Chief Disruption Officer Pty Ltd as Trustee for the McDonald Family Trust v Michel, in the matter of Laava ID Pty Ltd

Federal Court of Australia|2023-01-30|Before: Goodman J

Counsel for the First and Second Plaintiffs: Mr M Condon SC and Mr D Delaney

Solicitor for the First and Second Plaintiffs: Webb Henderson

Counsel for the First, Second, Third and Fourth Defendants: Mr D W Rayment SC and Mr M Collins

Solicitor for the First, Second, Third and Fourth Defendants: J Stephens & Associates

Counsel for the Fifth Defendant: Mr A Smorchevsky

Solicitor for the Fifth Defendant: Kardos Scanlan

Counsel for the Sixth and Seventh Defendants: M L W Judd

Solicitor for the Sixth and Seventh Defendants: Peterson Haines

Counsel for the Eighth Defendant: Mr C L W Street

Solicitor for the Eighth Defendant: Garland Hawthorn Brahe

Counsel for the Ninth Defendant: Mr D B Studdy SC

Solicitor for the Ninth Defendant: Peterson Haines

ORDERS NSD 1153 of 2021 IN THE MATTER OF LAAVA ID PTY LTD BETWEEN: CHIEF DISRUPTION OFFICER PTY LTD AS TRUSTEE FOR THE MCDONALD FAMILY TRUST ACN 609 702 776 First Plaintiff

IAIN JAMES MCDONALD Second Plaintiff

AND: PATRICK MICHEL First Defendant

ANTHONY SURTEES Second Defendant

WILEMICH PTY LTD AS TRUSTEE FOR THE PATH FAMILY TRUST (and others named in the Schedule) Third Defendant

order made by: GOODMAN J DATE OF ORDER: 30 January 2023

The affairs of the fifth defendant have been conducted in a manner that was unfairly prejudicial to, or discriminatory against, the first plaintiff within the meaning of s 232 of the Corporations Act 2001 (Cth), with respect to the issue, by the fifth defendant, of: (a) 3,524 shares to the third defendant and 3,527 shares to the fourth defendant in June 2020; and (b) 2,500 shares to the third defendant and 500 shares to the fourth defendant in July 2021.

THE COURT ORDERS THAT:

The proceeding otherwise be dismissed.

Costs as between the plaintiff and the first to fifth defendants 2. By 17 February 2023, the plaintiffs and the first to fifth defendants are to confer as to the appropriate orders for costs as between them and are to provide to the Court: (a) a joint set of orders which may be made by consent; and (b) to the extent that agreement has not been reached: (i) competing sets of proposed orders; and (ii) submissions (limited to 3 pages) and any affidavit evidence in support of their respective proposed orders. 3. Any submissions in response, and any affidavit evidence to be relied upon, are to be filed and served by 3 March 2023. 4. Any submissions in reply, and any affidavit evidence to be relied upon, are to be filed and served by 10 March 2023.

Costs as between the plaintiffs and the sixth, seventh and ninth defendants 5. The plaintiffs pay the sixth, seventh and ninth defendants' costs of the proceeding. 6. Any application by the sixth, seventh and ninth defendants for a costs order under Rule 40.02 of the Federal Court Rules 2011 (Cth) be made by way of submissions and such submissions (limited to 3 pages), and any affidavit evidence to be relied upon, are to be filed and served by 17 February 2023. 7. Any submissions by the plaintiffs in response (limited to 3 pages), and any affidavit evidence to be relied upon, are to be filed and served by 3 March 2023. 8. Any submissions by the sixth, seventh and ninth defendants in reply (limited to 3 pages), and any affidavit evidence to be relied upon, are to be filed and served by 10 March 2023.

Further case management hearing 9. The proceeding be listed for a case management hearing at 9:30am on 13 March 2023, or such other date as can be agreed between the parties and is convenient to the Court. 10. The parties have liberty to apply on 2 days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 3 November 2022, I delivered reasons for judgment in this proceeding: Chief Disruption Officer Pty Ltd as Trustee for the McDonald Family Trust v Michel, in the matter of Laava ID Pty Ltd (No 3) [2022] FCA 1302 (CDO No 3). Some familiarity with the terminology used in CDO No 3 is assumed in the reasons for judgment which follow. At [324] of CDO No 3, I concluded that the affairs of the fifth defendant, Laava, had been conducted in a manner that was unfairly prejudicial to or discriminatory against CDO with respect to the issue of: (1) 3,524 shares to Wilemich and 3,527 shares to MCA in June 2020; and (2) 2,500 shares to Wilemich and 500 shares to MCA in July 2021, (together, the contravening share issues), but not otherwise. 2 In CDO No 3 at [325] to [330], I considered briefly the question of the appropriate remedy and concluded that the appropriate course was to allow the parties an opportunity to make further, more specific, submissions as to the form of relief, taking into account the conclusions that I had reached in CDO No 3. I provided a tentative view that a buy-out order would not be appropriate because there may be remedies short of a buy-out order available which would end the oppression. Subsequently, the Minority Interests and the Majority Interests each provided a form of orders sought by them and written submissions in support thereof. Neither sought the opportunity to address those orders or submissions orally. 3 The Minority Interests seek a declaration of contravention and an order that the Majority Interests purchase all of the 31,287 shares in Laava held by CDO at a price of $2,203,416, together with consequential orders. The Minority Interests seek no other form of relief and oppose the lesser forms of relief suggested as potentially appropriate in CDO No 3 at [329]. 4 The Majority Interests seek an order dismissing the proceeding. They contend, in essence, that: the relief to be granted should be commensurate with the extent of the oppression found; that a commensurate form of relief would be an order that the Majority Interests cause Laava to offer to convert the wage loans into shares; that such an offer has already been made and refused; and that in those circumstances the appropriate exercise of the discretion is to decline to make such an order. The Majority Interests contend that, consequently, no declaration should be made. 5 For the reasons set out below the declaration sought should be made, and the Amended Originating Process should otherwise be dismissed.

The relevant findings made in CDO No 3 6 The contravening share issues were made in the following circumstances: (1) as at May 2020, Laava owed $44,431 to Mr McDonald, $249,959 to Mr Michel and $250,000 to Mr Surtees. On 12 June 2020, Mr Michel and Mr Surtees caused Laava to convert the loans owed by it to Mr Michel and Mr Surtees into 3,524 shares issued to Wilemich and 3,527 shares issued to MCA respectively. However, the same opportunity to convert the loan owed by Laava to Mr McDonald into shares issued to CDO was not provided to the Minority Interests and this amounted to conduct satisfying the requirements of s 232(e) of the Corporations Act 2001 (Cth) (CDO No 3 at [219] and [229] to [235]); and (2) as at July 2021, Laava owed $44,431 to Mr McDonald, $180,000 to Mr Michel and $36,000 to Mr Surtees. On or about 21 July 2021, Mr Michel caused Laava to issue 2,500 shares to Wilemich and 500 shares to MCA in conversion of the loans owed to Mr Michel and Mr Surtees. Again, the same opportunity to convert the loan owed by Laava to Mr McDonald into shares issued to CDO was not provided to the Minority Interests and this amounted to conduct satisfying the requirements of s 232(e) of the Act (CDO No 3 at [275], [276] and [279]). 7 Other than the contravening share issues, the Minority Interests did not establish any of their claims.

Post-judgment correspondence 8 On 14 November 2022, the solicitors for Laava wrote to the solicitors for the Minority Interests in the following terms: We refer to the above proceedings, the reasons for judgment of Goodman J in Chief Disruption Officer Pty Ltd as Trustee for the McDonald Family Trust v Michel, in the matter of Laava ID Pty Ltd (No 3) [2022] FCA 1302 (Reasons) and the resolutions of Laava ID Pty Ltd's (Laava) board dated 11 June 2020 and 27 January 2021 referred to in paragraphs 227 and 273 of the Reasons (Resolutions). This correspondence is sent on behalf of Laava and with the consent of the first to fourth defendants. We note that Mr McDonald has, during the course of these proceedings, rejected an open offer made by the first to fifth defendants to convert Mr McDonald's wage loan to equity and has pressed for the loan to be repaid immediately by Laava. Nonetheless, in view of [229], [233] and [279] of the Reasons, Laava invites Mr McDonald to convert his outstanding loan to equity in Laava on the same terms as offered to Mr Michel and Mr Surtees. Laava notes that Mr Michel and Mr Surtees' wage loans were converted to equity at a price of $56.66 per share under the June 2020 share issue (defined in the Reasons as the "Second Share Issue") and $72 per share under the July 2021 share issue (defined in the Reasons as the "Third Share Issue"). Accordingly, Laava invites Mr McDonald to convert his outstanding loan to equity on the following terms: (a) amount of loan: $44,431; (b) price per share: $56.66 (being the lower price under the Second Share Issue and Third Share Issue); and (c) number of shares to be issued: 785 (being $44,431 ÷ $56.66, rounded up to the nearest whole number). For avoidance of doubt, the above invitation is made by Laava on an open basis to give effect to the Resolutions and the Court's Reasons. It is not intended to constitute a settlement offer in respect of the proceedings, and is without prejudice to any party's position as to appropriate final orders in the proceedings and on the question of costs, and may be relied upon by the defendants on the question of costs. We note that, pursuant to Order 1 of the Orders made by Goodman J on 3 November 2022 (Orders), the parties are to confer as to appropriate orders for relief and to submit proposed agreed or competing orders by 18 November 2022. Accordingly, Laava requests Mr McDonald's confirmation as to whether he wishes to accept the above invitation by no later than 5 pm next Thursday, 17 November 2022. … (emphasis in original) 9 I note that this letter suggests that the conversion of loans which occurred in June 2020 occurred at a price of $56.66. There seems to be an inconsistency between this figure and the findings that in June 2020, Mr Michel's loan of $249,959 was converted to 3,524 shares ($70.93 per share) and Mr Surtees's loan of $250,000 was converted to 3,527 shares ($70.88 per share). It is not necessary to resolve this issue in circumstances where the lower figure of $56.66 per share is favourable to the Minority Interests (and as is seen below, it was rejected by the Minority Interests). 10 On 17 November 2022, the solicitors for the Minority Interests responded: We refer to your letter of 14 November 2022. For the reasons set out in our letter of today's date, our clients decline the offer made. 11 The "letter of today's date" was in the following terms: 1. We refer to the orders of 3 November 2022 (3 November Orders), which required the parties to confer as to the appropriate orders for relief to give effect to the reasons for judgment. 2. We enclose proposed orders. These provide for a declaration that the conduct the subject of his Honour's finding at [324] of the judgment was oppressive within the meaning of section 232 of the Corporations Act 2001 (Cth). They provide, also, for a buyout, by the first-fourth defendants, of the first plaintiff's (CDO's) shares in the fifth defendant (Laava). 3. We have proposed these orders mindful of his Honour's comments at [329] of the judgment, and mindful also of the principles set out at [326]-[328] of the judgment. 4. The principal reasons for the plaintiffs' proposed orders are summarised as follows. In the event that these are not agreed, the plaintiffs will develop the below in submissions as necessary. 5. It is common ground that there has been a complete breakdown in relations between the second plaintiff (Mr McDonald) and the other co-founders. This is reflected in the findings which his Honour has made about the circumstances in which the oppressive conduct occurred (and see at [219]-[235], also [276]-[280]). It is also reflected elsewhere in the judgment (see, e.g., [190]-[191]). It was for these reasons that Laava made submissions that the most appropriate order for any oppression found was a buyout. To require Laava, its 6% minority shareholder (CDO), and its co-founder (Mr McDonald), to continue to be bound together in these circumstances is unsatisfactory and would result in a cure, the effects of which would be "worse than the disease": Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 at 620. 6. The alternative courses raised for consideration at [329] of the judgment are not, respectfully, to be preferred. 7. While the plaintiffs sought orders that would have involved a re-equalisation of the equity as between Mr McDonald, his company, and the other co-founders, the plaintiffs never sought an order that Mr McDonald's 'wage loan' be converted, in isolation, to equity in Laava. 8. This was because the conversion of that wage loan to equity would not be curative of the oppression. Since the time of the oppressive conduct (the failure, twice, to offer to Mr McDonald that which was offered to Mr Michel and Mr Surtees), the number of shares on issue in Laava has changed substantially such that the value of any offer would not be the same as if the offers had been made at the time they should have been. 9. The second option, the cancellation of the conversion of the 'wage loans', is also unsatisfactory. Laava has submitted that it has been in a "financially precarious position for some time" and that its investors put money in on the basis of their understanding of the company's cap table. 10. As to the price the subject of the buyout order, this proceeds on the basis that Mr Potter's "Scenario 1" is the appropriate framework for a buy out order, consistently with the plaintiffs' closing submissions. We will revert separately to you about Mr McDonald's wage loan. … (emphasis in original)

Factors informing the exercise of the discretion conferred by s 233 of the Act 12 In exercising the discretion conferred by s 233 of the Act, I have taken into account the following principles. 13 First, once the discretion has been enlivened by a finding of oppression under s 232 of the Act, the Court has a broad discretion as to the remedy: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at 334 [72] (French CJ) and 359 [174] (Gummow, Hayne, Heydon and Kiefel JJ); Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd [2004] FCAFC 153; (2004) 207 ALR 136 at 145 [70] (Wilcox, Marshall and Jacobson JJ); Zong v Lin [2022] NSWCA 136 at [65] (Gleeson JA, with whom Leeming and Kirk JJA agreed). 14 Secondly, the Court should seek to grant whatever relief is best suited to deal with the particular oppressive conduct: Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539 at 561 (Malcolm CJ, Rowland and Franklyn JJ); Noble Investments Pty Ltd v Southern Cross Exploration NL [2008] FCA 1963; (2008) 174 FCR 301 at 305-306 [29]-[30] (Lander J). 15 Thirdly, and relatedly, the relief granted should be commensurate with the oppression found. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688 at 742, Young J (as his Honour then was) stated: Although there is no reported authority on the matter, my view is that the section should be applied by first considering whether orders can be made for regulating the company's affairs in the future so that there is no further oppression or unfair conduct, if that cannot be done, to see if there should be a buy-out by one faction of another: Re Enterprise Gold Mines NL (1991) 3 ACSR 531 at 539. The remedy chosen should be the least intrusive: Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 at 475. Only as a last resort is the court to make a winding up order of an otherwise solvent company under the section. The flavour of the section also is that the court is only to give the remedy which removes the oppression. Note the remedy in fact given in Re H R Harmer Ltd [1959] 1 WLR 62 at 68. Thus it is not enough merely to find oppression and then proceed to find some remedy that might bring peace to the company generally. The court should only grant the remedy that removes the oppression found. 16 In Fedorovitch v St Aubins Pty Ltd (No 2) [1999] NSWSC 776; (1999) 17 ACLC 1558, Young J noted at [2]: "Normally the Court gives the minimum relief that is appropriate to neutralise the oppression". Similarly, in Re North Coast Transit Pty Ltd [2013] NSWSC 1119, Brereton J (as his Honour then was) said at [24]: It 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. 17 More recently, in Zong, Gleeson JA explained at [79]: When exercising the discretion under s 233(1), the purpose of relief is to end the effects of oppression, and the remedy chosen will depend on the conclusions drawn as to what the oppressive conduct was and the Court will choose the remedy which is least intrusive: Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 at 365 [125]; Munstermann v Rayward [2017] NSWSC 133 at [22(10)]. 18 See also Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136 at [1755]-[1756] per Robson J. 19 Fourthly, a buy-out order should not be made if less drastic remedies, consistent with the termination of the oppression, are available: Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [44] (Austin J). Similarly, Young J explained in Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606 at 612: It is not really a function of s 260 of the Corporations Law to enable people to release their capital from ventures where their co-venturers have displeased them. In most situations where people have agreed to contribute funds for a venture there is no right to have the funds released before the venture is fulfilled. The law has allowed exceptions in extreme cases such as where the substratum of the venture has gone or where there has been oppression by those controlling the venture. It must be realised however that these are exceptional cases. Even in cases of oppression it does not follow that the court will consider it appropriate to release the plaintiff's funds from the venture. 20 Fifthly, in an appropriate case, despite there being conduct that satisfies s 232 of the Act which enlivens the discretion in s 233 of the Act to provide relief, the appropriate exercise of the discretion may be to grant no relief with respect to that conduct: see Shanahan v Jatese Pty Ltd [2018] NSWSC 1088 at [304] (Hammerschlag J, as his Honour then was); Sandy v Yindjibarndi Aboriginal Corporation RNTBC (No 4) [2018] WASC 124; (2018) 126 ACSR 370 at 377 [8] (Pritchard J); In the matter of Anna Bay Resort Pty Ltd [2022] NSWSC 331 at [188] (Rees J). 21 Finally, the question of relief must be determined as at the date that the discretion under s 233 of the Act falls to be exercised: see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at 698 [159] (Spigelman CJ).

Exercise of the discretion 22 In considering how to exercise the discretion, it is appropriate to start by identifying the oppressive conduct. As reiterated at [6] above, the oppressive conduct constituted the conversion of loans owed by Laava to Mr Michel and Mr Surtees into equity issued to Wilemich and MCA respectively in circumstances where no equivalent opportunity was afforded to the Minority Interests to convert the loan owed by Laava to Mr McDonald into equity issued to CDO. There were no other findings of oppression. 23 In the form of orders provided to the Court by the Minority Interests subsequent to the publication of CDO No 3, the relief sought by the Minority Interests with respect to the oppression was a declaration, the buy-out order and orders consequent upon the making of the buy-out order. No other relief was sought, whether in the alternative, or otherwise. The proposed orders provided by the Minority Interests also proposed the dismissal of all of the prayers for relief in the Amended Originating Process save for prayer 21 ("Costs, including indemnity costs") and prayer 22 ("Such further or other orders as this Honourable Court thinks fit"). 24 Having considered the further submissions, I remain of the view, expressed tentatively in CDO No 3 at [329], that a buy-out order is not appropriate because a less drastic remedy is available; and because a buyout order would go considerably further than is necessary to alleviate the oppressive conduct and would improve the position of the Minority Interests over and above that which would have prevailed but for the oppressive conduct (see Re North Coast Transit at [24]). 25 Put another way, I consider a buy-out order to be a disproportionate response to the oppression as found. The scope of the oppression found was quite narrow and, as discussed previously, limited to two conversions of debt into equity in circumstances where the opportunity taken by the Majority Interests was not made available to the Minority Interests. Had the opportunity been offered to the Minority Interests (at the same rate of conversion of approximately $70.90 per share, derived from 249,959/3,524 and 250,000/3,527; or at $72 per share, derived from $180,000/2,500 and $36,000/500) and had that offer been accepted, then CDO would have held an additional 626 shares ($44,431/$70.90) or 617 shares ($44,431/$72) in Laava. That is, its shareholding would have increased from 31,287 shares to 31,913 or 31,904 shares, an increase of approximately two per cent. In contrast, the buy-out order sought would require the Majority Interests to purchase all of CDO's 31,287 shares, at a price of $2,203,416. Such an order would be a disproportionate response and would be contrary to the principles discussed at [14] to [20] above. 26 For the reasons set out below, I do not accept the submissions made by the Minority Interests that a buy-out order is the appropriate remedy. 27 The first such submission is to the effect that Laava had advocated, prior to the delivery of CDO No 3, for a buy-out order as the most appropriate remedy on bases including that there had been a breakdown in the relationship between the Majority Interests and the Minority Interests; and that the Majority Interests had not advocated for a different view. I do not regard this as a matter of significance, when those submissions were made at a global level, prior to the delivery of CDO No 3. In this regard, it may be noted that the Minority Interests, prior to the delivery of CDO No 3, had as their primary position, not that there should be a buy-out order, but instead that the Court should make orders which adjusted the shareholdings of the Majority Interests and the Minority Interests with the result that they each remained as shareholders in Laava, but with the Minority Interests having an increased shareholding (at the expense of the Majority Interests). Thus, the position taken by each of the Minority Interests and the Majority Interests has changed following the delivery of CDO No 3 and I do not regard their prior positions as binding upon them. The very purpose of inviting further submissions was to enable the parties to make more focussed submissions taking into account the actual findings made in CDO No 3: see CDO No 3 at [330]. 28 The second submission made by the Minority Interests, in essence, is that: the relationship between the Minority Interests and the Majority Interests has broken down irretrievably; it should be inferred that the cause of the conduct which produced the contravening share issues was that irretrievable breakdown; and to end the oppression, or to "put the company back on the rails and avoid the causes of conflict oppression" (emphasis in original), a buy-out order should be made so as to separate the oppressors and the oppressed. I do not accept that submission for the following reasons: (1) it may be accepted that such a breakdown, whilst insufficient of itself to establish oppression, may be one of several factors that together lead to a conclusion that oppression is made out: see Campbell JA in Tomanovic v Global Mortgage Equity Corp Pty Ltd [2011] NSWCA 104; (2011) 288 ALR 310 at 358 [199]. However, the submission is in substance a submission founded on a case not previously run, namely that there has been an irretrievable breakdown in the relationship between the Minority Interests and the Majority Interests; (2) no finding was made that the relationship had broken down irretrievably. It is also difficult to reconcile the proposition that there has been an irretrievable breakdown with the absence of such a claim previously and with the fact that until very recently the Minority Interests sought orders for an increase in CDO's shareholding in Laava in circumstances where Wilemich and MCA are shareholders and Mr Michel and Mr Surtees are directors; (3) similarly, there has been no determination that the cause of the contravening conduct was a breakdown of the relationship between the Minority Interests and the Majority Interests. Nor has there been a determination that one set of interests was more responsible than the other for such a breakdown; and (4) in any event, Laava appears to be capable of operating absent a cordial relationship between the Founders. In this regard, the importance of the relationship between the Minority Interests and the Majority Interests is of considerably less significance now than when Laava commenced. At Laava's commencement, the Founders were the only directors and the Founder Shareholders (CDO, Wilemich and MCA) were the only shareholders and the relationship between them was integral to the venture they were pursuing through Laava. Presently, three years have passed since Mr McDonald's resignation as a director of Laava in early January 2020 (CDO No 3 at [6], [164], [185]); CDO has chosen not to replace him (CDO No 3 at [188]); and there are a number of other shareholders of Laava. 29 The third submission made by the Minority Interests is that a buy-out order is just in circumstances where Mr McDonald is a founder of Laava; the relationship between Mr McDonald and the other Founders has broken down without fault on the part of Mr McDonald and where oppression has been established. The Minority Interests submit that such an approach is consistent with equitable principle, citing as an example the analysis of Deane J in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at 618-619 as to what is to occur after the breakdown of a contractual joint venture for the pursuit of a commercial advantage. I do not accept these submissions, for the following reasons: (1) as noted above, there is no finding that the relationship has broken down irretrievably and the case was not run on such a basis; (2) there is also no finding that any such breakdown occurred without fault on the part of Mr McDonald and I would not be prepared to make such a finding; (3) whilst Mr McDonald is a founder of Laava, as noted above, he resigned his position as a director and his Founder Shareholder (CDO) chose not to appoint a replacement. Further, the shareholding of Laava has changed considerably since its inception; and (4) the present circumstances are far removed from those which obtained in Muschinski. For instance in that case, but not in the present case, the Court was satisfied that the relationship had broken down without fault on the part of the party claiming relief, and that the venture had failed. In the present case there are no such findings and the venture continues. 30 The fourth submission made by the Minority Interests is that because they have been oppressed, they should be released from Laava by means of a buy-out order. This submission was founded upon general statements taken from various authorities, without consideration of the particular facts of those authorities nor, more importantly, the particular facts in the present case. I reject the general submission that a finding of oppression is of itself sufficient to make a buy-out order the appropriate remedy. In each case the exercise of the discretion turns upon the particular circumstances of the case, including the nature and extent of the oppression found and the principle that relief should not go beyond what is necessary to cure the oppression (see [14] to [20] above). 31 The final submission made by the Minority Interests was that the remedies tentatively suggested at CDO No 3 [329] were not appropriate. The first such remedy was an order setting aside the contravening share issues and allotments (with or without reinstatement of the loans owed by Laava to Mr Michel and Mr Surtees). The Minority Interests submitted that such an order was not appropriate, adopting submissions previously made by the Majority Interests to the effect that having the loans to Mr Michel and Mr Surtees on Laava's balance sheet would detrimentally affect Laava's ability to raise capital. However, that submission assumes that a consequence of setting aside the contravening share issues would be reinstatement of the loan and does not address the possibility - raised expressly in CDO No 3 at [329] - that the contravening share issues could be set aside without reinstatement of the loans. 32 The second suggested remedy was an order for the conversion of the loan owed by Laava to Mr McDonald into shares issued to CDO. That is, an order producing the result that would have obtained if the Majority Interests had acted fairly towards the Minority Interests and offered them the same opportunity to convert a loan into shares, and the Minority Interests had availed themselves of such an opportunity. A variation on this remedy is an order that Laava offer such a conversion opportunity. 33 However, the Minority Interests have indicated that they do not wish an order for a conversion (and, I infer, do not wish an order for an offer of such a conversion) to be made. So much is clear from their 17 November 2022 correspondence (see [10] and [11] above). Further, in their submissions, the Minority Interests expressly rejected the notion that the loan owed to Mr McDonald be converted to equity. They submitted: "Mr McDonald has never sought such an order in these proceedings and, respectfully, does not seek that this occur now". 34 The Minority Interests submitted that such an order was inappropriate because the number of shares that CDO would receive would be a tiny percentage of the total number of shares in Laava, whereas had the conversion occurred in June 2020, then the shares would have represented a greater percentage. This difference is due to various share issues which have occurred in the intervening period. However, this submission proceeds from the flawed premise that CDO's relative shareholding in Laava should have remained static from June 2020 and been unaffected by the subsequent share issues. As noted above and in CDO No 3, the only conduct which was contrary to s 232(e) of the Act was the contravening share issues. That is, there is otherwise no finding that the dilution of CDO's shareholding was the consequence of unlawful conduct. 35 The Minority Interests submitted that they "did not contribute their sweat equity on this basis and should not be required to be locked into such an arrangement". The basis on which their "sweat equity" was contributed is not explained. To the extent that it is suggested that this basis was the Foundational Understanding, such a proposition was rejected in CDO No 3. 36 The Minority Interests also submitted that CDO has lost is ability to participate in the management of Laava since June 2020. However, this submission overlooks the findings in CDO No 3 that Mr McDonald resigned as a director in early January 2020; that Mr McDonald was not forced to resign as a director of Laava; and that CDO chose not to replace him in that position, despite its entitlement to do so. 37 Thus, I am not satisfied that the remedies suggested at CDO No 3 [329] would be inappropriate. 38 The Minority Interests also seek a declaration that the affairs of Laava have been conducted in a manner that was unfairly prejudicial to, or discriminatory against, CDO, within the meaning of s 232 of the Act, by dint of the contravening share issues. It is appropriate to make the declaration sought. I do not accept the submission of the Majority Interests that declaratory relief should be refused because the Minority Interests do not seek, and have refused an offer for, the conversion of Mr McDonald's loan into equity. This does not provide a sufficient basis to decline the relief sought, particularly when the Minority Interests and the Majority Interests have an ongoing relationship in Laava and thus the declaration has utility. 39 It is open to the Court to impose a remedy other than a remedy that a party or parties have sought. In the present case, other available remedies appear to include those tentatively suggested in CDO No 3 at [329]. However, the Minority Interests have expressly opposed such remedies. In these circumstances, I will make the declaration sought, but will not make any other order under s 233 of the Act with respect to the contravening share issues. 40 The Minority Interests failed entirely in their claims against the sixth, seventh and ninth defendants. As noted in CDO No 3 at [10], their claim against the eighth defendant was dismissed during the course of the hearing. 41 It follows that the Amended Originating Process should be otherwise dismissed.

Costs 42 The Minority Interests, the Majority Interests and Laava each seek an opportunity to address the Court on costs after these reasons for judgment have been published. That opportunity should be afforded. 43 It is common ground as between the Minority Interests and the sixth, seventh and ninth defendants that the former should pay the costs of the latter. Those defendants have foreshadowed an application for orders that their costs be paid on a lump-sum and indemnity basis. It is appropriate to make orders for the preparation of such an application. 44 I will make orders accordingly.

CONCLUSION 45 For the reasons set out above, I will make the declaration sought by the Minority Interests, but will otherwise dismiss the Amended Originating Process. I will also make orders concerning costs as foreshadowed. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.

SCHEDULE OF PARTIES NSD 1153 of 2021 Defendants Fourth Defendant: MORTGAGE COMPANY OF AUSTRALIA PTY LIMITED AS TRUSTEE FOR THE SURTEES FAMILY TRUST ACN 062 471 096 Fifth Defendant: LAAVA ID PTY LTD ACN 617 775 578 Sixth Defendant: GAVIN GER Seventh Defendant: WYARGINE GROUP PTY LTD ACN 124 126 987 Eighth Defendant: LUFRAPA PTY LTD AS TRUSTEE FOR THE LUCETTE MICHAEL FAMILY TRUST ACN 161 701 195 Ninth Defendant: ROBERT FITZPATRICK

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (31 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (25)

Cited By (2)