standards of fair dealing, and violations of conditions of fair play, on which every shareholder who entrusts his money to a company is entitled to rely".
The principles applicable to a claim for oppression were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 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 [2011] NSWCA 104; (2011) 84 ACSR 121 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 (1998) 28 ACSR 688, at 741; [1998] NSWSC 413 …" I have also had regard to 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. I also bear in mind that the multiplication of grounds of complaint does not establish that any particular ground, or all of them, have substance.
In closing submissions, Mr Raftery also referred to my observations as to the scope of oppression within a family company in Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332 at [178], where I observed that s 232(e) of the Corporations Act refers: "to conduct which involves "commercial unfairness" or a departure from the standards of fair dealing, or where 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 … All parties accept that that, in a family situation, fairness must be considered against the background of the fair treatment of the whole body of shareholders, in the light of the history of the company and the family and the purpose for which the company was formed… The terms of the companies' constitutions … are also relevant." [citations omitted]
Mr Raftery also relies on the decision of the Full Court of the Federal Court in Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62 and the observation (at [9]) that: "The test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend upon the motives for what was done. It is the effect of the acts that is material …"
In Munstermann v Rayward [2017] NSWSC 133 at [22], Stevenson J summarised the applicable principles as follows (omitting citations): "(1) The test of oppression is an objective one of unfairness ... (2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly … (3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director ... (4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful ... (5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole … (6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used … (7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing … (8) The discretion under s 233 is wide as to the appropriate remedy … (9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive …. (10) The aim of any order under s 233 must be to put an end to the oppression … (11) The court should only look to wind up an otherwise solvent company as a "last resort" … (12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party …. (13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances." [citations omitted]
Mr Raftery submits that conduct undertaken in accordance with a company's constitution may be unfairly prejudicial, if it is not in accordance with the "legitimate expectations" of members: Re Scientific Management Associates Pty Ltd [2019] NSWSC 1643 at [209]. While I broadly accept that submission, the content of "legitimate expectations" can cause difficulty in this context, as in other contexts, and that the legitimacy of expectations will reflect, at least in part, the company's constitutional arrangements. Mr Katekar in turn refers to authority that the question whether oppression or unfair prejudice is established is to be determined at the time the proceedings were instituted, whereas the form of relief is to be determined at the date of the hearing: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [159]; Munstermann v Rayward above at [22]. I return to these matters below.

[6]

Appointment of directors

The Plaintiffs raise issues as to Francene's claim to be a "permanent director" of the Company and as to Donna's appointment as director of the Company. It will be convenient to address these issues, which are connected, together. The Plaintiffs do not seek declaratory relief as to whether Francene was validly appointed as "permanent director" or whether Donna was validly appointed as director, and the Defendants conversely do not seek relief under s 1322 of the Corporations Act validating any such appointment.
In oral opening submissions, Mr Raftery submitted (T7) that Francene was not validly appointed a "permanent director" and that Donna was not validly appointed a director of the Company, and that their acting as "permanent director" and director where those appointments were invalid was conduct that was oppressive to, unfairly prejudicial to, or unfairly discriminatory against John and Elizabeth. Mr Raftery confirmed in oral opening submissions (T9) that the Plaintiffs did not seek declarations as to invalidity of the appointment of Francene as permanent director or Donna as director and observed that: "… the way that I frame[d] the case is that the invalid appointment of directors and the conduct, as a result of that appointment, including what occurred at the annual general meeting [in 2016] … was oppressive conduct."
Mr Raftery fairly accepted that any views the Court might express as to any invalidity of Francene's appointment as permanent director or Donna's appointment as director would therefore be qualified by the possibility that the Defendants might have sought to have those appointments validated under s 1322 of the Act, had the Plaintiffs sought declarations to establish their invalidity rather than relying only on an oppression claim. The question is therefore not whether those appointments were valid, or might be validated, but whether any conduct in respect of those appointments was oppressive so as to warrant the relief sought.
The Plaintiffs proceed, including in Mr Raftery's opening submissions, on the basis that Francene was validly appointed as a director of the Company. I have referred in the chronology above to Francene's claim to be a "permanent director" of the Company for the purposes of its constitution. The Plaintiffs contend that Francene's appointment as a director was not as a "permanent director" as that term is defined in articles 91 to 97 of the Company's constitution (APC [97]). The Plaintiffs also rely on article 102 of the Company's constitution which provides that, while directors of the Company are in office and no "permanent director" is appointed, the Company in general meeting or the holders of at least two-thirds of the issued shares may at any time appoint any person to be a director (APC [20]). In closing submissions, Mr Raftery submitted that the Court should find that Francene was not validly appointed as "permanent director" of the Company and her attempt to assume the role of "permanent director" was unfairly prejudicial at least to John and Elizabeth; and she sought to exercise the powers of "permanent director" to appoint Donna as director, although I will refer below to the consensus at a family meeting that approved that appointment.
The Defendants originally relied (APD [19]), in support of Francene's claim to have been appointed as "permanent director" of the Company on a proposition that Marjorie had appointed herself as permanent director of the Company; Marjorie then asked Francene to replace her as permanent director of the Company, if anything happened to Marjorie; and, pursuant to that request, Francene became a permanent director of the Company on or about 15 August 2016 when Marjorie was admitted to hospital as a result of her declining health. Mr Raftery rightly points out that the facts necessary to support that proposition have not been established, where Marjorie did not refer to herself in any correspondence in evidence as a "permanent director" as distinct from a director of the Company and where Francene did not give evidence.
Mr Raftery also points out that article 96 of the Company's constitution provides for the appointment of a "permanent director" to be made in writing under the hand(s) of the appointer(s) or by will, and provides for service of notice of such an appointment on the Company. There is also no evidence that these steps took place. While such an appointment could also have occurred by informal means to which Marjorie consented as the Company's sole shareholder, there is also no evidence to establish that occurred. The Defendants do not now seek to support the proposition that Francene was a "permanent director" of the Company, and it has not been established that she was validly appointed to that role.
As I noted above, the question raised by this application is not whether Francene's appointment as "permanent director" was valid, but whether the conduct of the Company's affairs in that regard amounted to oppression of a kind that would support the relief sought by the Plaintiffs. Mr Raftery points out, and I accept, that the position of "permanent director" has significant powers under the Company's constitution. He submits that, by invalidly assuming the position of permanent director, Francene has "sought to attain powers which she is not entitled to". This matter could well have been sufficient to establish oppression, had Francene used the powers attached to that position to the detriment of the Company or other shareholders. There are matters which suggest that oppression is not established here, where Francene does not appear to have sought to exercise those powers other than to appoint Donna as a director at a time that a second director was needed to be appointed in order to comply with the minimum number of directors identified in the Company's constitution, and possibly in respect of the Company's AGM in March 2018 where, as I note below, their exercise had no impact. It is not necessary to reach a concluded view as to whether oppression could be established on that basis, where that finding would not on any view warrant the relief sought by the Plaintiffs for the reasons noted below.
Turning now to the question of Donna's appointment as a director, I have referred to Donna's appointment as a director in dealing with the chronology of events above. The Plaintiffs contend (APC [22]) that Francene appointing Donna as a director was done: "without Elizabeth's approval, knowledge or consent as joint executrix and trustee of Marjorie's estate; and in breach of Article 102 of the [Company's] Constitution, as the appointment was neither made by the company in general meeting nor by the holders of at least two-thirds of the issued shares in the capital of the company."
In closing submissions, Mr Raftery submitted that the Court should find that Donna was not validly appointed as a director of the Company and that her invalid appointment was unfairly prejudicial at least to John and Elizabeth, although I have noted above that that appointment was approved by all family members at a family meeting.
The Defendants respond (APD [22]) that Elizabeth did not give such approval, but such approval was not required and, at that time, Elizabeth was not willing or interested in participating in the Company's affairs. Mr Katekar submits that Donna was appointed to replace Marjorie as a director by agreement of all family members at the November 2016 family meeting, which was attended by the executors of the estate which was then the sole shareholder of the Company. Mr Katekar recognised, in closing submissions, that there was no documentary record of Donna's appointment as director, although that appointment had been notified to ASIC on 15 September 2016 (Ex D1, 2) and relied on family members' approval for her to "remain" a director at the family meeting on 10 November 2016 (Ex D1, 334). As Mr Katekar pointed out, both John and Elizabeth accepted in cross-examination that all family members had agreed to Donna's continuing as a director of the Company at that meeting (T65, T116) and each of the executors of Marjorie's will was present at that meeting and part of that consensus. Mr Katekar also relies on the fact that no family member raised any concern as to the validity of Donna's appointment as director until after the commencement of these proceedings. Mr Katekar also relied on article 108 of the Company's articles of association as validating acts done by Donna in her capacity as director. That would not assist in either validating her appointment as a director, or meeting an oppression case in respect of that appointment had it otherwise been established.
I have referred above to family members' confirmation of their consent to Donna's appointment as director at a family meeting held on 10 November 2016. Mr Raftery also fairly conceded that no complaint was made by family members as to the validity of Donna's appointment until that issue was first raised in Points of Claim filed by the Plaintiffs, some months after the commencement of these proceedings. Where the family members had unanimously agreed to Donna continuing as a director and no challenge to that position was raised to that course until after the commencement of these proceedings, it seems to me that there is no basis for a contention that there was oppression in Donna continuing in that position. Oppression is not established by this matter, alone or together with other matters, and it would not support the particular form of relief sought by the Plaintiffs.

[7]

Steps taken to transfer shares to testamentary trusts

The Plaintiffs raise several matters relating to the transfer of shares in the Company to the trustees of the testamentary trusts established by Marjorie's will. The Plaintiffs contend (APC [28]-[29]) that, on 20 January 2017, Francene advised that the directors of the Company would be applying to have the shares in the Company registered in the name of each testamentary trust; and, on 17 February 2017, Francene advised that share transfers and other ancillary documents had been delivered to Sparke Helmore for collection by John, Elizabeth and Catherine and, once the documents had been signed, Francene would forward them to the accountants for registration. An issue then arose as to whether the share transfers could occur without Elizabeth's authority, where, as I noted above, she had indicated she would resign as executor but had not done so. That issue was subsequently resolved when Elizabeth became party to the arrangements necessary to implement those transactions.
The Plaintiffs contend (APC [30]) that: "The transfer of shares to the respective testamentary trusts of John and Elizabeth occurred in circumstances where: a Neither John nor Elizabeth had signed the share transfer documents on behalf of their trusts and had not consented to the registration of the share transfers with ASIC; and b Elizabeth had not signed nor approved the share transfers and associated documents in her capacity as joint executor on behalf of the estate."
The Plaintiffs also contend (APC [31]) that: "The registration of the share transfer without John's consent was made to John as purported trustee of his testamentary trust, when in fact John could not act as trustee of John's Trust in circumstances where he remained an undischarged bankrupt. This was only later rectified after a significant delay of many months when [the accountants] eventually took steps to transfer the shares to Francene, Donna and Elizabeth as initial trustees of John's Trust."
In closing submissions, Mr Raftery submitted that Francene and Donna had signed a resolution for the transfer of shares in the Company to family members prior to receipt of executed share transfer documentation from the trustees of the various trusts, and that that action was in error and unfairly prejudicial at least to John as he was an undischarged bankrupt and could not be a trustee for a trust. As I noted above, Mr Raftery was unable to identify the basis of the proposition that John could not be a trustee for a trust, which may or may not be correct, and the force of that criticism is blunted by the fact that John had not disclosed his status to allow Francene or Donna any opportunity to take it into account. The Defendants respond that John had not told Francene and Donna that he was then an undischarged bankrupt; Francene signed the ASIC form to correct the identity of the trustees of the John Farragher Trust from John to Francene, Donna and Elizabeth as joint trustees on 5 April 2017; the Company's accountants lodged the form which was stamped by ASIC on 12 May 2017; and, had John told Francene and Donna that he was a bankrupt the delay could have been avoided. I have referred to relevant events in the chronology set out above.
The issues in implementation of the share transfer seem to have been associated with the late disclosure of John's bankruptcy and the steps which were then taken to seek to avoid John's acquisition of an interest in the shares as trustee of the testamentary trust, at a time that he was bankrupt. It seems to me that, at best, this matter amounts to an irregularity in the process by which the transfers of shares were registered. I am unable to see how that matter was prejudicial to John where, if an interest in the shares held on testamentary trust did not vest in his trustee in bankruptcy for the benefit of his creditors, then he was not at risk from acquiring that interest; if it did, then there is no basis for complaint that he was placed in a position that would require that to occur (I put that matter in that way because the evidence led and the parties' submissions do not allow a determination as to which of those positions was correct or whether, as the Plaintiffs claimed but did not establish, John could not hold the shares as trustee while bankrupt.) The issue was in any event subsequently resolved without any real difficulty for John and without benefitting his creditors. This matter does not establish oppression to John or Elizabeth, alone or together with other matters.

[8]

Delay in payment of dividends

The Plaintiffs contend (APC [32]-[35]) that, on 1 March 2017, Francene notified the other shareholders that it had been resolved by the Company's directors to declare a dividend out of profits in the amount of $376,500 to be paid to each beneficiary's testamentary trust; the declaration of that dividend occurred without the knowledge of Elizabeth or John, implicitly up to the point at which they were informed of it; no distribution was then made to John's trust or Elizabeth's trust for some five months; and "[o]ne of the reasons for the delay was Francene and Donna's erroneous assertion that a loan which John had received from Marjorie, remained unpaid."
John's affidavit evidence referred to his initial claim that the loan made by his mother (which was in fact made by the Company) in the amount of $250,000 should be deducted from the first distribution to be made under the estate, and claimed, in evidence admitted with a limiting order under s 136 of the Evidence Act as his understanding, that he repaid the full amount of the loan on 5 December 2016 together with accrued but unpaid interest, calculated at the interest specified in the loan document with his mother. John also contended, in evidence admitted with a limiting order under s 136 of the Evidence Act, as his understanding only, that (John 15.11.18 [22]): "The dispute around the loan resulted in the estate's solicitors not making any distribution from the estate to the beneficiaries for some five months."
This evidence relates to a loan made by the Company to John and his wife in July 2009 for a 12 month term. The loan arrangement between the Company and John and his wife had provided for security to be given to the Company over the home owned by John's wife, which it appears Marjorie chose not to register. John and his wife then sold that home, without repaying that loan, so that the Company did not have security for the loan. It is not necessary to determine a further dispute as to whether John had advised his mother of the sale, and there is no suggestion that John had advised his mother of the adverse impact of the sale upon the Company's security position. John did not repay that loan when due and, on 8 July 2014, Donna wrote to John and his wife about the unpaid loan (Ex D1, 208). On 23 December 2014, Marjorie amended her will, by inserting cl 7.2, to reduce the distribution to John under the will if the Company's loan to him was not repaid (Ex D1, 221).
There was also evidence of a later reduction in the amount of the loan requested by John, and accepted by Marjorie, to take account of fencing work done at the property owned by the Company (Ex D1, 308-312). On 5 December 2016, John repaid the amount of $239,717 to the Company in repayment (or part repayment) of the loan previously made, but a dispute arose as to whether the loan had been repaid in full, involving issues as to the calculation of compound interest and whether a higher rate of interest was applicable after the loan went into default. A significant amount of correspondence was tendered and there was a degree of cross-examination, about these matters. It seems to me that this issue is only relevant as part of the context for the delay in payment of dividends, although the evidence is not particularly clear as to how it impacted on the delay in payment of the dividend. It seems to me that the question whether John paid the amount of interest due and had paid interest at a higher rate than was applicable on default plainly warranted further investigation by the Company, up to the point that the majority of the Company's shareholders resolved not to require payment of any further amount due by John at the Company's AGM on 26 March 2018, which I address below. It is otherwise not necessary or appropriate that I reach findings in respect of it which are not necessary to determine this application.
I have addressed the steps taken by Francene and Donna to seek to expedite the payment of the distribution in the chronology above. In my view, the delay in respect of the distribution does not establish oppression, alone or together with other matters, given the extent to which the Plaintiffs' actions brought it about, and where there is no suggestion that the position of John or Elizabeth in that regard was inconsistent with the position of other shareholders.

[9]

Access to books and records

The Plaintiffs also raised several matters relating to access to the Company's books and records. They contend (APC [36]) that: "On and after 18 November 2017 the Plaintiffs made repeated requests that Francene and Donna provide the Plaintiffs with copies of financial statements and tax returns for the [Company] for the financial years ended 30 June 2015, 30 June 2016 and 30 June 2017, as well as the bank account statements for the First Defendant from 1 July 2014." That contention is particularised by reference to correspondence, some of which was sent in the course of these proceedings, namely an email from Elizabeth to Francene and Donna sent on 18 November 2017; an email from John's solicitor to, inter alia, Francene and Donna sent on 19 January 2018; an email from John to, inter alia, Francene and Donna sent on 7 March 2018; an email from John to, inter alia, Francene and Donna sent on 9 March 2018; and an email from John to, inter alia, Francene and Donna sent on 18 March 2018. The Plaintiffs also contend (APC [37]) that: "Despite the repeated requests … the Plaintiffs have never received any books or records for the company other than the financial accounts for the [Company] for the year ended 30 June 2017."
By way of background, article 149 of the Company's constitution provides: "The Directors shall from time to time (Subject to the provisions of Section 81, 102 and 103 of the Companies Act) determine whether and to what extent, and at what times and places, and under what conditions or regulations the accounts and books of the Company, or any of them, shall be open to the inspection of the members; and no member shall have any right of inspecting any account or book or document of the Company except as conferred by Statute or authorised by the Directors and no member not being a Director shall be entitled to require or receive any information concerning the business trading or customers of the Company or any trade secret or secret process of or used by the Company.'
Mr Raftery emphasises an email sent by Donna to John, Elizabeth and others regarding issues between family members (Ex D1, 370) which offered access to any documents they sought, including particular items requested by their solicitor and observed that "[n]othing is a secret and information has always been freely available when asked". There is evidence of several requests by the Plaintiffs and one by Catherine for documents, to which I referred in the chronology set out above. In closing submissions, Mr Raftery submitted that the Court should find that despite numerous requests, and Donna's offer to provide "anything", Donna and Francene had failed to provide John, Elizabeth and Catherine with financial material relating to the Company and the subdivision of its property, and the failure to provide books and records was oppressive and unfairly prejudicial at least to John and Elizabeth. Mr Raftery submits, and I accept, that a denial or refusal to provide access to a company's books and records may amount to oppressive conduct: Solanki v Cufari [2014] VSC 345.
In oral opening submissions, Mr Katekar responded that, at the time requests for further information were made, Donna was finalising the subdivision of the property with the agreement of all shareholders and that: "Donna and [Francene] … appropriately did not allow the process to be deflected by the plaintiffs in these proceedings seeking to get access to all of the books and records of the Company and seek to [second] guess all the decisions that they were making." It does not seem to me that a director's wish to avoid shareholders second-guessing his or her decisions is necessarily a sufficient answer to a request for information by the shareholders.
Mr Katekar also fairly recognised my observation in Re Ledir Enterprises Pty Ltd above at [195] that the extent of information provided to a shareholder concerning a company's affairs must be considered by reference to his or her statutory rights as a member to information, including his or her right to apply to the Court under s 247A of the Act, and that: "… the absence of provision of information to a shareholder is of greater significance in a closely held company than, for example, in a public company with numerous shareholders."
Mr Katekar also submits, in closing submissions, that the complaint as to access to books and records is not "genuine" and refers to the fact that, despite numerous threats of litigation made by the solicitors for John and Elizabeth in respect of a range of matters, no application was brought for access to documents under s 247A of the Act. While I would not go as far as that, it seems to me that the absence of an application for access to such documents is a relevant matter, where such an application could readily have been brought, and would not have involved the difficulties raised by the relief sought by the Plaintiffs in these proceedings.
A significant amount of more general information was provided to the Plaintiffs and family members in respect of the progress of the subdivision (see, for example, Ex D1, 496-497, 577, 590, 608, 629), although Francene and Donna did not otherwise provide the Plaintiffs with the requested documents other than the Company's financial accounts for the year ended 30 June 2017. It seems to me that at least the widest request for documents made by Elizabeth and John was unreasonable, extending to all invoices received by the Company for the express purposes of individual shareholders determining whether to approve payment of those invoices, when that would plainly have been outside shareholders' powers and impractical at a time the Company was undertaking the subdivision of the land. The Plaintiffs did not take up the opportunity, which they had recognised, to seek access to such documents as they were properly entitled as shareholders which was, and remains, available to them under s 247A of the Act.
I have concluded that it is not necessary to determine whether the lack of response to the Plaintiffs' narrower requests for information could properly be characterised as oppression in the circumstances. The Plaintiffs do not seek relief which would be proportionate to such a finding, which would not on any view establish a sufficient basis for the form of relief that the Plaintiffs seek, for the reasons which I set out below.

[10]

The failure to appoint John and Elizabeth as directors of the Company and the March 2018 AGM

The Plaintiffs also contend (APC [25]-[26]) that, pursuant to the provisions of Marjorie's will, the executors and trustees were empowered to apply for and to seek appointment to directorships of any company in which Marjorie held an interest and that, on 10 November 2016, there was a family meeting at which Elizabeth, as joint executor, sought to exercise the "power" granted to her under the will and nominated herself to be appointed as a director of the Company and Francene and Donna voted against the appointment of Elizabeth as a director of the Company. I do not understand the Plaintiffs to contend that Marjorie's will required that an executor be appointed as a director of the Company on request, and it is not apparent that the will sought to achieve that result or could bind shareholders in the Company to that result.
The Plaintiffs then contend (APC [27]) that "At a later date, and on a further occasion, Catherine and John voted for the appointment of Elizabeth as a director of the [Company], however, Therese, Francene and Donna voted against the appointment and Elizabeth was again denied a directorship of the [Company]". The Defendants respond (APD [27]) identifying that "further occasion" as the Company's 2017 AGM which was held on 26 March 2018; contend that Catherine did not attend the AGM but appointed Elizabeth as her proxy; that John attended the AGM but he did not hold a valid proxy for Seaham Grange, so any vote purportedly cast by him at the AGM was not valid; and that Elizabeth nominated herself to be appointed as a director of the Company at the AGM, but that resolution was not passed on a vote of the shareholders present at that meeting in person or by proxy.
The Plaintiffs also contend (APC [48A]) that the AGM was held in breach of the provisions of the Company's constitution, inter alia, because all directors were required to retire at the AGM and neither Francene nor Donna retired at that AGM and part of the business to be transacted at the AGM included the election of directors in the place of retiring directors and that did not occur; and (APC [48R]) that the meeting and the matters transacted at the AGM were invalid and of no effect.
In submissions, the Plaintiffs submit that, first, although Donna was recorded as chair in the minutes of the AGM (Ex D1, 550) she should not have been elected as chair where she was not validly appointed as director, by reason of article 74 of the Company's constitution. I do not accept that it was oppressive for Donna to be appointed as chair on the basis that she was a director of the Company, where her acting as director had previously been approved by all family members.
The Plaintiffs submit that, second, Donna used her casting vote as chair of the AGM to pass a resolution that Francene be "confirmed as [p]ermanent [d]irector"; that Francene was not validly appointed as "permanent director" under the Company's constitution; and that the confirmation of Francene as "permanent director" was unfairly prejudicial at least to John and Elizabeth. I do not consider it necessary to decide whether the resolution confirming Francene as a "permanent director" purportedly passed at that AGM was valid, particularly where an issue was raised as to John's entitlement to vote for Seaham Grange at that meeting which was not adequately addressed by evidence. I do note that the appointment of a "permanent director" by a majority in general meeting, in the manner provided by the Company's constitution, would not without more have amounted to oppression. There is no suggestion that Francene subsequently exercised powers as "permanent director" in a manner adverse to the interests of the Company or the Plaintiffs, and, as I noted above, the Defendants do not seek to support her appointment as "permanent director" in this hearing. That matter would not, without more, support the relief that the Plaintiffs claim.
The Plaintiffs submit that, third, Donna used her casting vote as chair of the AGM to defeat the nominations of Catherine, Elizabeth and John for the directorship. The exercise of the casting vote is here of limited significance, since the probability is that resolutions to elect those directors would have failed in any event, on a deadlock of shareholders as to that matter, even if John was entitled to exercise a proxy for Seaham Grange at that meeting, and otherwise because Catherine and Elizabeth would not have constituted a majority at that meeting.
Fourth, Mr Raftery advances the wider submissions that the Court should find that Catherine, John and Elizabeth had a "legitimate expectation" that they would be entitled to participate in the Company's management as shareholders in a family company; and that it was oppressive and prejudicial for Francene and Donna to defeat the motions for their appointment as directors at the March 2018 AGM. Mr Katekar responds that John and Elizabeth did not have a legitimate expectation of being a director of the Company, where they had inherited their interests in the Company and it had not been established as a quasi-partnership with the other family members. Mr Katekar refers, fairly, to the observations of Spigelman CJ in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above at [32] recognising the potential significance of the absence of documentary or other evidence giving rise to any understanding that a shareholder has a legitimate expectation of involvement in management, and to the Chief Justice's further observation (at [90]) that any such expectation may cease, where a particular shareholder is responsible for the breakdown in the relationship. I do not find that either John or Elizabeth bear particular responsibility for the breakdown in family relationships in this case, where Francene and Donna have also sent inflammatory correspondence, particularly to John, and the hostilities between family members appear to be mutual.
Mr Katekar also points out that there is a disconnect between the individual family members and the shareholdings, since the one-sixth portion of the shares in the Company were not left by Marjorie in her will to her several children in their personal capacity, but to testamentary trusts for the benefit of their respective families. That disconnect is particularly stark in respect of John, who has not accounted to his trustee in bankruptcy and creditors for the value of the share in the Company left to the testamentary trust, on the basis that he personally is not the shareholder, but now claims that he personally has an expectation of being a director of the Company because the corporate trustee of the family trust is a shareholder in it. Mr Katekar also submits that exclusion from the board has not had a negative impact on John and Elizabeth, by reference to the steps taken to advance the subdivision of the relevant property, but I give less weight to that submission where it is plain that they wish to be appointed to the board and have not been able to achieve that appointment.
In closing submissions, Mr Katekar also submitted that any legitimate expectation of John in respect of appointment to the Company's board had been lost by reason of his history of being a director of companies that have been placed in administration or liquidation. I have referred to that matter in respect of John's cross-examination and it is not necessary to reach any finding about it given the conclusions that I have reached on other grounds. Mr Katekar also refers to Elizabeth's resignation from the Company's board in 2014 and seeks to link that matter with difficulties that had arisen in respect of the tax treatment of a loan by the Company to Marjorie at that time. He submits the fact that that issue had occurred on "her watch" may be sufficient to deprive her of a continuing expectation of a role as a director of the Company. I would not have declined the relief sought by the Plaintiffs in respect of the appointment of Elizabeth as a director of the Company on that basis, had it been justified on other grounds.
I broadly accept that John and Elizabeth had a legitimate expectation of being involved in decision-making in respect of the subdivision of the Company's land, but there is evidence of such involvement, both in meetings and by consultation throughout the process of subdivision, and of invitations for further involvement which they did not take up. For example, a family meeting held on 17 October 2016, after Marjorie's death, recorded an agreement that the property owned by the Company was to be subdivided into 7 blocks and that John would work with Donna to continue that process, and that there would be an early distribution of monies held in the estate. In the event, John does not appear to have taken any substantive steps to assist Donna with that subdivision.
I do not accept the Plaintiffs' submission that a "legitimate expectation" of involvement extends to an expectation of board representation. The Company's present constitution would not permit all shareholders to be appointed as directors, since there are six shareholders and the Constitution provides for a maximum number of five directors, and there is no principled basis on which to identify an expectation that five shareholders will be directors, if the sixth will not. It seems to me that such an expectation is not established by the fact that the shareholders are, as here, divided into two warring "camps", where the legitimacy of each camp's expectation that it should be able to protect its interests by board representation would be qualified by the risk of deadlock and dysfunction on a divided board. In any event, it seems to me that the question here takes a somewhat different form. As I noted above, family members had unanimously agreed in 2016 that the Company's directors should be Francene and Donna, and it does not seem to me that shareholders have any legitimate expectation as to a change in that position, other than in accordance with the Company's constitution or by the unanimous consent of shareholders.
Fifth, the Plaintiffs contend that oppression was established so far as neither Francene nor Donna retired from their directorships at the AGM, as contemplated by article 114 of the Company's constitution. In response to the Plaintiffs' complaint that Francene and Donna had not retired at the 2018 AGM, Mr Katekar responds that they were not elected as directors of the Company at an AGM, so that article does not apply to them. It seems to me that that article did not apply in the relevant circumstances, where, for better or worse, Donna and Francene had not been appointed as directors at a previous AGM. Mr Katekar also points out that that question whether Francene and Donna should retire under that article was not raised at the 2018 AGM. He submits, and I accept, that the fact that Francene and Donna were not asked to retire at the 2018 AGM tends strongly against any suggestion that their failing to recognise any constitutional obligation to retire was oppressive, where other shareholders had also not recognised or raised such an obligation at that meeting.

[12]

Alleged breach of directors' duties, oppression and the relief sought by the Plaintiffs

The Plaintiffs contend (APC [50]) that Francene's and Donna's alleged refusal to provide access to the Company's books and records and to the information relating to the subdivision and sale of land owned by the Company is contrary to the directors' statutory duty to act in good faith in the best interests of the company within the meaning of s 181 of the Corporations Act. That claim is not open to the Plaintiffs, who do not have standing to pursue it on the Company's behalf.
The Plaintiffs also contend (APC [51]-[52]) that Francene and Donna, in their capacity as directors of the Company "have conducted themselves in a manner contrary to the interests" of the Company in specified respects and that: "… the exclusion of the Plaintiffs from the management of the [C]ompany and its property constitutes conduct of the [Company]'s affairs by [Francene and Donna] that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs, within the meaning of section 232 of the Act. …" The Plaintiffs also claim (APC [53]) that, in denying the Plaintiffs any right to examine the books and records of the Company, Francene and Donna have engaged in conduct which is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the Plaintiffs, within the meaning of s 232 of the Act. I have not found it necessary to reach a final view as to whether Francene's claim to be a "permanent director" and the lack of response to the Plaintiffs' narrower requests for access to documents could properly be characterised as oppression, and these claims are otherwise not established. These matters would not, in any event, warrant the relief sought by the Plaintiffs, for the reasons to which I now turn.
The Plaintiffs seek orders under s 233 of the Act (APC [54]) that Francene and Donna be removed as directors of the Company and that Elizabeth and John be appointed as directors of the Company. I accept that the Court has the power to make such orders, although they are rarely made. For example, in Re Spargos Mining NL (1990) 3 WAR 166; 3 ACSR 1; 8 ACLC 1218, Murray J made orders under a predecessor provision appointing directors to conduct the affairs of a company for a period of 12 months and directing the amendment of the articles of association of the company. As Mr Katekar points out, those orders were made in circumstances where the Court had made strong findings as to a board having acted so as to prefer the interests of the corporate group over the interests of the company. Orders for the replacement of a director were also made, as Mr Raftery points out, by Elliott J in Solanki v Cufari above, but in that case where there were findings that there was a well-founded fear that an existing director would divert profits of the company's property sales to an entity associated with him, and other alternative relief including the appointment of a receiver and manager would likely have had adverse consequences under the company's financing arrangements. The Plaintiffs did not establish conduct of a similar character, or conduct preferring Francene's and Donna's personal interests to those of the Company or other family members, in this case. The Plaintiffs also did not identify (other than by John's brief reference to costs in answer to a question I asked at the end of his cross-examination) why other relief which did not place the Company under their control to the exclusion of the other shareholder "camp" or lead to a deadlock on the board - for example, the appointment of an independent chair, independent directors or a liquidator to complete the subdivision and sale of the properties and distribute the proceeds - would not have been available or appropriate in this case.
The Defendants respond that, even if oppression has been established, replacing Francene and Donna as directors with John and Elizabeth as directors would not cure that oppression, but would simply replace it with a reverse form of oppression, by which John and Elizabeth (and the shareholder camp associated with them) exclude Francene and Donna (and the shareholder camp excluded with them) from board representation. That proposition seems to me to be correct.
In submissions, the Plaintiffs alternatively sought orders that Elizabeth and John be appointed as directors in addition to Francene and Donna. Mr Raftery recognised and addressed the obvious difficulty with that submission, namely the risk that a board comprising those persons would be unable to function and would be deadlocked. In his oral opening submissions, Mr Raftery drew attention to the fact that, from time to time, family members have been able to reach agreement as to matters in general meeting including, for example, as to the approval of financial reports, or to write off (by majority) the balance of a loan due by John to the Company, although they have been unable to reach agreement as to the identity of directors to the Company. In closing submissions, Mr Raftery submitted that "the evidence confirms that [John and Elizabeth and Francene and Donna] will be able to act together in the best interests of the Company" if John and Elizabeth were appointed as directors together with Francene and Donna, and that the oppression would be removed if Francene and Donna remained as directors and John and Elizabeth were appointed as directors with them. I am unable to accept that the evidence confirms that matter, and the evidence to which I have referred above seems to me to indicate the contrary.
I am not persuaded that such an order should be made, even if oppression had been established. As I noted above, the Plaintiffs contended and it is common ground that, during the administration of Marjorie's estate, the relationships between the family members irretrievably broke down. Mr Raftery opened the Plaintiffs' case in his written submissions on the basis that there had been a breakdown in the relationship between John and Elizabeth (on the one side) and Francene and Donna (on the other side), although he also contended that breakdown had stemmed from Francene and Donna excluding John and Elizabeth from the Company. I have referred above to the evidence that amply demonstrates the extent of animosity between the parties. There is every reason to think that a board constituted by four directors, two appointed from each of two camps with irreconcilable differences, could not function in a constructive or effective way. I do not accept John's evidence in cross-examination that, contrary to that common ground, the parties would be able to work together professionally on the board. While I accept that family members have reached agreement as to some matters, it is nonetheless common ground that there are irreconcilable differences between the two "camps" of shareholders, and their history of acrimonious dispute as to a range of issues outside the board creates a strong inference that such disputes would continue within the board, if John and Elizabeth were appointed and Francene and Donna left on the board, not allowing directors associated with either camp a majority to pass a resolution but allowing them to veto any resolution proposed by directors associated with the other camp.
In closing submissions, Mr Raftery sought further to vary the Plaintiffs' case to contend that, if the Court determined that Francene, Donna, Elizabeth and John would be unable to conduct the affairs of the Company together (as I have), then one of Francene or Donna should be removed as a director. That amended formulation of the Plaintiffs' case does not resolve the difficulty with it, because removing one of Francene or Donna, and placing the other in a minority in a board where John and Elizabeth had control, would be no less oppressive than the present position.
In reaching these conclusions, I recognise that the present position is not particularly satisfactory. There are plainly steps that could have been taken by the Plaintiffs to address that issue, had oppression been established, other than seeking the removal of Francene and Donna as directors and the appointment of John and Elizabeth in their place, or in addition to them so as to create a deadlocked board. The Plaintiffs could have sought the appointment of a qualified independent director representing either or both shareholder camps. The Plaintiffs could also have sought the winding up of the Company, for oppression or on the just and equitable ground, where it is common ground that relations between the shareholders had broken down. The Plaintiffs did not seek a winding up order until it was too late fairly to determine such a claim, after the Plaintiffs' witnesses had been cross-examined and the Defendants and had not led evidence, plainly on the basis that such an order had not been sought, and the evidence had closed. The Plaintiffs recognised they could also have sought access to documents under s 247A of the Act but they did not take that course.

Campbell v Backoffice Investments Pty Ltd

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