Corporate Law Case Study: Remedies for Shareholder Oppression

This case study analyzes a corporate law dispute involving 'The Grumpy Grande Pty Ltd,' a private company owned by five brothers. The case focuses on the youngest brother, Tim, who faces bullying and oppression from his siblings, leading to the potential sale of company assets at a bargain price a...Read More

Running head: CORPORATE LAW
CORPORATE LAW
Name of Student
Name of University
Author Note

Running head: CORPORATE LAW
Table of Contents
Fact..................................................................................................................................................2
Issue.................................................................................................................................................2
Rule..................................................................................................................................................3
Application......................................................................................................................................6
Conclusion.......................................................................................................................................7
Reference.........................................................................................................................................9

Running head: CORPORATE LAW
Fact
The present case deals with the issues related to the private company created by five
Brown brothers named ‘The Grumpy Grande Pty Ltd’. The profit sharing and decision making
responsibilities were distributed equally among the brothers. It was stated in the constitution of
the company that the company specializes in bringing freshly brewed coffee and delivering the
same to various sporting, corporate or social events. It was further mentioned in the constitution
of the company that the five brothers would be the sole directors and shareholders of the
company and the shares could only be sold with the permission of other directors and that too
internally to the existing direcotrs. It was also stated in the constitution that all decisions relating
to business would be by majority votes. The business although initially successful started
deteriorating after a few years which resulted in putting strain in relationship between the
brothers. The brothers suspecting that the youngest brother Tim was planning to resign from the
company started bullying him and blocking his business ideas with majority votes. The brothers,
ignoring Tim’s protests, used their power to sell company’s valuable assets at a bargain price
among themselves. Tim overheard his oldest brother saying on phone that when Tim tries to sell
his shares they will be blocked by the other directors by majority votes. Tim further heard his
brother saying that by making Tim angry enough they could make him walk out of the company
on his own and none of them would be liable to pay Tim anything.

Running head: CORPORATE LAW
Issue
In the case there are two issues arising from the given facts. The first issue deals with the
eligibility of Tim to receive equitable remedies. The second issue that can be found in the case is
whether Tim is qualified for statutory remedies.
Rule
The provisions relating to the claims of remedies against of breach of contract can be
found in Competition and Consumer Act 2010 (Cth). Section 12GM of the Australian Securities
and Investment Commission Act 2001 and section76 of the National Credit Code discuss the
provisions for statutory remedies are discussed. Apart from the aforementioned legislations
sections 232, 233, 234 and 236 of the Corporations Act 2001 should be taken into further
consideration of this case.
In the case of Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] it was observed that
according to the section 232 of the Corporations Act 2001 a court under the section 233 can
make an order when it finds that an act, proposed or actual or omission by a company or any
resolution or member or class of members on behalf of the company is in contradiction to the
members’ interests or is oppressive towards any member or members of the company. Orders
can also be made under the section 233 if it was found by the court that any conduct of a
company’s affairs or an act or omission of any act by the company or any resolution passed or to
be passed by the members in behalf of the company to be prejudicial or discriminatory against
any member of the company (Stewart, Kent and Routledge 2015).
It is stated in the section 233 that the court in its discretion can make orders to wind up a
company, to repeal or modify the constitution of a company, to control or regulate the conducts

Running head: CORPORATE LAW
of affairs of the company to appoint a receiver and manager. In the case Atlasview v Brightview
Ltd (2004) it was given that the court can make orders for share purchases with appropriate share
capital deductions. As mentioned in the case Gamlestaden v Baltic Partners Ltd (2007) the court
can grant orders to refrain any person from performing any particular conduct or can order to do
a certain act. As per the decisions in Campbell v Backoffice Investments Pty Ltd (2008) it can be
seen that a court can grant an order to institute or prosecute a case or make a defence or stop a
court proceeding for a company. As found in LPD Holdings (Aus) Pty Ltd v Phillips (2013) a
court can further grant authority to any member of a company to make institution, prosecution,
defence or discontinuation of any proceeding in the name of the company.
The order for winding up of a company under section 233 should be applied in relation to
the provisions of the section 461 of the act as mentioned in the case Maher v Honeysett and
Maher Electrical Contractors Pty Ltd (2005).
As per the decisions of the Federal Government the shareholders are eligible for
derivative actions against the company and its directors under the section 237 of the act as is laid
down in the Part 2F.1A of the act which enhances the rights of the shareholders. In the case
Chahwan v Euphoric Pty Ltd trading as Clay and Michel (2008) the provision was discussed.
The issue in this case amounts to breach of contract. And Tim can be found to be
qualified for both equitable and statutory remedies. Equitable remedies are granted to recover
loss sustained by the aggrieved parties in the form of monetary compensations. Statutory or legal
remedies are granted for the damages other than monetary damages.
Equitable remedy- Under the contract law equitable remedies can be defined as remedies
against breach of contract and are paid when the payment of damages are inadequate or

Running head: CORPORATE LAW
insufficient for the settlement of the case. An aggrieved party is entitled to receive three
significant types of equitable remedies- Specific Performance, Contract Rescission, Contract
Reformation. Specific Performance can be defined as a court order or decree given against the
person who is in breach of contract to complete the part of their bargain as mentioned in the
contract. This order is however only granted when legal issues are unavailable to aggrieved
parties. A contract rescission is granted to cancel or rescind a contract which due to its non-
performance has turned old. Contract Reformation orders are granted when the parties decide to
reform and rewrite the old contract. Contract reformation is only done in case of a presence of
mistake of facts or misrepresentation of any contractual terms. There is another type of equitable
remedy granted apart from the three main types of equitable remedies. Injunction is granted to
refrain a party from doing a conduct that creates obstacles in the completion of the contracts.
Statutory Remedies- Statutory remedies can be defined as the damages or monetary
compensation given to aggrieved parties for the loss suffered by them for the breach of contract.
As most of the statutory remedies are already incorporated in statutes or legal documents they
are also termed as legal remedies. Claims for damages and liquidation are included in statutory
remedies. Damages can be defined as the claims that are often directed to be paid by the parties
who breached a contract for the non-performance of their obligations. Claims for damages are
designed in a way that puts the aggrieved party in the position which, in absence of a breach of
contract, they would have been in. The damages are not always calculated with minute precision
as the calculation of exact loss sustained is impossible. Liquidated claims are the remedies for a
breach of contract that the party breaching the contract has to pay to the aggrieved party
mentioned in the agreement.

Running head: CORPORATE LAW
The above mentioned remedies are prescribed according to the demands of the situations
by the court. Unlike statutory remedies, equitable remedies do not look for granting damages
only. The courts may consider several factors which include existing or previous business
ventures and bargaining powers of each of the parties in contract. In certain situations the court
may award both equitable and statutory remedies together. These situations are known to be as
restitutionary damages.
Application
In the given case it can be seen that a private company named ‘The Grumpy Grande Pty
Ltd’ (TGG) was established by five brothers who according to the constitution of the company
are the sole directors and shareholders and share equal rights and interest in the company. It was
further stated in the constitution of the company that for selling of the company’s shares can be
done only with the permission of all the brothers and the shares can only be sold internally to the
existing directors. In addition all decisions of the company are to be taken with majority votes.
The youngest brother was discriminated and bullied by other directors of the company.
As Tim was subjected to unfair discrimination and oppression he can apply for an order for
section 233 under the section 232 of the Corporations Act 2001. In the case of Martin v
Australian Squash Club Pty Ltd (1996) it was decided that oppression may be established by any
conduct resulting to the breach of duty directors. Observations similar to the case were made in
the case Dodrill v Irish Restaurant & Bar Co Pty Ltd (2009).
Tim has the right to apply to court for an order under section 233 as mentioned in the
case Vadori v AAV Plumbing Pty Ltd (2010). Although under this section the court is free to
make an order but the claimant can also indicate for the relief he seeks. As stated in the case

Running head: CORPORATE LAW
Fitzpatrick v Cheal (2012) the court would consider first the option that will eliminate oppression
with least intrusion.
For any internal irregularities or wrongdoings of the company an individual shareholder
cannot sue as per the rules mentioned in the case Foss v Harbottle (1843) . This rule has a
number of exceptions that are difficult to explain and hence provisions of statutory derivative
action were introduced to enlarge the rights of a shareholder. Tim can apply for remedies under
the statutory derivative actions.
Under the provisions discussed above Tim can apply for the grsnt of suitable statutory
remedies. Apart from the statutory remedies he also has the option to claim for equitable
remedies too. For the breach of fiduciary duties equitable compensations are available as
mentioned in the Swansson V Pratt [2002]. In the case Nicholls V Michael Wilson & Partners
Ltd [2012] the equitable compensations for non-fiduciary duties are mentioned.
There are three principles for equitable compensation. The first principle being the
purpose of granting remedy for the loss suffered. Tim is not eligible for this principle as he has
not lost anything. The second principle is calculation and assessment of the equitable damage not
affected by common law factors that can reduce the amount of damage claimed. The third
principle is that although equitable duties impose facotrs of deterrence yet there lies no penalty
on assessment for damages.
It can be seen from the above discussion that Tim can also claim for equitable remedies
without showing any monetary loss or damage as observed in the case Youyang Pty Ltd v Minter
Ellison Morris Fletcher [2003].

Running head: CORPORATE LAW
Conclusion
In conclusion from the above discussion it can be said that Tim has the option to claim
for both statutory remedies and equitable remedies. In equitable remedy he can claim for
injunction and compensation and in statutory remedy he can claim for order for proper
jurisdiction.

Running head: CORPORATE LAW
Reference
Atlasview Ltd v Brightview Ltd [2004] 2 BCLC 191
Australian Securities and Investment Commission Act 2001
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
ouyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [44]

Running head: CORPORATE LAW
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
Swindle v Harrison [1997] 4 All ER 705
The Corporations Act 2001
Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274; (2010) 77 ACSR 616