Hillam v Ample Source International Limited

Federal Court of Australia (Full Court)|2012-05-18|Before: John J, Mr J, Robertson J, Buchanan JJ

Introduction 1 On 27 February 2012 the trial judge, from whose judgment and orders the present appeal is brought, made an order that the second respondent, Bonython Metals Group Pty Limited ("BMG") be wound up pursuant to s 233 of the Corporations Act 2001 (Cth) ("the Act"). Consequential orders were also made at that time. The order that BMG be wound up was made for reasons explained by the trial judge which were published on 22 December 2011 (Ample Source International Limited v Bonython Metals Group Pty Limited; In the Matter of Bonython Metals Group Pty Limited (No 6) [2011] FCA 1484 ("the primary judgment")). The winding up order was stayed, initially until 19 March 2012, on condition that a notice of appeal be filed. The stay was subsequently extended until the hearing and determination of an appeal. 2 On 3 May 2012, shortly after the appeal was heard, the Court made orders dismissing the appeal. At the same time it discharged the stay. These are our reasons for making those orders. 3 Section 233 of the Act appears in Part 2F.1 titled "Oppressive Conduct of Affairs". Section 233 provides a non-exclusive catalogue of possible orders that a court might make in the event that a ground in s 232 of the Act is made out. Section 232 provides, relevantly, 232 The Court may make an order under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. 4 We approach the present appeal on the basis that "commercial unfairness" is at the heart of the test in s 232(e). The compound expression in s 232(e) of the Act is concerned with commercial unfairness, and the task of deciding whether there has been commercial unfairness is to be undertaken in the context of the particular relationship which is in issue (see Joint v Stephens [2008] VSCA 210 at [134] and [136]). 5 At the time of the trial the first respondent ("Ample Source") held 25 per cent of the shares of BMG. The trial judge found that the ground in s 232(e) was made out because the conduct of the affairs of BMG was oppressive and commercially unfair to Ample Source. In our view the present is a clear case of commercial unfairness at a number of levels. Many of the findings made by the trial judge which contribute to that conclusion were not challenged on the appeal and in our respectful opinion were, in any event, unassailable. As will be seen, such challenges as were made to the trial judge's findings on the appeal should be dismissed. The real question on the appeal is whether the remedy ordered by the trial judge was appropriate. 6 The first potential order stated by s 233(1), if a ground in s 232 is established, is "(a) that the company be wound up". Thereafter s 233(1) lists further orders that may be made. The trial judge considered, but ultimately dismissed, various orders proposed by each side to resolve the dispute between them which had resulted in the effective deadlock of the management of BMG, and to address the oppressive conduct which he found had occurred. He concluded that the appropriate order was that BMG be wound up. 7 The appeal raised three distinct issues for consideration. First, the appellants adopted the position that, even if all the findings made by the trial judge remained undisturbed, nevertheless an order that BMG be wound up was not justified. The appellants contended that there was a general principle, which was not observed by the trial judge, that a solvent company will not be wound up by court order except in extreme circumstances. They contended that the circumstances were not extreme, or not so extreme, as to warrant an order for winding up. Secondly, issue was taken with some, but not all, of the findings made by the trial judge which led to his conclusion that the conduct of the affairs of BMG after April 2010 was oppressive and commercially unfair to Ample Source. Thirdly, it is necessary, whatever view may be taken of the appellants' arguments about the first two matters, to give some attention to the nature of the relief ordered by the trial judge, in the circumstances of the present case. 8 For reasons to be explained, we reject the appellants' first proposition. It is always necessary to formulate relief having the circumstances of the particular case in mind. A decision to make an order to wind up a solvent company falls into no different category. While we accept that consideration of an order to wind up a solvent company should be approached with caution, the exercise of the discretion is not to be approached on the basis that there is an unexpressed limitation in s 233 of the Act (or in s 232) to the effect that the discretion should not be exercised where a company is solvent. That would amount to an implicit direction that a company should only be wound up in insolvency. 9 As to the factual findings leading to a conclusion that grounds under s 232 of the Act had been established, we are not persuaded that the appellants have established any basis for disturbing those findings. 10 In the present case, therefore, there is little scope for a debate about the manner in which the trial judge exercised his discretion to formulate relief to deal with the oppressive conduct which he found to have been established. Nevertheless, had it been necessary to exercise the discretion afresh, in the light of the arguments on the appeal, in our view the relief granted by the trial judge was the appropriate relief in the circumstances.

Background 11 BMG was incorporated on 23 December 2009. The majority shareholders were the first appellant, Mr John Hillam and his domestic partner Ms Sarobol Teeranukul, the second appellant. At the time of the trial Mr Hillam and Ms Teeranukul held 64 per cent of the shares of BMG (32 per cent each). Mr Hillam was the driving force behind BMG. He was at all times a director and the CEO of BMG. Mr Hillam had interests in other companies. One such company was Wentworth Metal Group Pty Limited ("Wentworth"). Mr Hillam and Ms Teeranukul were the only two shareholders of Wentworth. The directors of Wentworth at the relevant time were Mr Hillam and Mr Dennis Brennan. Another company in which Mr Hillam had an interest was CFM Media Holdings Pty Ltd, ("CFM Media"). CFM Media was registered on 4 May 2010. Its only two shareholders were Mr Hillam and Ms Teeranukul. Its sole director was Mr Hillam. Before the registration of CFM Media, Mr Hillam on occasion used the business name "CFM Media Holdings" when doing business in his own right. 12 Mr Hillam is a geologist. A principal business activity of BMG was to raise capital to undertake exploration and development of mineral resources, usually in joint venture arrangements with companies which held permits to explore and exploit mineral resources. 13 Wentworth had applied for, and was eventually granted, three mining tenements in South Australia. In February 2010 Mr Hillam caused an arrangement to be made between BMG and Wentworth. In both companies he and Ms Teeranukul were either the sole shareholders or held the majority interest. The arrangements were set out in "Terms Sheets" relating to each tenement. 14 On 15 February 2010 Mr Hillam on behalf of BMG, and Mr Brennan on behalf of Wentworth, signed "binding" Terms Sheets which contemplated the exploration of the three mining tenements held by Wentworth in South Australia ("the Wentworth tenements") with funds to be provided by BMG. The Terms Sheet for one of the tenements (which is agreed to be representative of them all) provided: Binding Terms Sheet - Farm-In for ELA 300/09 owned by Wentworth Metal Group Pty Ltd ACN 139 532 719 ("Wentworth Metal Group") by Bonython Metals Group Pty Ltd ACN 141 257 293 ("Bonython") Wentworth has applied to the Department of Primary Industries and Resources South Australia ("PIRSA") and is the registered holder of exploration licences application 300/09 applied for under the Mining Act 1971 (SA) ("Mining Act") ("Tenements") for the purposes of undertaking exploration, evaluation and development work on the Tenements, primarily with respect to the potential development of Iron ore reserves. The purpose of this letter is to set out the essential terms and conditions upon which Bonython [BMG] will earn a participating interest in the rights to base metals (including iron minerals) which may exist on the Tenements ("Project") under a farm-in and joint venture arrangement ("Terms Sheet"). This Terms Sheet is binding on the parties to it ("Parties") notwithstanding that the Parties intend to re-state the terms and conditions in this Terms Sheet in a formal farm-in and joint venture agreement and a Co-operation Deed (to govern the conduct of exploration and mining by the Parties on the Tenements and the exercise of their respective rights in and under each of the Tenements) ("Formal Agreements"). This Terms Sheet is binding on the Parties and the Parties intend to re-state the terms and conditions in this Terms Sheet in a formal farm-in agreement in accordance with industry standards. The parties agree to execute a formal farm-in agreement by no later than 31st May 2010. 15 It is not clear whether any formal farm-in agreement was subsequently executed with respect to any of the Wentworth tenements, but that has no significance for the present matter. Two of the Terms Sheets contemplated periodic payments of $75,000 and the third contemplated a periodic payment of $40,000. In each case an equivalent payment was to be made at the outset as a "non refundable deposit", but the precise way in which the obligations were to come into effect, and the date from which they were to do so, was not clearly stated in the Terms Sheets. For example, "Commencement Date" was defined in two separate provisions as follows (taking one tenement as an example): 1.1 The obligations of the Parties under this Terms Sheet, with the exception of clauses 1 and 2, will have no force or effect until Bonthon [sic - BMG] has paid to Wentworth a non refundable deposit of $75,000 ("Commencement Date"). 16 Despite the apparently conditional nature of the arrangement set out in clause 1.1, clause 2.1 provided: 2.1 This Terms Sheet shall commence on the date that it is executed by the Parties ["Commencement Date"] and shall conclude on a date that is three (3) years from Commencement Date ("Term") or the date Bonython withdraws. and clause 4.1 provided as follows: 4.1 Upon signing this agreement a non refundable payment of $75,000 will be paid to Wentworth according to clause 1.1 with further annual payments of $75,000 pa until $2 Million has been spent. 17 Clauses 4.1 and 2.1 in combination suggest that an immediate obligation arose for BMG to make a payment of $75,000 upon signing the Terms Sheet. No payment was made on 15 February 2010 with respect to any of the tenements, or shortly thereafter. The circumstances in which payments were later made, referable to obligations under these three agreements, were the subject of controversy and will be referred to again. 18 In early 2010 Mr Hillam, on behalf of BMG, was also in negotiations with Carpentaria Exploration Limited ("CAP") concerning arrangements to explore and develop mineral resources on mining tenements held by CAP. In addition, BMG had arrangements with respect to other tenements. 19 On 3 April 2010 Mr Hillam met with Ms Linda Lau, a representative of Ample Source. The sole shareholder in Ample Source was Mr Wilson Cheung. Mr Cheung lives in Hong Kong. Ms Lau resides in the People's Republic of China. The trial judge found that Ms Lau recommended to Mr Cheung that Ample Source take a 25 per cent equity stake in BMG owing principally to the possibility of acquiring an interest in the "Hawsons Knob" venture being pursued by CAP, and on the basis that an opportunity would exist to increase Ample Source's holding in BMG upon contribution of further funds. The initial contribution was to be $16.5m. The arrangements were negotiated urgently owing to short time frames in which BMG might conclude a binding arrangement with CAP. On 23 February 2010 BMG had been granted "exclusivity" with respect to the possibility of an investment in the Hawsons Knob project. On 8 April 2010 the exclusivity period was extended until close of business on 13 April 2010. The trial judge recorded (at [18]): 18 Between 3 April and 9 April 2010 Mr Hillam and Ms Lau negotiated proposed terms of the investment by Ample Source in Bonython Metals as the funds for Bonython Metals to commit to the Hawsons Knob project were required immediately. During that period Mr Cheung decided to invest $16.5 million in Bonython Metals on behalf of Ample Source. 20 On 12 April 2010 a "Terms Sheet" was executed. The parties were BMG, Mr Hillam and Ms Teeranukul on one side and Ample Source on the other side. The Terms Sheet, by clauses 1 to 8 provided as follows: 1. The parties have agreed to the following on the basis that their agreement will be subject to a detailed written agreement to be entered by Tuesday, 13 April 2010. 2. ASI [Ample Source] is acquire 25% of the issued capital of BMG for a payment of $16,500,000. 3. The sum of $16,500,000 is to be paid by ASI to BMG as follows: (a) $500,000 to be paid on 9 April 2010 to Carpentaria Exploration Limited (Capex) to be received into the account of Capex in cleared funds no later than 12 April 2010. (b) $500,000 to Capex to be received by Capex in its account in cleared funds by 16 April 2010; (c) $5,000,000 to BMG or at its direction such that BMG is able to meet the obligation to Capex to pay $5,000,000 in cleared funds to Capex by 14 May 2010; (d) $2,000,000 on or before 15 May 2010; (e) $5,000,000 to BMG to enable BMG to pay to Capex $5,000,000 in cleared funds by 15 June 2010; (f) $2,500,000 by 15 July 2010; (g) $1,000,000 by 15 September 2010 4. In addition to the payments to Capex referred to above, BMG is to apply $2,000,000 of the moneys paid to it by ASI to Capex by 15 July 2010. 5. BMG will make all payments due under the following agreements: (a) Capex South Down Venture; (b) Blue Rose Joint Venture; (c) Helix Resources Limited; (d) Mega Hindmarsh Pty Limited; and (e) Wentworth Metal Group Pty Limited. 6. BMG shall repay loans incurred to make payments under the said agreements prior to the receipt of monies from ASI. 7. BMG shall apply the balance of the sum of $16,500,000 after the payments to Capex and pursuant to the other agreements referred above as working capital, including for the payment of moneys to Mr Hillam or his nominee under a service contract from 1 January 2010 pursuant to which Mr Hillam will manage the business with BMG for a fee of $25,000 per month plus GST. 8. ASI to acquire 25% of the issued capital of BMG in consideration of these payments. 21 Ample Source was to have an option to acquire up to a further 25 per cent of the issued capital of BMG by allotment upon payment of $105m for further working capital. 22 The detailed written agreement contemplated by clause 1 of the Terms Sheet was not executed until 20 April 2010, when the relevant parties entered into a Share Allotment and Shareholders Agreement ("Shareholders Agreement"). Almost immediately conflict arose between the representatives of Ample Source and Mr Hillam. There were various sources of conflict. They are described in the primary judgment and it is not necessary to refer to them all. It suffices to say, for the moment, that the parties came to regard each other with considerable suspicion. 23 One source of conflict, which emerged early in the relationship, was that Mr Hillam, who was the sole signatory to BMG's bank account, caused a number of payments to be made, from funds provided by Ample Source, to CFM Media. It will be necessary to say a little about how that came about. Ample Source complained that it was not disclosed in advance that the payments would be made from funds it provided, and that they were not authorised. Ample Source saw the payments as ones effectively into Mr Hillam's own pocket, a charge for which there is, in our view, ample justification. One such payment was made on 3 May 2010 before CFM Media was registered. Others were made later. The position is all the more confusing because in April 2010, well before registration of CFM Media, Mr Hillam purported to discharge, or assume, the obligations of BMG towards Wentworth referred to earlier. If any such arrangement had been made, or could be effective, it could only have involved Mr Hillam personally at that time. This is an issue to which we shall return. 24 In addition, as the CEO of BMG Mr Hillam exercised considerable control over the affairs of that company, including the extent to which access might be readily available to its financial records. That control was exercised in a way which the primary judge concluded was oppressive towards the minority interest of Ample Source in BMG. In addition also, meetings of directors were purportedly held, and resolutions passed, which were evidently invalid under the terms of the Shareholders Agreement. 25 Under the Shareholders Agreement there were two stages identified in the governance of BMG with Ample Source as a shareholder. Stage 1 was the period which commenced with the allocation of a 25 per cent interest to Ample Source. The initial governance arrangements allowed the "present shareholders" (Mr Hillam and Ms Teeranukul in effect) to appoint three directors to the board (and replace them) and for Ample Source to appoint one director (and replace that director). Importantly, the quorum for a board meeting was one director appointed from each camp. A quorum was required to be present for the whole of the meeting. In important respects those requirements were not observed at meetings of directors called by Mr Hillam. The arrangements are unmistakeably ones guaranteeing to Ample Source a real opportunity of participation in the affairs of BMG. The trial judge considered that Mr Hillam, from the outset, denied Ample Source that opportunity. 26 Stage 2 commenced if Ample Source exercised its option to take further equity in BMG. In Stage 2 the "present shareholders'" board representation was reduced to two and Ample Source had the right to appoint two directors. The quorum arrangements remained unaltered. Mr Hillam appears to have had the view that Stage 2 could only be enlivened by a once and for all acquisition by Ample Source of a further 25 per cent in the equity of BMG, with a corresponding payment of $105m. That was not the view taken by the trial judge about the provisions contained in the Shareholders Agreement. Nor was it the view taken by Ample Source. Ample Source exercised its option (effectively as the trial judge found) by seeking the allotment of a further ten shares, accompanied by the requisite pro rata payment of $44,681. Prior to the orders made by the trial judge on 27 February 2012 the additional ten shares entitlement had not been allotted by BMG. Nor had BMG under Mr Hillam's control respected the governance arrangements contemplated by the Shareholders Agreement for Stage 2.

The findings of the trial judge 27 The trial judge found that there were a number of instances of oppression of Ample Source in the conduct of affairs of BMG. Those findings were the subject of detailed discussion but were summarised at [268]-[274] in the following terms: 268 More specifically I reach the following conclusions with respect to the conduct of the affairs of Bonython Metals. 269 A common theme of those matters complained of by Ample Source which I have found to be substantiated is the partial management of Bonython Metals in a manner commercially unfair to the minority shareholder, Ample Source. That partiality is to be seen in the $175,000 loan, the related party loan, the Exco opportunity, the payments of rent and car parking and in the failure to issue the 10 shares for which Ample Source had paid. 270 Another common theme is the failure or reluctance to provide relevant information to Ample Source. This was the case in relation to the related party loan, the $175,000 loan, the payments of rent and car parking, the provision of bank statements and other financial information and the Wentworth Tenements. 271 More generally relevant information was kept from Ample Source. Meetings were arranged in a manner which provided Ample Source limited opportunity to attend either at all or with adequate information. I have referred to breaches of the relevant provisions of the shareholders agreement. 272 Further, since it was by means of its nominee director that Ample Source was primarily to participate in the management of the company, the facts in relation to the non-appointment of that director show that Ample Source was substantially excluded from the management of the company. 273 Taking these matters together I find that the conduct of the affairs of Bonython Metals was oppressive to Ample Source within the meaning of s 232(e). 274 It may be that Mr Hillam believed he acted correctly at the time, but that is not the test. The conduct is to be assessed objectively. That conduct indicates that Mr Hillam did not sufficiently recognise that Ample Source was not merely a supplier of capital but a shareholder, particularly a shareholder with rights under the shareholders agreement which included the right to have a director of Bonython Metals. 28 The matters referred to in those paragraphs principally concerned the following issues: (i) The trial judge's reference to "related party loans" concerned the fact that Mr Hillam arranged for the initial "non refundable deposits", which were supposed to be paid by BMG to Wentworth, to be paid instead (on the face of things) to CFM Media. The payments were made from funds provided by Ample Source. Ample Source argued, and the trial judge found, that these payments were made in breach of the provisions of the Terms Sheet signed on 12 April 2010 and that Mr Hillam's personal interest was not disclosed as it should have been. (ii) In addition, Mr Hillam invalidly procured the payment of $175,000 to CFM Media to discharge obligations which were unconnected with the business of BMG. (iii) Mr Hillam also caused payment to CFM Media of amounts for rent of office space and for personal parking which were not authorised by the contractual arrangements between Ample Source and BMG or those between BMG and CFM Media. (iv) The conduct of Mr Hillam with respect to the provision of information to the representatives of Ample Source, and the way in which meetings of directors were called and conducted, constituted breaches of duty by him and were further examples of oppressive conduct towards Ample Source. 29 Matters of the kind referred to in (iv) above were not the subject of specific challenge on the appeal and the findings made by the trial judge stand uncontradicted in that respect. Findings with respect to the first three matters referred to above were the subject of some challenge on the appeal. It is those matters which require some further, specific, consideration.

CFM Media 30 Each of the challenges made on the appeal to the findings or conclusions of the trial judge about the conduct of the affairs of BMG concerned payments which Mr Hillam authorised to CFM Media. As indicated earlier, CFM Media was not registered until 4 May 2010. The Shareholders Agreement, executed on 20 April 2010, contemplated that a company would be incorporated by Mr Hillam which would provide his services to BMG as CEO. A fee of $300,000 p.a. ($25,000 per month) plus GST was payable to the service company. No other remuneration was payable, either to the service company or to Mr Hillam. 31 One of the purposes and functions of CFM Media, once registered, was to receive the management fee which, under the arrangements agreed with Ample Source, BMG was to pay for Mr Hillam's services. It is neither inaccurate nor unfair to say that money paid to CFM Media was received for Mr Hillam's personal use. It does not appear to us that the position was any different when payments other than the management fee were involved. 32 A draft of the Service Agreement was marked Annexure "A" to the Shareholders Agreement. Clause 5(c) of the draft Service Agreement provided: (c) The Contract Fee specified in this Agreement for the Services is the total amount payable by the Company in respect of the Services. Neither the Contractor nor the Principal Employee are entitled to any other payment, remuneration or compensation from the Company. 33 The terms of the Service Agreement also included a requirement in clause 4.3 that: The Contractor [CFM Media] shall act and shall ensure that the Principal Employee [Mr Hillam] acts with the utmost good faith in all of the Contractor's dealings with the Company [BMG] and its Related Body Corporate". 34 Clause 9.2(c) of the Shareholders Agreement provided: 9.1 Each Party agrees: … (c) to conduct itself and to act so as to ensure that the sole benefit enjoyed by it from or under the conduct of the Business is that arising under this contract. …

The Wentworth tenements 35 Reference was earlier made to the Terms Sheets signed by BMG and Wentworth. The payments required from BMG were not made on, or shortly after, 15 February 2010. They had not been made by BMG before the Terms Sheet with Ample Source was signed on 12 April 2010. 36 At some point prior to 12 April 2010, Mr Brennan on behalf of Wentworth brought into existence an invoice, dated 1 April 2010, claiming payment of an "Annual Option Fee" for each of the three Wentworth tenements. The invoice total was $209,000 (which included GST). No payment was made by BMG in response to the invoice issued to BMG dated 1 April 2010. Instead, Mr Hillam and Mr Brennan created a paper trail to give the appearance that the debt had been discharged on behalf of BMG and that someone else was entitled to receive payment from BMG in lieu of Wentworth. Journal entries were created in the books of BMG to support this objective. First, a purchases and payables journal entry for 1 April 2010 was created, to reflect the invoice bearing that date, showing Wentworth as a trade creditor for $209,000 and BMG as indebted for an equivalent amount. Then, a general journal entry for 12 April 2010 was created showing a credit attributed to a loan from CFM Media Holdings to BMG of $209,000 and purporting to show payment by BMG to Wentworth of the same amount. At that date, CFM Media Holdings was simply a trading name used by Mr Hillam for his own purposes and private dealings. In a letter dated 12 April 2010 Mr Brennan for Wentworth wrote to BMG acknowledging payment of the $209,000 billed to it on 1 April 2010. He stated "We have received the payment in full amount on April 12, 2010 from CFM Media Holdings". Having regard to the materials to which we were taken on appeal, that was not a true statement. 37 Had these entries and Mr Brennan's letter reflected the true position they would indicate that BMG discharged its debt to Wentworth on 12 April 2010, before receipt of funds from Ample Source, thereby conforming to clause 5 of the Terms Sheet. The entries and Mr Brennan's letter would also show that BMG made the payment from funds borrowed from CFM Media Holdings (i.e. Mr Hillam personally). Clause 6 of the Terms Sheet clearly required such a loan to be repaid by BMG before receipt of funds from Ample Source. Had there been such a loan, therefore, that is what should have happened. 38 Mr Hillam's evidence to the trial judge suggested a different scenario. It was that the debts owed by BMG to Wentworth were, in April 2010, assigned to CFM Media Holdings. Mr Hillam accepted that, at the time of the asserted assignment, CFM Media Holdings was simply a business name under which he traded in his own right. There was no evidence at the trial of any assignment of this kind, apart from Mr Hillam's assertions. Whatever view is taken of Mr Hillam's evidence about that matter, it amounts to a statement by Mr Hillam that he substituted himself personally as entitled to the payments due with respect to the Wentworth tenements. There is certainly no evidence that Ample Source was told that Mr Hillam claimed to be personally entitled to receive payments due to Wentworth. Whatever the position no such arrangement can be reconciled with the Terms Sheet, which required the obligation to be discharged completely from existing funds. 39 Subsequently, after funds began to be received from Ample Source, Mr Hillam arranged a series of payments, nominally to CFM Media, to discharge the alleged obligation that BMG pay Wentworth $209,000. The payments were described as loan repayments. There was no evidence that CFM Media made any payment to Wentworth, nor provided any funds to BMG to make such a payment. It could not have done so before 4 May 2010. There was no cogent evidence of any true loan. As no payment to Wentworth had actually been made, no "loan" to BMG was, in any event, necessary. 40 The conclusion reached by the trial judge was that Mr Hillam set out to make a payment "in effect to himself" from funds to be provided by Ample Source pursuant to the agreement reached with it on 12 April 2010. On the material before his Honour, that conclusion was inevitable. The supposed arrangements did not reflect the facts or represent any form of commercial reality. The timing of the payments, and the invoices to support them, also obscured the true position which was not disclosed to Ample Source. Whatever characterisation is given to the payments they were contrary, as the trial judge found, to the provisions of the Terms Sheet signed with Ample Source on 12 April 2010. 41 The appellants' argument is that the Shareholders Agreement expressly contemplated that payments to Wentworth would be made by BMG from funds provided by Ample Source, despite the provisions of the Terms Sheet. 42 Clause 5 of the Shareholders Agreement set out a schedule of payments to be made by Ample Source to BMG, or on its behalf. Those payments (added to the $500,000 Ample Source had already paid directly to CAP on BMG's behalf) totalled $16.5m. The Shareholders Agreement attached, as Schedule 6, a detailed cash flow projection showing in detail how the $16.5m was to be applied. This was referred to in the Shareholders Agreement as the "Initial Business Plan and Budget". Clause 6.1 of the Shareholders Agreement required BMG to expend money in accordance with these projections. The cash flow projections identified, as expenditure to be made from the $16.5m provided by Ample Source, both a payment of $275,000 and a payment of $55,000 as amounts for option fees. This arguably included provision for the initial amounts due to Wentworth under the Terms Sheets dated 15 February 2010. 43 However, ultimately the question raised by the payment of $209,000 is not whether BMG was authorised to make such a payment to Wentworth, which did not happen in any event. The question is whether the payments made were commercially unfair to Ample Source so as to amount to conduct that was oppressive within s 232(e) of the Act. The arrangements pursuant to which the payments were made were little more than a sham designed to enable Mr Hillam to siphon off funds supplied by Ample Source for his own benefit. 44 The fact that Mr Hillam was prepared to organise, on the very day that the Terms Sheet was executed, arrangements lacking any commercial reality which operated to the detriment of Ample Source and to the personal benefit of Mr Hillam, shows Mr Hillam's determination from the outset to act in a way that was oppressive, unfairly prejudicial and unfairly discriminatory, and therefore commercially unfair, to Ample Source. 45 However one approaches the question of the payment of $209,000, it was plainly an example of oppressive conduct. There was no error in the trial judge's conclusion to that effect.

Payment of a further $175,000 to CFM Media 46 Under the Shareholders Agreement, Mr Hillam's services were to be provided to BMG for a contract fee, payable to CFM Media, of $25,000 per month. During the latter half of 2010, Mr Hillam (using CFM Media as his vehicle for this purpose) had a need for additional personal funds to purchase a home unit. He proposed an advance to CFM Media of $175,000 (equivalent to seven months' fees). Mr Hillam's request was supported by another director, Mr Lieberskind (appointed by Mr Hillam), who attempted to prevail on Ample Source to agree. Ample Source would not. 47 On the appeal it was argued on behalf of the appellants that the proposed arrangement was commercially unremarkable and involved little risk to BMG, or Ample Source, because the advance was to bear interest, be secured and be acquitted by Mr Hillam's future performance of duties. For present purposes, these contentions may be accepted because they are not relevant to what then transpired. 48 On 11 or 12 November 2010 Mr Hillam and Mr Lieberskind signed a resolution of directors purportedly authorising the advance to CFM Media. The resolution was plainly invalid. On 11 November 2010 Mr Hillam transferred $175,000 from BMG's account to Holman Webb Solicitors to hold in trust for CFM Media. He refused to provide a copy of relevant bank statements to Ample Source and directed the bank not to do so either. Ample Source protested and commenced legal action. Mr Hillam then attempted to regularise the position by having the earlier "resolution" ratified. By this time the earlier "resolution" was said to have been signed on 12 November 2010, i.e. after the transfer to Holman Webb had taken place, which transfer was therefore doubly unauthorised. A representative of Ample Source was unable to attend the directors' meeting called for this purpose. The trial judge rejected any contention that Ample Source had refused to attend. He found that insufficient notice had been given. In any event, Mr Hillam knew that Ample Source would not ratify the advance to CFM Media. He also knew that the presence of an Ample Source appointed director was necessary for a quorum, and any valid ratification. Nevertheless, on 24 November 2010 Mr Hillam and Mr Brennan (by then also a director of BMG appointed by Mr Hillam) purported to ratify the earlier "resolution". The purported ratification was also plainly invalid. There was no quorum present at the directors' meeting in the absence of a director appointed by Ample Source. 49 Later, a further transfer of $175,000 was made from BMG's account to Holman Webb, apparently relying on the supposed ratification. The trial judge accepted it was a "duplication" of the first payment but that does little in our view to lessen the seriousness of this compounding of the multiple breaches of duty involved in these transactions. 50 No basis has been established with respect to this payment to challenge his Honour's conclusion.

Payments to CFM Media for home office rent and parking 51 The amount of money involved in this issue is relatively minor. The principle involved is not. 52 Under the contract with CFM Media contemplated by the Shareholders Agreement, the total fee payable for the provision of Mr Hillam's services was $25,000 per month. Neither Mr Hillam nor CFM Media was to be paid, compensated or reimbursed, any further amounts. Nevertheless, Mr Hillam decided that CFM Media would charge BMG for "rent" of a home office and for parking for Mr Hillam. As Ample Source had provided BMG's working capital, that charge came out of funds provided by Ample Source. Ample Source protested but Mr Hillam continued to take funds from BMG for those amounts. He did so until restrained by an order of this Court. 53 The trial judge concluded from this that Mr Hillam was insistent on using his access to BMG's accounts (and funds provided by Ample Source) in a way knowingly contrary to the wishes and legal rights of a minority shareholder. The material before his Honour was not such as to inspire confidence in Mr Hillam's capacity or preparedness to act appropriately towards Ample Source, or with regard to its legitimate interests. 54 It was argued on behalf of the appellants that no great significance should be attributed to this issue in view of the relatively small mount of money involved (about $10,500). We do not agree that the matter may be put to one side quite so easily. The appellants have not established any basis for challenging his Honour's conclusions.

Other findings of oppression 55 The matters to which we have so far referred are the only ones where the appellants made any serious attempt to deal with the factual findings made by the trial judge about the conduct which he viewed as oppressive. It was only with respect to the first issue that any direct challenge was made to those findings. That challenge does not succeed on any view of the substance of the matter. Even if it had, in view of the remaining findings, that would be insufficient materially to alter the basic finding of oppression, from which consideration of relief proceeded. 56 There were a series of other findings which were not put in issue. They included findings to the effect that Mr Hillam systematically denied Ample Source necessary information about the affairs and management of BMG, and the opportunity to participate in its affairs as contemplated by the Shareholders Agreement. They each add further support to the available conclusion, which we draw, that Mr Hillam could not be entrusted with the management of BMG. 57 We agree with the evident conclusion of the trial judge that the oppression of the minority interest of Ample Source in this case was serious. It was the result of Mr Hillam's conduct. That conduct was calculated and systematic. It is against that background, and not independently of it, that assessment of appropriate relief must occur.

Relief 58 The primary relief sought by Ample Source at the trial was that it should be allowed to buy out the majority interest in BMG. That claim was rejected by the trial judge and has not been renewed on appeal. 59 In the course of his reasons the trial judge rejected a contention by the appellants that the conduct of Ample Source overall, including the commencement of the proceedings, was from first to last based on a (supposedly illicit) desire to achieve overall control of BMG. The trial judge accepted that Ample Source had moved to that position. Its primary claim for relief reflected that in any event. Ample Source's position seems unsurprising having regard to the conflict which developed. Apart from the fact that the primary claim for relief required consideration there is no other particular significance to be attributed to Ample Source's desire to obtain control of BMG at that time. It represents no barrier to relief otherwise appropriate. 60 Ample Source's alternative position was that BMG should be wound up. Although a specific claim for relief to this effect was not set out in the originating application, the case was conducted on both sides upon the footing that Ample Source pressed an order for winding up as an alternative. In the circumstances of this case that was sufficient. 61 The primary position taken by the appellants at the trial was that no order should be made. Such an outcome would not have addressed the oppressive conduct found by the trial judge and would have left management of BMG deadlocked. It was rightly rejected by the trial judge. 62 At the trial the appellants advanced three further alternative suggestions. They were each rejected by the trial judge. Only the first has been maintained on the appeal. It involved the suggestion that BMG should sell its interests in the major investment it had made (with CAP) and use the proceeds to buy back the 25 per cent interest which Ample Source held in BMG. On this approach, a valuation of the assets of BMG remaining after the sale process, and after payment of capital gains tax, would be required. In that valuation process the parties would have diametrically opposed commercial interests. 63 At the appeal further proposals, not put before the trial judge, were advanced. They revolved around the idea that any deadlock or possible prejudice to the interests of Ample Source could each be resolved by the reconstitution of the Board, including the appointment of an independent Chairman. Integral to this proposal was that Mr Hillam would remain CEO of BMG. The trial judge was implicitly criticised for not having attempted to develop some such proposal in his own reasoning, rather than making an order to wind up BMG, even though no party suggested it. We regard that criticism as having no foundation. 64 It is for the trial judge to consider the alternative remedies that are put before the judge by the parties: cf John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63 at 74 per Young J. It is not incumbent upon a judge hearing an oppression suit to devise a remedy for the parties that was not advanced by then. 65 Furthermore, in our view the appeal should not be entertained by reference to any proposal of the kind advanced at the appeal. As counsel for Ample Source pointed out on the appeal, if any such proposition had been advanced at the trial it would have required consideration of a number of possible factors, none of which were the subject of evidence, or any opportunity to call evidence. Those matters would at least include the identity of any proposed new director or Chairman, the qualifications and experience of any such person, the terms on which any position might be taken and a range of other factors. It is too late to raise issues of that kind on the appeal. The appeal does not provide an opportunity to simply elect to put a new or different case in the hope of a better result, relying on matters not shared with the trial judge. The appellants should be confined to the position they relied on before the trial judge, although, as will shortly be seen, it would not affect the result of the appeal if they were allowed to rely on the new matters. 66 As to the proposition which was advanced to the trial judge (and maintained on appeal) it will be obvious from what we said earlier that it had some unattractive features. The litigation would be extended and the remaining issues would themselves be highly controversial. Those disadvantages had to be weighed bearing in mind Ample Source's alternative proposal that BMG be wound up. 67 On the present appeal the appellants argued that a power to wind up a solvent company was to be exercised only as an extreme step. This was said to involve a matter of general principle which bound the trial judge. 68 Counsel for the appellants sought to trace the origins of the principle for which they contended to the advice of the Privy Council in Cumberland Holdings Limited v Washington H Soul Pattinson & Co Ltd (1977) 13 ALR 561 ("Cumberland Holdings"). Lord Wilberforce, delivering the judgment of the Board, said (at 566-7), in the passage upon which the appellants relied, "to wind up a successful and prosperous company and one which is properly managed must clearly be an extreme step and must require a strong case to be made". However, the statement must be seen in context, as well as being tested against the facts of a particular case. The full statement was in the following terms: The petition for the winding up of CHL was presented on 2 April 1975 by Souls and was supported by a substantial number of holders of ordinary and preference stock units. The financial situation of CHL as at this date is clear. CHL was a prosperous and successful company. Its profits for the half year ending 31 December 1974 had increased by 31 per cent compared with those for the same period of the preceding year. On 14 August 1974 the directors had recommended an increase in the final dividend for the past year from 5 per cent to 6 per cent. On 7 March 1975 the interim dividend was increased from 5 per cent to 6 per cent. The net tangible assets rose from $1.22 per ordinary stock unit in July 1974 to $1.70 in November 1974. A new surgical hospital was in course of re-building and was expected to add to the company's profits. No complaint has been made that the company's affairs were being mismanaged, or that the minority shareholders were being denied a fair share of the company's profits. Their Lordships accept that these are not the only grounds on which the court will intervene in order to protect minority shareholders in a company. Indeed the statutory provisions are widely expressed and effect should be given to them in accordance with their terms whenever the court comes to the conclusion that there has been a lack of fairness, or oppression, or lack of probity on the part of the majority, or of the directors representing the majority. But to wind up a successful and prosperous company and one which is properly managed must clearly be an extreme step and must require a strong case to be made. 69 Cumberland Holdings does not support the appellants' arguments. To the point where BMG was ordered to be wound up its expenditure had been considerable and no money had been earned, although there may have been reason to be hopeful about its future prospects. There were explicit complaints that BMG's affairs were being mismanaged. The issue directly before the trial judge was whether there had been oppression, unfairness and a lack of probity on the part of the directors representing the majority. When those complaints were found to be established there remained no statement of principle expressed in Cumberland Holdings, of the kind suggested by the appellants, which would stand against a winding up order, if otherwise appropriate. 70 Although in our view, contrary to the submissions of the appellants, there is no presumption against winding up of the character for which they contended we accept that the warnings given in the authorities, that an order to wind up a solvent company is an extreme step, are warnings which should be borne in mind. We have borne them in mind in the present case, as did the trial judge. An order to wind up a solvent company may often be too extreme a step to take (and therefore not justified or appropriate) but that is very different from proceeding upon any "principle" or assumption that a winding up order of a solvent company is inappropriate. No such implication arises from ss 232 or 233 of the Act, or should be made in those terms. The real question is whether a winding up order was appropriate to deal with and address the grounds for relief which had been established. The answer to that question must be found in the facts of the particular case. 71 In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, French CJ (at [72]) said of ss 232 and 233: 72 Their language and history indicate that ss 232 and 233 are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution. 72 The majority judgment in the same case referred to the interaction between ss 232 and 233 of the Act (at [174] and following) and observed that the power given to the Court by one of the potential orders (in s 233(1)(d)) "should not be hedged about by implied limitations". That observation was footnoted with references to Owners of the Ship, "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404; Commonwealth of Australia v SCI Operations Pty Limited (1998) 192 CLR 285 and Australasian Memory Pty Limited v Brien (2000) 200 CLR 270. In Shin Kobe Maru the High Court said (at 421): It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words. 73 Obviously, an order to wind up a solvent company would need to be an appropriate response to the grounds established under s 232. There may often be legitimate debate about whether that was so. Equally obviously, an order to wind up a solvent company which had been properly managed may be seen as an unusual event. However, the trial judge was well aware of these limitations and those circumstances did not represent the present case. 74 In our view, no general principle was infringed in the present case. As we said earlier, whether a winding up order was justified must be assessed on the facts of the case. 75 The business of BMG, under Mr Hillam's direction, involved seeking opportunities to profit from the exploitation of Australian iron ore deposits. The arrangements made in the short history of BMG since its registration in December 2009 involved BMG making commitments to fund exploration and development activities on identified tenements in return for a share of eventual proceeds. No returns of this kind had actually been realised. They were in each case prospective, to some degree speculative and some way off. 76 In the case of the Wentworth tenements, in which Mr Hillam and Ms Teeranukul had direct personal interests in the other participant to the arrangement, there was no evidence that useful work had begun, or that contributions had been made by BMG, whether before or after Ample Source commenced to provide funds. We have already discussed the unsatisfactory nature of the payments to CFM Media in supposed pursuit of the arrangement between BMG and Wentworth. 77 In at least one other case arrangements with BMG were terminated by another company for failure to provide a program or budget for exploration in a timely way. 78 Mr Hillam, it would appear on the findings made by the trial judge, had no compunction either in preferring his personal interests in possible prospects over that of BMG, once Ample Source had become involved. On 24 June 2010, 10 November 2010 and 15 November 2010, Mr Hillam caused Wentworth to apply for mining tenements near those already held by Wentworth, rather than inform Ample Source that there was a commercial opportunity available to BMG. The trial judge found this to be a further breach of duty by Mr Hillam. The finding was not challenged on appeal. 79 The most substantial business opportunity for BMG was represented by the arrangements with CAP, although that opportunity was not taken up until Ample Source had committed to providing funds. To the time of trial BMG had given $13m to CAP for exploration and other works, all of it provided by Ample Source. For its participation to this point BMG had a 40 per cent interest, initially, in the Hawsons Knob project. Some of the funds provided to CAP had been used by it for another, related, project - the Hawsons Redan project. CAP and BMG agreed that the two would be combined and BMG would hold a 40 per cent interest in both, subject to CAP recovering some further amounts contributed by it directly. BMG had an opportunity to take its level of participation in eventual proceeds, and in the projects as a whole, to 51 per cent, and later to 80 per cent. That would require further very substantial cash contributions. However, the opportunity had to be taken up by 15 May 2012, two years and 30 days after the initial agreement was put in place. Failure, on the part of BMG, to take its level of participation to 51 per cent exposed it to a compulsory buy back by a third party or by CAP. By the end of 2010 it was clear that Ample Source would provide no further funds to BMG for that purpose, as a result of its conflict with Mr Hillam. At the time of trial, and to the time of the appeal, there was no evidence that another contributor could be found to either buy out Ample Source and make further contributions, or simply make the further contributions necessary. 80 These were all factors which the trial judge was entitled to take into account. When the order for winding up was made on 27 February 2012, having been forecast on 22 December 2011, there was no evidence of any realistic prospect of a commercially viable solution involving the acquisition of Ample Source's interest for fair value. In the circumstances, in our view it was not only reasonably available to the trial judge to order that BMG be wound up, but virtually inevitable that that should happen. A sale of BMG's various interests on the open market not only provided an opportunity for realisation of a true market value of BMG's interests, but it also left the parties with an opportunity to participate in that process in any way they wished. 81 The trial judge accepted that a winding up order was not a perfect remedy, but that it had advantages over any other possibility. He said (at [344]): 344 I accept that an order that a solvent company be wound up is an extreme step and it is a less than perfect remedy: the full value of the company with its present interests may not be obtained. But there is no offer to buy the shares of the minority or of the majority at a fair price while the liquidator can sell the assets on the open market and divide the proceeds, absent a sale of the company's assets to one of the disputing parties. 82 On the facts of the present case we can see no error in that approach. The trial judge was conscious that the effect of the order would be to liquidate BMG's interest in a range of projects. But the case did not concern an investment in just one project; it concerned the management of BMG overall. Ample Source proved that, in the management of BMG, its minority interest was oppressed. In the circumstances we can see no error of principle, or other relevant error, in the final conclusion of the trial judge that, of the remedies suggested, an order for winding up was the appropriate order to make. The alternative was uncertainty, further litigation and speculative valuations while the parties were forced to jockey for position as the commercial environment concerning the CAP investment, and the terms of that investment, changed. 83 It will be apparent from the foregoing analysis that, in our view, it is not necessary to consider afresh the exercise of discretion committed to the trial judge to find an appropriate remedy consistent with s 233 of the Act. Had it been necessary to do so then, like the trial judge, we would have concluded that a winding up order was the appropriate order to make. Indeed, in the circumstances, it was the only appropriate order of those which the trial judge was asked to consider. 84 Had it been necessary to consider the new forms of relief advanced by the appellants on the appeal, we would have rejected each as unsuitable and inappropriate. Nothing that was put on the appeal, or any of the new suggestions advanced, came to grips with the fundamental problem that BMG, under Mr Hillam's direction as CEO, depended entirely on funds provided by Ample Source. By the end of 2010 those funds had been exhausted and Ample Source would not provide further funds. No alternative source of funds which might permit BMG to continue independently of Ample Source was ever identified. Suggestions of a partial sale of assets, such as the interest in CAP, under new directors or a new Chairman did not come to grips with the real issue. Had it been open to the appellants to rely on these new arguments, we would have rejected them in any event. 85 For the foregoing reasons we made the orders on 3 May 2012. I certify that the preceding eighty-five (85) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Emmett, Jacobson and Buchanan.

Corporations Act 2001(Cth)ss 232, 233

At a glance

Court

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Before

Source

Judgment (9 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)