Carrington Cotton Corporation Ltd, Re [2000] QSC 61

SUPREME COURT OF QUEENSLAND CITATION: Re Carrington Cotton Corporation Ltd [2000] QSC 061 PARTIES: IN THE MATTER of the Corporations Law and IN THE MATTER of CARRINGTON COTTON CORPORATION LIMITED (ACN 002 963 340) FILE NO: S11984 of 1998 DIVISION: Trial Division DELIVERED ON: 20 March 2000 DELIVERED AT: Brisbane HEARING DATE: 13 March 2000 JUDGE: White J ORDER: 1. Disallow the amendments to paragraphs 50 and 50A of the further amended statement of claim. 2. Strike out paragraphs 99-104 of the further amended statement of claim. 3. The reference to paragraph 104 of the further amended statement of claim in paragraph 108(e)(xii)(D)3 in so far as it is referable to Christopher McCosker be struck out. 4. The originating applicants provide particulars of the losses alleged in paragraph 109(h)(i) and (ii) (B) (C) and (D). CATCHWORDS: Oppression action – strike out or disallowance of amendments to claim – s 245H Corporations Law – agreement with related party – sufficiency of pleading to set aside agreement – particulars of loss – failure to allow representation on board – whether oppression. Banque Commerciale SA v Akhill Holdings Limited (1990) 169 CLR 279 Chen v Technicon Industries Pty Ltd BC 9900259 Consul Developments Pty Ltd v DPC Estates Pty Limited (1974) 132 CLR 373 DG Brims and Sons Pty Ltd (1995) 16 ACSR 559 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Jenkins v Enterprise Goldmines NL (1992) 10 ACLC 136 -- 1 of 15 -- 2 John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’sia) Pty Ltd (1991) 9 ACLC 1371 Royal Brunei Airlines v Tan [1995] 2 AC 378 Spargos Mining NL (1990) 3 WAR 166 COUNSEL: Mr DJS Jackson QC, with him Ms S Brown, for the applicants/fifth and sixth respondents Mr PA Keane QC, with him Mr P Freeburn, for the applicants/third, fourth and seventh respondents Mr W Sofronoff QC, with him Mr LF Kelly, for the respondents/applicants SOLICITORS: Minter Ellison for the applicants/fifth and sixth respondents Corrs Chambers Westgarth for the applicants/third, fourth and seventh respondents Allen Allen & Hemsley for the respondents/applicants [1] WHITE J: There are two applications before the court. The third, fourth and seventh respondents and the fifth and sixth respondents to the originating application respectively seek to have certain amendments made by the applicants to the originating application disallowed pursuant to R379(2) of the UCPR; certain paragraphs of the further amended statement of claim struck out; and, in the case of the sixth respondent, that the claim against it be struck out. [2] The action is an application for relief against oppression pursuant to s 246AA of the Corporations Law. The present applications seek to strike out the action against the sixth respondent Wenaline Pty Ltd, essentially because it is a third party which entered into a financially beneficial agreement with the second respondent, a subsidiary of the first respondent, and accordingly orders against it lie outside the scope of the section. The present applicants seek to have certain allegations of breaches of fiduciary duty as directors and/or oppressive conduct struck out because the pleadings contain no allegations of loss to the company or companies. The applicants to these applications seek to have struck out paragraphs in the further amended statement of claim concerning the failure to appoint a director nominated by the originating applicants and consequential relief by the appointment of a representative director. [3] The submissions of the applicants to the present applications are that s 246AA of the Corporations Law, wide though the powers are that are given to a court in oppression proceedings, cannot be extended to encompass the matters which they seek to have excluded. Mr Sofronoff QC, for the originating applicants, who are the respondents to these applications, contends that the whole of the alleged oppressive conduct must be considered not isolated examples of it, see John J Starr (Real Estate) Pty Ltd v Robert Andrew (A’sia) Pty Ltd (1991) 9 ACLC 1372. The -- 2 of 15 -- 3 court seized with the trial of the action, he submitted, will have an opportunity to consider the whole of the evidence, see the parties in the witness box before deciding if, overall, the affairs of the companies were conducted unfairly and if so, to fashion appropriate relief. On that basis, Mr Sofronoff submits, it would be premature to make the orders sought by these applications. Whether this is so will depend on the application of the well-known principles for the summary disposition of causes of action. Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 expressed the approach thus “The test to be applied has been variously expressed; ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the Court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; ‘be manifest that to allow them’ (the pleadings) ‘to stand would involve useless expense’. At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or ‘so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument’; ‘so to speak apparent at a glance’.” Kirby J observed in Lindon v Commonwealth (No 2) (1996) 70 ALJR 541 at 545 “An opinion of the Court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment." [4] It needs to be kept in mind that the relief fashioned after a finding that there has been unfairness in conducting the affairs of a company is discretionary and will often be dependent on the impression gained by the judge who hears the action of the personalities involved. Mr Keane QC and Mr DJS Jackson QC urged the novelty of the action, citing as the “usual” case the quasi-partnership corporations and observing that the “usual” relief of compulsory acquisition of, for example, the minority’s shares does not appear here. Perhaps it is necessary to refer only to Re Spargos Mining NL [1990] 3 WAR 166 where a shareholder (Jenkins) brought shares in a company for the purpose of bringing an oppression action arising out of past activities of the directors, to indicate the variety of factual situations which attract the operation of s 246AA. [5] Before turning to the facts of this matter as revealed in the further amended statement of claim and deciding if the impugned paragraphs are maintainable I should refer to the relevant principles. The nature of the jurisdiction and the powers conferred in respect of it in circumstances of oppression in the conduct of the affairs of a company have both expanded and been refined since the legislature first introduced this power. By s 246AA “If the Court is of the opinion: -- 3 of 15 -- 4 (a) that affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members … or in a manner that is contrary to the interests of the members as a whole: or (b) … the Court may, subject to subsection (4), make such order or orders as it thinks fit, including, but not limited to, one or more of the following: (c) an order that the company be wound up; (d) an order for regulating the conduct of affairs of the company in the future; (e) an order for the purchase of the shares of any member by other members; (f) an order for the purchase of the share of any member by the company and for the reduction accordingly of the company’s capital; (g) an order directing the company to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company; (h) an order appointing a receiver or a receiver and manager of property of the company; (j) an order restraining a person from engaging in specified conduct or from doing a specified act or thing; (k) an order requiring a person to do a specified act or thing.” Lord Hoffmann in In Re a Company [1999] 1 WLR 1092 observed of the analogous English provision “In section 459 Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief. It is clear from the legislative history (which I discussed in In re Saul D. Harrison & Sons Pic. [1995] 1 B.C.L.C. 14, 17-20) that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles. As Warner J. said in In re J. E. Cade & Son Ltd. [1992] B.C.L.C. 213, 227: ‘The court . . . has a very wide discretion, but it does not sit under a palm tree.’ Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. Conduct which is perfectly fair between competing businessman may not be fair between members of a family. In some sports it may require, at best, observance of the rules, in others (‘it’s not cricket’) it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important. -- 4 of 15 -- 5 In the case of section 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law. The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith. … In my view, a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty. Petitions under section 459 are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce, after the passage which I have quoted, said that it would be impossible ‘and wholly undesirable’ to define the circumstances in which the application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness.” [6] Breaches of equitable duties have been held to be material to an investigation by the court as to whether there has been oppression or unfairness in the management of the company. In Jenkins v Enterprise Goldmines NL (1992) 10 ACLC 136 at 147 the Full Court of the Supreme Court of Western Australia observed at 147 “Where the directors act in breach of their fiduciary duty that fact will be relevant to determine whether there has been unfairness in the context of oppression … It follows that oppression may be established where the controlling directors have pursued a course of -- 5 of 15 -- 6 conduct designed by them to advance their own interests or the interests of others of their choice to the detriment of the company or the detriment of the minority shareholders … ” See also Australian Securities Commission v The Multiple Sclerosis Society of Tasmania (1993) 10 ACSR 489 at 507; Hannes v MJH Pty Ltd (1992) 10 ACLC 136; and DG Brims and Sons Pty Ltd (1995) 16 ACSR 559 at 580. [7] An unusual feature of the originating application is the inclusion of claims for equitable compensation against various directors for breaches of their fiduciary obligations to the first and second originating respondent companies in oppression proceedings and for an order setting aside an agreement with a third party. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Young J was prepared to utilise the powers contained in what was then s 260 of the Corporations Law to, in effect, short-circuit the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189. No objection is taken, per se, to these aspects of the claim. [8] There are eight originating applicants, the first and eighth of which are corporations and the others individuals, all associated, I think it can be said, with the Panizza family. The seventh respondent, Albert Panizza, has been advanced by the originating applicants for appointment to the board of Carrington. There are nine originating respondents. The first originating respondent is Carrington Cotton Corporation Ltd (“Carrington”). It was incorporated on 24 June 1985 and was a public listed company until 1 September 1998 when it was delisted for failure to have a sufficient spread of shareholders. It carries on the business of cotton farming on land held by its wholly owned subsidiary, the second originating respondent (“RMI”). [9] The originating applicants (who need not be individually identified for this application) as at 30 March 1998 held 27.35 per cent of the total issued share capital in Carrington. [10] Ross Marchant died on 20 February 1998. He is alleged to have treated Carrington as his own by advancing his own interests and those of his daughter and her husband improperly and disregarding those of the shareholders as a whole. He was a director and chief executive officer of Carrington until shortly before his death. The executors of his estate (Susan Marchant, his daughter, and Maurice Maughan) are the third originating respondents (“the executors”). Mr Marchant owned beneficially all the share capital in the fourth originating respondent (“Bromley”). Bromley held 11,804,098 shares in Carrington and Ross Marchant (now the executors), two shares. Together they held 71.54 per cent of the issued shares in Carrington. Bromley’s directors were, until Mr Marchant’s death, himself and Susan Marchant. She is now sole director. She was, at his behest, a director of Carrington between 1987 and 1988. Susan Marchant is also the residuary beneficiary of the estate of Ross Marchant which includes his shares in Bromley and Carrington. She has, since her father’s death, occupied the position of chief executive officer of Carrington. She is the seventh originating respondent. Her sister, Ann Marchant (not a party to these proceedings), was a director of Carrington between 1989 and 1995. Prior to his death, Ross Marchant, and thereafter Susan Marchant were in a position to control the composition of the board of Carrington. -- 6 of 15 -- 7 [11] The present directors of Carrington are Russell Clive Maughan (“Russell Maughan”), who is the eighth originating respondent, Joseph Ray Magill (“Ray Magill”), who is the ninth originating respondent, and Christopher McCosker who is the fifth originating respondent and the husband of Susan Marchant. [12] Russell Maughan has been Bromley’s auditor and provides accounting services to Carrington. He was appointed a director of Carrington and of RMI on 19 August 1992 at Ross Marchant’s behest. Between March 1995 and March 1996 he was a director of Bromley. [13] Ray Magill was appointed a director of Carrington and a director of RMI in January 1997 at the behest of Ross Marchant. [14] The second respondent (RMI) is a wholly owned subsidiary of Carrington whose directors were Ross Marchant to October 1997, Christopher McCosker from September 1996, Russell Maughan from September 1992 and Ray Magill from January 1997. [15] Since 1987 Ross Marchant caused the appointment as directors of Carrington, of his two daughters, his son-in-law, Bromley’s auditor and Ray Magill. It is alleged that they served as directors for so long as Ross Marchant, until his death, permitted them to serve and, since his death, his daughter, Susan Marchant. Through his ownership of Bromley, Ross Marchant occupied a position of dominance in relation to Carrington and its subsidiary RMI. [16] The sixth originating respondent (“Wenaline”) was incorporated in January 1989 and its directors since April of that year have been Christopher McCosker and Susan Marchant. It has an issued share capital of $2 represented by two ordinary shares one each held by the directors. [17] All of the respondents save Russell Maughan and Ray Magill are “parent”, “child” or “related” entities or parties as defined in s 243 of the Corporations Law. [18] None of Carrington, RMI, Russell Maughan or Ray Magill have participated in these applications. [19] In overview the originating applicants complain • that Carrington and/or RMI entered into service agreements with Bromley and Wenaline which were not at arm’s length, were not fair and reasonable and thereby were disadvantageous to Carrington and/or RMI; • of the use of insider knowledge about the affairs of Carrington by Ross Marchant to acquire shares in Carrington and the failure by the other directors to notify the Australian Stock Exchange of this information; • of the failure of the directors of Carrington to ensure that the spread of shareholders satisfied the provisions of the Australian Stock Exchange listing rules and remained listed; • that the directors of Carrington allowed a deficient takeover statement for Carrington shares by Bromley to go unanswered; -- 7 of 15 -- 8 • of the continuing refusal to appoint and/or elect to the board of Carrington a nominee of the originating applicants; • of the failure to provide information about Carrington when requested by the originating applicants; • of the use of Carrington funds to support the defence of Russell Maughan and Ray Magill in this action (now ceased by virtue of the order of Helman J on 2 June 1999). [20] In the result the originating applicants allege that the affairs of Carrington have been and are conducted in a manner that is oppressive and unfairly prejudicial to the shareholders of Carrington (other than those controlled by the Marchant family) and unfairly discriminatory against such shareholders and contrary to the interests of the members as a whole. By way of relief the originating applicants seek orders • requiring Bromley to refund to Carrington excessive moneys paid to it pursuant to two service agreements with interest; • cancelling all shares in Carrington acquired after 21 February 1997 by Bromley and/or Ross Marchant; • declaring that the 1998 management service agreement with Bromley void; • declaring the Wenaline service agreement void; • amending the articles of Carrington to provide that the shareholders other than those controlled by the Marchant family be entitled to elect one director to Carrington’s board; • that Russell Maughan, Christopher McCosker and Ray Magill cease to hold office as directors or any other capacity in the management of the affairs of Carrington or RMI; • that the executors, Christopher McCosker, Russell Maughan and Ray Magill pay such sums as are just and equitable to Carrington and/or RMI to compensate those companies for their entry into the service agreements, for the expenses and costs incurred in the course of wrongfully withholding information from the originating applicants; the expenses and costs incurred by Carrington in funding the defence of Ray Magill and Russell Maughan in defending these proceedings; and unnecessary expenses and costs incurred by Carrington and/or RMI due to the oppressive manner in which their affairs have been conducted; • requiring Carrington to take reasonable steps to satisfy the Australian Stock Exchange listing rules requirements for shareholder spread and relisting the company; • other consequential relief including orders for the appointment of directors to the boards of Carrington and RMI. -- 8 of 15 -- 9 [21] Turning now to a more detailed consideration of the allegations, it is convenient to say something about the Bromley management services agreements. In October 1993 Carrington informed all of its shareholders that at the forthcoming AGM to be held in November the shareholders would be asked to approve the entry by Carrington into a management services agreement with Bromley which would become effective from 1 July 1994. It was proposed that that agreement would be for a period of five years with an option for a further five years. The proposed terms were communicated by letter to the shareholders. The originating applicants informed Carrington that they were opposed to such a resolution. In November 1993 Carrington advised the originating applicants that the proposed resolution in respect of the management services agreement with Bromley was to be withdrawn from consideration at the annual general meeting and that the board of Carrington would give it further consideration. Shortly thereafter the first originating applicant requisitioned a general meeting of shareholders to pass a resolution that until 1 February 1994 Carrington was not to enter into a management services agreement for any period longer than one year with Bromley or any related party. The directors of Carrington advised the first originating applicant that they refused to act on the requisition. [22] Unknown to the applicants on 17 December 1993 two of the then directors of Carrington, Don Taylor and Russell Maughan resolved that Carrington would enter into a management services agreement with Bromley for the period 1 July 1994 to 30 June 1997 on the terms set out in that agreement (“the 94 MSA”). About a month later the originating applicants became aware of this. [23] It is alleged that Bromley through Ross Marchant and the directors of Carrington who included Ross Marchant, Ann Marchant and Russell Maughan knew that the terms of the 94 MSA were neither fair nor reasonable nor in the interests of the members as a whole and were agreed for the purpose of giving, and in fact gave, a financial benefit to Bromley on terms and conditions which were more favourable to it than those which it was reasonable to expect Carrington would give if dealing at arm’s length with Bromley. The agreement gave to Bromley and Ross Marchant a substantial financial benefit which was not enjoyed by the originating applicants or any other shareholder of Carrington and was unjust and oppressive to the Carrington shareholders. The particulars of that agreement and the appropriate level of remuneration for an arm’s length agreement are set out in the pleading. [24] On 14 January 1997 the first originating applicant sought information from Carrington about any future management services agreement and sought to have any such agreement put to a vote of Carrington shareholders. On 20 May 1997 without notice to its shareholders other than to Bromley, Carrington entered into a new management services agreement with Bromley to operate from 1 July 1997 to 30 June 2002 (“the 97 MSA”). On 20 May 1997 the board of directors of Carrington advised the Australian Stock Exchange that it had entered into the agreement to take effect on 1 July 1997 and that its terms and conditions were approved by the company’s independent directors Ray Magill and Russell Maughan after seeking expert independent advice that the terms and conditions were fair and reasonable. The first originating applicant requested copies of documents and in particular the independent expert’s advice but not all were forthcoming. It is alleged that Bromley through Ross Marchant and the directors of Carrington who then included Ross Marchant, Russell Maughan, Christopher McCosker and Ray -- 9 of 15 -- 10 Magill well knew that the terms of the 97 MSA were neither fair nor reasonable nor in the interests of the members as a whole and were agreed for the purpose of giving and in fact gave a financial benefit to Bromley not on arm’s length conditions. Particulars of the remuneration benefits are set out and compared with remuneration for similar services on other cotton farming enterprises. [25] The Wenaline agreement, which the originating applicants seek to have declared void, is with RMI, Carrington’s wholly owned subsidiary and the registered proprietor or lessee of the land upon which Carrington cotton is grown. Prior to the 97 MSA, by an agreement in writing dated 11 July 1996 between RMI and Wenaline, RMI agreed to engage Wenaline inter alia to control, manage and supervise the growing of the cotton crop on the land held by RMI from 11 July 1996 to 31 August 1997. The agreement was to continue after that date by the mutual consent of the parties and that has occurred. It is alleged that the services which Bromley agreed to provide to Carrington in the 97 MSA overlapped some of the services which Wenaline had agreed to provide. The directors of Wenaline were Christopher McCosker and his wife Susan Marchant and of RMI were Ross Marchant, Russell Maughan, Christopher McCosker and Ray Magill. The Wenaline Agreement was alleged to have provided substantial financial benefits to the directors of Wenaline, was entered into without any independent report as to whether that agreement was in the interest of the members of Carrington as a whole and whether its terms and conditions were more favourable than might have occurred had there been an arm’s length agreement. [26] Of this transaction the originating applicants plead in paragraphs 50 and 50A “50. At all material times since 11 July 1996, as Wenaline (through Chris McCosker and Susan Marchant) and the directors of RMI (who have included Ross Marchant, Russell Maughan, Chris McCosker and Ray Magill) well knew the terms of the Wenaline Agreement were neither fair nor reasonable, were not in the interest of Carrington or of RMI, and were agreed and continued in effect for the purpose of giving, and in fact gave a financial benefit to Wenaline, to Chris McCosker and to Susan Marchant on terms and conditions which were more favourable to them than those on which it is reasonable to expect that RMI or Carrington would give such benefit directly if dealing with Wenaline, Chris McCosker and Susan Marchant at arm’s length in the same circumstances and gave to Wenaline, to Chris McCosker and to Susan Marchant a substantial financial benefit which has not been enjoyed by the Applicants or any other shareholder of Carrington. Particulars (a) An appropriate remuneration for Wenaline for the services it provided in the year ended 30 June 1997 would have been approximately $200,000 whereas it received $401,110; -- 10 of 15 -- 11 (b) An appropriate remuneration for Wenaline for the services it provided in the year ended 30 June 1998 would have been approximately $200,000 whereas it received $386,424. 50A. In causing RMI: (a) to enter into the Wenaline Agreement with Wenaline on 11 July 1996, the then directors of RMI (who included Ross Marchant and Russell Maughan); and (b) to agree to continue the Wenaline Agreement with Wenaline from 31 August 1997 onwards, the directors of RMI (who included Ross Marchant, Chris McCosker, Russell Maughan and Ray Magill); acted in breach of their duties to RMI as respectively pleaded in paragraphs 7, 10, 13 and 14 above.” (the underlined passages were added after these applications were foreshadowed). [27] On 17 June 1998 after the death of Ross Marchant, Carrington entered into an agreement with Bromley upon the termination of the 97 MSA whereby Bromley agreed to provide skilled management and supervision services to Carrington and its group of companies from 20 February to 30 June 1999 (“the 98 MSA”). The services which Bromley agreed to provide pursuant to this agreement were those of Susan Marchant or of a person who could provide services of her level and quality. It is alleged that the remuneration payable to Bromley under the agreement was excessive and not an amount that would have been negotiated at arm’s length; that no independent report was obtained as to whether that agreement was in the interests of the members of Carrington as a whole or whether it gave a financial benefit to Bromley or to Susan Marchant on more favourable terms than would have occurred had there been an arm’s length agreement; and that there was an overlap between the services provided by Bromley and the duties that Wenaline had agreed to provide pursuant to its agreement. In entering into this agreement it is alleged that the directors of Carrington who included Russell Maughan, Christopher McCosker and Ray Magill and Bromley, through Susan Marchant, knew that the agreement was not fair or reasonable or in the interests of members of Carrington as a whole and were agreed for the purpose of giving and in fact gave a financial benefit to Bromley and Susan Marchant more favourable than would have occurred had there been an arm’s length agreement. In causing Carrington to enter into the 98 MSA agreement the directors of Carrington allegedly acted in breach of their obligations to Carrington. [28] The balance of the allegations concern insider trading by Ross Marchant, the information giving rise to which was not communicated by the other directors to the Australian Stock Exchange; the failure of the directors of Carrington to ensure its continued listing with the Australian Stock Exchange by having an appropriate spread of shareholders so that it was not delisted; the failure of Carrington’s directors to disclose in Carrington’s Part B notice in response to Bromley’s takeover Part A notice certain important information about Carrington’s improved -- 11 of 15 -- 12 financial future forecasts; and the failure to permit the originating applicants to have a director of their choosing on the board. The Wenaline Agreement [29] Many of the differences between the parties set out in their extensive correspondence in respect of Wenaline tended to evaporate in the course of submissions. Section 103(2) of the Corporations Law makes clear that contravention of s 243H (the related party provisions) does not mean that an agreement is invalid merely because of that contravention. The extra factor which is now alleged in the amendments to paragraphs 50 and in 50A of the further amended statement of claim is that Wenaline was an entity which received benefits with knowledge through its directors of the facts giving rise to a breach of fiduciary obligation on the part of the directors of RMI, the wholly owned subsidiary of Carrington, to the detriment of RMI and Carrington. [30] The minutes of the meeting of Carrington exhibited to the affidavit of Graham David Thomas, solicitor for Christopher McCosker and Wenaline, were put before the court for the purpose of showing that an honest inference could be drawn from the particulars of the transaction so far as it concerned Wenaline and its directors. The minutes reveal that Ross Marchant, D Taylor and Russell Maughan were present when the Wenaline agreement with RMI was approved. They indicate that Ross Marchant advised that he had negotiated a management contract with Wenaline and excused himself from the meeting after the agreement had been tabled because he announced that he had a conflict of interest because Wenaline was controlled by his daughter and son-in-law. The board had obtained advice from its solicitors inter alia that the board should ensure that the agreement was commercially appropriate. The minutes record “The Chairman (DC Taylor) advised that he had met with Mr McCosker from Wenaline Pty Ltd on a number of occasions to discuss the company’s appointment and was satisfied that the terms and conditions as outlined were the minimum terms to which Wenaline Pty Ltd would agree. … During the course of the review of the remuneration the Chairman advised the meeting that he had discussed the level of remuneration with a number of consultants all of whom had declined to provide advice because they had no experience in the industry. The common advice received however was that RMI should reward, by way of bonus, that result that the company sought. At this level of management yield per acre is the appropriate reward mechanism. The Chairman advised that the entering into the agreement was in the best interest of the company as Wenaline’s trial period had been very beneficial and that the agreement should be completed to have effect from 1 July 1996.” [31] In alleging knowledge by the directors of Wenaline of the breach of their fiduciary obligations to RMI and thence Carrington by entry into the Wenaline agreement by the directors of RMI, the originating applicants are making an allegation of dishonest conduct, see Consul Developments Pty Ltd v DPC Estates Pty Limited -- 12 of 15 -- 13 (1974) 132 CLR 373 particularly at 398 and Royal Brunei Airlines v Tan [1995] 2 AC 378 at 389. Mr Sofronoff submits that this is not an allegation of fraud but an allegation of breach of fiduciary obligation relevant to the issues of oppression. In my view that is an insufficient basis to seek to have the Wenaline agreement set aside and if that is its sole purpose it must be disallowed. If, however, as it seems, it is an allegation of fraud against Wenaline through its directors then it must be pleaded with the particularity which the rules of court and authority require, Banque Commerciale SA en Liquidation v Akhill Holdings Limited (1990) 169 CLR 279 at 285. Since this has not occurred the amendment must also be disallowed. Striking out for failure to identify and/or particularise loss [32] The applications seek orders striking out paragraph 108(e) of the further amended statement of claim because there are either no allegations or particulars of loss to Carrington pleaded in connection with the various instances of conduct referred to in that paragraph. The scheme of paragraph 108 is to identify in a summary way the conduct against each of the originating respondents giving rise to the relief sought. Having dealt with the corporations, Carrington, RMI and Bromley, the pleading then turns in paragraph 108(e) to the directors, Ross Marchant, Christopher McCosker, Ray Magill and Russell Maughan raising twelve particulars of conduct against all or some of them. Against Christopher McCosker are alleged breaches of fiduciary duties in respect of the entry into the 97 MSA and the 98 MSA; oppression in the performance of his duties as a director of Carrington and RMI relating to the insider trading allegation; the failure to inform the Australian Stock Exchange of certain information about Carrington; the failure to take any steps to ensure an adequate spread of shareholders; the failure to make any statement to contradict allegedly erroneous statements by Ross Marchant in respect of the Part B takeover statement; and the failure to appoint the nominee of the originating applicants as a director of Carrington or to permit them to nominate any other person as director. Included against Christopher McCosker is the allegation in paragraph 104 that Bromley used its position of dominance to ensure that Albert Panizza was not appointed to the board of Carrington and to prevent the originating applicants from otherwise being represented on the board. Mr Sofronoff did not concede that reference to paragraph 104 was in error. It must be inferred that its purpose is to allege that Christopher McCosker as a director of Carrington did nothing to seek to contain the conduct of Bromley. If that is a correct assumption it must be pleaded and the inclusion of paragraph 104 in paragraph 108(e)(xii)(D)3 should be struck out. [33] The conduct alleged against Ross Marchant (now the executors) is similar and the differences need not be set out here. The objection to the reference to paragraph 104 is not taken by the executors since it refers to conduct by Bromley. [34] The relief claimed against Christopher McCosker for his participation in the oppression of the minority shareholders is an order that he cease to hold office as a director of Carrington or RMI; that he and the executors compensate Carrington and RMI for losses arising out of the management services agreements with Bromley and the Wenaline agreement; the expenses and costs incurred in the course of wrongfully withholding information from the originating applicants; the expenses and costs incurred by Carrington in causing it to adopt an adversarial stand in respect of this litigation; and unnecessary expenses and costs incurred by -- 13 of 15 -- 14 Carrington and/or RMI due to the oppressive manner in which their affairs have been conducted. Loss need not be shown for an oppression action pursuant to s 246AA and conduct alleged to be oppressive does not call for such particulars. But the relief by way of compensation does. It is not appropriate to order that the relevant paragraphs, where those particulars have not been given be struck out, but that particulars be provided. There is, in my view, sufficient particularity pleaded of the losses sustained by Carrington and/or RMI under the various management services agreement. Otherwise particulars must be given of the losses alleged in paragraph 109(h)(i) and (ii)(B)(C) and (D). Failure to appoint or elect a director [35] The originating applicants allege in paragraphs 99-104 as an instance of oppression the failure, without reason, to appoint a representative of the originating applicants to the board of Carrington. There is no entitlement by representation to a seat on the board of a company without more, such as, for example, in the family management cases. The relationship between the members of a company is contractual and is governed by the articles and the Corporations Law. There is nothing in the articles to provide for representation. Article 26.5 provides that the company may by resolution appoint a director to replace another director or appoint additional directors. Casual vacancies can be filled but that appointee must stand for re-election at the next annual general meeting, article 26.12. There is no doubt that the use or “abuse” of a majority shareholder’s power to secure the election to the board of his nominees who will act at his behest may be an instance of oppressive conduct and give rise to orders about who might constitute the board, see Re HR Harmer Ltd [1958] 3 All ER 689; Spargos; and John J Starr, but that is quite different from the position which the originating applicants seek, namely, the right to a representative director. They refer to a dictum by Wheeler J to support their position. In Chen v Technicon Industries Pty Ltd BC 9900259 a decision of 11 February 1999 her Honour said at p 5 “There may be cause for complaint where substantial shareholders such as the applicants, do not have representation which fairly reflects their shareholding, and where that position is maintained over a period of time and for no good reason. Clearly, there may well be oppression where disproportionate representation of a group of shareholders on the board results in the interests of other shareholders not being considered. … It is not necessary to determine whether mere disproportionate representation, even if persisted in, would be oppressive … ” There have been no facts alleged apart from the bare assertion of regular refusal to appoint Albert Panizza as a director or to allow another nominee of the originating applicants to stand for board election which would elevate the complaint outside the contractual relationship between the shareholders governed by the articles. That does not have the necessary consequence that relief sought in paragraph 109(j) may not remain, which is, orders for the appointment of directors to the boards of Carrington and RMI. Whether that is appropriate will depend on the view of the trial judge. Paragraphs 99 to 104 must however be struck out. -- 14 of 15 -- 15 [36] The orders which I make are: 1. Disallow the amendments to paragraphs 50 and 50A of the further amended statement of claim. 2. Strike out paragraphs 99-104 of the further amended statement of claim. 3. The reference to paragraph 104 of the further amended statement of claim in paragraph 108(e)(xii)(D)3 in so far as it is referable to Christopher McCosker be struck out. 4. The originating applicants provide particulars of the losses alleged in paragraph 109(h)(i) and (ii)(B)(C) and (D). [37] I will hear submission as to costs. -- 15 of 15 --