Supreme Court of WA|2005-11-16|Before: Mr J, Hasluck J

Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251 (16 November 2005)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : REMROSE PTY LTD -v- ALLSILVER HOLDINGS PTY LTD & ORS [2005] WASC 251

SCOTT PARK HOMES GREAT SOUTHERN PTY LTD (ACN 110 245 755)

SCOTT PARK HOMES SOUTH WEST PTY LTD (ACN 100 691 638)

S P ADMINISTRATION SERVICES PTY LTD (ACN 091 175 094)

GIUSEPPE MARCHESE & STELLA MARCHESE AS TRUSTEES FOR THE MARCHESE FAMILY TRUST

Corporations - Corporation governance - Powers of majority shareholder - Protection of minority rights - Whether relationship between shareholders gave rise to expectation concerning management - Resolutions by majority shareholder aimed at removing director linked to minority shareholder - Application for interim injunction to restrain meetings - Whether arguable case of oppression or unfair discrimination demonstrated

Corporations Act (2001) (Cth), s 232, s 233, s 1324

American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396

Attorney-General v Corporation of Manchester [1893] 2 Ch 87

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199

Australian Securities Commission v Cooke & Ethical Technology Brokers Pty Ltd (1996) 15 ACLC 435

Bendigo & Country Districts Trustees & Executors Co v Sandhurst & Northern District Trustees [1909] HCA 63; (1909) 15 ALR 565

Brunninghausen v Glavanics [1999] NSWCA 199; (1999) 46 NSWLR 538

Caratti Holding Co Pty Ltd v Zampatti (1978) 23 ALR 655

Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471

Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148

Commissioner for Fair Trading v Holz [2005] WASC 202

Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97

Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130

McEwen v Combined Coast Cranes Pty Ltd [2002] NSWSC 1227

Paringa Mining & Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587

Peters' American Delicacy Co v Heath [1939] HCA 2; (1939) 61 CLR 457

Re a Company (No 00709 of 1992); O'Neil v Phillips [1999] UKHL 24; [1999] 1 WLR 1092

Re Spargos Mining NL (1990) 3 ACSR 1

Re Wondoflex Textiles Pty Ltd [1951] FLR 458

Theseus Exploration NL v Mining & Associated Industries Ltd [1973] Qd R 81

Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 59 ALJR 798

Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666

Abraham v Tunalex Pty Ltd (1987) 5 ACLC 888

Cayne v Global Natural Resources plc [1984] 1 All ER 225

Hogg v Dymock (1993) 11 ACSR 14

Liwszyc v Smolarek [2005] WASC 199

NWL Ltd v Woods; NWL Ltd v Nelson [1979] 1 WLR 1294

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1

Thomas A Edison Ltd v Bullock [1912] HCA 72; (1912) 15 CLR 679

1 The plaintiff, Remrose Pty Ltd, has commenced proceedings for relief pursuant to s 232, s 233 and s 1324 of the Corporations Act 2001 (Cth).

2 I understand that certain meetings of shareholders are to be held on Thursday, 17 November 2005 in order to address motions providing for the removal of Scott James Park as a director of the second to seventh defendants. For ease of reference, I will call those defendants the "subject defendant companies".

3 It appears from the affidavit of Scott James Park sworn 30 October 2005 that the plaintiff holds shares in the subject defendant companies. Mr Park is the sole director of the plaintiff company and has been the managing director of the second defendant. The application for relief by the plaintiff brings with it an endeavour by Mr Park to preserve his position as a director of and leading figure in the subject defendant companies.

4 The plaintiff contends that the first defendant, as the majority shareholder in each of the subject defendant companies, is acting or is threatening to act in a manner that is contrary to the interests of the members as a whole or is oppressive to, unfairly prejudicial to or discriminatory against the plaintiff.

5 The orders sought by the plaintiff in its chamber summons are as follows:

"1. Until further order, the First Defendant be restrained from moving, seconding or voting upon any proposed resolution to remove Scott James Park as a director of the following companies:

1.1 Scott Park Homes Pty Ltd (ACN 080 832 917);

1.2 Blueprint Homes (WA) Pty Ltd

(ACN 111 763 690);

1.3 Scott Park Homes Great Southern Pty Ltd (ACN 110 245 755);

1.4 Scott Park Homes South West Pty Ltd (ACN 100 691 638);

1.5 S P Administration Services Pty Ltd (ANC 091 175 094);

1.6 Scott Park Developments Pty Ltd (ACN 104 861 556)."

6 An issue is raised by the application as to whether a majority shareholder is at liberty to remove a director from office by passing resolutions at meetings of shareholders in circumstances where the principal shareholders of the subject defendant companies allegedly entered into or continued in association upon the understanding that the minority shareholder would participate in the management of the Group.

7 The plaintiff applied for relief upon an ex parte basis. However, on 31 October 2005 certain programming orders were made in the presence of counsel for the plaintiff and the first defendant including provision for the plaintiff to file and serve a statement of claim.

8 The materials before me on the plaintiff's side now comprise the plaintiff's statement of claim and the affidavits of Scott James Park sworn 30 October and 8 November 2005. The plaintiff has provided an undertaking as to damages in the usual form.

9 On the other side, the opposing defendants (that is, the first, eighth and tenth defendants) reply upon the affidavit of the sole director of the first defendant, Paul Silvestro and the affidavit of Giuseppe Natale Marchese (each sworn 4 November 2005), and the affidavit of Neil Anthony Alessandrino sworn 7 November 2005.

10 The parties have filed and served written submissions. Counsel for the subject defendant companies was granted leave to withdraw at the commencement of the hearing upon the basis that his clients did not wish to be heard as to the matters in contention.

11 It will be apparent from the heading to the Court documents in this action that Mr Park's name is linked to the name of each of the subject defendant companies save for the third defendant (Blueprint Homes). Mr Park in his first affidavit described the subject defendant companies as the Scott Park Group of Companies and said that he started the Group in 1997. Since the inception of the Group, he has been the Managing Director of the second defendant, and the Executive Director of, and having responsibility for, the day-to-day operations of the subject defendant companies including Blueprint.

12 Mr Park said that he is the registered builder whose registration is the basis upon which the companies operate. He went on to say that Paul Silvestro, who is a director of the first defendant, is in effect the "silent partner" in the subject defendant companies, albeit being, via the first defendant (Allsilver Holdings Pty Ltd) the majority shareholder in each of the subject defendant companies save for Blueprint. I understand that the second defendant owns all of the original shares in Blueprint.

13 The ordinary shares in the companies other than Blueprint are held as follows: second defendant 2000 shares (Allsilver 1030/Remrose 870), fourth defendant 1000 shares (Allsilver 515/Remrose 435), fifth defendant 997 shares (Allsilver 515/Remrose 435), sixth defendant 100 shares (Allsilver 55/Remrose 45), seventh defendant 2000 shares (Allsilver 1030/Remrose 870).

14 As to the remainder of the ordinary shares issued in the subject defendant companies (save for Blueprint) Mr Marchese owns 50 shares in the fourth defendant, JSM Holdings owns 100 shares in the seventh defendant, the Marchese Family Trust owns 100 shares in the second defendant and 47 shares in the fifth defendant.

15 Mr Park said that he contributed his time, effort and expertise in running the subject defendant companies and has at all times been the public face of the same. Significant sums of money have been spent in building the brand "Scott Park Homes". He acknowledged that in 1998 Mr Silvestro had put up by way of loan the initial funds used to commence the business of the second defendant (Scott Park Homes). From the small losses made by the second defendant in 1998 the company has grown into a substantial business, recording an operating profit before income tax of approximately $4 million for the financial year ended 30 June 2005.

16 Exhibited to Mr Park's first affidavit was a financial statement showing a steady pattern of improvement in the total income of the second defendant in the years after inception. It is said that additional business is generated by the third to fifth defendants and the seventh defendant. The subject defendant companies now have approximately 100 employees and approximately 30 commissioned sales consultants. They engage hundreds of sub-contractors. Mr Park said that as Managing Director he gives direction to and assists the company's various managers in carrying out their tasks and spends time growing the business of the companies. He has provided personal guarantees to numerous trade creditors of the Scott Park Group, guaranteeing the liabilities of the Group to those creditors.

17 Mr Park said that on the afternoon of Friday, 7 October 2005 he received a telephone call from Mr Silvestro which led to a meeting at Mr Park's office. Mr Silvestro handed draft notices of resignation to Mr Park in respect of Mr Park's position as director of each of the subject defendant companies, and notices calling a general meeting of shareholders to be held on Thursday, 3 November 2005 in respect of each company. The only item on the agenda in each case was the removal of Mr Park as a director. It is alleged that Mr Silvestro then invited Mr Park to sign the resignations otherwise Mr Silvestro would exercise his power to have Mr Park thrown out as a director. Mr Silvestro allegedly said that Mr Park had allowed his personal life to come into the business.

18 On or about 13 October 2005 Mr Park caused his solicitor to write to Mr Silvestro demanding that he withdraw the various notices of meetings but no response was received.

19 Mr Park went on to say that the second defendant has approximately 400 homes under construction with a contract value of approximately $65 million. In addition, there are contracts on foot to build a further 250 homes. The value of those contracts is approximately $40 million. The third, fourth and fifth defendants also have significant contracts to fulfil. The group of companies has creditors amounting to approximately $7 million per month.

20 In pars 25 and 26 of his first affidavit Mr Park said that in his belief his removal as director of each of the subject defendant companies will cause great disruption to and have an adverse effect on the business of each company. It will cause substantial and irreparable damage to Remrose as a shareholder of those companies and will cause substantial and irreparable damage to all of the shareholders of those companies.

21 I pause here to note that counsel for the opposing defendants characterised the assertions in these two paragraphs as expressions of opinion by a person who was not qualified to express an expert opinion as to the effect of the removal. Counsel objected to the contentious paragraphs being admitted into evidence.

22 The same objection was taken to pars 22.1 and 29.2 of Mr Park's second affidavit in which Mr Park said that he did not believe that Mr Silvestro has the ability to run the Group and asserted that, in his belief, the removal of Mr Park as Managing Director will have an adverse effect on the business of the companies. I will come back to the admissibility of the contentious paragraphs in due course.

23 It was against this background that the plaintiff as a minority shareholder in the subject defendant companies (save for Blueprint) commenced legal proceedings. It follows from earlier discussion that as all the shares in Blueprint are held by the second defendant, in which the plaintiff has a minority holding, the plaintiff company can arguably be said to have standing to seek relief in respect of that company.

24 The plaintiff company applied for an interim injunction to restrain removal of Mr Park as a director of the subject defendant companies. I must keep steadily in mind that Mr Park himself is not a party to the proceedings. However, bearing in mind that he is the sole director of the plaintiff company, he has an interest in the controversy which is essentially coincidental with that of the plaintiff.

25 Mr Silvestro said that he is currently the Managing Director of the National Steel Group of Companies which supply steel products to the residential home building market. In the year ended 30 June 2005 the main trading entity within the National Steel Group had sales revenues of approximately $19.945 million and an operating profit before tax of approximately $2.128 million. The National Steel Group began as National Lintels in April 1991 when he started the business.

26 He went on to say that shortly after he started the business he formed a new company called Content Living Pty Ltd which operated under the slogan "The Home Builder". Its principal business was the building of residential project homes substantially identical to the types of homes now built by Scott Park Homes. From its inception until 1997, he was the Managing Director of Content Living and was in charge of the management and general operations of the business, although he shared many of the day-to-day functions with a Mr Bastow who had been employed as an estimator for National Lintels. Mr Silvestro said that in or about 1994 he employed Mr Park as a fixing carpenter with Content Living. Mr Park was subsequently promoted to the position of site supervisor and reported to Mr Silvestro and Mr Bastow.

27 Mr Silvestro said that in 1997 he approached Mr Park with the idea of starting a new residential home building company on the basis that two companies associated with Content Living, Port City and Crestfield, would fund the initial set up of the new business and provide ongoing financial support as required. The steel to be used the construction of residential homes would be supplied by National Steel Group on generous credit terms. Mr Silvestro would use his existing contacts with land developers to secure the necessary allocations of land for display homes within new subdivisions.

28 The idea was that branding and marketing of the business would be built around Mr Park in line with other successful business models within the industry. Mr Park would be paid a salary of $60,000 per annum as a full-time employee and be issued up to 45 per cent of the equity ownership in the new business for no monetary consideration. However, Mr Silvestro would retain the controlling interest at all times.

29 Mr Silvestro disputed Mr Park's statements that he (Park) was the person in charge of the day-to-day operations of the Scott Park Group. Mr Silvestro said that for the first 2 years of operations he worked full-time at the offices of the second defendant and provided advice, strategic management and on the job training to Mr Park in his role as Managing Director of the second defendant. During that time, he supervised all aspects of the second defendant including sales, marketing, branding and construction and Mr Park reported to him on these matters. He said that the funds provided by Port City and Crestfield in the development phase was approximately $300,000 and were used by the second defendant to pay creditors, wages and other start-up costs. Repayments were made out of surplus profits leaving a balance outstanding of $33,895 as at 30 June 1999.

30 Mr Silvestro said that the Scott Park Group currently occupies premises at 11 Delawney Street, Balcatta which it shares with the National Steel Group, although the two business groups are separated by a dividing wall. He said that he was still required to deal with the business of the Scott Park Group every day and he has done so since the inception of the Group. Moreover, he signs every offer and acceptance for the sale or purchase of property in connection with the Scott Park Group and every credit application and guarantee required from suppliers and financiers. He therefore disputed that he was in effect the silent partner in the company.

31 Mr Silvestro said at par 24 of his affidavit that based on his observations and conversations he has had with senior employees, Mr Park's performance in the role of Managing Director over at least the past 12 to 18 months has been, on the whole, unacceptable, having regard to periods of absence, insufficient direction given to senior managers, being involved in a relationship with a female employee of the Group, an inability to control and meet budgets, and an inability to effectively manage jobs on site within expected timeframes.

32 Mr Silvestro said that he met with Mr Park on 29 September 2005 to discuss various site problems with Mr Marchese being in attendance. There was no follow up in respect of the plumbing problems which were referred to in the discussions. Mr Silvestro referred also to Mr Park making regular requests for additional dividend drawings over and above the plaintiff's pro rata entitlement. It was said that over the past 12 months or so the total of the plaintiff's excess dividend payments has continued to increase giving rise to concern about the Group's cashflow.

33 Mr Silvestro confirmed that he met with Mr Park on 7 October 2005 as alleged and handed to him draft resignation and notice of meeting documents. He said that the meeting lasted for approximately 20 to 25 minutes during which time Mr Silvestro told Mr Park that the main reason for him taking the action was because Mr Park had shown a lack of commitment and a lack of leadership with the employees over a long period of time. He referred also to his other concerns whereupon, allegedly, Mr Park acknowledged that his personal life had interfered with his work and he had lost interest in the company.

34 According to Mr Silvestro, meetings were held on following days in which Mr Park suggested a sale of his interest in the Scott Park Group based on a valuation to be made or, alternatively, that Mr Park would buy out Mr Silvestro for $15 million on the assumption that he (Mr Park) could obtain finance from lending institutions. It was because these discussions were still in motion that Mr Silvestro did not respond to the letter from Mr Park's solicitors calling for an explanation.

35 Mr Silvestro went on to say that if Mr Park is removed as a director of the subject defendant companies he (Mr Silvestro) would immediately relinquish his role as Managing Director of the National Steel Group and work full-time as the Managing Director of the Scott Park Group of Companies. He will implement any necessary changes to the marketing strategy and branding of the Group.

36 Mr Silvestro joined issue with the first Park affidavit as to various matters. He said that there were currently at least seven other senior employees within the Scott Park Group who were registered builders and these would be interviewed as to the most suitable candidate to replace Mr Park as the registered builder upon whose registration the companies will continue to operate. Mr Silvestro said that if there were no suitable candidates from within the Scott Park Group he would look externally to his contacts within the home building industry to fill the role.

37 Mr Silvestro acknowledged that Mr Park had provided personal guarantees to various trade creditors. However, Mr Silvestro had also provided guarantees. If Mr Park is removed as a director of the subject defendant companies steps would be taken to procure the release of Mr Park from the guarantees. Mr Silvestro did not expect any of the creditors or financiers to object to this due to his contacts and reputation in the industry. He asserted that in his belief the removal of Mr Park as a director was in the best interests of all of the shareholders of the subject defendant companies and would not cause substantial and irreparable damage to the plaintiff or any other shareholders of those companies.

38 In his affidavit sworn 4 November 2005 Mr Marchese said that since January 2001 he has been employed by the second defendant as General Manager and is responsible for the IT management, administration, finance operations, human resources and legal aspects of the business of the Scott Park Group of Companies. He reports directly to the Managing Director, Scott Park. He was previously employed as the Administration Manager with the National Steel Group and was responsible for managing the administration functions of that business.

39 Mr Marchese confirmed that certain of the assertions in the Silvestro affidavit were true and correct including that he attended monthly management meetings with Mr Silvestro, Mr Park and with the accountant for the National Steel Group, Neil Alessandrino. He said that Mr Park reports to Mr Silvestro as a matter of course and in Mr Park's absence Mr Marchese regularly seeks advice and direction from Mr Silvestro in respect of Scott Park Homes matters, particularly higher level management issues. He said that he had been aware of Mr Park's absenteeism over the past 12 months or so and that this has not gone unnoticed by other employees. As to the 7 October meeting he said that he saw Mr Park go into and come out of the meeting with Mr Silvestro and confirmed the Silvestro evidence that the meeting lasted for at least 20 minutes.

40 In his affidavit Mr Marchese referred also to being served with the first Park affidavit on 31 October 2005. He was told that Mr Park intended to buy Mr Silvestro out. When Mr Marchese asked why there was no mention of this in the Park affidavit he was told that the information was not included because "it would prejudice my court case". Mr Marchese said that he supported the proposed removal of Mr Park as a director of the subject defendant companies and the appointment of Mr Silvestro as Managing Director.

41 Mr Alessandrino said in his affidavit that he had acted as accountant for the National Steel Group since late 1997. In his role as the accountant for the Scott Park Group of Companies he attended monthly management meetings which were usually held in Mr Silvestro's office at 11 Delawney Street, Balcatta. The financial statements prepared by Mr Alessandrino were the focus of the monthly management meetings. He said that during the financial year ended 30 June 2003 the plaintiff drew excess cash funds of approximately $317,550 over and above its dividend title. In the year ended 30 June 2004 the excess drawing was $639,450 and in the following year it was $693,450. He said that as a result of the excess cash funds drawn by the plaintiff, an additional dividend was declared at the end of each financial year to balance off the loan accounts. This meant that the additional dividend was credited to the loan accounts of the first defendant and the tenth defendant pro rata to their shareholdings.

42 Mr Alessandrino went on to say that as at 30 June 2005 the first defendant's loan account was $542,348.56 in credit and the tenth defendant's loan account was $192,430.88 in credit. The Scott Park Group's bank manager had expressed concerns about the level of dividends which had been declared versus the net profit of the group for the year ended 30 June 2004. The deponent raised this matter at a management meeting with the result that in or about October 2005 Mr Silvestro told him that he had now suspended dividend payments to all shareholders of the Scott Park Group to enable the Group to shore up its short to medium cash position.

43 It was said further by Mr Alessandrino that there was no doubt in his mind that Mr Silvestro had played a significant role in the growth and success of the Scott Park Group of Companies. Although Mr Park had certainly contributed to the growth and success of the Scott Park Group, the deponent did not expect his removal as Managing Director of the Group and the appointment of Mr Silvestro in that role to have an adverse effect on the business of those companies or the shareholders.

44 In a responsive affidavit sworn 8 November 2005 Mr Park disputed that the idea for starting the Scott Park Group of Companies came from Mr Silvestro. In or about 1995, whilst employed at Content Living, Mr Park told Mr Silvestro and many other people that he intended to start his own building company as soon as he received his builders registration. Mr Silvestro then said that if he ever went ahead with his plan to set up his own company he should talk to Mr Silvestro first. When he resigned from Content Living towards the end of 1997 he was informed by Mr Silvestro that the latter was still prepared to assist financially.

45 Mr Park said further that there was no suggestion that Mr Silvestro would train him as Managing Director and he did not require that assistance, having previously worked closely with Mr Bastow and with his father who had a successful plumbing business. The branding and marketing of the business was built around Mr Park himself because it was his desire to have the business named after himself. He was providing the time, effort and expertise as a builder; Mr Silvestro was providing financial support.

46 Mr Park disputed that Mr Silvestro worked full-time at the offices of the second defendant in the first two years of operation. Mr Silvestro dropped into the office periodically and stayed for short periods. Mr Park kept him up to date on all matters but he was not in any sense being supervised by Mr Silvestro. Decisions about the structure of the Group were decisions made by directors of the company at a monthly meeting.

47 Mr Park acknowledged that Mr Silvestro signed every offer and acceptance for the sale and purchase of property by the Group, and also every credit application and guarantee required by suppliers. This was required because he was a director of the companies. Mr Park said that the appellation "silent partner" was not meant to suggest that Mr Silvestro had nothing to do with the running of the companies; rather, that Mr Park always ran the companies with input from Mr Silvestro on an occasional basis and at the monthly meetings.

48 Mr Park denied that his performance in the role of Managing Director had been unacceptable in the past 12 to 18 months. He was away from the premises from time to time attending to the business of companies in the Group. He denied that his relationship with a female employee had an unsettling effect on staff morale and defended that relationship on the basis that it only commenced after the breakdown of his marriage. The employee in question resigned her position so as to allay any concerns Mr Silvestro had, and there was nothing untoward in pay increases awarded to her, having regard to pay increases being awarded to other employees in the Group and in the industry.

49 Mr Park answered the allegation concerning high budgets and control of advertising budgets by asserting that profit margins had not been adversely affected and the sum spent on advertising had generated significant growth and profit for the companies. He said that he had been able to manage jobs effectively on site and that he had been dealing with problems concerning plumbing. He said that both Mr Silvestro and himself on occasions had been paid additional dividend drawings and referred to an occasion in 2003/2004 when Mr Silvestro took additional payments because he was building a house. At all times, all dividend payments had been made with the consent of Mr Silvestro, Mr Marchese and himself. He did not dispute that he presently has drawn amounts in excess of those drawn by Mr Silvestro and Mr Marchese.

50 As to the 7 October meeting he said that Mr Silvestro did not give any reasons for the action he was proposing to take other than the assertion that Mr Park had allowed his personal life to come into the business. Mr Park denied that any admission had been made that he was bored with his work or had "stuffed up".

51 A considerable part of Mr Park's second affidavit was devoted to the meetings and exchanges between the parties concerning the question of whether one party or the other would be bought out. His account suggests that the various exchanges were inconclusive. According to him, he did not say the words attributed to him by Mr Marchese. In fact he said to Mr Marchese that his lawyer had told him that the discussions concerning which party would buy out the other party were without prejudice and it was for that reason that certain details concerning the exchanges was not included in his earlier affidavit.

52 As to the suggestion that the business of the Scott Park Group would be adversely affected by his continuation as Managing Director, Mr Park referred to the second defendant receiving the Project Builder of the Year Award in or about March 2005 and the "Excellence in Service Award - Large Builder" in October 2005, being the third consecutive year that the second defendant had received this award. He said also that in 2005 he personally was a finalist in the Ernst & Young Entrepreneur of the Year Award for 2005. Mr Park affirmed that for the period 1 July 2005 to 30 September 2005 the profitability of the Group has increased significantly.

53 It will now be useful to turn to the statement of claim in order to understand the nature of the claim for relief being advanced.

54 The statement of claim commences with a description of the parties and the relevant shareholdings. It is said that Mr Silvestro is and was at all material times from early 1998 to date a director of the first defendant, of the second to fifth defendants and of the seventh defendant. He has allegedly taken no role in the day-to-day operations of the subject defendant companies. It is said he has not been a registered builder and has very little or no experience of or expertise in running a building company but has attended monthly informal meetings at which times he has been kept up to date with the current position of the companies. It is said that in or about early 1998 Mr Silvestro made a loan of approximately $75,000 to enable the second defendant to commence business as a builder.

55 The plaintiff describes Mr Park's circumstances in par 11 of the claim including reference to his being a director of the plaintiff, the Managing Director of the second defendant and an Executive Director of the subject defendant companies. It is said in par 12 that on various dates from early 1998 to date, he has provided personal guarantees to numerous creditors of the defendant companies.

56 The plaintiff then refers to the events at the 7 October meeting and related events concerning the convening of shareholders meetings of the subject defendant companies with the only item on the agenda being the removal of Mr Park as director of each of the companies. Reference is made to the practice in regard to the paying of monthly dividends to the plaintiff, the first defendant and the ninth defendant. It is said in par 16 of the claim that in October 2005, Mr Silvestro, on behalf of the first defendant, caused the second, fourth and fifth defendants to cease paying the dividends in question.

57 The statement of claim concludes with pleas in these terms:

"17. By reason of the matters referred to at paragraphs 1 to 12 above, the plaintiff had a legitimate expectation that its nominee, Mr Park, would be in a position at all material times to maintain a position on the Board of Directors of the second to seventh defendants, and to participate effectively in the management of those companies.

18. By reason of the matters referred to at paragraphs 1 to 16 above the removal of Mr Park as a director of each of the second to seventh defendants would be:

18.1 contrary to the interests of the members of each of those companies as a whole

18.2 further or in the alternative, oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiff.

19. Further or in the alternative, by reason of the matters referred to at paragraphs 15 and 16 above, the first defendant has caused the second defendant to engage in conduct that is oppressive to or unfairly prejudicial to the plaintiff."

58 In its prayer for relief the plaintiff seeks an order pursuant to s 232, s 233 and s 1324 of the Corporations Act restraining the first defendant from removing Scott James Park as a director of the second to seventh defendants. An order is sought also pursuant to the former provisions that the first defendant sell to the plaintiff at fair market value all of the shares which it owns in each of the second defendant and the fourth to seventh defendants. In the alternative, an order is sought that the first defendant purchase from the plaintiff at fair market value the shares in question.

59 It will now be useful to look at the legal principles concerning protection of minority rights.

60 In dealing with the law concerning the protection of minority rights, I will begin by drawing principally upon Ford's Principles of Corporations Law (12th ed) at par 11.010 to 11.510 before turning to the decided cases.

61 Every member of a company has certain rights by virtue of membership. These include rights conferred by the company's constitution and statute. Additionally, company law confers rights on members to protect them from abuse at the hands of the controllers of the company. In this context "controllers" include both the directors, who are subject to fiduciary duties, and the controlling shareholders, who do not occupy a fiduciary position.

62 Dissatisfied shareholders in a listed company can ordinarily withdraw their investment by selling their shares. However, if a conflict arises in a smaller company a member may have difficulty in departing from the company with the full value of his or her shareholding. Accordingly, most cases of abuse of power or oppression which come before the courts arise out of small unlisted companies. In certain circumstances, where a member shows to the Court that the affairs of the company are being conducted in an oppressive or unfair way, the Court may order that the company redeem that member's shares.

63 However, it must not be assumed that all conduct of the majority which reduces the value of the minority' investment is necessarily improper conduct to be remedied by court order. The majority's investment in the company is by definition larger than the minority's. They should not be prevented by a minority obstruction from taking steps which in their reasonable opinion will enhance the value of the company for the benefit of all members. There may even be circumstances where it is legitimate for the majority to work towards the elimination of the minority holding.

64 Generally speaking, the statutory remedies have been framed very broadly, overcoming some of the limitations which had developed over time with the equitable remedies. In particular, standing is generally more easily satisfied and the Court has power to order an indemnity for costs. Furthermore, the courts have shown a willingness to interpret some of the statutory remedies in a liberal fashion.

65 In its application to a majority of members in a company exercising their voting power, the doctrine of fraud on a power invalidates any apparently regular exercise of that power which is really a means of securing some personal or particular gain, whether pecuniary or otherwise, which does not fairly arise out of the subjects dealt with by the power and is outside and even inconsistent with the contemplated objects of the power: Peters' American Delicacy Co v Heath [1939] HCA 2; (1939) 61 CLR 457 at 511.

66 The notion underlying the doctrine is of the use of a power for a purpose foreign to the contemplated objects for which the meeting is given the power to make decisions. However, it is important to understand that by contrast with directors, shareholders holding majority control do not stand in a fiduciary position to the company or to minority shareholders and they do not exercise any of their powers in a fiduciary character. They vote in respect of their shares, which are property and the right to vote is attached to the share itself as an incident of property to be enjoyed and exercised for the owner's personal advantage.

67 Ford's Principles of Corporation Law suggests at par 11.040 that Australian law has not yet come to regard controllers as subject to a fiduciary duty which would prevent them from exercising shareholder voting rights in a self-interested way. However, Australian courts recognise that a fiduciary relationship may arise out of factual circumstances in which the position of one party to dominate or control another is a significant component: Coleman v Myers [1976] NZHC 5; [1977] 2 NZLR 225; Brunninghausen v Glavanics [1999] NSWCA 199; (1999) 46 NSWLR 538.

68 The learned author asserts that a member, unlike a director, does not have to be concerned about conflict of interest and duty. He may vote to advance his or her own interests. However, while a member has no positive duty to consider others when voting, there is an overall control in that, if the majority passes a resolution which no body of reasonable persons could have supposed to be within the scope of the majority's power, having regard to the contemplated purposes of the company, the resolution is liable to be declared void by a court.

69 It is thought that the relevant statutory provisions accommodate cases that would have attracted the equitable doctrine of fraud on a power. Proof that a majority is misusing voting power would be proof of an act of the company unfairly prejudicial to the minority. In Theseus Exploration NL v Mining & Associated Industries Ltd [1973] Qd R 81 Hoare J granted an injunction, pending trial of an action, to restrain a majority of shareholders from electing directors of their choice, there being evidence that it was more probable than not that the proposed directors would not act bona fide in the interests of the company as a whole and that this probability was known to the majority of shareholders.

70 It appears that an action to challenge a decision of the majority on the ground of abuse of power may be brought by any member. The onus of showing that the majority's decision constitutes an abuse of power rests on the person alleging it: Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 at 702.

71 Statutory remedies for oppressive or unfair conduct enlarge the scope for a member to have the acts of managers and controllers reviewed. These remedies do not require that the conduct complained of be unlawful, and allow for proceedings to be instituted by an individual member. Section 234 of the Corporations Act specifically provides that an application for an order under s 233 in relation to a company may be made by a member of the company. There is no overriding requirement that the applicant for relief must have clean hands but an attempt to achieve a collateral purpose by exerting pressure may lead to the application being dismissed as an abuse of process.

72 The content of fairness in an oppression application will depend upon the context. Conduct which may be considered to be fair between competing business people may not be fair between members of a family company. In Re a Company (No 00709 of 1992); O'Neil v Phillips [1999] UKHL 24; [1999] 1 WLR 1092 the House of Lords indicated that the concept of fairness was designed to free the Court from technical considerations of legal rights and to confer a wide power upon the Court to do what is just and equitable. Thus, a valid exercise of a legal power may nevertheless be entirely outside what can fairly be regarded as having been in the contemplation of the parties when they became members of the company: Re Wondoflex Textiles Pty Ltd [1951] FLR 458 at 467.

73 This passage appears in Ford's Principles of Corporations Law (supra) at par 11.450:

"We have seen that equitable considerations underpin the oppression remedy. A party may have a legal right which the Court refuses to allow the party to exercise on the basis that this would be unfair. It may be unfair because exercise of the legal right may breach an understanding between the parties. An example is a company formed by a majority and minority shareholder on the basis that both shareholders will participate in management of the company and each be directors. The majority shareholder has a legal right to remove the minority shareholder as a director. However, where this breaches the understanding of the shareholders that both will be involved in the management and be directors, the Court can restrain the exercise of the legal right by the majority shareholder on the basis that its exercise would be oppressive."

74 The learned author notes that the term "legitimate expectation" has been used to describe an understanding or expectation of the kind just mentioned although Lord Hoffman in O'Neil v Phillips (supra) indicated that use of the term may not be appropriate. More recently, in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97, Priestley JA described it as a convenient shorthand term, so long as Lord Hoffman's caveat about its proper significance is kept in mind, namely that it is a consequence not a cause of equitable restraint upon legal rights. His Honour indicated that it is a useful label for describing the result of the way in which equitable considerations operate.

75 I note in passing that in the present case the plaintiff's claim is based upon the concept of legitimate expectation (being a matter pleaded expressly at par 17 of the statement of claim). Moreover, counsel for the plaintiff placed considerable reliance upon various passages from the judgment of the Full Court of New South Wales in Fexuto's case (supra). I will turn to Fexuto's case shortly.

76 It is said in Ford's Principles of Corporations Law at par 11.450 that the Court's power to give relief pursuant to the statutory provisions depends upon proof of oppressive or unfairly prejudicial conduct. Where irreconcilable differences arise between members but nobody is at fault the section does not apply. The appropriate relief is then an application for winding up on the just and equitable ground on the basis of a deadlock. The mere fact that a member cannot dispose of his or her shares is not enough to attract relief. Mismanagement or poor management does not constitute oppression. In a case involving an alleged exclusion of a shareholder from management of a company, it was said that the unfairness did not lie in the exclusion alone but in exclusion without a reasonable offer to buy the plaintiff's shares, although this approach appears to be limited to those cases where the ground for oppression is exclusion from management.

77 The Court has a discretion to make such order or orders as it thinks appropriate. Section 233 now contains ten examples of orders for relief that the Court can make. Because the specific orders listed in s 233 are only examples, it is open to the Court to make any other orders it thinks appropriate. It appears from Fexuto's case (supra) that such an order can be an account of profits earned in breach of fiduciary duty where this constitutes oppression.

78 The learned author suggests that it is for the applicant to indicate the nature of the relief sought. The remedy that is the least intrusive and will eliminate the oppression should be considered first by the Court. One order that may be sought is the compulsory purchase of the applicant's shares by either the company or the member whose conduct amounted to unfair prejudice. The basic requirement is that a valuation of the subject shares must be fair on the facts of the particular case.

79 Although the most common type of valuation in an oppression action is valuation of shares which are subject to a compulsory purchase order, occasionally the Court may be called upon to value something other than shares as part of an oppression action. For example, in Fexuto's case (supra) the Court of Appeal determined that the appropriate remedy for oppression which was constituted by breaches of fiduciary duty was an account of profits. The Court held that the appropriate date for valuation of the account of profits was the date legal proceedings were commenced.

80 I pause here to observe that the statutory provision does not refer expressly to an applicant who is thought to be entitled to relief being able to obtain damages. This may have a bearing upon the matters to be considered in determining whether an interim injunction should be granted. However, it must be kept in mind that the prospect of obtaining an account of profits as a consequence of the alleged oppressive conduct may arguably be viewed as comparable to an award of damages. In McEwen v Combined Coast Cranes Pty Ltd [2002] NSWSC 1227 Young J appeared to leave open the possibility of obtaining damages.

81 I must now turn to the reasoning in Fexuto's case (supra).

82 Fexuto was a company controlled by Bob Bosnjak. It owned two-sevenths of the issued shares in Holdings which, as its main business, ran a bus service. Fexuto, in its role as a minority shareholder, brought an action alleging that the affairs of Holdings were being conducted in an oppressive manner by other family members, being Jim Bosnjak and Carol Bosnjak and companies controlled by them.

83 The trial Judge, Young J, found oppression and ordered that the appellant (Fexuto) be entitled to have its shares purchased by the majority at fair value. However, his Honour rejected a submission that Bob Bosnjak had an expectation to participate in the management of Holdings. An account of profits was ordered for the breaches of certain fiduciary duties. The appellant contended on appeal to the Full Court that the finding of oppression should have been made on a wider basis.

84 Spigelman CJ and Fitzgerald JA held that there was an understanding that the affairs of Holdings would be controlled by members of the family acting as directors. The deterioration of the relationship between Bob and Jim did not have the effect of disentitling the appellant from relying on Bob's exclusion from day-to-day management as a director as an element in assessing oppression.

85 Priestley JA held that in the relevant period of time the business was conducted under the direction and management of Bob and Jim. The two brothers were, in effect, partners who had to make joint decisions about partnership business. The veto power, which both brothers could use, was an inbuilt ingredient of decision by consensus. The consensus style of management between Bob and Jim was recognised as appropriate in the family. Both brothers were entitled to take an equal part in direct management by consensus.

86 It was held by the Full Court as a whole that the order that the appellant be entitled to sell its shareholding in Holdings at fair value should be upheld. It was held by Spigelman CJ and Priestley JA that it was not appropriate to order that the shares in Holdings originally controlled by Jim and Carol be sold to the appellant.

87 Counsel for the plaintiff in the case before me placed particular reliance upon certain passages in the reasoning of Priestley JA concerning Fexuto's legitimate expectation claim. Counsel referred especially to a passage in which Priestley JA said this at par 443:

"443. The conduct of all concerned parties from 1975 to 1988 in my opinion showed a set of mutually accepted understandings giving rise to a situation quite like what Lord Hoffmann in O'Neill v Phillips described as the 'standard case' which would mean, putting it in terms of the present case, that it would be arguable that it would properly be considered unjust, inequitable or unfair for a majority in Holdings to use their voting power to exclude either Mr Bob Bosnjak or Mr Jim Bosnjak from participation in the management without giving him the opportunity to remove his capital upon reasonable terms. This last aspect of his legitimate expectation was not however something for which Mr Bob Bosnjak contended. His contention was confined to what he had stated in par 28C of the final version of his statement of claim. Nevertheless I think had he contended for such a version of his legitimate expectation, it would have had a serious claim to be recognised. I will explain why I say this.

444. The only difference of any materiality between the main features of the 'standard case' where the right, in appropriate circumstances, to be bought out is recognised, and the present case, is that the present case has the further element of the long family presence in the business, so that family relationships both in the business and the family were woven into the relationships that exist between unrelated persons joining together in a continuing business. This extra factor in my opinion increases the weight of the equitable considerations created during the course of the relationship.

445. This additional element is connected with three other considerations that seem to me to be important in the case. The first is that on any view of the facts Mr Bob Bosnjak had played a major part in the building of the business. In lay language he had a very real stake in it. This had been so all his working life. This contributes to my view that he had a significant case for saying that his 'legitimate expectation', if he was to be excluded from management, was either that he should be bought out at a fair price or that there should be a division of assets. "

88 I note in passing that counsel for the opposing defendants placed an emphasis upon a passage at par 416 of Priestley JA's judgment where reference was made to the so-called "standard case".

"416. He [Lord Hoffman] mentioned that in Re Saul D. Harrison & Sons plc [1995] 1 BCLC 14 he had used as an example what he called 'the standard case' in which shareholders had entered into association upon the understanding that each of them who had ventured capital would also participate in the management of the company and that in such cases it would usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in the management without being given the opportunity to remove the invested capital upon reasonable terms. Lord Hoffmann had said that the aggrieved member could be said to have had a 'legitimate expectation' of either participating in the management or withdrawing from the company."

90 Counsel for the opposing defendants in the present case relied upon this passage in support of a plea that an arrangement as to participation in management can be regarded only as an "element" of a case based upon an alleged oppression. The crucial consideration in assessing unfairness is whether the parties have both contributed capital and embarked upon an undertaking in the nature of a joint venture.

91 Before leaving Fexuto's case (supra) I note that Spigelman CJ observed at par 4 that the statutory formulation has been extended over the years to confer on the Court a wide-ranging remedial jurisdiction. The addition of the words "unfairly prejudicial to" and "unfairly discriminate against" to the original statutory reference to "oppressive", indicates an intention that the jurisdiction should not be confined to technical distinctions. He noted at par 32, as to the case before him, that the understanding as to management rights was not evidenced by any documents and was to be established by a process of inference. His Honour said that "Such an inference may be drawn in an appropriate case".

92 It emerges from Caratti Holding Co Pty Ltd v Zampatti (1978) 23 ALR 655 that in weighing up what amounts to unfairness the Court can take account of and give overriding effect to an informal agreement as to how the business should be structured and run, notwithstanding that such an agreement is not consistent with the legal structure reflected in the Memorandum and Articles of the company. Thus, an Article allowing one of the principals to acquire the other principal's shares at the allotment price was displaced by a later agreement as to their respective entitlements with respect to profits and capital.

93 I must now turn to the submissions made on behalf of the respective parties.

94 Counsel for the plaintiff submitted that Mr Park was the driving force behind the business being operated by Scott Park Homes and the businesses being conducted by the subject defendant companies. He said that there were evidentiary materials before the Court which permitted the Court to infer that the plaintiff, as a shareholder in the subject defendant companies, albeit a minority shareholder, had invested time and energy in the advancement of the Scott Park Group upon the basis of an understanding that the plaintiff's nominee, Mr Park, would be a director of the subject defendant companies and would participate in the management of the same.

95 Put shortly, counsel contended, there was ample evidence to support the contention that the plaintiff company, as the company with which Mr Park was associated, had a legitimate expectation of management rights. That expectation arose by a process of inference having regard to the way in which the companies were set up and the way in which they have been operated since the business commenced.

96 Further, counsel submitted, having regard to the reasoning in Fexuto's case (supra) and other similar cases, there is good authority to support the contention that where, in a case such as the present case, a shareholder has a legitimate expectation of management rights (including the right to appoint an executive director), it is open to the Court to characterise the removal of a director linked to the creation of the expectation as conduct in breach of s 232 of the Corporations Act.

97 The legitimate expectation contended for was pleaded in par 17 of the statement of claim, namely, that the plaintiff company had a legitimate expectation that its nominee, Mr Park, would be in a position at all material times to maintain a position on the Board of Directors of the subject defendant companies, and to participate effectively in the management of those companies. This expectation was to be found either in an understanding reached when the enterprise was set up, or by a process of inference from the way in which the Scott Park Group operated.

98 I was reminded that in the event of an infringement being found the Court may make any order pursuant to s 233 that it considers appropriate including an order restraining a person from engaging in specified conduct or from doing a specified act. Section 232 in its material parts reads as follows:

"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;

(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. "

99 Counsel for the plaintiff submitted that pursuant to the reasoning reflected in the judgment of Priestley JA in Fexuto's case (supra) at par 443, it would arguably be considered unjust, inequitable or unfair for a majority shareholder of the subject defendant companies to use its voting power to exclude Mr Park from participation in the management without giving the plaintiff the opportunity to remove its capital upon reasonable terms. It was said that the clearly foreshadowed intention of the opposing defendants to effect Mr Park's removal as a director at forthcoming meetings of the subject defendant companies represented or would represent infringing conduct unless restrained. The relief sought allowed for orders not only restraining the conduct complained of but for an order that the first defendant sell to the plaintiff at fair market value all of the shares which it owns in each of the second defendant and the fourth to seventh defendants.

100 Counsel submitted further that the affidavits relied upon by the opposing defendants in opposition to the application for an interlocutory injunction did not contain any evidence that the business of the subject defendant companies was suffering, or was likely to suffer, harm if Mr Park remained as Managing Director. It was clear from the affidavits of Mr Park that the profitability of the Group had grown and was continuing to grow. There was no substance to the allegation that the proposed removal of Mr Park as a director was justified. Mr Park had fulfilled the role of Managing Director since commencement of the business of the companies.

101 It was said further that if Mr Park was removed as a director of the subject defendant companies, and as Managing Director of the Scott Park Group with which his name was associated, the companies as a whole would suffer financial hardship, and the removal would be oppressive to, unfairly prejudicial to, or unfairly discriminatory against the plaintiff. The plaintiff contended that, in all the circumstances, the balance of convenience was in favour of granting an interlocutory injunction. It could be inferred, given the lack of any sufficient explanation from the first defendant as to the reason underlying its determination to remove Mr Park as a director, the opposing defendants wished to remove him merely to advance their self-interest. Such an approach was likely to be harmful to the business prospects of the subject defendant companies.

102 Counsel submitted also that the grant of an injunction was not likely to have an adverse impact on the interests of the employees, sub-contractors and other creditors of the companies, whereas the removal of Mr Park was likely to have a considerable adverse effect on those persons as well as the clients of the companies. The opposing defendants had not put up convincing evidence as to how the subject defendant companies would be managed in the absence of Mr Park and the Court could not reasonable infer that Mr Silvestro had the capacity to manage the business effectively, bearing in mind his limited experience and the other demands upon his time.

103 Counsel for the opposing defendants accepted that in certain circumstances, pursuant to the reasoning in Fexuto's case (supra) concerning legitimate expectations as to management rights, a minority shareholder could theoretically obtain relief upon the basis of an exclusion from management. However, counsel argued, relief could only be afforded to an applicant (having regard to the reasoning of Priestley JA at par 416) where there was an arrangement in the nature of a joint venture between the parties, with both parties putting up capital (or making contributions equivalent to capital) and where there was a clear understanding or agreement that the minority shareholder had management rights. Counsel emphasised that, consistently with the legal principles mentioned earlier, a majority shareholder, unlike the directors of the company, was not bound by fiduciary duties and was at liberty to pursue its own self-interest as an entitlement flowing from its status as a shareholder. Thus, in the absence of a clear understanding or agreement as to management rights, or an arrangement in the nature of a joint venture, relief would not normally be available.

104 With these considerations in mind, counsel argued that it was questionable whether the plea in the statement of claim was sufficient to found a cause of action based upon the disappointment of a legitimate expectation in that circumstances amounting to a joint venture of sorts were not pleaded and the plea in par 17 concerning the plaintiff's alleged management rights did not point to or particularise facts and matters sufficient to establish a clear understanding or agreement as to participation in management. On the face of the statement of claim, it could not be said that there was a serious issue to be tried concerning an alleged infringement of the protective provisions.

105 Further, and in any event, counsel submitted, even if the plea in the statement of claim was interpreted liberally, the evidentiary materials were not sufficient to set up a serious issue to be tried that there was in fact an understanding or arrangement as to participation in management of the kind contended for by the plaintiff. The decided cases (including Fexuto's case (supra)) suggested that exclusion from management should be regarded only as an "element" of unfairness or infringing conduct, and was not sufficient, of itself, for relief to be afforded to a complainant minority shareholder.

106 Counsel submitted further that, on the assumption his objections to admissibility were upheld, there was no or no clear evidence that the removal of Mr Park as a director would have an adverse effect upon the subject defendant companies. It was therefore not open to the Court to conclude that the removal was contrary to the interests of the members of a whole or oppressive to or unfairly prejudicial to the subject defendant companies. Moreover, it could not be inferred that substantial or irreparable harm would be caused to the subject defendant companies if restraining orders were not granted. The courts were generally reluctant to interfere in matters relating to the exercise of voting rights by shareholders and it would be a significant interference if any restraining orders or other orders were made that, in effect, provided for Mr Park to stay on as Managing Director indefinitely.

107 It was said further that there was persuasive evidence before the Court that Mr Park was not carrying out his duties to the required standard. This evidence allowed the Court to infer that the opposing defendants were acting fairly and reasonably in taking steps to improve the management of the subject defendant companies and rebutted any inference that they were acting simply to advance their own self-interest. Such evidence served to establish also that the conduct complained of, namely, the proposed removal of Mr Park as a director, was not contrary to the interests of the members as a whole because the management of the company would be improved by his removal.

108 Finally, counsel for the opposing defendants submitted that the legal principles governing the grant of interlocutory injunctions weighed against the making of the orders sought by the plaintiff. It was said that the proposed orders could not be regarded as a preservation of the status quo but, rather, were an interference with the status quo, in that shareholders of a company, not being subject to fiduciary duties, were generally entitled to exercise their voting rights with a view to improving the management and performance of a company. Moreover, counsel argued, the balance of convenience weighed against the grant of an injunction because the removal of Mr Park would not interfere with the entitlement of the plaintiff as a minority shareholder in the subject defendant companies to realise or attempt to realise upon its investment, bearing in mind that the companies were performing profitably, and were likely to continue to perform profitably under the proposed new management. The plaintiff would remain at liberty to pursue a claim for an account of profits or redemption of its shares in the subject defendant companies.

109 In the circumstances of the present case it is necessary to look closely at the legal principles bearing upon the grant of an interim injunction. In essence, the first defendant contends that the case pleaded in the plaintiff's statement of claim does not amount to an arguable cause of action. Further, even if it be held that a cause of action exists, the evidentiary materials do not disclose an arguable case for relief in circumstances where rights have not been infringed, and where, in any event, there is an absence of evidence with respect to the plaintiff's claim for management rights. Moreover, in regard to the internal affairs of private companies, care must be exercised in determining what amounts to preservation of the status quo.

110 In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Gleeson CJ observed at 216 to 219 that the purpose of an interlocutory injunction is to preserve the status quo until the rights of the parties can be determined at the hearing of the suit. This means that a plaintiff must be able to show sufficient colour of right to the final relief, in aid of which interlocutory relief is sought. If there is no serious question to be tried because, upon examination, it appears that the facts alleged by the claimant cannot, as a matter of law, sustain such a right, then there is no subject matter to be preserved. There is then no justice in maintaining the status quo, because that depends upon restraining the opposing party from doing something which, by hypothesis, the claimant has no right to prevent.

111 His Honour went on to observe that the extent to which it is necessary, or appropriate, to examine the legal merits of a plaintiff's claim for final relief, in determining whether to grant an interlocutory injunction, will depend upon the circumstances of the case. There is no inflexible rule. It may depend upon the nature of the dispute. For example, if there is little room for argument about the legal basis of a plaintiff's case, and the dispute is about the facts, a court may be persuaded easily, at an interlocutory stage, that there is sufficient evidence to show, prima facie, an entitlement to final relief. The Court may then move on to discretionary considerations, including the balance of convenience.

112 In Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148 Mason ACJ at 153 summarised the principles governing the grant or refusal of interlocutory injunctions in both private law and public law litigation. He said that the plaintiff must show, first, that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; second, that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and third, that the balance of convenience favours the granting of an injunction.

113 Lord Diplock observed in American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 at 408 that if it be established that the plaintiff has a real prospect of succeeding in his claim for a permanent injunction at the trial, the Court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief. The governing principle is that the Court should first consider whether the plaintiff would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant continuing to do what was sought to be enjoined between the time of the application and the time of the trial.

114 If damages in the measure recoverable at common law would be an adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage.

115 If, on the other hand, damages would not provide an adequate remedy for the plaintiff the Court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial, he would be adequately compensated under the plaintiff's undertaking as to damages for the loss he would have sustained by being prevented from proceeding with the conduct complained of.

116 It is where there is doubt as to the adequacy of the respective remedies and damages available to either party or to both, that the question of balance of convenience arises. Where other factors appear to be evenly balanced it is a counsel of prudence to take account of such matters as are calculated to preserve the status quo.

117 I note in passing that in Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 the Court was prepared to grant an interlocutory injunction, even though the case was not one in which there was a prospect of a permanent injunction.

118 It is generally thought to be no part of the Court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature consideration. These are matters to be dealt with at the trial. In Cash Converters Pty Ltd v Hila Pty Ltd (1993) 9 WAR 471 Kennedy J held that the normal rule is that a court does not undertake a preliminary trial in granting or withholding interlocutory relief upon a forecast as to the ultimate result of a case. However, there are cases when an evaluation of the strength of a plaintiff's case for final relief can determine which claim to legal rights is more likely to be unjustly defeated by refusing or granting an injunction.

119 Care must be exercised in determining what is the status quo. If an order is sought in order to preserve the status quo, it is important to understand that the status quo is the state of affairs existing before the last change; that is, during the period immediately preceding the motion for interlocutory injunction, Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130 at 140.

120 In Paringa Mining & Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587 it was held that the Court has power to postpone the transaction of business at a meeting by way of interlocutory order or to direct the adjournment of a meeting if the exercise of the power is necessary to protect the rights of the parties pending the outcome of litigation and is otherwise fair and just to those parties and to any other parties who might be affected by the exercise of that power.

121 It was thought in the Paringa case (supra) that the injunctions restraining the takeover offers and the rights issue under notice in that case preserved the status quo. However, the relevant status quo includes the right of a shareholder to vote at a lawfully convened general meeting of the company. To deprive shareholders, in particular a majority shareholder, of that right was not a preservation of the status quo but a disturbance of it.

122 It emerges from the decided cases that a discretionary power to grant injunctive relief pursuant to a statutory provision (such as s 1324 of the Corporations Act in the present case) must be exercised in accordance with the equitable principles generally applicable to the grant of injunction; that is, if there is a serious question to be tried then the Court must consider the balance of convenience, although the strength or weakness of the plaintiff's case may become a relevant factor touching on the balance of convenience or the exercise of the discretion: Commissioner for Fair Trading v Holz [2005] WASC 202 at par 15; Australian Securities Commission v Cooke & Ethical Technology Brokers Pty Ltd (1996) 15 ACLC 435.

123 It will be apparent from earlier discussion including the reasoning in Lenah's case (supra) that the grant of an injunction is generally directed to the alleged infringement of an existing right. However, it is clear from the authorities that if a threatened or apprehended violation of a right can be established which would cause imminent and substantial damage, an injunction may be made to prevent its occurrence if it can be shown that damages would not be an adequate remedy: Seaman Civil Procedure Western Australia at par 52.1.26. See also Bendigo & Country Districts Trustees & Executors Co v Sandhurst & Northern District Trustees [1909] HCA 63; (1909) 15 ALR 565.

124 It has been held that a strong case of probability must be made that the apprehended mischief will occur thus, in Attorney-General v Corporation of Manchester [1893] 2 Ch 87 the plaintiff sought a quia timet injunction upon the basis of an alleged cause of nuisance to prevent the defendant from establishing a smallpox hospital in the vicinity of the plaintiff's land. The Court refused to grant such an injunction as the plaintiff had failed to show that there was a strong case of probability that the apprehended danger would in fact ensue. The Court proved earlier dicta to the effect that there must be a well-founded and reasonable apprehension of damage.

125 It emerges from the principles concerning protection of minority rights mentioned in earlier discussion, and from the matters under notice in Fexuto's case (supra), that, in circumstances where a minority shareholder, such as the plaintiff company in the present case, has a legitimate expectation of management rights (as a consequence of an understanding or agreement between the principal shareholders) steps taken by a majority shareholder to effect an exclusion from management may give rise to an enforceable cause of action. A case for relief can be pursued under and by virtue of the statutory provisions concerning oppression on the grounds that the conduct complained of is oppressive or unfairly prejudicial to or unfairly discriminatory against the minority shareholder.

126 To my mind, infringing conduct sufficient to afford relief can be regarded as the infringement of an entitlement in the nature of a legal right, with the result that, notwithstanding the reasoning in Lenah's case (supra), the party whose expectation as to participation in management is or is likely to be obstructed is in a position to apply for relief by way of interim injunction, provided the criteria governing the grant of interim injunctions are satisfied in other respects.

127 It emerges, then, that in the circumstances of the present case there is a threshold issue as to whether, as a matter of law, the plaintiff's statement of claim sets up an arguable case for relief based upon a legitimate expectation as to management rights. I am prepared to accept that a legitimate expectation of the kind contended for may be found either in an understanding reached when the enterprise was set up, or by a process of inference from the way in which the subject business has been managed.

128 I note in passing that the plaintiff does not or cannot point to any explicit agreement between Mr Park and Mr Silvestro that Mr Park was to be Managing Director and to continue in office as a director of the subject defendant companies until other arrangements were made. The plaintiff relies essentially upon inferences drawn from conduct including, on the plaintiff's case, a tacit acceptance by Mr Silvestro that Mr Park was to run his own business under his own name with Mr Silvestro's support. The plaintiff points also to a pattern of management since 1997 in which Mr Park played a dominant role.

129 If the plaintiff's pleaded case is found to be sufficient as a matter of law, there is then a further question as to whether there is a serious issue to be tried that an understanding or agreement was in place as a matter of fact which gave rise to a legitimate expectation on the part of the plaintiff as to management rights. In addressing this issue, I must keep steadily in mind that a court is not usually inclined to resolve disputed issues of fact upon the basis of affidavit evidence. The question is whether there is sufficient evidence to found a grant of interim relief.

130 It emerges from my review of the principles concerning grant of injunctive relief that if it be established that the plaintiff has a real prospect of succeeding in his claim, the Court should then go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief. The Court must consider whether the plaintiff will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted.

131 In the circumstances of this case, such an approach requires me to determine whether the removal of Mr Park as director will have a significant adverse impact upon the affairs of the subject defendant companies, notwithstanding Mr Silvestro's contention that a new management team will be installed which will result in the companies continuing to run profitably. This will require me to rule upon the defendant's objections to admissibility. I must be satisfied that there is a well-founded and reasonable apprehension that a violation of the plaintiff's right is imminent and likely to cause substantial damage to the plaintiff. I must also give consideration to the balance of convenience.

132 It emerges from my review of the decided cases, and from the summary concerning the concept of "legitimate expectation" provided in Ford's Principles of Corporations Law at par 11.450, that breaches of an understanding or agreement between the principal shareholders that both will be involved in management can give rise to a legitimate expectation that such an agreement will be respected. In circumstances of unfairness the Court can restrain the exercise of a legal right by the majority shareholder to vote as it pleases on the basis that such a step would be oppressive.

133 The decided cases suggest that the three expressions used in s 232 of the Corporations Act overlap in the sense that each helps to explain the other, and read together they reflect the underlying concern of the provision that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only, is a legitimate foundation for a complaint pursuant to the provision. The statutory concern is directed to instances or courses of conduct amounting to unfairness and unjust detriment to the interests of the member or members of the companies.

134 It seems that the key word in the subject provisions is "unfairly": Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 59 ALJR 798. In Re Spargos Mining NL (1990) 3 ACSR 1 at 43 Murray J observed that unfairness may lie in the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision-making processes within the company.

135 Against this background, I consider that the legitimate expectation plea raised by par 17 of the plaintiff's statement of claim is sufficient to establish, as a matter of law, that there is a serious issue to be tried in the circumstances of the present case as to whether the plaintiff has an enforceable cause of action. Without foreclosing the issue, I have to say that I am not presently satisfied that the plaintiff is required to establish that there was something in the nature of a joint venture between the parties. Further, and in any event, I am of the view that even if such an element were required it could arguably be sufficient for the plaintiff to point to the personal commitment made by Mr Park on its behalf in advancing the affairs of the Scott Park Group.

136 I consider that sufficient facts and matters have presently been pleaded in support of the legitimate expectation concept set out in par 17 of the claim. It clearly emerges from the decided cases that an understanding or agreement underlying the concept need not be established by reference to signed documents or any explicit agreement. The necessary level of agreement can be inferred from the conduct of the parties. To my mind, in the present case, the plaintiff has identified sufficient facts and matters in its pleading to found an arguable cause of action.

137 I recognise, of course, that further and better particulars of the claim may be sought in due course. However, for the time being, having regard to the supporting evidentiary materials, I consider that there is sufficient in the pleading to demonstrate that the plaintiff is relying upon an arguable cause of action. The pleading is arguably completed by the assertion that the proposed removal of Mr Park as a director of the subject defendant companies (as pleaded in par 18 of the claim) will be detrimental and thus infringes the statutory provision. One can certainly envisage circumstances in which the personality of a particular individual, and his expertise and range of contacts, may be a crucial factor in the success of the subject business. The statutory provisions clearly allow for relief to be obtained, notwithstanding that the removal has not yet actually been effected. Accordingly, in my view, I can proceed from the premise that an entitlement in the nature of an existing right, as a matter of law, has arguably been infringed.

138 This brings me to the next issue mentioned in my earlier summary of issues; that is, whether the evidentiary materials before me give rise to a serious issue to be tried that the rights of the plaintiff company will in fact be infringed by the proposed exclusion of Mr Park from the management of the subject defendant companies.

139 It follows from earlier discussion that in seeking to rely upon an understanding or arrangement that the plaintiff by Mr Park would be entitled to participate in the management of the Scott Park Group of Companies the plaintiff is entitled to rely upon inferences. There appears to be a good deal of undisputed evidence before me that Mr Park has been actively involved as the senior figure in the management of the subject defendant companies.

140 There is an issue as to the degree of Mr Silvestro's involvement but there seems little doubt that Mr Park was involved in the day-to-day affairs of the company. This suggests that there was something in the nature of a tacit agreement between the parties that the company should be administered in this way and that the opposing defendants were prepared to allow this state of affairs to run on.

141 I do not consider that it is necessary for me to make a final determination as to the precise nature of the understanding or agreement as to management rights. In weighing up the notion of unfairness, it is sufficient for me to be satisfied that there is a serious issue to be tried in respect of this matter as a matter of fact.

142 The further question must then be addressed as to whether, as a matter of evidence, it appears that the proposed removal of Mr Park brings with it elements of unfairness.

143 In addressing this issue, I give due weight to the notion reflected in the decided cases that a majority shareholder is not subject to fiduciary duties and is entitled to exercise its voting powers having regard to its own self-interest. I take account also of that part of the evidence relied upon by the defendants which is used to suggest that there are legitimate and convincing reasons why there should be a change of management, having regard to an alleged lack of performance on the part of Mr Park.

144 However, balanced against these considerations is a body of evidence which suggests that no real attempt was made to remedy Mr Park's alleged lack of performance by admonition and exhortation. No letters or minutes have been produced in which his faults were pointed out. He does not appear to have been put on notice to improve his performance. No offer was made to acquire the plaintiff's shares. The sudden production of draft resignation documents on 7 October, without prior warning, suggests that the first defendant was not attempting to rectify a management problem, but, rather, was in pursuit of a collateral purpose contrary to the management agreement. To my mind, all of this gives rise to an arguable case of unfairness.

145 I pause here to say that I am of the view that the contentious passages in the affidavits of the plaintiff, which are objected to by the opposing defendants should not be admitted into evidence on the grounds that they represent impermissible expressions of opinion by a witness who is not qualified to speak of such matters. However, at the same time I must give proper weight to the notion reflected in the decided cases that contested issues of fact should not be resolved upon the basis of the affidavit evidence.

146 I am of the view that, in circumstances where the plaintiff can point to clear and objective evidence that the Scott Park Group has been profitable, there is persuasive evidence before me that Mr Park's involvement in the management of the companies has been a contributing factor to the Group's success. It appears to be an undisputed fact that the name of Mr Park has been linked to the business activities of the group. To my mind, there is a serious issue to be tried that his removal might lead to adverse consequences.

147 It follows from these observations that, in my view, there is sufficient evidence before me, being evidence not clearly rebutted by the opposing affidavits, that the proposed removal is not only unfair but arguably will have an adverse effect of the kind contended for by the plaintiff.

148 It emerges from the decided cases that care must be exercised in granting injunctive relief in response to an application of the present kind. The performance of companies operating in a commercial context must inevitably be kept under constant review, and it follows that it is legitimate for a majority shareholder to critique the performance of senior management. It is therefore questionable whether the plaintiff has prospects of obtaining a permanent injunction restricting the removal of Mr Park as a director, because such an order might be thought to run counter to the considerations I have just mentioned.

149 However, as indicated in earlier discussion, it seems that in certain circumstances an interim injunction may be granted, notwithstanding the presence of a doubt as to whether a permanent injunction can be obtained: See Evans Marshall & Co v Bertola (supra). In any event, in the present case, it seems that the obtaining of an interim injunction with a view to preserving the status quo can be regarded as a first step towards the obtaining of final relief whereby orders are obtained which will make provision for the acquisition or redemption of shares in the company so that a deadlock or disagreement between the parties is resolved.

150 It follows from this view of the matter that, in my view, it is open to me to provide relief by way of injunction. However, it is clear from the decided cases, that notwithstanding the presence of a serious issue to be tried (as I have found to be the case) concerning the elements of the plaintiff's claim, it is necessary to give consideration to the question of whether an award of damages (or its equivalent) will be a sufficient remedy. This is a matter which bears upon the balance of convenience.

Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251

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Judgment (204 paragraphs)

Remrose Pty Ltd v Allsilver Holdings Pty Ltd & Ors [2005] WASC 251 (16 November 2005)

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Cases Cited (11)