John So's 2004 alteration of the share register for Global 2000 - ground 2
179 Hylepin contended by grounds 1(b) and ground 2 of the notice of appeal that the primary judge erred in failing to find that John So's conduct in changing Global 2000's share register in 2004 and so purporting to reduce Doshay's shareholding from five shares to four shares was oppressive. The primary judge found that in May 2004 John So wrongly caused Global 2000 to alter its register, and found that the claim did not involve 'any breach of fiduciary duty or oppression': reasons at [19]. But Hylepin contends that no reason for the finding of an absence of oppression is disclosed, and that the general finding to the effect that all the impugned transactions were undertaken with the aim of increasing the value of Doshay (at [360]) could not apply to the reduction in Doshay's shares in Global 2000, because such reduction decreased Doshay's value.
180 The respondents contended that this claim did not form part of Hylepin's pleaded case and was not relied upon in support of its oppression claim, and that the absence of detailed reasons as to that aspect of the impugned transactions is explicable on that basis. They denied it was open to Hylepin to advance the claim on appeal.
181 In our view, although the matter was pleaded, it was not sufficiently raised by Hylepin before the primary judge, a position that explains the absence of any reasons that focus in detail on the 2004 transaction in the context of oppression. The primary judge did not have the benefit of any fully developed submissions on the point and to the contrary, Hylepin's submissions suggested that despite the pleading, Hylepin sought to rely on the change to the share register in 2004 as part of its derivative claim for breach of fiduciary duty only. In our view, the fact that the primary judge dealt with the matter in only a cursory manner is a product of the manner in which Hylepin addressed the matter before his Honour, and reveals no error.
182 The starting point is the introduction of the relevant pleading.
183 The Third ASOC was filed on 12 September 2019 (shortly after the trial commenced), although it seems it was anticipated shortly before the trial, a matter referred to by the primary judge: reasons at [220]. The Third ASOC relevantly introduced the following claims in the part of the pleading that collected a series of impugned conduct:
D.3A Alteration of Doshay's Registered Shareholding in Global 2000
53A By each of Global 2000's Annual Returns for 2000, 2001 and 2002 lodged with ASIC, Mr So accurately declared that Global 2000's shares were held as follows:
(a) 5 ordinary shares (50%) owned by Doshay; and
(b) 5 ordinary shares (50%) owned by Global Crest.
53B. On about 31 May 2004, Mr So caused Global 2000 to lodge Notification of Corrections forms with ASIC which wrongly purported to correct Global 2000's Annual Returns for 2000, 2001 and 2002 by amending its list of members to record that:
(a) 4 ordinary shares (40%) are owned by Doshay;
(b) 5 ordinary shares (50%) are owned by Global Crest;
(c) 1 ordinary share (10%) is owned by Mr So.
53C. Mr So engaged in the conduct in paragraph 53B:
(a) without the knowledge or consent of Doshay;
(b) for his own benefit and/or the benefit of Global 2000 and/or the benefit of Ms Cheng; and
(c) at the expense of Doshay and/or Hylepin.
184 This pleaded conduct on the part of John So is then referred to in two further amendments. Relevantly, under a heading 'Oppression', Hylepin lists nine matters in para 102 of the pleading said to have been 'together and in any combination' conduct of the affairs of Doshay that was oppressive to, or unfairly discriminatory against Hylepin within the meaning of s 232(e) of the Corporations Act. Further, it is pleaded that by those matters 'together and in any combination with' John So causing Doshay to loan funds to Evaluator, the conduct of the affairs of Doshay was contrary to the interests of the members of Doshay as a whole within the meaning of s 232(d).
185 One of the nine matters inserted by the Third ASOC (by a new para 102(l)), was:
Mr So causing Global 2000 to lodge the Notification of Corrections forms with ASIC wrongly purporting to reduce Doshay's [shareholding] in Global 2000 from 50% to 40% and to increase his own shareholding from nil to 10% as alleged in paragraphs 50A to 50C and 53A to 53C.
186 For completeness, paragraphs 50A to 50C as referred to in para 102(l) plead relevantly that at all times since 15 June 2000, Doshay has been the owner of 50% of the shares in Global 2000, John So having transferred his one share in Global 2000 at that time to Doshay.
187 Further, under the heading 'Breach of Fiduciary Duties', the same pleaded conduct extracted at [183] above was introduced by the Third ASOC as subparagraph 105(h), and relied upon as a matter by which John So was alleged to have breached fiduciary duties.
188 Therefore, on the face of the pleading the conduct is raised with respect to both the alleged breach of fiduciary duty and oppression. However, Hylepin's closing written submissions make no reference to the alteration of the share register for the purpose of any oppression claim. The conduct is referred to, but only in a section where Hylepin submitted that the transfer was wrongful and was of no legal effect. Hylepin framed its claim for relief in these terms:
In these circumstances, Hylepin brings a derivative action on behalf of Doshay, seeking:
(a) a declaration that at all times since 15 June 2000, Doshay has been the owner of 5 ordinary shares (50%) in Global 2000; and
(b) an injunction requiring that Mr So and/or Global 2000 do all things necessary to ensure that the register of members of Global 2000, and ASIC's records in relation to Global 2000, record that, at all times since 15 June 2000, Doshay has been the owner of 5 ordinary shares (50%) in Global 2000.
189 The closing submissions then note that if the primary judge were to find that a constructive trust existed over the Exhibition Street Property and Lonsdale Street Property, then a declaration and mandatory injunction would be otiose. Therefore, it only sought that relief if the beneficial ownership of the Exhibition Street Property and Lonsdale Street Property remained with Global 2000.
190 The manner in which the share register alteration is dealt with in the written closing submissions may be contrasted with parts of those same submissions that dealt with other conduct that was impugned on the basis of alleged oppression, and clearly exposed such claim. For example:
(a) under the heading 'Acquisition of the Exhibition Street Property', Hylepin explained the basis upon which it contended that the conduct relating to that transaction amounted to statutory oppression. It highlighted, amongst other things, using Doshay's funds as a deposit, the nomination of Global 2000 as the purchaser and the using of Doshay's financial position and performance to secure the mortgage as conduct relevant to the statutory oppression claim;
(b) under the heading 'Acquisition of the Lonsdale Street Property', and after setting out its understanding of the narrative, Hylepin submitted that 'Mr So has preferred the interests of himself and Global 2000 ahead of that of Doshay and conducted the affairs of Doshay in a manner which was oppressive of and unfairly prejudicial to Hylepin …'; and
(c) there is also reference to oppression in the submissions relating to the provision of funds to Global 2000 and other restaurants, the Evaluator transaction, and the matter of the non-exercise of the option to renew the lease.
191 In our view, the written closing submissions do not disclose or signpost any reliance on the 2004 alteration of the share register as conduct amounting to statutory oppression. At its highest, the conduct might be said to have been subsumed in a concluding paragraph relating to 'cumulative oppression', which referred to the 'abovementioned instances of conduct' to found a statutory oppression claim. The concluding paragraph of the submissions reads:
365. Whether or not the Court finds that the abovementioned instances of conduct individually amount to oppression within the meaning of s 232 of the Corporations Act 2001, [it is] clear that the cumulative effect of the conduct was contrary to the interests of the members as a whole, further and alternatively, was oppressive to, or unfairly discriminatory against Hylepin, within the meaning of s 232 (d) and (e) of the Corporations Act. The overwhelming effect of the transactions, as a whole, has been the removal of vast sums of Doshay's money and deposit of those funds with entities associated with Mr So. In this regard, it is obvious that Mr So has failed to have adequate regard to the interests of Doshay's shareholders as a whole and prioritised his family's interests at the expense of Doshay's shareholders, and in particular, Hylepin.
192 Hylepin also sought to rely on passages from the oral closing submissions which it was said disclosed its reliance on the share register alteration for the oppression claim. Senior counsel for Hylepin took the Court to parts of the transcript of the hearing before the primary judge.
193 First, Mr Dalton referred to an exchange recorded at page 723 of the transcript:
MR DALTON: So in relation to the shares - now, the timing of the shares, your Honour, if I can start at the time of the notification to change the shares or to correct the register, because we say that that involved breach of duty and we say, on its correct characterisation, with all of the events that are occurring in 2004, that it is part of the conduct of Mr So which is preferring his interests over the interests of Doshay.
HIS HONOUR: Is the correction of the register.
MR DALTON: Yes.
HIS HONOUR: Yes.
MR DALTON: So - - -
HIS HONOUR: I mean, it has only got one of two characterisations, hasn't it? One is that there was an error which was corrected, or the alternative is that what was …
194 Whatever immediately followed that exchange was not before this Court, but regardless, we do not discern from that exchange the identification of reliance on the share register alteration for anything but the breach of fiduciary duty claim.
195 Second, Mr Dalton referred to an exchange recorded at page 729 of the transcript:
MR DALTON: In relation to the claim for oppression in relation to the claim for - and to place in context the circumstances of the acquisition of the Lonsdale Street property, we say it is relevant to a consideration of the honesty of the - of John So - and the nature and quality of the breach. What we say was occurring was that he had assigned - transferred a share of his to his wife's in Global Crest which altered his ultimate ownership of the properties and the property that was about to be bought
HIS HONOUR: Yes.
MR DALTON: And then, we say, at the same time, there's no difference in substance between 20 May and 31 May, that he corrected the register of - falsely corrected the register of Doshay to obtain for himself one of its shares in Global 2000.
HIS HONOUR: Yes, I see. They're still quite different transactions in financial effect though, of course, aren't they, in the sense - - -
196 This passage refers primarily to oppression with respect to the Lonsdale Street Property transaction. At its highest, the reference to the share register correction might be said to follow a reference to oppression, and thereby indicate potential relevance to that ground, but the reference is oblique.
197 The primary judge considered the circumstances of the Global 2000 share register change in the context of the derivative claim and in some detail. His Honour understood that the claim was introduced as part of the derivative claim: at [13]. His Honour found that John So's conduct in that regard was not dishonest, that is, with a consciousness of wrongdoing or falsity. There were accounts of Doshay prepared by Mr Tjioe that wrongly recorded that Doshay held four shares or involved any breach of fiduciary duty, and so there was plausible basis for John So's belief. The primary judge declined to make any finding that evidence was concealed: at [232]-[234]. John So's conduct did not involve breach of duty: at [19].
198 In our view the primary judge was cognisant of the fact that the circumstances of the change to the share register were also part of the overarching oppression claim. We have come to this view because of the primary judge's inclusive description of the conduct of the affairs of Doshay said to have been contrary to the interests of Doshay as a whole or oppressive against Hylepin (at [6]); because of the finding that the claim that was upheld with respect to the share register alteration was expressly found to have not involved breach of duty or oppression (at [19]); because the primary judge stated in introducing the part of the reasons dealing with oppression that the conduct the subject of the oppression claim is relevantly the same as the conduct the subject of the fiduciary duties claims (at [359]); and because the primary judge referred to 'his previous reasons' in finding that the impugned transactions were not uncommercial or improper (at [360]), reasons that included the primary judge's assessment of the propriety and effect of John So's conduct in altering the Global 2000 share register.
199 It may be accepted that the primary judge did not use the words 'commercial' or 'uncommercial' when making findings about the share register alteration. However, failure to use those words does not mean that the primary judge failed to have regard to the propriety of the transaction and whether it was unfairly prejudicial or otherwise comprised oppressive conduct as that phrase is understood. To the contrary, the primary judge assessed John So's honesty in that regard, found no impropriety and found no concealment of evidence about Doshay's books and accounts. In circumstances where nothing in Hylepin's written or oral closing submissions about the share register alteration identified conduct relating to the share register alteration said to be 'uncommercial' and so relevant to an oppression claim, it is hardly surprising that the primary judge did not use those specific terms. Further, the reasons are to be read as a whole, and it is clear that the inquiries and findings relating to the share register alteration were also directly relevant to the question of whether there was any improper conduct involved in the impugned transactions, a question answered in the negative (at [360]). It was open to the primary judge to adopt such findings for the purpose of the oppression claim, and in our view it is to be inferred that he did so (at [360]). Whilst it is fair to say that part of the reasoning relating to the dismissal of the oppression claim does not apply to the share register alteration (being the reference to the purpose of the impugned conduct being an increase in the value of Doshay), that was only part of the primary judge's reasoning. Other aspects, such as the absence of impropriety, remain relevant.
200 That the primary judge's treatment of the share register alteration and oppression was only at a very general level is not surprising when one has regard to a further submission made by senior counsel for Hylepin during the trial (ts 686):
HIS HONOUR: Can oppression realistically give your client a remedy if I were to - I suppose it depends on the basis on which I find the breach of director's duties case to get up, but I was just trying to hypothetically think if I was to be against your client on the breach of director's duties. I was just wondering if there really is scope for oppression in terms of this aspect of the conduct. You might say unfairness is a broader concept, and then you have to look at the overall - - -
…
MR DALTON: Yes, it has scope to operate beyond finding of [sic] breach of fiduciary duty. But, I mean, I think in fairness - and if your Honour has found that there was no breach of fiduciary duty - - -
HIS HONOUR: Yes.
MR DALTON: - - - then it's unlikely to have a hell of a lot to scope to operate.
…
MR DALTON: That's probably correct.
201 In our view, it can readily be inferred that the primary judge, having made findings about the circumstances of the share register alteration, being aware of the pleaded case, and having regard to the lack of any substantive submissions about that same conduct in the context of oppression, considered that there was no foundation for a finding of oppression arising out of that conduct. We do not consider the primary judge erred in that regard.
202 If we are wrong in that finding, and the pleaded matter was overlooked by the primary judge, then in any event we do not consider that Hylepin established that the circumstances of the share register alteration were oppressive. In supplementary written submissions, the parties agreed that if we were to find that the primary judge had failed to have regard to that conduct for the purpose of the oppression claim, then remission to the primary judge was not required, and it was open to this Court to determine that matter on the basis of the unchallenged factual findings of the primary judge.
203 We have already referred to those findings: see [154]-[162] above. Of particular relevance is the finding of the primary judge that the contemporaneous financial statements of Doshay signed by Mr Tjioe made it plausible that in 2004 John So held the 'honest but erroneous view that the transfer of his share in Global 2000 to Doshay was unintended': at [233].
204 Contrary to the respondents' submission, we accept that the conduct that led to an asset of Doshay (the share in Global 2000) being purportedly transferred may be considered conduct that fell within the broad definition of the 'affairs' of a body corporate for the purpose of s 232 and s 233, having regard to s 53(a) of the Corporations Act which extends to include the transactions and dealings and property of the company. That the conduct would also arguably fall within the scope of Global 2000's affairs does not prevent it from being within the scope of Doshay's affairs.
205 However, that does not assist Hylepin. We are not satisfied that any commercial unfairness arose as a result of the share register alteration. Whilst there was a period where the Global 2000 register wrongly recorded the allocation of shares, it was not established that anything flowed from that error during the intervening years until the proceedings, after which the register was corrected (as a result of the Share Declaration). Hylepin did not point to any circumstances in that period where the shareholders in Global 2000, including Doshay, stood to receive any payment or other commercial benefit calculated by reference to their proportionate shareholding. Nothing beyond theoretical prejudice by way of the appearance of a reduction in Doshay's shareholding was apparent. As explained in Wayde at 472, s 232(e) requires proof of oppression or proof of unfairness; proof of mere prejudice to or discrimination against a member is insufficient to attract the Court's jurisdiction to intervene. Whilst the conduct of John So was unfortunate and an error, we are not satisfied that it can sensibly be described as oppressive or commercially unfair, and so concur with the primary judge's conclusion in this regard. The conduct did not discriminate against any particular shareholder in Doshay. It was based on a mistaken view. Whilst it remained apparently undetected for many years, there was no evidence of prejudice suffered by Doshay as a result in the years that followed. Whilst it is not necessary to prove a dishonest intention or motive or a breach of fiduciary duty in order to establish oppression, it must also be the case that not every mistake in the management of the affairs of a company constitutes oppressive or unfair conduct.
206 Even if we had found that the conduct in altering the share register was oppressive, then we would not have granted any other or further relief. Hylepin submitted that if oppression were established, then it seeks an order under s 233 for the purchase of its shares in Doshay at fair value 'to remove the effect of the oppression'. However, the effect of such oppression could be removed simply by an appropriate declaration, the course preferred by the primary judge. It was appropriate that there be a declaration as to the correct allocation of shares in Global 2000, providing a formal pronouncement by the Court as to the existence or non-existence of a legal state of affairs: see generally Clarence City Council v Commonwealth of Australia [2020] FCAFC 134; (2020) 280 FCR 265 at [58].