Corporate Law Case Study: Tim and His Brothers

This case study explores the oppression and unfair treatment faced by Tim from his brothers in their private company. It discusses the remedies available under the Corporations Act 2001 and the option of equitable remedies.

Running head: CORPORATE LAW
CORPORATE LAW
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1CORPORATE LAW
The present case study deals Tim and his four brothers who had formed a private
company name ‘The Grumpy Grande Pty Ltd’ or the TGG in the year of 2010. The business was
for bringing in premium quality of coffee, brewed fresh from the minivan back directly to any
social gathering, corporate or sports event. The business gained instant popularity and success
and the profits were equally shared by all the Brown brothers. The constitution of the company
held that all the 5 brothers are the directors as well as shareholders of the company and there will
be no one from outside into the business.
However, in the past few years, the business was doing well and the business started
slowing down. It was not getting profits like before and this resulted into deterioration of the
brotherly relationship among them. The eldest 4 brothers suspected that Tim was about to leave
their business due to its lack of success, and thus they were bullying Tim. They were even using
all the opportunities to use their majority vote to block the business ideas of Tim. They even tried
to sell the company assets of value at bargain rates to themselves in spite of the fact that Tim
strongly protested against it. Though the constitution of the company provides all the decisions
must be taken by the majority vote, still the 4 brothers were misusing it against Tim.
As per the constitution of the Company, if any of the brothers wants to sell his share, he
has to do it after getting permission from the other brothers who are also the directors of the
company. Moreover, if that person gets assent from other directors to sell his share, still there
lies one more condition that he has to sell it to themselves only. Hence, if one director wants to
sell his part of or total share, the others directors are required to buy them by providing him
appropriate cost.

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But, Tim secretly hears the conversation of his eldest brother taking over the phone. As
per the conversation of the phone, Tim was able to understand that they planned to prohibit him
from selling his shares by using their majority vote. He even heard that they planned to
forcefully make him leave the business without paying for value of the shares. Due to this, Tim
was under stress and dissatisfaction and wants to claim for statutory and equitable remedies for
him against his 4 brothers.
In this regard, light must be thrown on the provisions of the Corporations Act 2001 to
allow Tim to get suitable remedy. It is known that the companies are usually controlled by a
single share holder or a class of share holders. Those who hold the majority of the shares are able
to control the activities of the company. Hence, the share holders who hold minority votes are in
actual have very little or no control and influence on the management of the company. Tim was
subjected to deprivation by the majority share holders who are actually his own brothers.
To combat with this problem, the Parliament and the courts have taken this problem very
seriously and aimed to provide protection to the minority share holders and due to this enacted
section 232 of the said act. This section allows several remedies that a member of a company can
seek under section 233 of this act. Section 234 of the act gives the persons who can apply for an
order under section 232 of the act. In the case of Niord Pty Ltd v Adelaide Petroleum NL (1990)
54 SASR 87, it was held that a member who has been registered in the company can apply under
section 232. Hence here Tim can apply to the court for an appropriate remedy.
In order to claim for oppression and unfair discrimination, it has to be shown that the affairs
of the company was conducted in the manner that was in all the situations was oppressive to or
unfair or prejudicial or unfairly discriminatory against a member or a group of members as per

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section 232 of the act. Oppression means absence of fair transaction and probity as held in the case
of Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324 at 364. However the conduct is
not required to be illegal or unlawful, it can be simply discriminatory or unfair or biased as found in
the case of Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304. Hence when the courts
are deciding whether any act or conduct is oppressive or unfair , it must consider and take into
account the interest of both the majority and minority shareholders. It is also necessary that the court
must identify the background of the company and also the previous conduct of the shareholders and
their expectations. It was observed in the case of Wayde v NSW Rugby League Ltd (1985) 180 CLR
459.
Some of the examples of an unfair conduct or oppressive behavior that triggered the
protection of the minority share holders include the exclusion of a minority share holder from
involving him in to the affairs of the company as found in the case of Fexuto Pty Ltd v Bosnjak
Holdings Pty Ltd [2001] NSWCA 97. It also includes denial of proper information or access to the
minority share holder as observed in Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614 and Shum Yip
Properties Development Ltd v Chatswood Investment and Development Co Pty Ltd [2002] NSWSC
13. As held in the case of Re Bright Pine Mills Pty Ltd [1969] VR 1002; Scottish Co-operative
Wholesale Soc Ltd v Meyer [1959] AC 324., it also includes the diversion of a corporate opportunity
which is legitimate to themselves. These criteria are not exhaustive as the court may take into
consideration any other which it regards suitable as per the facts of the case. Thus following the
above mentioned claims, Tim can also seek protection in the court of justice to protect his interest
and rights.
In the situations where oppression or unfair conduct of the majority share holders can be
established, then the court can use its discretion and may grant a remedy which it considers

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appropriate in relation to the section 233 of the act. The main aim of section 233 is to compensate
the injured or affected party or parties. Another important objective is to put an end to the situation
that is actually creating the oppression or discrimination to the minority share holders. This was put
forwarded by the decision of the case of Re Hollen Australia Pty Ltd [2009] VSCC 95.
In such circumstances, if the court considers necessary, it may make the following orders like
the company to be wound up as given in section 233 (1) (a), or order the company’s constitution to
be modified or repealed as held in section 233 (1) (b), or order the buying of the shares of any
member of the company by any other members or to whom a share is being transferred under the
operation of law or by Will as given in section 233 (1) (d), or even order to appoint a receiver or a
manger or both as laid in section 233 (1) (h) of the said act. As per the given facts of the case, Tim
was planned to be deprived of the price of his shares as his brothers planned to take his shares
without paying him.
In some cases the court also order that the majority share holders may buy the shares at a cost
that would reflect the value of the shares in the situation such that the oppressive behavior had not
happened. This was given in the decision of the case of Scottish Co-operative Wholesale Soc Ltd v
Meyer [1959] AC 324.
It was held by Justice Nourse in the In re London School of Electronics Ltd [1986] Ch 211,
224 that the prima facie interest in a situation must be valued at the date on which the order is made
by the court to purchase the shares. It was again reiterated in the case of Profinance Trust SA v
Gladstone [2002] 1 BCLC 141.
In the case of Dynasty Pty Ltd v Coombs (1995) 59 FCR 122, it was approved by the full
court of the Federal court that the statement of Justice Nourse in Re London School of Electronics

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Ltd [1985] 3 WLR 474 at 484 and held that if there was this type of rule, it must be the date of order
and not the date when the petition was placed before the court or the acts of oppression or unfair
conduct occurred. This was again followed in the case of Short v Crawley (No 30) [2007] NSWSC
1322 by Justice Young of the NSW Supreme Court. The court does not prefer to order an early
assessment of the value as it wants to give the claimant the most advantageous and best result for his
exit from the company or for the oppression he felt as held in the case of In re Elgindata Ltd [1991]
BCLC 959. Thus if Tim applied to court he will be awarded the best remedy under the provisions of
the said act as the court will decide in light of the facts of his case.
Moreover, in addition to this, he has another remedy too. As per decision of the Federal
Government in relation to modification of the rights of the share holders of a company as given in
Part 2F. 1A of the said act, the share holders have been provided with derivative actions that can be
taken by them against any company or its directors as per section 237 of the act (Tang 2016). It was
observed in the case of Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008)
65 ACSR 661. As a result of this, the share holders have the power to bring a statutory derivative
action either in the name of the company or on its behalf. This provision is also applicable against
the share holders who have breached their duties or have infringed the constitution of the company.
Before, due to the rule given in the case of Foss v Harbottle (1843) 67 ER 189, an individual
share holder is barred from bringing an action in the court for any wrong or irregularity done to the
company or for any internal irregularity of the company. In order to overcome this rule , the
statutory derivative provisions were introduced to give more power in the hands of the share holders
of the company (Chen 2017).

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In this case, as discussed above Tim can institute an action against the directors of the TGG
under the provision of derivative actions as ob served in the case of Vigliaroni v CPS Investment
Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282. Thus Tim can apply to the court of proper
jurisdiction under section 233 of the act or under section 237 of the said act.
In addition to the relief that can be claimed by Tim under Corporations Act 2001, Tim
can also claim for equitable remedies in the courts of equity (Dal Pont 2015). This remedy is
allowed when there is a breach of any fiduciary duty as seen in the case of Swansson v Pratt
[2002] NSWSC 583 and also for the breach of non fiduciary duties as given in the case of
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383.
In this regard, Tim can also apply for equitable remedies in the court against his 4 brothers.
He will not be needed to show any pecuniary loss to the court. He can mak ea claim on the basis of
the mental stress and distress he suffered due to the oppression and discrimination from his brothers.
It was found in the case of in Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15;
(2003) 212 CLR 484 at [44] that the courts of equity does not strictly follows the principles followed
in common law courts.
Thus Tim is entitled to get both statutory and equitable remedies.

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References:
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 65 ACSR 661.
Chen, V., 2017. The Statutory Derivative Action in Malaysia: Comparison with an Australian
Judicial Approach
Dal Pont, G., 2015. Equity and trusts in Australia
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97
Foss v Harbottle (1843) 67 ER 189
In re Elgindata Ltd [1991] BCLC 959.
In re London School of Electronics Ltd [1986] Ch 211, 224
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383.
Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87
Profinance Trust SA v Gladstone [2002] 1 BCLC 141.
Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614
Re Bright Pine Mills Pty Ltd [1969] VR 1002
Re Hollen Australia Pty Ltd [2009] VSCC 95.
Re London School of Electronics Ltd [1985] 3 WLR 474 at 484

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Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324
Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324
Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324 at 364
Short v Crawley (No 30) [2007] NSWSC 1322
Short v Crawley (No 30) [2007] NSWSC 1322
Shum Yip Properties Development Ltd v Chatswood Investment and Development Co Pty
Ltd [2002] NSWSC 13
Swansson v Pratt [2002] NSWSC 583
Tang, S.S., 2016. Corporate avengers need not be angels: rethinking good faith in the derivative
action. Journal of Corporate Law Studies, 16(2), pp.471-491
The Corporations Act 2001
Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282.
Wayde v NSW Rugby League Ltd (1985) 180 CLR 459
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [44]