PRESTON MOTOR GROUP’S DIRECTORS BEING SUED FOR OPPRESIVELY MAINTIAINING A PROCEEDING AGAINST SHAREHOLDERS OF THE COMPANY

JAB Nominees (Aust) Pty Ltd v Auswild [2020] VSC 731 (11 November 2020)

This case involves the directors of the corporation filing and maintaining a proceeding against the defendant shareholders in behalf of the company which is considered to be an oppressive conduct by said directors.

Facts:

After the Second World War, Sir James and his younger brother, Ronald William Auswild (RWA), established very successful businesses, principally in the motor industry, under the name of Preston Motors, and had substantial investments in properties. The businesses and assets were held in a network of companies known as the Preston Motors Group (PMG), in which Sir James held a controlling interest of 52.186% and RWA held 47.814%.

As the executor of Sir James’s estate, RWA held Sir James’s shares on trust until they were transferred to Sir James’s daughters.

The claims in the Company Proceeding substantially related to the period in which RWA held Sir James’s shares on trust from 1985 to 2006. During this time, RWA and his son, James Ronald Auswild Senior (JRA), were directors of the companies in the PMG.

The gravamen of the Plaintiff Companies’ claims in the Company Proceeding were that during this period, JRA and RWA preferred the interests of the RWA Family over the interests of the JFJ Family (Sir James’ Family). Broadly speaking, they were said to have done so by: (a) entering into transactions which benefited joint venture companies in which the JFJ Family did not have an interest; and (b) using the PMG’s funds to purchase and transfer assets and make payments, all to the benefit of members of the RWA Family.

On 29 August 2014, the Plaintiff Companies filed the Company Proceeding. The Plaintiff  Companies claimed equitable compensation, damages, an account of profits, declarations and other relief from the defendants arising out of the management of certain corporations between  1985 and 2003.

On 8 September 2014, James Bergmuller and the Parker Women filed the Shareholders Proceeding against James Ronald Auswild Senior (JRA), Barbara Auswild and Raymond Auswild (‘the RWA Shareholders’).

On 16 February 2018, the RWA Shareholders filed a defence and counterclaim in the Shareholders Proceeding, alleging that the JFJ Shareholders’ conduct, individually and/or cumulatively, was conduct of the PMG’s affairs that was:

• contrary to the interests of the members of PMG as a whole; and
• oppressive to, unfairly prejudicial to, unfairly discriminatory against the RWA Shareholders, within the meaning of those terms in s.232(d) and (e) of the Corporations Act.

The RWA Shareholders submitted that the conduct of the Third Party Directors in filing and maintaining the Company Proceeding preferred the interests of the JFJ Family by enabling their side of the family to obtain the benefit of the expenditure of company funds in the prosecution of the claims on which the Shareholders Proceeding was based. This was contrary to the interests of the members of the PMG as a whole, and oppressive to, unfairly prejudicial to, and unfairly discriminatory against the minority shareholders.

Issue: Is the filing and maintenance of a proceeding by the Plaintiff company against the RWA shareholders constitutes oppressive conduct by the directors and/or related shareholders?

Law:

• S232 of the Corporations Act 2001

Analysis:

Once it is established that the directors are intending to achieve any purpose other than the furtherance of the purposes of the company, they are at risk of a finding that the conduct was commercially unfair, and of being subject to the remedies available to relieve oppression. Although the principles of equity do not determine claims for oppression, the doctrine of oppression is informed by equitable considerations.

In this case, the Third Party Directors allowed the Company Proceeding to be used as part of a coordinated plan, which included the acquisition of the shares held by the RWA Shareholders. By using the very substantial amount of company funds for the purpose of prosecuting the Common Conduct Allegations, the Third Party Directors conducted themselves in a commercially unfair manner and oppressively within the meaning of s.232 of the Act. Once the Third Party Directors proposed to use the Company Proceeding to fund the long-standing dispute between the JFJ Family and the RWA Family and to assist them to obtain the relief sought in the Shareholders Proceeding, they were obliged to abstain from participating in the decision-making involved in the filing and maintenance of the Company Proceeding.

In all the circumstances, in deciding to file and maintain difficult, problematic and expensive litigation against the RWA Shareholders in the Company Proceeding, while simultaneously participating in an application for relief by the JFJ Shareholders against the RWA Shareholders in the Shareholders Proceeding, the Third Party Directors’ conduct was commercially unfair to the RWA Shareholders and constituted oppression within the meaning of s.232 of the Act.

Conclusion: The filing and maintenance of a proceeding by the Plaintiff company against the RWA shareholders constitutes oppressive conduct by the directors and/or related shareholders. Hence, it is the court’s opinion that to relieve the RWA Shareholders from the oppression, it is necessary for the Third Party Directors to reimburse the Plaintiff  Companies for the costs incurred in conducting the Company Proceeding, and to indemnify the Plaintiff Companies for costs which it is liable to pay consequent upon the failure of the Company Proceeding.

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