#10843 - Shareholders Remedies Oppression - Business Associations 1

L C B Gower, The Principles of Modern Company Law

Scottish Co-op Wholesale Society v Meyer (the first) – two petitioners (MD and minority shareholders) of a subsidiary formed by the co-op to enable it to enter the rayon industry. Later the need to operate through a separate company ceased, so they ran it to the ground.

Held: The case of oppression was established. The HOL ordered a payout to the minority shareholders at a fair value (the price had the oppression had not occurred)

Re H R Harmer – the founder of a stamp dealer firm incorporated it in 1947, giving his two sons directorships and a majority shareholding. The father essentially had voting control and ran the business as his own, asserting he was entitled to. His unbusinesslike manner made the company unsuccessful

Held: Oppression was made out – he demoted the father to ‘consultant’ and prohibited him from interfering with the company other than pursuant to board division.

The definition of oppression was said to mean “burdensome, harsh and wrongful” with the conduct complained relating to the complainant in their capacity as member and to the conduct of the company’s affairs. It has to be a course of conduct, not just an act of impropriety

But in Re Bellador Silk the petitioner failed because the proceedings were brought for a collateral purpose (thus an abuse of process) and concerned the petitioner as a director rather than member

And Re Five Minute Car Wash – though the MD was “unwise, inefficient and careless” and the controlling shareholders failed to exercise controlled; oppression was not established since the MD didn’t act “unscrupulously, unfairly or with any lack of probity”. Mere omissions of the controlling shareholders weren’t “designed to achieve some unfair advantage”

Re Tivoli Freeholds Ltd [1972] VR 445

Menhennitt J began by noting that the definition of oppression depends on all the circumstances and doesn’t admit universal definition. Some of the matters included are:

1. Those alleging that the affairs of the company were conducted in a manner oppressive to them must establish conduct which is “unfair or...burdensome harsh and wrongful” to the other members of the company or some of them, and lacks that degree of probity which they are entitled to expect in the conduct of the company’s affairs”

His honour interpreted the lack of probity as being one reason that can independently lead to oppression – it is not expressed as an additional requirement but rather in the alternative

5. Oppression may occur even although all the members of a company are treated equally. The unfairness may arise by reason of an advantage to a parent company

6. It must also be established that oppression results from “some overbearing act or attitude on the part of the oppressor” – some course of conduct that is unfair (looking both from the POV of the oppressor and the oppressed)

7. Further, it wasn’t intended to give jurisdiction to the court to interfere with internal management where directors act honestly without any purpose of advancing personal interests at the expense of the company

Wayde v New South Wales Rugby League Ltd (1985) 59 ALJR 798

Facts: The NSWRL was incorporated with the object including ‘fostering and control of the game and such action as may be conducive to its best interest’ – the CC authorizing the BOD to determine which team participates in competitions. The board in 1984 consulted with district clubs concerning the conduct of a premiership competition – calling for applications for entry. After consultation, the board adopted a proposal that the number of competing teams be reduced from 13 to 12 and the inclusion of ‘Wests’ was refused. Two members of Wests sought relief under Pt 2F.1 (under the predecessor provisions)

Mason ACJ, Wilson, Deane and Dawson JJ noted that this was a decision made in good faith taking relevant considerations into account and a decision made within power.

• The decision was taken honestly in pursuit of the object of fostering the game, as per its MOA

• The board was obliged to look at the difficulties presented by a competition occupying too long a period of the year and exercise its power appropriately. It is not to be suggested that they didn’t know the consequences for Wests

Nonetheless the appellants submitted that though the board could conclude that a competition of 12 was preferable, the facts that 12 wasn’t wholly unworkable and that Wests were viable competitors lead to the conclusion that the prejudice to them outweighs the benefits to the League such as to be unfair

• This is answered by the fact that the League was constituted to promote the best interests of the Sport and empowered to decide which teams participated – these clubs chose to incorporate on this basis and Wests fully appreciated that it had no secure right to participate in the competition

• Here, the Board was confronted with the interests Wests on one hand and that of the whole League on the other – given their special experience and the bona fide exercise of the power, a court must exercise caution in determining an application under s 233 to avoid an unwarranted assumption of the management in the company

• The appellants faced a difficult task in proving that the decision was unfairly prejudicial to Wests and not in the best interests of the company. The effect of the decisions on Wests were harsh – but it hasn’t been shown that they were oppressive or unfairly prejudicial or discriminatory such was to warrant the conclusion that the affairs o f the company were being conducted in this way

Brennan J noted the uselessness of the nature of the phrase “interests of the members as a whole” in cases where the exercise of a power by its nature was to discriminate amongst members. Thus the primary consideration was whether the relevant expressions were “oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member”

• Where directors are empowered to discriminate, a decision made in good faith, isn’t without more “oppressive...discriminatory against, a member” – there must be actual unfairness or oppression, proof of prejudice/discrimination will not be sufficient

• It isn’t necessarily fair for directors, in good faith, to advance the objects of the company to the prejudice of a member where advancement of the object is necessarily prejudicial. Prima facie, it is for the director to decide whether the furthering of a corporate object inimical to member’s interest should prevail or whether some balance is to be struck

  • The directors view isn’t conclusive... but an element in assessing unfairness to a member is the fact that the members reposed these powers in the director

  • The ultimate question is one of fact and degree – having regard to any special skill, knowledge and acumen possessed by the directors

• The test is an objective one, and though a standard of ‘reasonable directors’ isn’t clear it at least assumes that reasonable directors weigh the furthering of the corporate object against the burden which the decision imposes and address whether this is unfair

• The decision here was made with full knowledge of both the fact that the Wests would be disadvantaged but also that a larger competition as burdensome to, and dangerous for, players and that a shorter season was conducive to better organization of the company

• There was a difficult decision, drawing on their skill/knowledge/understanding as experienced...