BO1CLAW314 Corporate Law: Equitable Remedies in The Grumpy Grande Case

This report analyzes the case of 'The Grumpy Grande Pty Ltd', a private company formed by five brothers, focusing on a dispute where the youngest brother, Tim, faces oppression from his elder siblings. The analysis delves into the legal issues, including potential equitable and statutory remedies available to Tim under the Corporations Act 2001. The report examines sections 232, 233, 234, and 236 of the Act, exploring concepts like shareholder oppression, unfair discrimination, and the application of derivative actions. It discusses relevant case law, such as Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd, Martin v Australian Squash Club Pty Ltd, and Foss v Harbottle, to support its arguments. The report concludes that Tim has options for both statutory and equitable remedies, including claiming compensation and seeking court orders to address the unfair treatment and protect his rights as a shareholder. The assignment highlights the significance of shareholder rights and remedies in corporate law.

Running head: CORPORATE LAW
CORPORATE LAW
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The present case is concerned with the private company known as ‘The Grumpy Grande
Pty Ltd’ ("TGG"). It was created by five Brown brothers in year 2010. The business was initially
a great success and the Brown brothers have equal responsibilities and rights in decision making
and profit sharing. Initially, though the company did well but later on, specially in the last few
years, the business started deteriorating due to which the relationship among the brothers got
affected. The four elder brothers were bullying the youngest brother Tim and was planning to
take away his shares without paying him the reasonable price. Tim was about to resign from the
business and hence he was under constant bullying by the other 4 brothers. They are trying to
block his business ideas and to sell the valuable assets of the company to themselves at bargain
cost though Tim protested against it. They are using their majority votes to bully Tim. The issues
involved in the given case are whether any equitable remedy and statutory remedy are available
to Tim to overcome his present situation.
In relation to the facts of the given case, sections 232, 233, 234 and 236 of the
Corporations Act 2001 must be referred.
According to section 232 of the said act, a court can make an order under section 233
when it is found that the conduct of the affairs of the company, or a proposed or an actual act or
omission by any company or on its behalf, or any resolution or of the members or class of
members of a company is either in contradiction to the members’ interest or is oppressive to any
member or members of the company whether in that capacity or any other. This was observed in
the case of Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR
672; 19 ACLC 856. The court can also make order under section 233 if it finds that the said
conduct of company affairs or act or omission by such company or in is behalf or any resolution
passed or to be passed by the members of the company is prejudicial or discriminatory against

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any member acting in that capacity or any other capacity of the company (Stewart, Kent and
Routledge 2015).
Section 233 states that the court has discretion to make any order which it thinks perfect
for the company. Such orders can be the order to wind up the company, to repeal or modify the
present constitution of the company, to control or regulate the conduct of the affairs of such
company in future or to appoint a receiver and manager of any or all of the property of such
company. The court can also make orders for purchase of shares with an appropriate deduction
of the share capital of the company as given in Atlasview Ltd v Brightview Ltd [2004] 2 BCLC
191. It can make order for the company to institute a case or to prosecute it, or to make defence
or to stop any particular court proceeding as per the decision of Campbell v Backoffice
Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359. It can even give orders to give
authority to any member of the company or to a person to whom a share of the company is being
transferred by will or by law to make institution, prosecution, defence or even discontinuation of
any particular proceeding in the name of the company and also on its behalf as found in LPD
Holdings (Aus) Pty Ltd v Phillips [2013] QSC 225. The court can also give orders to stop any
person from getting engaged in any particular conduct or from performing any particular act or
may also order a person to do any act specified by it. This was found in the case of Gamlestaden
v Baltic Partners Ltd [2007] 4 All ER 164 at 172.
The court when gives an order that a company must be wound up in this section, then
provisions of the act in relation to winding up of the company is applied such that the order is
made according to section 461 and charges as needed are also applied as observed in Maher v
Honeysett and Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [29].

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The court if make an order in this section to repeal or alter the constitution of the
company or needs the company to adopt a new constitution, then the company has no power as
per section 136 to repeal or change the constitution if such repeal or change would be found to be
in contradiction with the provisions of the order provided the order indicates that the company
has the authority to effect such repeal or change or the company has already obtained the leave
from the court.
Moreover, as per the decision of the Federal Government in relation to enhancing the
rights of the shareholders as laid down in Part 2F. 1A of the act, the shareholders can derivative
actions against the company and its directors under section 237 of the act (Tang 2016). This was
found in the case of Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008)
65 ACSR 661.
By this provision, the shareholders are enabled to institute statutory derivative actions
either in the name of or on behalf of the company in which they held the shares (Vivien 2017).
Such actions can be taken against the shareholders for the breach of their duties or for the breach
of the constitution of the company. This provision was found applied in the decision of the True
Value Solar Holdings Pty Ltd and Anor v Fernandez (2013) VSCA 27 by the Victorian Court of
Appeal.
Application:
As per the facts of the given case study, five brothers established a private company
known as ‘Grumpy Grande Pty Ltd’, the TGG. As per the constitution of the company, all the 5
brothers are the only directors and shareholders. Hence, they have equal interest and rights in the
company.

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Moreover, as per the company constitution, when any brother wants to sell his shares in
the company, he can do that with the permission of the brothers and can only sell his shares only
to the existing directors and not to outsiders. In addition to this, all the decisions of the company
must be made by majority vote.
However, he was subjected to unfair discrimination by the other members of the
company, that is, by his brothers. As per section 232, the court can make order as per section 233
as Tim in this case was subjected to unfair discrimination and oppression. It was decided in the
case of Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 that any conduct that
results into breach of the duty of directors may establish oppression. Similar observation was
found in the case of Dodrill v Irish Restaurant & Bar Co Pty Ltd [2009] QSC 317 and Vigliaroni
v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282.
Hence he has the right to apply to the court so that court can make order under section
233 as given in Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274; (2010) 77 ACSR 616.
The court may considering the circumstances of the case, make appropriate decision and makes
an order accordingly. The court is free to make an order but the claimant can also indicate the
relief sought by him. The remedy which is the least intrusive will eliminate the oppression
should be considered first by the court as enumerated in the case of Fitzpatrick v Cheal [2012]
NSWSC 261; (2012) 264 FLR 313.
As per the rule given in Foss v Harbottle (1843) 67 ER 189, an individual shareholder
cannot sue for any wrongs done to the company or for any complain regarding the internal
irregularities. This rule which develops from this case, had a number of exceptions which were

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difficult to establish. Due to this difficulty, the provisions of statutory derivative action were
introduced to enlarge the share holders right. Under this also, Tim can claim remedy.
As per the provisions discussed above, Tim can apply to the court for the suitable
remedy. Moreover, he has option to claim for equitable remedies too. Equitable compensation is
easily available for the breach of an equitable duty like breach of fiduciary duty as found in
Swansson v Pratt [2002] NSWSC 583. It is also available for equitable non fiduciary duties. It
was observed in the case of Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383.
The equitable compensation has three main principals. The first is that the purpose of
granting equitable remedy for what has been lost as found in Permanent Building Society (in liq)
v Wheeler (1994) 11 WAR 187. Thus, compensation is calculated by referring to the loss
actually suffered. Here this principle is not applied as Tim has not yet lost any thing however he
can claim compensation for mental torture he suffered for such discrimination and bullying. The
second principle is the calculation and assessment of the equitable damage is not affected by the
common law factors such as reasonable foreseeability or remoteness of the damage which can
considerably reduce the amount of the damage claimed. The reason behind this is that the duty to
make restitution which the courts of equity had imposed on the directors and others is more
absolute than the common law duty to pay damages in tort or contract breach. The third one is
that though the equitable duties impose a factor of deterrence but in general there lies no penalty
while making assessment of the damages.
Hence, Tim can also claim for equitable remedies in the courts of equity as found in the
case of Swindle v Harrison [1997] 4 All ER 705. He will not be needed to show any monetary

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loss or damage for claiming such remedy as observed in the case of Youyang Pty Ltd v Minter
Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [44].
Thus from the above discussion, it can be concluded that Tim has both the options to
claim remedies as per the statutory law and principles of equity. Under the equitable remedy, he
can claim for compensation and injunction too and under statutory remedy, he can seek order
from court of proper jurisdiction.

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References:
Atlasview Ltd v Brightview Ltd [2004] 2 BCLC 191
Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359
Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 65 ACSR 661
Dodrill v Irish Restaurant & Bar Co Pty Ltd [2009] QSC 317
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; 19 ACLC
856
Fitzpatrick v Cheal [2012] NSWSC 261; (2012) 264 FLR 313
Foss v Harbottle (1843) 67 ER 189
Gamlestaden v Baltic Partners Ltd [2007] 4 All ER 164 at 172
LPD Holdings (Aus) Pty Ltd v Phillips [2013] QSC 225
Maher v Honeysett and Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [29]
Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383
Stewart, J., Kent, P. and Routledge, J., 2015. The association between audit partner rotation and
audit fees: Empirical evidence from the Australian market. Auditing: A Journal of Practice &
Theory, 35(1), pp.181-197.).
Swansson v Pratt [2002] NSWSC 583

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Swindle v Harrison [1997] 4 All ER 705
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
True Value Solar Holdings Pty Ltd and Anor v Fernandez (2013) VSCA 27
Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274; (2010) 77 ACSR 616
Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282
Vivien, C.H.E.N., 2017. The Statutory Derivative Action in Malaysia: Comparison with an
Australian Judicial Approach. Asian Journal of Comparative Law, 12(2), pp.281-309.
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [44]