Intricacies of Oppressive Conduct: JAB Nominees (Aust) Pty Ltd v Auswild

By Alicia Hill, Principal and Harrison Breer, Law Clerk

In the recent case of JAB Nominees (Aust) Pty Ltd v Auswild [2020] VSC 731, the Supreme Court of Victoria considered whether, in filing and maintaining a proceeding against the Defendant Shareholders, the Third Party Directors of the corporation had engaged in oppressive conduct.

Background

After the completion of the Second World War, Sir James, alongside his younger brother Ronald William Auswild (RWA), created several successful businesses mainly in the motor industry alongside owning substantial property investments, under the trading name of Preston Motors. These businesses and assets were held in a network of companies known as the Preston Motors Group (PMG). Sir James held the controlling interest of PMG (52.186%), with RWA holding the remainder.

After Sir James’ death in 1985, RWA, as the executor of his estate, held his shares on trust for Sir James’ daughters from a period of 1985 to 2006. During this period, RWA, alongside his son James Ronald Auswild Senior (JRA), were directors of PMG. The Plaintiff Companies’ claimed that during this period, both JRA and RWA, as directors of PMG, operated with the interests of the RWA family over that of Sir James’ family (JFJ). This was done so by:

  1. Entering transactions which benefited joint venture companies in which Sir James’ family did not have an interest; and
  2. Using PMG’s funds to purchase and transfer assets and make payments all to the benefit of the members of the RWA family

On 29 August 2014, the Plaintiff Companies instigated the company proceedings surrounding the management of PWG during the time that the shares were held on trust. They claimed a variety of compensation including damages, equitable compensation, an account for profits, declarations and other relief.

On 8 September 2014, James Bergmuller (later substituted for JAB Nominees) and the Parker Women filed the Shareholders Proceeding against JRA, Barbara Auswild and Raymond Auswild (the RWA Shareholders).

On 16 February 2018, the RWA Shareholders instigated a defence and counterclaim in the Shareholders Proceeding. They alleged that the JFJ Shareholders’ conduct contravened section 232 of the Corporations Act 2001 (Cth), as it was contrary to the interests of the members of PWG as a whole (s232(d)) and was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the minority shareholders of the company (s232(e)), and sought relief under s233 of the Corporations Act 2001 (Cth). The relief included the plaintiffs reimbursing and indemnifying PMG for the costs to date, future costs and any adverse costs order in the Company proceedings, along with other orders.

The Issue

The Honourable Riordan J was required to determine whether the filing and maintenance of a proceeding against the RWA Shareholders could constitute oppressive conduct under s232 of the Corporations Act 2001 (Cth) on the behalf of the Plaintiff Company.

His Honour’s Determination:

Riordan J listed 10 issues for determination that must be answered to reach an outcome to this case. These questions ranged from determining whether the Directors had breached their fiduciary duty of good faith under s181 of the Corporations Act 2001 (Cth), an analysis of the relevance of sections 232 and 233 of the Corporations Act 2001 (Cth), and also an examination of relevant case law.

His Honour determined that the directors were intending to achieve purposes other than the furtherance of the company itself, and therefore were at risk of engaging in commercially unfair conduct. His Honour went on to find that the Third Party Directors had utilised the Company Proceeding as part of a coordinated plan, which itself included acquiring shares that were held by the RWA shareholders. Their conduct of using large amounts of company funds to prosecute the Common Conduct Allegations resulted in conduct that is commercially unfair, and itself oppressive per section 232 of the Corporations Act 2001 (Cth). His Honour found that the Third Party Directors had an obligation to refrain from participating in the decision-making elements of the Company Proceeding once they had proposed to use the Company Proceeding to fund the ongoing dispute between the JFJ and RWA families. This did not occur, as they maintained both the Company Proceeding and participating in an application for relief against the RWA Shareholders, of which Riordan J found to be conduct that was commercially unfair to the RWA Shareholders and amounted to oppression per section 232 of the Corporations Act 2001 (Cth).

Outcome

His Honour ultimately found that oppressive conduct was present in the current case. To relieve this oppression from the RWA Shareholders, Riordan J was of the opinion that the Third Party Directors must reimburse the Plaintiff Companies for the costs incurred in conducting the Company Proceeding, and also to indemnify the Plaintiff Companies for costs which it is required to pay following the failed Company Proceeding.

Take-aways

This case illustrates the intricacies that can arise surrounding matters of Oppressive Conduct. It serves as an important reminder to Company Directors and Shareholders alike to know and understand your rights, and when to seek compensation when these rights are being unfairly oppressed through conduct of others.

If you have any queries regarding Oppressive Conduct or similar matters, please contact Alicia Hill on (03) 8540 0292 or alicia.hill@mst.com.au