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Allways Resources Holdings Pty Ltd & Anor v Samgris Resources Pty Ltd & Anor

Unreported Citation: [2017] QSC 74

This lengthy decision considers claims by the plaintiffs to have the first defendant company wound up under s 233 or s 461 of the Corporations Act. In particular, his Honour gives some interesting consideration to the judicial discretion to order a winding up of a solvent company, and observes that it is not only a remedy of last resort. In this case, the company was of a kind that was based upon mutual trust and cooperation and it was appropriate that there be an order for it to be wound up. Bond J also gives some consideration to the scope of ss 232(d) and 232(e) and the relationship between them.

Bond J

8 May 2017

The plaintiffs, Allways Resources Holdings Pty Ltd and McKay Brooke Resources Limited, were the minority shareholders of the first defendant, Samgris Resources Pty Ltd (“Samgris”). [1]. The second defendant, Asia Pacific Joint Mining Pty Ltd (“APJM”), was the majority shareholder of Samgris. [1].

The plaintiffs sought an order that Samgris be wound up pursuant to either s 233 or s 461 of the Corporations Act 2001 (Cth). [3]. In the alternative, the plaintiffs sought orders pursuant to s 233 that APJM purchase their shares. [3]. The plaintiffs contended that “the affairs of Samgris were being conducted in a manner which was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs within the meaning of s 232(e)”, and further that “the affairs of Samgris were being conducted in a manner which was contrary to the interests of the members as a whole within the meaning of s 232(d)”. [4]. As for s 461, the plaintiffs relied on the “just and equitable” ground pursuant to s 461(1)(k), and also on ss 461(1)(e), 461(1)(f), and 461(1)(g). [5].

The relevant conduct alleged to make out these claims occurred over a four and a half year period, from when the plaintiffs and the second defendant became shareholders of Samgris. [6]. The plaintiffs alleged that “APJM caused the business and operations of Samgris to be managed as if APJM was the sole shareholder or, at the least, in a manner that failed to pay any real regard to the views and concerns of the directors appointed to Samgris by the minority shareholders”. [6]. The plaintiffs also said that there had been an “irretrievable breakdown in the relationship between APJM and the minority shareholders such that the minority shareholders can have no trust and confidence in the proper management of Samgris in the future”. [6].

Bond J comprehensively set out the relevant principles of the substantive law. [8]–[30].

Winding up on the just and equitable ground

The plaintiffs argued that Samgris was a company formed on the basis of mutual trust, confidence and cooperation, and that this relationship of mutual trust, confidence and cooperation had irretrievably broken, invoking the principles discussed by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. [9]. Bond J observed that while “it is often said of such companies that they are in the nature of a ‘quasi-partnership’... in some cases that terminology might be misleading and it may be more accurate to say that the company is 'a majority controlled business requiring mutual cooperation and a level of trust’”. [14].

His Honour also stated that “the making of a winding up order on the just and equitable ground involves the exercise of a judicial discretion”. [16]. Accordingly, “[i]t would be wrong to regard an order for the winding up of a solvent company as a ‘last resort’”, notwithstanding that some cases have used that language. [16]. His Honour considered that “such an absolute statement seeks to impose a limitation on the discretion which is not justified by the wording of the statute”. [16].

Ultimately, Bond J was satisfied (see factors set out [80]–[82]) that “the nature of the association between the members of Samgris was such that it was to be regarded as falling within the category of cases to which Lord Wilberforce referred”. [83]. Whether Samgris was a quasi-partnership or “a majority controlled business requiring mutual cooperation and a level of trust” he found that it was the type of company for which winding up was the characteristic remedy where the working relationship had irretrievably broken down.  His Honour rejected submissions by the second defendant that the relationship between the parties was “entirely commercial”. [357]. Further, the factual analysis carried out by his Honour demonstrated that the working relationship between the plaintiffs and APJM had irretrievably broken down. [359].

In the circumstances, his Honour considered that “in the absence of any other remedy, it would be just and equitable that Samgris should be wound up”. [360].

Oppressive conduct of a company's affairs

Bond J set out the relevant provisions of the Corporations Act, namely, ss 232 and 233. [18]. His Honour noted that “the better view” is that s 232(d), which deals with conduct “contrary to the interests of the members as a whole”, is “separate and distinct from s 232(e)”, which deals with conduct “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members”. [24]. His Honour also explained that “[c]onduct may be ‘contrary to the interests of members as a whole’ [thus falling under s 232(d)] without necessarily involving commercial unfairness” (which is the “essential criterion” of s 232(e)). [24]. Further, his Honour reiterated, for the same reasons expressed in relation to winding up on the just and equitable ground, that “it would be wrong to approach the exercise of the discretion concerning remedy by regarding winding up a solvent company as a ‘last resort’”. [26].

Considering s 232(e), Bond J expressed the test as “whether, objectively in the eyes of a reasonable commercial bystander, there has been conduct that is so unfair that reasonable directors who consider the matter would not have thought it fair”. [361]. On the facts of this case, that conclusion was justified. [362]. Important decisions in Samgris had been made and implemented, without obtaining authority to do so from the Board, and “without the involvement of the directors appointed by [the plaintiffs]”. [363], [367]. APJM had treated Samgris as its wholly-owned subsidiary of which it had the management. [368]. This “exclusion from the agreed manner by which the [plaintiffs] would participate in management decisions was the most significant and ongoing oppressive conduct which occurred”. [369]. Bond J was accordingly of the view that the plaintiffs were entitled to relief, either by winding up Samgris or by other means. [371]–[372].

Although not strictly necessary to decide, his Honour noted that the outcome would not differ if the test in s 232(d) (which, as his Honour explained earlier, is better seen as distinct from s 232(e)) were applied. [373]–[374].

Bond J ordered that the Samgris be wound up, and made orders accordingly. [388].

J English