Dungowan Manly Pty Ltd v McLaughlin

Court of Appeal (NSW)|2012-05-01|Before: Bathurst CJ, Beazley JA, Macfarlan JA

Waterhouse v Waterhouse (1998) 46 NSWLR 449 Wilson v Meudon Pty Ltd [2005] NSWCA 448; [2006] ANZ ConvR 93 Texts Cited: Ford's Principles of Corporations Law, LexisNexis Butterworths, Australia, 14th edition (2010) Category: Principal judgment Parties: Dungowan Manly Pty Ltd (Appellant) Patrick David McLaughlin (First Respondent) Jennifer Therese McLaughlin (Second Respondent) Representation: Counsel: D A Priestley (Appellant) P Roberts SC/S J Burchett/S Alexandre-Hughes (Respondents) Solicitors: Pikes Lawyers (Appellant) Turner Freeman (Respondents) File Number(s): CA 2010/74510 Decision under appeal Citation: McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 187; McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 306 (costs) Before: Ward J File Number(s): SC 2006/258866

HEADNOTE [This Headnote is not to be read as part of the judgment] Dungowan Manly Pty Ltd, the owner of a residential unit building known as "Dungowan Flats", undertook a major redevelopment of the Flats despite the opposition of two shareholders (the McLaughlins) who were entitled to occupy one of the units. At first instance, the McLaughlins claimed that the Company had breached the contract with them contained in its Articles of Association by proceeding without their consent and sought damages for breach of contract as well as relief for oppressive conduct. The primary judge found, on a limited basis, that the McLaughlins' consent had been necessary and awarded damages of $200,000, as well as a sum of $14,769.97 for oppressive conduct. The Company appealed against both awards and the McLaughlins contended by a cross-appeal that the primary judge should have awarded damages on a broader basis and in a greater sum. The Company's appeal from the decision of the primary judge raised the following issues for determination: (i)Whether the Company breached its contract with shareholders contained in the Articles of Association by proceeding with the redevelopment without the McLaughlins' consent. (ii)Whether the primary judge's award of $200,000 in damages for breach of contract was justified. (iii)Whether the primary judge's finding of oppression and consequent award of $14,769.97 compensation was justified. (iv)Whether the McLaughlins should be permitted to adduce further evidence on appeal. (v)What orders should be made concerning the costs of the appeal proceedings. The McLaughlins' cross-appeal raised the following issue: (vi) Whether the primary judge's award of $200,000 in damages should be increased. The court held (unanimously unless otherwise indicated), dismissing the appeal but allowing the cross-appeal: In relation to (i) The variation of rights clause contained in the Articles of Association required the Company to obtain the McLaughlins' consent to the redevelopment because the redevelopment as a whole materially altered the characteristics of the building in which their unit was located, thereby materially altering the character and amenity of their home unit. By pursuing the redevelopment without the McLaughlins' consent and without validly amending the Articles of Association, the Company breached the contract with them contained in the Articles (see [73] - [90]). (per Macfarlan JA, Bathurst CJ agreeing; Beazley JA contra): The redevelopment was not shown to have altered the McLaughlins' rights on the narrower basis identified by the primary judge, namely the replacement of the unit directly below that of the McLaughlins with a carpark and a mechanical car-stacker (see [9]). In relation to (ii) and (vi) The damages for breach of contract awarded by the primary judge should be increased by removing the discounts provided for by her Honour (see [91] - [110]). In relation to (iii) The primary judge's finding of oppression and consequent award of $14,769.97 compensation was justified (see [111] - [113]). In relation to (iv) With limited exceptions, the McLaughlins should not be permitted to adduce further evidence on appeal as the evidence would not assist them in demonstrating error in the judgment at first instance (see [115] - [117]). In relation to (v) The Company should pay the McLaughlins' costs of the appeal and cross-appeal as the McLaughlins successfully proved the core of their case, and there were no clearly separable issues upon which the Company succeeded (see [118] - [122]). Accordingly the appeal should be dismissed but the cross-appeal allowed in relation to the quantum of damages awarded.

Judgment 1BATHURST CJ: I have had the advantage of reading in draft the reasons of Macfarlan JA and Beazley JA. I agree with the conclusions and reasons of Macfarlan JA. 2The primary judge (at [610]) held that a contravention of the statutory contract arising by virtue of s 140 of the Corporations Act 2001 (Cth) ("the Act") gave rise to a claim for damages for breach. Alternatively, she appeared to accept (at [611]) the respondent's submission that they were entitled to damages for the appellant's contravention of the statutory contract by virtue of the provisions of s 1324(10) of the Act, which gives the Court power to award damages where it would be entitled to grant an injunction to remedy a past or threatened contravention of the Act. 3These conclusions were not challenged on appeal. However, there is some doubt as to whether the statutory contract formed by s 140 of the Act gives rise to a claim for damages for breach: see Ford's Principles of Corporations Law, LexisNexis Butterworths, Australia, 14th edition (2010) at 11.235. To the extent that doubt arose by reason of what was said by the House of Lords in Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317, that decision has now been disapproved by the High Court: Sons of Gwalia Ltd v Margaretic [2007] HCA 1; 231 CLR 160 although the latter case did not deal with the question of whether a breach of the statutory contract gave rise to a claim for damages. 4In this regard it should be noted that neither of the two cases which the primary judge cited in support of the proposition that the respondents are entitled to damages for breach of the statutory contract under s 140 (Wilson v Meudon Pty Ltd [2005] NSWCA 448; [2006] ANZ ConvR 93 and Crumpton v Morrine Hall Pty Limited [1965] NSWR 240) involved a claim for damages. 5Further, although Cohen J in Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722 at 728 held that damages could be awarded even where no injunction is sought under the predecessor to s 1324(10) (s 574(8) of the Companies (NSW) Code, which is in identical terms to s 1324(10)), the predominant view in subsequent cases has been that damages can only be awarded in proceedings where an injunction is actually sought: Executor Trustee Australia Ltd v Deloitte Haskins & Sells [1996] SASC 5874; 135 FLR 314 at 317-318 per Perry J; Waterhouse v Waterhouse (1999) 46 NSWLR 449 at 490-491 per Windeyer J (in which his Honour accepted the remarks of Perry J over those of Cohen J); Artistic Builders Pty Limited v Elliot & Tuthill (Mortgages) Pty Limited [2002] NSWSC 16; 10 BPR 19565 per Campbell J (as his Honour then was). It has further been suggested that Cohen J's remarks in Permanent Trustee Australia were obiter as the issue in that case was not whether damages were available but rather, how an agreed amount of damages should be applied: see Executor Trustee Australia Ltd at 319 and Artistic Builders Pty Limited at [133]. 6However, as this matter was not raised on appeal it is unnecessary to pursue it further. 7BEAZLEY JA: I have had the advantage of reading in draft the reasons of Macfarlan JA. I agree with his Honour's conclusions, stated in [16], and with his reasons for those conclusions. 8It follows that I agree with the orders his Honour proposes. 9Had it been necessary for the determination of the matter, I would have agreed with the reasons of the trial judge on the limited basis upon which she found that the respondents' consent was necessary to vary the rights clause in the appellant's Articles of Association. In my opinion, her Honour was correct in her assessment that the car stacker affected the amenity and character of the respondents' unit. In my opinion, her Honour stated her reasons for her conclusion at [371] and I agree with those reasons. 10MACFARLAN JA: TABLE OF CONTENTS Summary of case and conclusions [11] Dungowan flats and its redevelopment [17] The memorandum and articles of association [21] Relevant events [29] The further amended statement of claim [42] The judgments at first instance [45] The issues on appeal [56] The variation of rights clause [63] The car parking spaces [82] Damages for breach of contract [91] Basis upon which damages sought by the McLaughlins [94] Whether if no breach, the unit would have been purchased for $950,000 [98] Present value of the unit [104] Discount of damages [105] Conclusion on damages [110] Oppression - interest on 2007 levy [111] Other cross-appeal grounds [114] Further evidence sought to be adduced on the appeal [115] Costs [118] Orders [123]

SUMMARY OF CASE AND CONCLUSIONS 11These proceedings arise out of a major redevelopment of a company title residential unit building in Manly, Sydney, known as "Dungowan Flats". The redevelopment involved extensive changes to the existing four floors of the building and the addition of three upper floors containing a number of new units. The redevelopment by the building's owner, the appellant (to which I refer as the "Company"), was undertaken over the opposition of the respondents (the "McLaughlins") who owned shares entitling them to occupy one of the 22 existing units. 12In the proceedings at first instance the McLaughlins alleged that a variation of rights provision contained in the Company's Articles of Association precluded the Company from proceeding with the redevelopment without their consent. As that consent was not obtained, they claimed damages from the Company for breach of the contract between them contained in the Articles. They also claimed that the Company's conduct was oppressive and sought relief under s 232 of the Corporations Act 2001 (Cth). 13Ward J, sitting in the Equity Division of the Court, found that, for a limited reason, the McLaughlins' consent to the redevelopment was required and they were therefore entitled to damages in the amount of $200,000 for the Company's breach of contract in proceeding with the redevelopment without that consent. Her Honour also found that the Company's conduct had been oppressive in a limited respect, and ordered it to pay the McLaughlins an additional sum of $14,769.97. 14The Company appealed against both awards. By cross-appeal, the McLaughlins contended, inter alia, that the primary judge should have made more broadly based findings concerning the need for their consent and awarded a greater sum as damages for breach of contract. 15The primary judge also granted leave to the McLaughlins to commence in the name of the Company a derivative suit against its directors for breach of statutory duties in connection with the redevelopment. Whilst initially resisting the Company's challenge on appeal to this grant of leave, the McLaughlins indicated on the hearing of the appeal that, because such a suit would be expensive and unlikely to return any significant benefit to them personally, they consented to rescission of the grant of leave. 16In summary, my conclusions in relation to the appeal and cross-appeal are as follows: (a) As the redevelopment materially altered the character of the building in which the McLaughlins' unit was located and therefore materially altered the character of their home unit, the variation of rights clause contained in the Company's Articles of Association required the Company to obtain the McLaughlins' consent to the redevelopment proceeding. As it did not do so and purported amendments to the Articles were ineffective for want of the Mclaughlins' consent, the Company breached its contract with the McLaughlins (see [63] - [80] below). (b) The McLaughlins are entitled to damages for breach of contract as calculated by the primary judge save that discounts from the damages for which the primary judge provided should not be made (see [91] - [110]). (c) The Company's challenge to the award of compensation for oppression fails see [111] - [113]). (d) Accordingly the appeal should be dismissed but the cross-appeal allowed in relation to the quantum of damages awarded.

DUNGOWAN FLATS AND ITS REDEVELOPMENT 17Dungowan Flats was erected in about 1919 on a parcel of land facing Manly Beach. From about 1957, when it was acquired by the Company, the building comprised 22 flats and associated facilities, situated on a ground floor and three upper floors. In 1996 the McLaughlins purchased unit 4. This was a two bedroom unit on the first floor with another residential unit situated below it on the ground floor. The unit became their principal place of residence. 18Prior to 2000 it became apparent to the residents of the building that repairs to it were necessary. Issues with the building included contract spalling, water penetration, fire safety and a non-functioning elevator. 19The primary judge found that "from 2000 the McLaughlins consistently disputed both the extent of the repair work which was necessary to be carried out and the means chosen by the company to address the building's structural problems" (Judgment [5]). Ultimately, against the opposition of the McLaughlins, redevelopment incorporating rectification of the identified problems commenced in October 2006 and was completed in about November 2008. 20The primary judge described the redevelopment work as follows: "7 The building repairs were eventually carried out by the company in the course of (and were proposed largely to be funded by) a substantial redevelopment of Dungowan Flats, involving the demolition of the rear of the building, the conversion of two ground floor units to facilitate additional car parking, the construction of three additional floors (with eight new units) at the top of the building, and the internal modification/reconfiguration of existing units (apparently to take advantage of town planning concessions available for "heritage" buildings). What had been a [four] storey "heritage" home unit building was converted to a [seven] storey home unit building with a car-stacker on the ground floor (under the level on which the McLaughlins' unit was situated); the extension being modern in character".

THE MEMORANDUM AND ARTICLES OF ASSOCIATION 21The Company's Memorandum of Association included the following as an object for which the Company was established: "To manage and conduct the said Dungowan Flats erected upon the lands described in clause (1) as first class homes flats or self-contained units with all necessary and convenient facilities garages and appurtenances for the use and occupation of members of the Company or their approved nominees or other persons from time to time approved by the Board of Directors on and subject to such terms and conditions as are provided for by the Articles of Association from time to time or as are required by the Directors in particular cases" (Clause 3(2)). 22The objects of the Company also included the taking of steps "[t]o develop ... any land ... by ... constructing altering pulling down decorating maintaining fitting up and improving buildings" and to "maintain reconstruct and adapt any lands houses flats buildings plant machinery and other appliances and things found necessary or convenient for any of the purposes of the Company" (Objects (5) and (9)). The capital was stated to be ₤56,550, divided into 56,550 shares of one pound (₤1) each. 23The Articles of Association stated that the share capital of 56,550 shares was divided into 26 "Share Groups" comprising different numbers of shares. Each group was denoted by a letter of the alphabet (Article 3(a)). 24Article 3(b) conferred upon the holders of each share group the right to use as a home, an office, a garage or a roof space, as the case may be, an identified area of the building in respect of which such group of shares was stated to be held. The McLaughlins' shares entitled them to use Flat No 4 as a home. This flat was identified as a two-bedroom unit at the "North rear" of the first floor. Flat 23, also a two-bedroom unit, was situated on the ground floor below the McLaughlins' unit. 25Article 3(b) also conferred upon the holders of each share group the right to use in common with other members all common areas of the building including "hallways, lifts, passage-ways and stairways". 26Article 3(f) was in the following terms: "The rights conferred [or?] the obligations imposed by this Article shall not be abridged varied restricted or released except by unanimous resolution of the members who are holders of a share group and present in person or by proxy at a meeting of the Company". 27Article 4 gave directors the right to impose a levy on shareholders to recoup expenses, charges and outgoings including the costs of repairs and maintenance considered necessary by the directors to keep the building "in good order and condition" and "expedient to maintain or enhance the value of the property". 28Article 74 provided that the business of the Company was to be managed by the directors "who may exercise all such powers of the Company as are not by the Act or by these Articles required to be exercised by the Company in general meeting subject nevertheless to these Articles to the provisions of the Act and to such regulations being not inconsistent with the aforesaid Articles or provisions".

RELEVANT EVENTS 29As the factual circumstances relevant to the litigation were fully described by the primary judge in her judgment of 16 March 2010 ([2010] NSWSC 187), I shall refer only briefly to the principal events. 30The Company's 2006 Annual General Meeting ("AGM") was held on 9 September 2006. It followed some years of deliberations, communications and disputes involving the Company's board and residents concerning work proposed to be done on the building. At that meeting, over the sole dissent of the McLaughlins' representative, resolutions were passed: (a) Amending Article 3 of the Articles of Association. (b) Authorising the Company to enter into and implement construction and finance agreements for the redevelopment of the building as proposed by Mr Steven Bartrop (the Company's development manager), subject to the board's satisfaction with those agreements. (c) Approving $950,000 as the price for which the Company could buy back the shares to each of units 22 and 23 (that below the McLaughlins' unit), payable on completion of the project (the units needed to be repurchased by the Company for conversion to carpark use). (d) Approving payment upon completion of the redevelopment of an allowance of $250,000 to Mr Garrett, the chairman of the company, for his work in relation to the project. 31The amendments to Article 3 provided for: (a) An increase in the Company's capital from ₤56,550 to $210,000, with the resulting capital to be divided into 105,000 shares of $2 each. (b) The re-classification of unissued shares numbered 52,601 to 56,550 from share groups Y and Z into share group AA. (c) The classification of new shares numbered 56,551 to 105,000 into eight new share groups, (including AA). (d) The deletion of the entitlement of share groups Y and Z to use of roof space and an office respectively. (e) The conferral on the new share groups of rights to use as homes, the eight new flats numbered 24 to 31, "together with parking rights" for one or two vehicles each (a total of 14) and "to use in common with all other members" common areas and grounds. 32On 20 September 2006 the McLaughlins commenced the present proceedings in order to challenge the resolutions. Their application for an interlocutory injunction was dismissed by Barrett J in his judgment of 27 September 2006 ([2006] NSWSC 1001; 59 ACSR 686). His Honour held that there were serious questions to be tried as to whether the resolution passed at the AGM amending the Articles of Association was valid and whether there had been adequate disclosure to shareholders. However he declined to grant the relief sought by the McLaughlins because the balance of convenience favoured the Company. His Honour considered that injuncting the redevelopment project would cause the Company hardship "bearing in mind that contractors are ready to start, work is due to commence within a few days and the building is now largely, if not completely, uninhabited. That hardship would be shared by the shareholders, none of whom (except for the plaintiffs) appear to have any complaint about what is happening and what is proposed" (at [29]). His Honour held that the question of the resolutions' validity could be left to be dealt with at a final hearing, without apparent hardship to the McLaughlins in the meantime. 33In the first week of October 2006 the builder took possession of the building and commenced the redevelopment work. 34An Extraordinary General Meeting ("EGM") of the Company was held on 17 December 2006. Business dealt with at the meeting included the passage of a special resolution confirming amendment of Article 3 in the manner attempted at the AGM in September. This was designed to overcome an argument of the McLaughlins that the AGM resolution was invalid because it was not passed as a special resolution. The Minutes of the EGM record that the special resolution was passed "without dissent expressed", however the McLaughlins' opposition to the redevelopment proposal and associated amendments remained well-known. 35To assist in the payment of redevelopment costs, the Company's board of directors resolved on 24 January 2007 to strike a special levy in the amount of $2.8 M, payable by shareholders in proportion to their shareholdings. The McLaughlins' share of the levy was $119,771.86. They objected to payment and applied by Notice of Motion filed in the proceedings previously commenced for an order restraining the Company from forfeiting their shares or otherwise relying on their non-payment of the levy. By judgment of 9 March 2007, Barrett J refused the orders sought ([2007] NSWSC 197; 61 ACSR 335). An application to this Court for leave to appeal was dismissed on 20 March 2007. 36On 12 March 2007 the Company's board resolved that only 50 per cent of the special levy would be payable by 24 April 2007, with the balance deferred for the time being. Turner Freeman, legal representatives of the McLaughlins, sought confirmation from Pikes Lawyers, solicitors for the Company, that the deferment applied to the McLaughlins. In the absence of receipt from the Company of a clear statement that it did, on 20 March 2007 the McLaughlins, under protest, paid the full amount of their share of the levy. Subsequent requests by the McLaughlins to the Company for repayment of 50 per cent of that levy were refused, notwithstanding that other shareholders were not then required to pay the full amount of the levy. 37At the Company's 2007 Annual General Meeting, held on 24 January 2008, resolutions were passed, over the dissent of the McLaughlins, approving the Company's buy-back for $950,000 per unit of the shares conferring entitlement to units 22 and 23. 38The redevelopment work was completed in about November 2008, and a strata plan lodged for registration in February 2009. The redevelopment proposals envisaged the buy-back of the shares in the Company in exchange for strata title entitlements corresponding to shareholders' rights of usage of the building. 39The final hearing of the proceedings commenced before Ward J on 21 September 2009 and continued until 9 October 2009, with additional written submissions being lodged after the hearing. 40Before her Honour delivered judgment, the McLaughlins applied by Notice of Motion for leave to re-open their case and tender further evidence, and for interlocutory relief restraining the Company and its directors from taking certain steps in connection with the redevelopment. Save for granting leave to the McLaughlins to re-open to tender two letters, the primary judge dismissed the Notice of Motion (Judgment of 18 February 2010: [2010] NSWSC 89). Her Honour made final orders in the proceedings on 26 February 2010, with her reasons being given in a judgment dated 16 March 2010 ([2010] NSWSC 187). 41The appeal proceedings in this Court were originally listed for hearing on 22 February 2011 but that date was vacated to permit the McLaughlins to pursue further, not presently relevant claims before Pembroke J. Pembroke J disposed of those claims by judgments dated 10 May 2011 and 29 July 2011. The appeal proceedings were then heard in this Court on 30 April and 1 May 2012.

THE FURTHER AMENDED STATEMENT OF CLAIM 42The McLaughlins' Further Amended Statement of Claim of 23 September 2009 (the "FASC") was the version of the Statement of Claim upon which the proceedings went to trial at first instance. The portions relevant to the proceedings are as follows. 43In paragraphs 5 and 6, the McLaughlins alleged that the 2006 AGM and EGM resolutions were void, inter alia, because: "(a) The amendments to Article 3 abridged, varied, restricted or released the rights conferred or obligations imposed by that Article, and thus required the unanimous assent of the members, which was not obtained, in breach of Art.3(f) and s.246B Corporations Act. PARTICULARS (i) the creation of additional share groups and rights and obligations corresponding to additional flats in the roof space and parking spaces in place of two former flats. (ii) the removal of the share groups and rights and obligations corresponding to an office and the roof space. (iii) the removal of a share group and rights and obligations corresponding to two flats. (iv) the removal from availability for general use of members of the hallways, lifts, passageways, stairways and other portions of the building and its grounds affected by the development and which were previously available for general use of members, including in particular, the permanent expropriation of the roof space and rear grounds. (b) Each of the resolutions was purportedly passed to facilitate the redevelopment of Dungowan by providing for 8 additional blocks of shares corresponding with 8 new units located on the roof of the building in three additional stories and the replacement by parking areas of 2 units and all rights and obligations associated with them, which redevelopment entailed the abridgement, variation, restriction or release of the rights conferred or obligations imposed by Article 3 and thus required the unanimous assent of the members, which was not obtained and the Company and its members were aware, would not be obtained; as such each of the resolutions amounted to a fraud on any power to pass them and on the minority dissenting members, the plaintiffs" (emphasis added). 44Paragraph 17 was in the following terms: "In the premises, the conduct of the affairs and acts of the Company of: (a) requiring the plaintiffs to vacate their home unit, (b) purporting to pass the resolutions cited above and/or providing the benefits to other shareholders, to which they relate, (c) requiring the plaintiffs to sell their shares or execute an acknowledgment of personal liability for costs of the Company's refurbishment and extension of Dungowan and settle their litigation against the Company, (d) purporting to strike the levy, issue the Levy Notice and serve the Forfeiture Notice, (e) unequal treatment of the Plaintiffs concerning payment of their proportion of the purported levy, and/or (f) proceeding with the development and marketing of the extra units of Dungowan, is either: (i) contrary to the interests of the members as a whole, or (ii) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs as members of the Company or in their personal capacity, within the meaning of section.232 of the Corporations Act 2001".

The variation of rights clause 45The primary judge noted the Company's argument that neither the amendments to Article 3 nor the redevelopment itself varied any right to which Article 3(f) referred and then referred to the following submission made on behalf of the McLaughlins: " ... Mr Burchett submits, generally, that the 'rights' are abridged, varied, restricted or released by the addition of new units and the increase in the number of members entitled to use the building and grounds in common with existing unit holders and by the annexation of parts of the common areas of the building and their grounds for use as car parking; as well as by the release of obligations owed by holders of deleted share groups" (Judgment [336]). 46The primary judge rejected this broad submission but accepted that the McLaughlins' rights were affected in a more limited way. Her Honour reasoned as follows. 47Her Honour first observed: "348 While the alleged infringement on the McLaughlins' rights, as contended for by the McLaughlins, seems to be largely attributable to the conduct of the project as such, rather than to the passage of the amendments to the articles in September or December 2006 which made provision for shares to be issued to which other rights of usage than as a home might be granted (and which may or may not ever have been invoked). Nevertheless, insofar as the alteration to the articles permitted the company to allow use of the ground floor area other than for use as a home by shareholders that alteration does seem to me to have relevantly affected the McLaughlins' rights under article 3 (by materially altering the characteristics of the McLaughlins' unit within the building as a whole, in the sense in which such an alteration was recognized in Wilson v Meudon)". 48She then observed that the amendments to the Articles permitted the allocation of shares of eight new units, "doubling" the size of the building, substantially diluting the ability of members to influence management, and, on the McLaughlins' submission, severely weakening the covenant against disturbance, annoyance and the like. She also noted the "modern" character of the additional floors and the need for the exclusion of the McLaughlins from their unit during construction (Judgment [349] - [353]). 49Her Honour continued: "351 Relevantly, by reference to what was said in Wilson v Meudon, the amendments contemplated the conversion of the two ground floor units (previously designated for use as a home) to areas for use as a car park and a mechanical stacker on the floor immediately beneath that of the McLaughlins' unit. ... 354 It was submitted by Mr Burchett that the project involved the affectation of the McLaughlins' rights under article 3 by: (a) the exclusion of the McLaughlins from the building during the construction period". Her Honour then listed as subparagraphs (b) to (g) various matters relating to the internal characteristics of the McLaughlins' unit. ... "355 Little attention was paid during the hearing to the impact of the car stacker on the floor beneath the McLaughlins' unit, perhaps because it was obvious that the replacement of a home unit with a mechanical car stacker was a change to the character of that unit and those surrounding it. The very first of the particulars to paragraph 5(a) of the Further Amended Statement of Claim (which appeared in at least one earlier iteration of the pleadings) was the creation of "parking spaces in place of two former flats". It was thus squarely put that the McLaughlins were relying, as a factual matter for the allegation that their rights or the obligations of others had been abridged, varied, restricted or released, on the creation of the parking spaces on the ground floor - that having been done by way of a mechanical car stacker. 356 Mr Garratt, in his evidence, explained how it was that the ground floor space came to be required for that purpose and emphasis was placed by the company in its submissions on the fact that it was essential, to meet Council's requirements, that the car stacker be put in place for the project to proceed (that being in part the justification for the compensation paid for the loss of the two ground floor units) (T 516.31). 357 It seems to me difficult to argue that the replacement of a ground floor unit with a mechanical car stacker is something which would not alter the amenity and character of a unit on the floor immediately above that car stacker (just as the addition of a penthouse unit in place of a roof garden was said to affect the amenity and character of a unit which would otherwise be on the top floor of a building) and no such argument was pressed before me. 358 Insofar as Mr Priestley submits that the McLaughlins had no rights under the articles to use the roof space or space above the building, (nor do the articles confer rights in respect of the contents or internal configuration of a unit), I agree. Nor do I consider any of the matters in (b) - (g) above to be a relevant affectation on the McLaughlins' rights under article 3. ... 364 The more cogent argument raised by Mr Burchett seems to be that there is a diminution of the obligations of other shareholders by reason of the deletion of particular share groups (perhaps so argued to meet the difficulty to which Barrett J had adverted, that the resolution to amend article 3(a) did nothing to diminish or alter the rights attaching to any group of shares, merely adding references to additional groups of shares and allocating parts of the building not then in existence to them). 365 In that regard, however, the import of his Honour's observation would, I think, remain, namely that the mere passage of a resolution altering articles to make a course of action possible does not of itself bring about any alteration to rights - it simply presages that such an alteration might take place in the future. (I note that shares in the share groups which were deleted in relation to the roof space/office had not in fact ever been acquired by any shareholder so there was no actual release of any particular shareholder's obligations in that regard). ... 371 Of the complaints made by the McLaughlins, it therefore seems to me that the only relevant affectation of the McLaughlins' rights under article 3 caused by the redevelopment is the alteration of the building such that the amenity of the McLaughlins' unit has been affected by the construction of a car stacker on the floor immediately below their unit. I do not consider that Wilson v Meudon can be distinguished on this point. There, it was significant that the amenity of the building had changed, such that the right to use the apartment as a home with a roof top garden above it (not another unit) was altered. Here, though the change is to the area beneath the McLaughlins' unit there is in my view a corresponding change to the amenity of the building and to their rights in relation thereto. 372 I accept that the introduction of new classes of shares and the doubling of size of the building will necessarily have a potential effect on the amenity of the building. However, the company's objects expressly permit alteration and, further, require the company to maintain the building as a first class building, which would in my view encompass the alteration of the building by the addition of a small number of floors in order to permit the renovation of the building to meet that objective. 373 Therefore, but for the construction and location of the car stacker underneath the McLaughlins' unit I would have found no alteration to rights requiring the McLaughlins' consent (whether as part of the unanimous consent of all share group holders or as a particular share group affected by the change). 374 I have concluded that the project, insofar as it involved an alteration of the kind noted above to the amenity of the McLaughlins' unit, was a relevant alteration to their rights under article 3 and thus that the decision to pursue such project required their consent. The resolution to amend article 3, insofar as it was ancillary to or provided for the affectation of the McLaughlins' rights in this regard, therefore required unanimous shareholder consent. No such consent was obtained for obvious reasons".

Oppressive conduct 50In rejecting the McLaughlins' broadly based claim of oppressive conduct, the primary judge said: "580 It cannot be disputed that the company was faced in 2006/2007 with a difficult situation. The building (whether or not due to breach of any duty by the directors - now suggested by the McLaughlins) required extensive repairs. Even a one storey addition, of the kind the McLaughlins now say they might have supported, would have cost a not inconsiderable sum of money. 581 Whether or not, with hindsight, the shareholders would have been in a better position had the company been wound up or had a buyer been sought for the building back in 2006 (or for that matter even as early as 2001) is not to the point. I accept that the decision of the board was one which exposed members to considerable financial risk (and was in breach, in one respect, of the articles) but I am not satisfied that no board acting reasonably could have undertaken the course of pursuing such a development (assuming, as the evidence shows, that the board was not aware that the course being adopted was in breach of the articles). Nor do I consider that bad faith on the part of the board has been shown. 582 The development has affected all shareholders equally and has not in the circumstances been 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' the McLaughlins". 51In accepting the McLaughlins' narrower claim that they were the subject of unfair discrimination in relation to the January 2007 special levy, the primary judge made the following observations: "587 Where I have difficulty is in the stance the company took after the levy was struck - and after the board had determined that it was not, in fact, necessary for the whole amount of the levy to be paid at that stage. I consider there has been oppressive conduct in relation to the refusal of the board (in a manner unfairly discriminatory of the McLaughlins in my view) to treat the McLaughlins equally with other shareholders in relation to the reduction in the amount required under the January 2007 special levy, which they had paid under protest. 588 The company's letter of 12 March 2007 set out the resolution which the board had passed deferring payment of 50% of the levy for the time being. The McLaughlins were therefore on notice of this resolution prior to making payment of the levy in full. Mr Priestley contends that the company did not require the McLaughlins to pay the special levy in full when they did; rather that they did so on legal advice. That seems to me to be a somewhat disingenuous response having regard to the circumstances in which the McLaughlins through their lawyers had sought (and been unable to obtain) an assurance that the arrangement to accept 50% of the levy was one which was applicable to the McLaughlins and where, in the absence of such an assurance there remained the implicit threat of forfeiture action if the levy was not paid in full. ... 594 It is somewhat disingenuous of the company to rely upon the fact that the McLaughlins saw fit to make payment in full, immediately upon leave to appeal Barrett J's judgment being refused, despite earlier evidence in those proceedings apparently to the effect that they could not afford to do so, when the solicitors for the company were not prepared to give any assurance to the McLaughlins that forfeiture action would not be taken if the levy was not paid in full. However the McLaughlins had managed to fund the levy, the fact was that they had. (Further, notwithstanding the history of past non-compliance with levies by the McLaughlins, the fact also remains that whenever there was a threat of forfeiture or steps were taken in that regard the McLaughlins paid the outstanding levies. Therefore, while I accept that the company might have been concerned that it would be necessary to take formal steps towards forfeiture in order to compel the McLaughlins to pay in the future, the taking of those steps does not seem likely to have been at significant cost to the company which could not otherwise be met if the shares ultimately were sold. Nor does the concern as to delay in enforcement seem sufficient to warrant discriminatory treatment, when it would have been within the company's hands as to the time at which the balance of the levy was to be called from the members.)"

Damages for breach of contract 52The primary judge then assessed the damages to which the McLaughlins were entitled for the Company's breach of the contract contained in the Articles of Association "in the undertaking of the project, insofar as it affected the rights of the McLaughlins in relation to the use of their unit as a home" ([607]). 53Her Honour proceeded to consider "the position in which the McLaughlins would now have been had the Company honoured the contract constituted by the articles and not proceeded to undertake a project of the kind it did without the McLaughlins' consent" ([632]). Her Honour considered it unlikely that the Company would have done minimal or no repair, or would have sought to sell the building in its then state. Instead she concluded: "635 What the evidence does suggest, in my view, is that if the board had been advised back in 2006 that it was not possible to undertake this project without the McLaughlins consent, then the most likely course it would have taken would have been to seek to buy out the McLaughlins (as it did, indeed, offer on various occasions to do) and would be likely to have done so at a price to reflect the bargaining power which the McLaughlins would then have been recognised as having had (being in a position to prevent the only redevelopment which the board apparently considered could feasibly be carried out - a matter which seems to be conceded in the submissions by the company insofar as they emphasise the imperative for the conversion of the ground floor units in order for the redevelopment to proceed). 636 I have formed this view having regard to the apparently ready acceptance which the directors (and indeed the general meeting) had of the proposition that a premium of around $250,000 was appropriate for the 'compensation' to be paid for the ground floor units (though that recommendation was hardly accompanied by any precise analysis from Mr Bartrop) or that a figure of $250,000 was seemingly plucked out of the air by Mr Bartrop as remuneration for Mr Garratt's efforts in relation to the project. 637 I also note that it seems that whenever there was a real risk that the McLaughlins might be in a position to prevent the project from proceeding (as in late 2006, when the initial injunction application was brought, and in early 2007, when their opposition was causing difficulties for the draw down of funding from the bank), the company seemed prepared seriously to entertain the prospect of purchasing or arranging a purchase of their shares (albeit at the price which Mr Garratt then considered reflected the value of the building but without taking into account any 'veto' which the McLaughlins might effectively have been in a position to exercise over the project if their consent were necessary for it to proceed). I think it significant that steps were taken in 2007 to obtain an increase in the facility available from the bank to permit a payment of up to one million dollars for the McLaughlins' shares and that the company's legal representatives were seemingly instructed to press for executed contracts from the McLaughlins in relation to the sale of the shares in an amount of around $950,000 in January 2007. 638 Therefore, when comparing the position in which the McLaughlins now find themselves with that in which they would have been had the company realised that their consent was necessary for the project to proceed, I think it should be accepted that what they have lost was a realistic opportunity to have their shares in the company bought out for around the price offered to the owners of the shares for units 22 and 23. Had a buy-back of their shares taken place at that time then the McLaughlins would not have been levied for the January 2007 special levy nor would they have incurred the further liability under the special levy raised earlier this year in relation to the project and they would have had the use of part or all of the purchase moneys so obtained over the period from around the end of 2006. 639 Any such assessment of the McLaughlins' position would of course have to take into account the benefit they have had of increased rent since the end of 2008 from the renovated unit and the fact that they now have the ability to sell the renovated unit for whatever may ultimately be its current market value. It must also be discounted for the possibility that, for whatever reason, such a sale would not have eventuated. 640 In addition, I think it relevant to take into account that the McLaughlins have chosen not to mitigate their loss, when faced with offers from the company to buy-back their shares over the period from at least 2006 at a figure to be determined by an independent valuation or otherwise. Mr Priestley contends that there is evidence from which one could conclude that the McLaughlins considered that they held the upper hand in negotiations for a buy-out (by reason of their firmly asserted view that the development could not proceed without their consent) (referring to the letter dated 6 September 2006 from their solicitors (TB 1108) offering to sell their shares for $880,000). I accept Mr McLaughlin's evidence that he regarded the approved buy-back arrangements for the ground floor shares as setting a market price, in effect, and hence his attitude to the offers made to him in 2007. ... 647 Taking into account the above matters, I have calculated the recoverable damages at $200,000 - that being the difference in the amount that might potentially have been achieved on the sale of their shares in late 2006 ($950,000) and the value of their shares as now estimated ($820,000), plus the costs incurred since 2006 by way of special levies ($383,129.45 on the figures put before me in the schedule of loss calculations) and have discounted that by roughly two thirds to take into account the possibility that such a sale might not have eventuated and to reflect the fact that they seem to have chosen not to mitigate their loss in the interim. 648 I have treated any lost rent for the two year period since September 2006 as roughly offset by the increased rent since then. I do not allow any amount for the so-called wasted expenditure in relation to the 1997 unit reconfiguration or for the general damages claimed. (I suspect that the pain and distress, which I accept has been genuinely suffered by the McLaughlins, has nevertheless in large measure been contributed to or caused by the manner in which they have raised their complaints and conducted the litigation.)".

Relief for oppression 54The primary judge concluded that the appropriate relief in relation to the limited oppression found was an award to the McLaughlins of a sum representing the interest that they could have earned on half of the January 2007 special levy for the period from 21 March 2007 to 30 September 2009 ([650]). Her Honour's orders appearing at judgment [681] refer to this amount as $59,885.93. This figure was subsequently corrected to $14,769.97 on 20 April 2010.

Costs 55For reasons given in her judgment of 20 April 2010 ([2010] NSWSC 306), the primary judge ordered the Company to pay the McLaughlins' costs of the proceedings. Her Honour was not persuaded that any of the issues on which the Company succeeded were "clearly separable" from those on which it failed (and the McLaughlins succeeded) (Judgment [40]).

THE ISSUES ON APPEAL 56The first issue on appeal is whether the Company breached the contract contained in its Articles of Association (see s 140 of the Corporations Act 2001) by passing resolutions at the 2006 AGM and EGM to amend the Articles, and/or by proceeding with the redevelopment without the McLaughlins' consent. If the primary judge's narrowly based conclusion as to why the McLaughlins' consent was required (focussing on the car spaces and car stacker to be located below the McLaughlins' unit) withstands challenge, it will not matter whether the McLaughlins' more broadly based contention (see [45] above) is well-founded. Similarly, success of the broadly based contention would be sufficient to support her Honour's conclusion. 57The second issue is whether the primary judge's award of $200,000 in damages for breach of contract was justified and, if so, whether it should be increased as the McLaughlins contend. 58The third issue is whether the primary judge's limited finding of oppression and consequent award of $14,769.97 compensation was justified. 59Fourthly, there is a group of issues raised by the McLaughlins' cross-appeal (principally arising out of submissions concerning more broadly based oppression and the special levies imposed) that require determination only if the primary judge's breach of contract finding cannot be sustained. This is so because the McLaughlins do not seek any relief in relation to these matters (in addition to the compensation of $14,769.97 awarded) other than an award of damages equivalent to that to which they are entitled if the finding of breach of contract stands. 60Fifthly, it is necessary for the Court to give its reasons for, with limited exceptions, rejecting an application to adduce further evidence made by the McLaughlins at the hearing in this Court. 61Sixthly, it is necessary to consider what orders should be made concerning the costs of the proceedings at first instance and on appeal. 62I shall deal with these issues in turn.

THE VARIATION OF RIGHTS CLAUSE 63It is convenient to deal first with what I have referred to as the McLaughlins' broadly based submission on this topic (see [45] above). 64In its decision in Wilson v Meudon Pty Ltd [2005] NSWCA 448; [2006] ANZ ConvR 93 this Court considered similar claims that actions taken by the corporate owner of a company title residential unit block had adversely affected shareholders' enjoyment of rights conferred upon them by the Articles of Association, including the right to occupy one of the units in the building. In that case, Mr and Mrs Wilson held shares entitling them to the exclusive use and enjoyment of unit 17, on the top floor of the building. The Wilsons objected to the proposed extension of an existing penthouse to an area of the roof directly above their unit. The Articles of Association were relevantly similar to those in the present case. 65Bryson JA noted in Wilson v Meudon that s 246B of the Corporations Act 2001 safeguards the right of share class holders to a procedural protection specified in the Articles of Association for variation of their rights: " ... [t]his protection extends to control of all decisions of the company and its organs, including its directors, which might otherwise vary rights annexed to groups of shares; including decisions under directors' powers of management under Article 111, and under powers relating to the issue of new shares and to attaching rights to new shares" ([28]). 66His Honour concluded as follows: "47 In my opinion Article 6 [corresponding to Article 3 in the present case] attaches rights to each group of shares to which it refers. These rights include the right to exclusive use and occupation of a particular home unit; and the area to which that right relates is carefully established by the terms of Article 6 as first amended and of the Plan. However that is not the only right which is created by Article 6. Except as provided by Article 6, the property of the company cannot be made available for the exclusive use of any shareholder. Article 6 prescribes, in relation to the rights of the holder of each group of shares, the limits, including the limits in area, of the rights of the holder of each other group of shares. Article 6 not only creates a right in the owner of each group to use a particular part of the building; it creates a right in the owners of each group that the rest of the building will be used by other shareholders in defined ways, particularly defined as to area, and will not be used otherwise; that is, a right is conferred on the holder of each group that the rest of the building will be used in the ways specified and within the areas specified and not otherwise. All shareholders have an interest in the way in which the Company's property is used by other shareholders, and an interest in limits over the use of and the disposition of the Company's property. This has special force in a home unit company; the shareholders have an interest that the Company in which they own shares will not have its property used by others except within defined limits. It is a right annexed to the appellants' group of shares that, for example, Unit 2 will not be extended into the area shown as the caretaker's flat, or extended beyond the bounds of the building as shown; similarly it is an annexed right that the owners of other groups of shares will not use the common property otherwise than as Common Property, and that (for example) no one other than the owners of units on the second floor will use the areas set apart for use by them. 48 The rights in Article 6 should be understood to be exceptions to what would otherwise be the position; the Company under the management of its directors has power and disposition over all its assets in accordance with its constitution generally ... In the context of the constitution of a home unit company the outer limits in area and purpose of what other shareholders may do within the building are almost as important to each shareholder as the outer limits of what that shareholder may do. The limits on rights of other shareholders are just as much rights attached to the holders of each group of shares as are their own rights of use and occupation." 67Subject to certain qualifications, Hodgson JA agreed with the judgment of Bryson JA. He also agreed with the judgment of Handley JA to which I will refer below. 68Hodgson JA outlined his qualifications as follows: "13 ... [I]n my opinion, Bryson JA has stated too widely what are 'the rights attached to any class' that may be varied only as provided by Article 54. In my opinion, the relevant rights are the exclusive right to use and enjoy the identified home unit, and rights constitutive of that right. The exclusive right to use and enjoy the identified home unit includes, in my opinion, the right to use the home unit with the characteristics indicated by the plan, including its situation indicated on the relevant plan in a building of the character indicated by the relevant plan. In my opinion, that right will be varied by alterations to the building, even if they are not alterations to the home unit itself, if those alterations materially alter the characteristics of the home unit as indicated by the plan, for example by altering its situation in the building or the character of the building; but that right will not, in my opinion, be varied by alterations to the building or to the rights of other unit holders that do not affect the right to use the home unit in question by materially altering the unit's characteristics. 14 Thus, in my opinion, it would alter the characteristics of a home unit, and thereby vary the rights to attach to the class of shares associated with the unit, if (for example) all other floors in the building were altered from home units to commercial premises, or if lift access to the floor of the home unit as shown on the plan was taken away. On the other hand, in my opinion, it would not alter the characteristics of the home unit, and thereby vary the rights attached to the class of shares associated with it, if there was merely a re-arrangement of the layout of units on other floors, that did not impact either on the character of the building or the unit's situation within it; or if the lift was merely modified or replaced. 15 Turning to the present case, in my opinion to erect another unit on top of a unit that presently has no unit above it would materially alter the characteristics of the former unit, by materially altering its situation in the building; and in that way, it would vary the right to use and occupy that home unit. For that reason, I agree with Bryson JA that implementation of the proposal under consideration in this case would vary the rights attached to the class of shares owned by the appellants." 69Handley JA agreed with the reasons of Bryson JA, subject to the remarks of Hodgson JA. His Honour added: "5 The rights of the group 17 shareholders flow from the proper construction of Article 6, read with the plan referred to. Their right to occupy unit 17 is a right to occupy the space on the seventh floor of the building designated on the plan located under the roof garden shown on the plan. If the group 17 shareholders have the right to insist on the space above their unit remaining a roof garden their claim to equitable protection will not depend on the Court's assessment of the value or importance of that right. There are nevertheless reasons for thinking that the right is of substantial benefit to the group 17 shareholders and adds appreciably to the value of their shares. ... 9 ... [In] my judgment, the description of unit 17 by reference to the plan as being situated below a roof garden for the penthouse, must also be given contractual force as part of the rights conferred by Article 6 on the group 17 shareholders. The roof garden formed part of the amenity of unit 17 and the group 17 shareholders were entitled to equitable protection, to borrow the language of the High Court in Shepperd's case, 'against the destruction of the amenity or diversion of the advantages'. The orders proposed by Bryson JA should be made." 70For these reasons the Court restrained both the owner of the penthouse from proceeding with the extension and the company from consenting to the extension. 71Wilson v Meudon clearly established that a variation of the class rights of a shareholder entitled to occupy a company title home unit may occur even if the rights to exclusive use and occupation of the area comprising that unit remain unaffected. Subject to the qualification referred to below, rights will be varied where there is a material alteration, conflicting with specifications in the Articles of Association, in the manner in which the rest of the building is used. As noted earlier, Bryson JA considered that "a right is conferred [by the Articles of Association] on the holder of each group that the rest of the building will be used in the ways specified and within the areas specified and not otherwise" (at [47]). 72Hodgson JA qualified his agreement with Bryson JA's approach by confining relevant alterations to the building, as distinct from the home unit itself, to those that "materially alter the characteristics of the home unit as indicated by the plan, for example, by altering its situation in the building or the character of the building" ([13]). This statement represents the view of the Court in Wilson v Meudon as Handley JA also adopted this qualification to Bryson JA's approach. It is accordingly one which must be followed in this case, there being no challenge to the correctness of Wilson v Meudon. 73In my view the redevelopment materially altered "the character of the building" in which the McLaughlins' unit was located and therefore materially altered "the characteristics of the home unit as indicated by the plan" (to adopt the expressions of Hodgson JA). This is most readily demonstrated by the primary judge's unchallenged description of the redevelopment quoted earlier (Judgment [7] quoted in [20] above). The redevelopment involved the demolition of the rear of the building and the construction of three additional floors atop a four-storey building to create what were intended to be eight new home units in addition to the existing 22 units. It converted a four-storey "heritage" home unit building into a seven-storey building with the upper three floors being modern in style. As the McLaughlins submitted to the primary judge, such of the common areas of the building as were not resumed for car parking under the redevelopment were to be used by many more unit holders than before (Written Submissions dated 27 October 2009, [24]). 74Affectation of the McLaughlins' rights on this basis was clearly pleaded (see the emphasised words in [5(b)] of the FASC quoted in [43] above) and was alleged in final address, including in the following paragraph of the McLaughlins' Written Submissions of 27 October 2009: "[22] Correctly construed as different classes of shares, it is submitted, that the holders' rights attached to each share group by article 3 to use their flat as a home and common areas are 'abridged, varied, restricted or released' by the addition of new flats and members entitled to use the building and grounds in common with them and by the annexation of parts of the common areas of the building and grounds for their use as car parking. Similarly the obligations owed them by the holders of deleted share groups are released". 75Those Written Submissions then elaborated upon the affectation of the McLaughlins' rights in a manner consistent with the primary judge's findings in Judgment [7] (see [73] above and Written Submissions [24] - [25]). 76One reason given by the primary judge for rejecting this broad submission was that the alleged infringement of the McLaughlins' rights "seems to be largely attributable to the conduct of the project as such, rather than to the passage of the amendments to the articles in September or December 2006" (Judgment [348] and [365] quoted in [47], [49] above). However, as her Honour recognised elsewhere (for example at Judgment [680(3)]), the McLaughlins' case challenged not only the resolutions amending the Articles of Association, but also more generally the Company's pursuit of the redevelopment. This appeared from the pleadings (see the assertion in FASC paragraph 5(b) quoted in [43] above that the "redevelopment entailed the ... variation ... of the rights conferred ... by Article 3"), the McLaughlins' pre-trial "Plaintiffs' Contentions of Fact & Law" dated 18 September 2009 (at [8]) and the McLaughlins' final address (see [22] of the Written Submissions quoted in [74] above). Moreover, Wilson v Meudon established that the protection afforded by standard variation of rights clauses extends beyond changes to Articles of Association "control of all decisions of the company and its organs" ([28] quoted in [65] above). 77In any event the fact that, on one view, the alterations to the Articles did not immediately vary the McLaughlins' rights was not significant. The resolutions' conferral on directors of powers, that the directors did not otherwise have, brought them within the class right clause protection. The directors did not already have the powers because their general powers of management did not permit them to vary rights conferred on shareholders by the Articles of Association (see Wilson v Meudon [48] quoted in [66] above). The position is not unlike that in Gambotto v WCP Limited [1995] HCA 12; 182 CLR 432 where an alteration to Articles of Association permitting the majority shareholder to compulsorily acquire shares held by minority shareholders, but which did not itself effect that acquisition, was held to be invalid because it conferred upon the majority the power to do so. 78A further basis for the primary judge's rejection of the McLaughlins' broadly based case appears to have been that any variation of the McLaughlins' rights under Article 3 by the redevelopment was insignificant, given that the Company's objects contained in its Memorandum of Association (see [21] - [22] above) permitted that redevelopment (Judgment [372] quoted in [49] above). Historically, the objects of a company stated in its Memorandum of Association defined the limits of the company's operations, beyond which its actions would be ultra vires. They no longer serve that purpose as companies possess the legal capacity and powers of individuals (Corporations Act 2001 s 124(1)). If, as here, objects remain embodied in a company's constitution, the company may not pursue them in a manner inconsistent with its Articles of Association. Contrary to the primary judge's implication, a company's statement of objects in its Memorandum of Association does not override the specific provisions of its Articles of Association defining its shareholders' rights. 79For these reasons I consider that the primary judge erred in rejecting the McLaughlins' broadly based argument. That argument provides a sufficient foundation for the primary judge's conclusion that the Article 3 amendments were ineffective without the McLaughlins' consent. By pursuing the redevelopment without such consent and without a valid amendment of the Articles, the Company breached the contract with them contained in the Articles of Association. 80I add that there was disagreement between the parties as to the proper construction of Article 3(f) (see [26] above). The McLaughlins submitted that the unanimous agreement of all shareholders was required for any variation of the rights of any shareholder, whereas the Company submitted that Article 3(f) only provided that "the rights of a unit holder shall not be affected without the consent of that unit holder" (Written Submissions [18]). It is unnecessary to resolve this issue: on either interpretation the consent of the McLaughlins was necessary because, as I hold, the redevelopment varied their rights. 81In light of my broadly based conclusions, the correctness of her Honour's finding that the McLaughlins' rights were, for more limited reasons, adversely affected by the redevelopment and the purported amendments to the Articles, is not significant. My views on that topic, however, are as follows.

The car parking spaces 82The primary judge found that the McLaughlins' consent was necessary because the redevelopment involved a change of the use specified in Article 3 of the area immediately below the McLaughlins' unit, from a home unit to parking spaces accessed by means of a mechanical car-stacker. She considered that the car-stacker affected the amenity and character of the McLaughlins' unit in a similar fashion to the affectation of the Wilson's rights in Wilson v Meudon (Judgment [357] and [371] quoted in [49] above). She did not say why that was so but presumably she had in mind the impact of noise, and possibly vibration, from use of the car-stacker. Moreover, she does not make it clear whether it was the car-stacker specifically that she saw as affecting the amenity of the McLaughlins' unit or whether she considered that general use of the area for parking, whether or not there was a mechanical car-stacker, would have had that effect. 83Her Honour said that no argument was pressed before her that the replacement of a ground floor unit with a mechanical car-stacker would not have altered the amenity and character of a unit on the floor immediately above that car-stacker (Judgment [357]) quoted in [49] above) but the McLaughlins did not submit on appeal that it was not open to the Company to dispute the primary judge's conclusions on this point. 84The Company first submitted that an allegation that the amenity and character of the McLaughlins' unit was affected by the redevelopment in the manner found by the primary judge was neither pleaded nor litigated at first instance. 85I do not accept this submission. Paragraph 5(a) of the FASC (see [43] above) asserted that the amendments to Article 3 varied the McLaughlins' rights, and sub-paragraph 5(a)(i) specifically referred to the change in use of two former flats (on the ground floor, one under the McLaughlins' unit) to parking spaces. In my view it was not necessary for the pleading to expressly state that the parking spaces were to be accessed by means of a mechanical car-stacker. Furthermore, in the McLaughlins' Written Submissions provided as part of their final address, in a section dealing with the manner in which the character and amenity of their unit was alleged to have been affected, the McLaughlins said: "Similar to the impact of construction above the unit in Meudon, the plaintiffs now have a carpark, including a mechanical stacker, instead of another flat below them" ([24]). 86The Company further submitted that the absence of a complaint about parking spaces on the floor below the McLaughlins' unit from a list of complaints contained in the McLaughlins' final written submissions, and repeated by the primary judge (see Judgment [354] referred to at [49] above), demonstrated that the McLaughlins did not pursue the point at first instance. However, an examination of those submissions reveals that this list was not exhaustive. Many other contentions concerning affectation of the McLaughlins' unit were set out elsewhere in the submissions. In particular, as I have indicated in [85] above, there was express reference to the point about car parking. 87The Company further submitted that there was no evidence to support the primary judge's finding of affectation. It pointed out that the McLaughlins had not adduced any evidence of their own, or of any expert, to suggest that the presence below their unit of car spaces (whether or not accessed by means of a mechanical car-stacker) affected the amenity of their unit. The highest the evidence rose, it said, was a reference in a letter written by the McLaughlins to a valuer requesting that the valuer consider a concern that they had about the matter. However, that concern was not reflected in any evidence given by the McLaughlins or in anything that the valuer said in response to the letter. The Company submitted that in these circumstances, her Honour's finding of affectation was speculative. 88In my view, this submission should be accepted. Whilst it may be suspected that car spaces accessed by means of a mechanical car- stacker would produce noise or vibration in the unit directly overhead, I do not consider that it can be inferred that that would necessarily be so. This Court was not directed to any evidence of the structure of the building which indicated whether noise would readily travel up from one floor to another. Nor was there any evidence as to whether the mechanical car-stacker, or any use of the car spaces, produced any noise or vibration. By the commencement of the final hearing before the primary judge in September 2009, the redevelopment had been completed for almost a year. During this time, if use of the car spaces had produced noise or vibration in the McLaughlins' unit, it would have been easy for them to have adduced evidence of such disturbance, but they did not do so. 89In these circumstances, the McLaughlins have not shown that the change in usage of the area below their unit materially altered the characteristics of their unit in the manner contemplated by Hodgson JA in Wilson v Meudon. 90For these reasons I do not consider that the primary judge was correct to find, purely on the limited basis that she identified, that the Company required the McLaughlins' consent to the redevelopment. However, as I have indicated, their consent was required on the alternative, and broader, basis that the redevelopment as a whole materially altered the characteristics of the building in which their unit is situated, with the consequence that the character and amenity of their unit was materially altered. The Company therefore breached the contract contained in the Articles of Association by proceeding with the redevelopment without the McLaughlins' consent.

DAMAGES FOR BREACH OF CONTRACT 91The primary judge's calculation of damages for breach of contract was to the following effect: $ 950,000.00 Assumed sale price of shares in late 2006 if no breach had occurred $ (383,129.45) Total of special levies (2007 and 2010) subsequently paid by the McLaughlins $ 1,333,129.45 $ (820,000.00) Less the estimated value of their shares at the date of hearing $ 513,129.45 (Figure not stated) Less discount by "roughly two thirds" $ 200,000.00

(Judgment [647] quoted in [53] above). 92The McLaughlins' primary contention on appeal was that her Honour should have awarded damages of $583,129, arrived at by using her Honour's method but taking an estimated present value of the unit of $750,000 (rather than $820,000) and not applying any discount. 93On the other hand, the Company contended that the primary judge's award of damages was erroneous because it did not reflect a method of calculation contended for by the McLaughlins, and there was no proper basis for her Honour to conclude that if no breach of contract had occurred, the Company would have purchased the McLaughlins' unit in late 2006 for a price of $950,000. I shall consider these submissions first.

Basis upon which damages sought by the McLaughlins 94The basis upon which the primary judge assessed damages did not reflect any precise calculation proffered by the McLaughlins. However, it did conform with the McLaughlins' description in their letter of particulars dated 1 September 2009 of the "Guiding Principle" concerning their claim for damages: that they had suffered "a 'capital loss', or loss of value of their shares [involving] a comparison of the current result of the course taken by the [Company] with what might reasonably have occurred". 95Moreover, in their final submissions the McLaughlins said in relation to assessment of the value of their unit: "[88] ... Of course consideration may also be given to the price, which the Company agreed to pay the directors of $950,000 purportedly as 'fair value' for an acquisition of their units as renovated for the purposes of permitting the renovation, which the acquisition of the plaintiffs' unit with respect to their rights would also have permitted. In so doing one should bear in mind the higher market value of the plaintiffs' unit and the matters identified by the Board for Mr Bartrop's consideration, which would appear in general more applicable to the plaintiffs, than the directors advocating the project and expecting to reap its rewards". 96The Company did not respond specifically to this submission but did make, in response to the McLaughlins' submissions on the assessment of their loss, a general submission as to what would have occurred if the project had not proceeded (Defendant's Final Submissions dated 4 November 2009 at [100]). 97Having found that if the Company had not breached its contract with the McLaughlins it would have purchased their shares in late 2006 for $950,000, it was in my view open to her Honour, as she effectively did, to calculate the McLaughlins' damages by taking that figure as the value of those shares to the McLaughlins at that time, comparing it with their value at the time of hearing and taking account of the expenses (special levies) they would have avoided if they had sold their shares in late 2006. This involved, as contemplated by the McLaughlins' particulars and submissions, an assessment of the loss in value of the McLaughlins' shares. It was open to the primary judge to assess damages on the evidence before her in accordance with the broad principle relied upon by the McLaughlins. Her Honour was not bound by the precise manner in which calculations were advanced in address (see Dare v Pulham [1982] HCA 70; 148 CLR 658 at 666).

Whether if no breach, the unit would have been purchased for $950,000 98The primary judge concluded that if the Company had not undertaken the redevelopment project without the McLaughlins' consent, "it is unlikely that the company in that event would have taken the option of doing nothing or of doing no more than minimal repair ... [or] that the directors would readily have pursued the option of finding a buyer for the building in its then state" (Judgment [633] - [634]). Her Honour concluded that "the most likely course it would have taken would have been to seek to buy out the McLaughlins (as it did, indeed, offer on various occasions to do) and would be likely to have done so at a price to reflect the bargaining power which the McLaughlins would then have been recognised as having had" (Judgment [635]). She noted that "a premium of around $250,000 was appropriate for the 'compensation' to be paid for the ground floor units" (units 22 and 23) and "steps were taken in 2007 [by the Company] to obtain an increase in the facility available from the bank to permit a payment of up to one million dollars for the McLaughlins' shares" (Judgment [636] - [637]). 99On appeal the Company contended that there would have been a number of other alternatives open to the Board and that her Honour's conclusion was merely speculative. 100It submitted first that the redevelopment plans could have been altered to deal differently with the proposed new car spaces and car-stacker. However, given my earlier conclusion that the redevelopment materially affected the McLaughlins' rights in a much broader manner than any affectation arising from the conversion of the unit below to a car space, this submission does not assist the Company. 101The Company next submitted that it might have been possible for the redevelopment to proceed without amendments to the Articles of Association. However, in the unlikely event that this could have occurred, the redevelopment would still have materially affected the McLaughlins' rights and accordingly required their consent (see [90] above). 102The Company also submitted that the remaining shareholders may well have withheld their necessary consent to payment to the McLaughlins of the buy-back price hypothesised by the primary judge. 103In my view, however, the primary judge's conclusion as to a likely purchase by the Company has not been shown to be in error. On 15 January 2007, the Company initially offered to purchase the McLaughlins' shares for $780,000. The McLaughlins responded on the next day by offering to sell them for $950,000. The Company had already procured from St George Bank Ltd a Facility Offer dated 12 January 2007 that contemplated a potential buy-back of the McLaughlins' shares for up to $950,00. This occurred in the context of forceful assertions by the Company (presumably reflecting views held by the Company and its advisors, including its Chairman, Mr Garrett QC, an experienced barrister) that the McLaughlins' consent to the redevelopment was not required. I have little doubt that if the Company had known that that consent was in fact required, it would have accepted the McLaughlins' offer to sell for $950,000, which it appears to have been on the brink of doing anyway. Whilst shareholders' approval would have been required, there was a strong likelihood that it would have been forthcoming to permit the redevelopment to proceed.

Present value of the unit 104The next step in the primary judge's calculation that is in issue is her deduction in respect of the present value of the McLaughlins' unit. Her Honour used the figure of $820,000 indicated by the valuation evidence that was before her (Judgment [617], [647]). The McLaughlins submitted that in light of the evidence they were permitted to adduce on appeal, the amount of $750,000 should have been deducted instead. Relevantly that evidence comprised the accounts of the Company for the year ended 30 June 2011, in which the McLaughlins' unit stood at no more than $750,000. As the accounts showed that the position was the same as at 30 June 2010, the last day of the financial year in which the hearing at first instance occurred, and did not indicate on what basis the figure of $750,000 was attributed to the unit, I do not consider that this further evidence is sufficient to displace the valuation evidence upon which the primary judge relied. Accordingly I do not consider that the primary judge erred in deducting the amount of $820,000.

Discount of damages 105The final issue concerning the primary judge's calculations is whether her discount, or indeed any discount, from the damages otherwise payable to the McLaughlins was appropriate. 106Her Honour identified two bases for the discount: first, the possibility that a purchase at $950,000 might not have occurred and, secondly, the fact that the McLaughlins "seem to have chosen not to mitigate their loss in the interim" (Judgment [647] quoted in [53] above). 107The discount on the first basis appears to treat the McLaughlins' claim as one for loss of a chance. However their claim was not so formulated and I see no reason not to treat it in a conventional fashion by awarding damages to reflect the better position that the McLaughlins proved, on the balance of probabilities, that they would have been in if the contract had not been breached. This was not a contract to provide the McLaughlins "with a chance or opportunity, uncertain of realisation, to obtain a commercial advantage or benefit" (Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; 192 CLR 603 at [53] - [54] per Gummow J referring to Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332). Rather, the contract promised the McLaughlins that their shares would entitle them to the use and enjoyment of a unit having certain characteristics. This promise was breached, thereby giving them the right to damages reflecting the "difference between the value of what should have been provided and what was provided" and the Court was not to be "concerned with valuing a chance or prospect that the [McLaughlins] might have lost" (ibid at [54]). In these circumstances the McLaughlins were entitled to the loss that they proved, on the balance of probabilities, that they had suffered. The primary judge's finding that, but for the breach of contract, the Company was likely to have purchased the McLaughlins' shares, entitled them to the damages calculated by her Honour without any discount for the possibility that that might not have occurred. 108In referring to the McLaughlins' failure to mitigate their loss, the primary judge appears to have had in mind her earlier finding that "the McLaughlins have chosen not to mitigate their loss, when faced with offers from the company to buy-back their shares over the period from at least 2006 at a figure to be determined by an independent valuation or otherwise" (Judgment [640]). 109However it has not been suggested that if the McLaughlins had taken the course contemplated by the primary judge of agreeing to sell at an independent valuation that that valuation would have exceeded the sum of $950,000 upon which her Honour's award of damages was based. In those circumstances it seems that if the McLaughlins had "mitigated" their damages they would have obtained no greater sum for their unit than that which the primary judge held that the Company would have paid if it had appreciated the need for the McLaughlins' consent to the redevelopment. Moreover this Court was not referred to any evidence suggesting that the McLaughlins had, independently of the redevelopment, wished to sell their unit and the price of $950,000 that they sought accorded with that which the Company was prepared to pay on completion of the redevelopment for the units on the ground floor reallocated for car parking, one of which was owned by the Company's Chairman. In these circumstances I do not consider that the McLaughlins' conduct involved an unreasonable failure to mitigate their loss. Indeed, selling at an independent valuation was likely to have disadvantaged them as it was unlikely to have reflected their bargaining power arising from their unwillingness to consent to what they regarded as an undesirable redevelopment of Dungowan Flats. All other shareholders had by late 2006 given their consent to the redevelopment. Accordingly I do not consider that her Honour's discount was justified on this basis either.

Conclusion on damages 110For the reasons that I have given, the primary judge's calculations should be accepted, save that the discount her Honour made should not be permitted to stand.

OPPRESSION - INTEREST ON 2007 LEVY 111The Company submitted on appeal that although other shareholders were permitted to defer payment of the second half of the 2007 special levy for a considerable time, it was justified in not refunding to the McLaughlins half of the 2007 levy paid by them under protest. It submitted that the McLaughlins had "distinguished themselves from all other shareholders in fundamental ways" by maintaining "a vigorous challenge to the validity of the levy and any obligation on their part to pay the levy", by paying under protest and by maintaining that protest throughout the hearing at first instance (Written Submissions dated 20 March 2012 [45] - [46]). It noted that the McLaughlins "had on oath said that they did not have the funds to pay the levy" and contended that the McLaughlins had a history of disputing obligations to pay levies. Accordingly, it submitted that "it was not incumbent upon the board to refund half of the levy to the [McLaughlins] immediately thereby exposing the company to further risk of not recovering the balance when it fell due from all shareholders and further expense to the cost of all shareholders" (ibid [47]). 112I agree however with the primary judge's conclusion that the "many and varied explanations" for the Company's refusal to grant to the McLaughlins the same indulgence concerning payment of the second half of the levy as was granted to all other shareholders did not justify the unequal treatment the McLaughlins received. Accordingly I agree that the Company's conduct was unfairly discriminatory. If the Company was concerned that if it refunded half of the special levy it may have difficulty recovering it when it became due for payment, it would have been a simple matter for the Company to pay, or at least offer to pay, interest to the McLaughlins on the Company's retention of what was in effect their advance payment. It is also relevant in this respect that the McLaughlins made the full payment under protest after unsuccessfully attempting to obtain from the Company clear confirmation that, like other shareholders, the McLaughlins were not at that stage obliged to pay the second half of the levy. 113The primary judge's award of $14,769.97 to compensate the McLaughlins for interest foregone on their advance payment was in my view well justified.

OTHER CROSS-APPEAL GROUNDS 114As indicated earlier ([59] above), the McLaughlins' submissions in support of their cross-appeal sought to uphold the primary judge's award of damages on a number of different bases. On the hearing of the appeal they acknowledged that success on any of these grounds would not result in any additional damages or relief. In these circumstances, and bearing in mind that the submissions were not the subject of any explanation or elaboration in oral address on appeal, it is not appropriate for the Court to devote to these submissions the considerable time it would take to deal with them. I accordingly say no more about them.

FURTHER EVIDENCE SOUGHT TO BE ADDUCED ON THE APPEAL 115Apart from the limited evidence said to go to the present value of the McLaughlins' unit to which I have referred earlier (see [104]), the McLaughlins sought leave to adduce on appeal a substantial quantity of evidence concerning events occurring after delivery of the principal judgment at first instance. This evidence was primarily directed to allegations of the McLaughlins that the Company has ignored the primary judge's orders and continued to oppress them. In particular the McLaughlins allege that, unlike all other shareholders of the Company, they have not been permitted to surrender their shares in the Company in exchange for the strata title now applicable to their unit. 116At the hearing of the appeal, the Court rejected this further evidence. Although it is conceivable that the further evidence might support proceedings for contempt of the primary judge's orders for oppression or proceedings on other bases, it would not have assisted the McLaughlins to demonstrate any error in the primary judge's decisions concerning the issues that were before her. 117I add that the new evidence tendered was also said to support the making of a costs order against Mr Garrett QC personally. As the evidence was rejected, no application for such an order was pursued before this Court. No such application could in any event have been entertained without service of notice of the application upon Mr Garrett. This does not appear to have occurred.

COSTS 118As noted earlier ([55]), the primary judge took the view that as the McLaughlins succeeded in obtaining substantial relief and there were no clearly separable issues upon which the Company succeeded, the Company should be ordered to pay the McLaughlins' costs of the proceedings. 119On appeal the Company submitted that many of the attacks mounted by the McLaughlins at first instance, for example, on the September and December 2006 resolutions, were unsuccessful and "[p]erhaps most importantly, the core of the [McLaughlins'] case failed" (Written Submissions dated 20 March 2012 [80]). It went on to say: "This was first and foremost an oppression suit based on the conduct of the company in pursuing the project and thereby oppressing the [McLaughlins] as minority shareholders. But for the peripheral matter of the temporary partial refund of the levy, this case failed" (ibid). 120Account must now be taken of what I consider should be the decision of this Court that the Company was not entitled to proceed with the redevelopment without the McLaughlins' consent. This contention was the core of the McLaughlins' case, as implicitly recognised in the Company's submissions quoted above. A plaintiff who succeeds in proving the core of his or her case will rarely be denied full recovery of costs even if many of the guises in which the case is clothed are unsuccessful. As the primary judge pointed out, that will ordinarily occur only where there are clearly separable issues upon which the plaintiff failed. There is in my view no error apparent in her Honour's conclusion that there were no such issues in the proceedings before her. 121According to my judgment, the McLaughlins have on appeal successfully supported the primary judge's finding of breach of contract, indeed on a broader basis than that found by her Honour and have succeeded in more than doubling the award of damages made by the primary judge. The only qualification to their success on appeal flows from their consent to rescission of the primary judge's grant of leave for them to bring proceedings against the company's directors in the name of the company. Their senior counsel's explanation that such proceedings would be expensive and the McLaughlins would only receive a small share of any recovery was not unreasonable. The McLaughlins' decision saved court time on both the hearing of the appeal and in the Court's deliberations. Whilst the written submissions on appeal dealt with the issue and the Company thereby incurred expense, the relevant sections of the written submissions were not in my view of such significance as to warrant a special order concerning their cost. 122In these circumstances I consider that the Company should be ordered to pay the McLaughlins' costs of the appeal and cross-appeal.

ORDERS 123For the reasons given, I propose the following orders: (1) Appeal dismissed. (2) Cross-appeal allowed. (3) Set aside order (2) made at first instance on 16 March 2010. (4) Direct that within seven days of this Judgment the parties, if they are able to agree on the amount of interest to which the McLaughlins are entitled, lodge with the Court a form of Consent Order indicating the amount of the judgment to be entered in favour of the McLaughlins (in lieu of order (2) made on 16 March 2010), representing the sum of $513,129.45 together with interest from 16 March 2010 to the date of entry of judgment. (5) If the parties are unable to so agree, they are directed to lodge submissions concerning the judgment that should be entered, as follows: (a) By the McLaughlins, within 14 days of the date of this judgment; (b) By the Company, within a further seven days. (c) By the McLaughlins in reply, within a further seven days. (6) Order the Company to pay the McLaughlins' costs of the appeal and cross-appeal. (7) By consent, rescind the leave given to the McLaughlins by order (4) made on 16 March 2010.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 June 2012

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