_Hassall & Ors v Johnden Engineering Pty Ltd & Anor_

[1]

CORPORATIONS - CONSTITUTION & LEGAL CAPACITY - INTERNAL DISPUTES - WHAT CONSTITUTES OPPRESSIVE CONDUCT - an application to further amend the originating application and points of claim in oppression proceedings under s 233 of Corporations Law - whether to consolidate the two related proceedings - whether the delay in hearing present application has been prejudicial to respondent - whether r 380 Uniform Civil Procedure Rules has been satisfied - whether oppressive conduct - whether a subjective intention not to oppress may defeat a claim of oppression - whether in determining oppressive conduct a strictly objective element is required.

[2]

Coombs v Dynasty Pty Ltd [1994] FCA 1193; (1994) 14 ACSR 60, considered

[3]

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, considered

[4]

Wayde v NSW Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, considered

[5]

[1] MACKENZIE J: This is an application to further amend the originating application and points of claim in oppression proceedings under s 233 of the Corporations Law. There are currently two related proceedings, one alleging oppression in the conduct of the affairs of Johnden Engineering Pty Ltd and the other alleging oppression in the conduct of the affairs of Speedy Gantry Hire Pty Ltd.

[6]

[2] The applicants Gavin Alister Hassall, Fiona Mary Hassall and Gainguard Pty Ltd are minority shareholders in each company. The majority shareholder is Vacentia Pty Ltd and its conduct is said to constitute the oppression complained of. Vacentia is controlled by Mr Foy and Mr Montgomery. They are both directors of Speedy Gantry and Johnden. Mr Hassall remains a director of those two companies. The director of Gainguard, Mr Elliott, was removed as a director of Speedy Gantry on the occasion when Mr Montgomery was appointed. There is a dispute whether he was also removed as a director of Johnden.

[7]

[3] The present applications are for leave to amend the applications and points of claim and for an order that the applications be consolidated. Originally, Vacentia was not a respondent to the applications but was joined by order of Byrne J on 21 September 1998. Since the issues are essentially the same in each application it is appropriate for consolidation to be ordered. That is not controversial. Until now the matters have been treated by the parties as if consolidated but the files have had separate registry numbers.

[8]

[4] The principal reason why leave to amend is sought is that the request for trial has been signed. Counsel for Vacentia submits that the application also raises the issue of amendment outside the limitation period since a dispute concerning moneys allegedly owed to the minority shareholders is one of the underlying issues.

[9]

[5] Originally orders for winding up of Johnden and Speedy Gantry were included in the application but later it was intended that they be deleted. After an unsuccessful attempt in 1999 to file an amended application in the Registry, which failed because the Registry took the view that it was filed out of time, the current application for leave to file a further amended application, and fourth amended Points of Claim was made. What was originally proposed is exhibited as Exhibit LJD4 to the affidavit of Lionel James Davidson sworn and filed on 1 June 2001. The relief sought does not include winding up of either company. The proposed fourth amended Points of Claim are Exhibit LJD3.

[10]

[6] By the time a hearing came on before me, the draft in Exhibit LJD4 had been further amended. The effect of the further amendments is that the obligation which would have been cast on Speedy Gantry and Johnden if the orders were granted in terms of Exhibit LJD4 were instead framed in a way which would impose the obligation on Vacentia to cause meetings of Speedy Gantry and Johnden to be convened and to pass the resolutions itemised. Speedy Gantry and Johnden, which were separately represented from Vacentia did not oppose the amendments in their last-mentioned form. Vacentia does.

[11]

[7] It was submitted on behalf of Vacentia that the application was made at a very late stage of the proceedings when the matter was on the callover list but not yet set down. The action, having begun in August 1998, should have been heard by now and the delay was prejudicial to Vacentia. The prejudice was said to be the following:

[12]

(a) Vacentia's 51% interest in Johnden and Speedy Gantry was its principal asset.

[13]

(b) While Johnden had ceased trading, Speedy Gantry needs to make investment decisions which are inhibited by the risk of winding up or buy out.

[14]

(d) An award of costs would not be adequate recompense in the event that the action failed.

[15]

[8] I am not persuaded that (a) (c) and (d) have any greater impact than usual in cases of this kind. With respect to (b) the paradox is that if the pleadings had previously been amended as desired to delete the remedy of winding up, and if the amendments were now allowed, winding up of Johnden and Speedy Gantry would not be sought. I am not persuaded that prejudice alone would be sufficient to justify refusal of the present application.

[16]

[9] It was also submitted that the lateness of the application was aggravated by the unwillingness of the applicants to provide evidence of the alleged indebtedness or to commence an action in debt to establish it. Knowing that those requests had been made, the request for a trial date was signed and it was only after that that the present application was made. It was submitted that r 380 UCPR implies that the applicant must prove a special circumstances or at least give an explanation for the failure to plead the matters now sought to be raised. It was submitted that there had been no attempt to do so.

[17]

[10] Rule 380 UCPR provides that an amendment after filing of a request for trial date may only be made with leave of the court. Its terms provide for a wide discretion, the exercise of which no doubt will be influenced by the individual circumstances of the particular case without the need for closed categories of relevant factors to be identified.

[18]

[11] The point of departure between the positions of Vacentia and the applicants is whether the demand that the applicants prove the debts in separate proceedings is necessary, or whether the claim that the failure to pay moneys which, on the face of it, are reflected in the company accounts as having been paid to them, is one of the matters of oppression which may be relied on.

[19]

[12] The alleged indebtedness of Speedy Gantry and Johnden appears to fall into categories of money advanced by the applicants and moneys to which Mr Hassell alleges he has become entitled by an assignment to him of a debt owed to a previous shareholder and director of the company, such assignment having been made as part of the consideration for a separate property transaction between them. (A formal document evidencing the assignment did not come into existence until some time after the assignment is alleged to have occurred). It is not disputed that there is reference in the company accounts to at least a substantial part of the alleged indebtedness. The applicants' position is that the moneys were repayable on demand and that demand was made but did not result in the moneys being paid.

[20]

[13] The line of attack in the points of defence filed in 1999 seems to be to deny the truthfulness of the accounts as to the existence of indebtedness and to deny there was any or any effective assignment. It is in that context that the demand for proof of debts independent of the book entries is made. The claim that some or all of the debts are statute barred is also made in the points of defence. Whether that is correct or not may depend on the effect of continued appearance of references to the indebtedness in the company documents. It is also alleged that it is an abuse of process to include a failure to pay disputed indebtedness in an application under s 233 of the Corporations Law.

[21]

[14] The problem with resistance to the proposed amendments seems to me to be that it is difficult to see how fundamentals of the case will be significantly different if the amendments are allowed. There is an obvious benefit in disposing of all issues in single proceedings if possible. The expanded relief in the proposed amended application extends to orders that Vacentia take steps directed towards payment of the amounts owing. Having regard to the nature of the dispute as reflected in the points of claim and defence, it is not immediately clear to me how the amendment will materially expand the evidence which must be led at the hearing. As the matter stands already, battle lines have been drawn as to the genuineness of the alleged debts and, if they are genuine, the extent of Speedy Gantry's and Johnden's liability to pay them having regard to the lapse of time since some, at least, of them were incurred.

[22]

[15] The proposed additional relief is, it seems to me, little more than a means of implementing the consequences of the decision on those issues. More fundamental questions of whether the kind of relief sought falls within s 233 as a matter of principle, and whether what the court finds in relation to the facts establishes a factual basis for relief under s 233, and what particular relief, if any, is appropriate seem to be questions which can only properly be determined when the factual issues have been resolved with sufficient precision.

[23]

[16] The reason advanced for the late attempt to amend the pleadings is that recently the solicitor for the applicants accessed certain documents during the inspection process. Having done that, he signed the request for trial date but subsequently on looking further at the documents formed the view that the accounts for recent years had been incorrectly prepared. He obtained obstructions then to seek the amendments proposed.

[24]

[17] On behalf of Vacentia it was submitted that the directors of that company would be inhibited by the amendments from relying on a defence to the allegation of oppression if the amendment was allowed. It was said that they would have wished to establish that they had acted on legal advice that the alleged debts were not payable. It may overstate the situation to categorise such a situation as a purely subjective state of mind if there was formal competent advice given on the subject. A subjective intention not to oppress may not, of itself, be sufficient to defeat a claim of oppression in every case. (Wayde v NSW Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; Coombs v Dynasty Pty Ltd [1994] FCA 1193; (1994) 14 ACSR 60). The point is that, in all probability, if there is an objective element in determining whether conduct is oppressive, the state of knowledge of the directors concerning the assumptions and basis of the advice and reliance on it may have invited attention in any event.

[25]

[18] It was also pointed out that the directors of Vacentia had not been involved with Speedy Gantry or Johnden at times when the alleged indebtedness was incurred. On the other hand it is alleged that they carried out due diligence inquiries prior to acquiring their interest and counter allegations have been made about the adequacy of information available at the time. Issues of that kind can only be resolved at trial. It is not disputed that there may be some widening of matters which will require investigation. However, the extent to which this will delay matters is unclear. At least basic material relied on by the applicants in relation to payments has been provided in the form of cheque butts and other documents. However, one unexplained mystery is that the applicant's solicitor claims that copies of similar documents were sent to the solicitor for Speedy Gantry and Johnden in May 1999 but the latter claims not to have received them. That issue, firstly, is incapable of resolution in these proceedings and, secondly, does not have any material effect on the present decision.

[26]

[19] I have come to the conclusion that leave should be granted to make the amendments sought. The following orders are made:

[27]

1. The applicants have leave to amend the applications in each case in the manner set out in the Draft Further Originating Application initialled by me and placed with the papers and the Draft Fourth Amended Points of Claim exhibited to the affidavit of Lionel James Davidson filed 1 June 2001.

[28]

2. That application No 7533 of 1998 and application No 7534 of 1998 be consolidated.

[29]

3. That costs of the application be costs in the cause.

At a glance

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Decision date

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Judgment (29 paragraphs)

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Cases Cited (1)