Gambotto v WCP Ltd Case Study: Corporations Law Analysis

This case study provides a detailed analysis of Gambotto v WCP Ltd [1995] 182 CLR 432, a landmark case in Australian corporations law. The case involved a dispute over the expropriation of minority shareholders' shares by the majority shareholder, Industrial Equity Ltd (IEL). The study follows the IRAC method, examining the facts, the central legal issue, the applicable rules under the Corporations Law, and the application of these rules to the case. It explores the tests established by the High Court regarding the validity of share expropriation, including the two-limbed test focusing on proper purpose and fairness. The case study concludes with a discussion of the significance of Gambotto v WCP Ltd in shaping corporate governance and its influence on subsequent legislation, particularly sections 232 and 233 of the Corporations Act 2001, which address oppressive or discriminatory shareholder resolutions. The analysis highlights the importance of protecting minority shareholder rights and ensuring fair and just treatment in corporate actions.

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Table of Contents
Gambotto v WCP Ltd [1995] 182 CLR 432..............................................................................2
Facts.......................................................................................................................................2
Issue........................................................................................................................................2
Rule........................................................................................................................................3
Application.............................................................................................................................4
Conclusion..............................................................................................................................5
Reference....................................................................................................................................7

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Gambotto v WCP Ltd [1995] 182 CLR 432
Facts
In this case it was seen that the majority of the shares of WCP Ltd, which was about
99.7% of the shares, was owned by Industrial Equity Ltd (IEL). The minority shareholders
Giancarlo Gambotto and Eliandri Sandri, were seen as holding 0.094% of the shares of the
company. As per the facts that have been presented in the court it was found that for the
benefits for the administration and taxation, which also included savings from income tax
and accounting fee, the majority shareholders wanted to acquire all shares of the WCP. After
the acquisition of all the shares of the company from Gambotto and Sandri by way of
alternative acquisition mechanisms by IEL was a failure, IEL opted for the amendment of the
constitution of the company. In the amendment it was proposed that the majority shareholders
having more than 90% of the shares of the company can acquire the shares of a minority
shareholder in a forcible way. They were further seen to be proposing to Gambotto and
Sandri to sell their respective shares at price of $1.85/share. Although the price was seen as
reasonable by Gambotto and Sandri yet they were not in agreement to sell their shares and a
proceeding was commenced by them. The case was first held in the ‘Equity Division,’ of the
Supreme Court of New South Wales where the judgment was in favour of Gambotto and
Sandri. An appeal was made on the ‘Court of Appeal’ in New South Wales where the
amendment of the shares was decided to be valid by the judges and subsequently the case was
transferred to the High Court where the final judgment was made.

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Issue
The main issue that was raised in front of the court was whether the action of the IEL
for the amendment of the constitution of the WCP Ltd for the acquisition of all the shares of
Gambotto and Sandri could be held as oppressive and invalid.
Rule
Under section 176 of Corporations Law the shareholders of a company has the power
for the amendment of the articles of a company by way of special resolution only if the
resolution is not oppressive towards the shareholders who have minority shares.
According to Section 180 (3) Corporations Law the restriction over the right of
transferring shares of the shareholders of a company is prohibited.
In judgment of Allen v Gold Reefs of West Africa a ‘bona fide for benefit of the
company as a whole’ test was established in relation to the alteration of the article of
association of any company. This test requires that the Court cannot interfere with the
alterations of the article of association of any company unless alteration that was made was
not ‘bona fide for benefit of the company.’
In the judgement of Sidebottom v Kershaw, Leese and Co [1920] 1 Ch 154 it was held
that a proposal of an amendment would be empowering towards the majority shareholders of
the company for expropriation of the shares off any search shareholder carrying on a business
which would be in direct competition with the business of the company.
In the judgment of the case Dafen Tinplate Co v Llaney Steel Co (1907) Ltd [1920] 2 Ch 124
it was held that any proposed alteration of the articles of company would be empowering

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towards the defendant in any general meeting for the determination of the shares to be offered
for sale to any individual or entity.
In the judgement of Shuttleworth v Cox Bros and Co (Maidenhead) [1927] 1 Ch 154
the court held that for expropriation of shares the shareholders are required to be acting in a
honest way which would be beneficial to the company.
Application
Applying the provisions of section 176 the NSW Court of Appeal held that the
decision in the equity division of the supreme court of NSW, which suggested that any
alteration towards the articles of a company which gives the shareholders to expropriate
shares would be invalid if if any minority shareholder is in objection, is false. As stated by
the judges in the case there was no oppression towards Gambotto as the expropriation of the
shares would result in tax benefits and administration savings, further the prices that were
proposed for the shares which would be expropriated were also deemed as adequate by the
minority shareholders. Hence the alteration of the article of the company was valid.
Applying Section 180 (3) in the case the judges rejected the argument of Gambotto
stating that the alteration of the article would be imposing a restriction towards the rights of
the shareholders for transferring shares. The judges were seen as rejecting the argument on
the ground that even if the articles were considered as valid the shares of the company would
be traded in a free way anytime before the shares are expropriated.
The High Court was further seen to be dismissing the test established in the case Allen
v Gold Reefs of West Africa [1900] 1 Ch 656 stating that the application of the test current
case would not be effective as a previous case was concerned towards and alteration of the
articles of the company for covering the debts owed by the shareholders on fully paid shares.

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The rejection of ‘bona fide for the benefit of the company’ was done by the court referring to
the cases like Sidebottom v Kershaw, Leese and Co, Dafen Tinplate Co v Llaney Steel Co
and Shuttleworth v Cox Brothers and Co. The High Court rejected the ‘bonafide for the
benefit of the company’ and replaced twitch two new tests for determining the validity of the
expropriation of shares.
The first test is in relation to the conflict of interest arising between the shareholders
because of the alteration of articles. In the first test any effective expropriation of shares are
not involved. The first test was considered as valid unless they are Ultra vires and oppressive.
Second test is seen to be applicable towards the conflict of interest that arises because of the
alterations in the articles involving the actual expropriation of the shares of the minority
shareholders by the majority shareholders. For the situations arising in the second test a two
limbed test had been adopted by the High Court.
The first limb in the test is deciding whether there was a proper purpose present for
the expropriation of the minority shares. Applying this test the judges in this case found that
the alteration that has been proposed by IEL articles of the WCL Ltd invalid because no
detriment was caused to the company by the minority shareholders. Alteration was only to be
gaining benefit which cannot be stated as a proper purpose for expropriation of the shares.
The second limb of the test requires that for any alteration of the articles of a company which
enables any expropriation of shares of minority, the majority shareholders are required to
prove that there has been no oppression towards the minority shareholders. The second limb
of the test requires the expropriation of the share to be fair. The fairness of the activation
required two elements to be fulfilled one is that there has been disclosure of all relevant
information by the majority shareholders and the shares are required to be valued by an

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expert. Applying the second limb test in the case the judges held that the exproriation is not
fair, although the fairness of the price of the shares was not contested.
Conclusion
From the above discussions and reviewing the judgments of the Equity division of the
New South Wales Supreme Court and the Court of Appeal of the New South Wales, the High
Court was seen to be coming to the conclusion that the expropriation of the shares of
Gambotto and Sandri by IEL was invalid as neither the expropriation was done for a proper
purpose for preventing the detriment of the company by the minority shareholders nor was
the expropriation fair and just to the plaintiffs.
The case Gambotto v WCP Ltd has been a Landmark case in the Australian
corporations law. This case encouraged corporate governance and further helped in reform in
the legislation. The two limbed test established in the case by the High Court judges is used
by the courts for the determination of the validity of the amendment of constitution or article
of any company for expropriation of the shares of any shareholder. The sections 232 and 233
of the Corporations Act 2001 were established in context to the judgement of this case. These
two sections provide the right today quotes for making an order for any oppressive or
discriminatory resolution by the shareholders of a company. The two limbed test established
in the case is used for the determination of whether the acceleration of the minority
shareholders are done for a proper purpose and are fair and just towards the shareholders.

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Reference
Corporations Law
Gambotto v WCP Ltd [1995] 182 CLR 432
Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656
Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154
Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd [1920] 2 Ch 124
Shuttleworth v Cox Bros and Co (Maidenhead) [1927] 1 Ch 154