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Shareholder disputes: When business gets messy

Shareholder disputes: When business gets messy

By Mark Bolton



  • Shareholders are encouraged to sort out their own mess.
  • With the Court reluctant to wind up a solvent company, agreeing on a valuation is often the key issue.
  • Do not underestimate the value of a good shareholders’ agreement.

An LIV presentation by Justice Michael Sifris gave an insight into the Victorian Supreme Court’s current approach to dealing with shareholder disputes and, in particular, oppression cases.

In my mid 20s, I spent a year on a working holiday in Halifax, Canada. One of the ways I earned money was by setting up a small gardening business with a fellow expat. We called ourselves “The Aussie Blokes Gardening Service” and for our flyers we got a friend to do Jim’s Mowing-style caricatures, then as a further quirky reference to our nationality, we flipped the images upside-down. It seemed to work and we soon had a good stream of jobs coming through. Neither of us had a car, so we’d travel around town on our bikes, rakes and shovels held precariously by our sides.

Our business was going well until my business partner had a friend visiting from Australia and assumed that his friend would automatically get in on the act. Having put in considerable effort to get our little venture off the ground and with only limited work on offer, I had different ideas. A heated discussion ensued, and our bucolic business was never the same.

It was an eye-opening experience which gave me an early insight into the challenges of running a small business in partnership and how quickly things can turn.

Now in my business law practice, I regularly advise on these sorts of disputes. While the types of businesses vary, what is consistent is the frustration and hostility often shown by both parties.

It was with much anticipation that earlier this year I attended an LIV Accredited Specialist breakfast on shareholder disputes presented by Supreme Court judge Michael Sifris.

Justice Sifris is uniquely placed to present on this topic. Prior to going to the bench, he was successful counsel in the case of Vigliaroni & Ors v CPS Investment Holdings Pty Ltd & Ors.1 This case was significant in determining that, pursuant to s53 of the Corporations Act 2001 (Cth), the Court could deal with trusts in s2332 oppression cases. In that case the business was run through a unit trust with a corporate trustee. After finding oppression, the Court ordered the compulsory purchase of the oppressor’s interest in the business, including his units in the trust. Given the prominence of trust structures in small businesses, this ruling is important in facilitating a one-stop-shop approach for these sorts of disputes.

Justice Sifris, as Judge in Charge of the Corporations List, has been instrumental in managing and supervising the Oppression Proceeding Program.3 The program aims to facilitate “the just, efficient, timely and cost effective resolution of the real issues in dispute in applications under s233”.4 One way it does this is to limit the originating affidavit to no more than three pages with no exhibits. The matter is then considered at an initial conference before an associate judge or a judicial registrar who determines whether the matter is ready for mediation or whether preliminary steps are needed, such as a valuation of the company or ordering an inspection of the books.

According to Justice Sifris, approximately half of the Victorian oppression matters are now going through the program, of which more than two-thirds are resolved without proceeding to trial.

The program is consistent with the Court’s encouragement for parties to resolve these sorts of matters themselves. This theme was repeated throughout Justice Sifris’ presentation. His key tips for resolving shareholder disputes are:

  • settle, settle, settle
  • try and work out exactly what you want
  • be reasonable
  • make offers
  • get a valuation early.

While the above may seem obvious, when considered in light of real-life cases, they quickly become more pertinent.

The following are three good examples – all cases presided over by Justice Sifris. 

Case 1

Strategic Management Australia AFL Pty Ltd & Anor v Precision Sports & Entertainment Group Pty Ltd and Ors5 was a high-profile case. 

In broad terms, the case was about the partnership breakdown between Jason Sourasis and former North Melbourne and Geelong footballer turned player agent Liam Pickering.6

According to the judgment, Pickering was an agent for some of AFL’s biggest stars including Buddy Franklin, Gary Ablett, Tom Boyd, Jordan Lewis, Dane Swan and Jack Riewoldt. Around 2010-2011 Pickering agreed to bring his stable of stars over to Sourasis’ business, Strategic Management Australia AFL Pty Ltd. The deal meant Pickering would receive a 50 per cent share of the company plus a $200,000 sign-on fee and an annual salary of $200,000.

The venture did not go well between Sourasis and Pickering. 

Eventually, the relationship broke down and Pickering decided to leave, taking his players with him. Pickering made steps to transfer his players before leaving the business. 

Sourasis then raised $250,000 in the company to dilute Pickering’s shares.

What followed was a dispute where both parties went into battle – oppression, breach of directors’ duties, breach of fiduciary duties, breach of contract.

In the end they both were penalised – Pickering was liable for compensation and damages for breaching his duties and Sourasis was penalised for oppression.

Given the acrimonious behaviour of both parties, it is understandable that the matter was not settled. However, perhaps if both parties knew exactly what they were getting themselves into by going to court, there might have been greater incentive to reach some sort of compromise.

Case 2

Peter Exton & Anor v Extons Pty Ltd & Ors7 was a dispute between two brothers, Peter and Ian Exton, who owned and operated a successful second-generation earthworks and excavation business.

After many years in business together, Peter got fed up with Ian he felt, not including him in the running of the business. There were also allegations of each of them taking money from the business and using the business equipment without paying for it. 

A strong message in the judgment is the Court’s reluctance to wind-up a solvent company and its broad discretion to order other remedies, including requiring one party to buy out the other.

Justice Sifris was also critical of the parties’ failure to settle. In his judgment he wrote: “this is clearly a bitter family dispute that is always best resolved away from the Court. The parties should have tried hard to resolve all issues in this case or at the very least reduce it to a single issue”,8 being the determination of the value of the business. 

This was repeated and emphasised by Justice Sifris in his recent decision in In the Matter of Wyndham Park Estate Pty Ltd.9

After a court battle, the brothers were ordered to work out a price for one of the brothers to buy out the other.

Case 3

Knights Quest Pty Ltd & Anor v Daiwa Can Company & Anor (Knights Quest)10 involved two Melbourne businessmen, Gregory Stokes and Steven Barics, who had developed a technology for putting wine in cans called Vinsafe. Through their company, Barokes Pty Ltd, they registered the patent in 17 countries including Australia and Japan. 

In 2009, they became aware of a Japanese company, Daiwa Can Company, producing and distributing a competing product.

In what at the time must have been considered a pragmatic solution to this competition, in 2012 Stokes and Barics sold a 60 per cent share in Barokes to Daiwa for approximately $18 million.

The joint venture came unstuck over the following three years because Barokes was unable to meet its sales targets and Daiwa did not want to continue its agreed ongoing funding. Of critical contention was the disagreement about whether Daiwa and its subsidiaries were obliged to cease producing its competing product and instead take up a licence of the Vinsafe product. The Court looked to the shareholders’ agreement and related correspondence for guidance and ultimately held that the parties had made no such agreement.

In early 2015, Stokes, as the general manager of Barokes, sought the board’s approval to sue Daiwa for breach of the Vinsafe patent. Not surprisingly, the Daiwa representatives on the Barokes board voted against this proposal. Not deterred, a couple of months later, Stokes went ahead and issued proceedings in Japan on behalf of Barokes against Daiwa. In response, Daiwa commenced proceedings in the Japanese Patent Office seeking to invalidate the Vinsafe Japanese patent.

While those proceedings were afoot, Stokes and Barics issued the Australian proceedings claiming shareholder oppression against Daiwa.

In what Justice Sifris considered to be vindication for Daiwa, a few months before this judgment, the Japanese Patent Office found that the Vinsafe Japanese patent was invalid.

Given the irretrievable breakdown between the parties, and without any finding of oppression, Justice Sifris was comfortable in ordering that Barokes be wound up. This was done on just and equitable grounds pursuant to s461(1)(k).11 In making this decision, Sifris J summarised that the joint venture had failed, there was the clearest of deadlock and the board could not function properly.12 He was also satisfied that the proviso in s467(4)13 was not engaged,14 meaning that he was not of the opinion that some other remedy was available and that Daiwa was acting unreasonably in seeking to have the company wound up. An appeal was unsuccessful.15

This case is different to the two previous cases discussed. Given the positions of the respective parties, it is difficult to see how it could have settled. If there were a message to take away it would be the value of having a robust shareholders’ agreement.

The value of shareholders’ agreements

There was a good discussion during the presentation about the value of shareholders’ agreements. Justice Sifris expressed the Court’s willingness to enforce contractual provisions, the exceptions being if it is against public policy or a result of any vitiating factors. 

A novel suggestion was raised in the presentation about whether the LIV might consider putting together a standard shareholders’ agreement. The Knights Quest case highlights the inherent difficulty in such an undertaking. 

The real value in a shareholders’ agreement is its ability to address the unique scenario and issues of that particular venture, which surely can only really be achieved by a tailored agreement.


While the above matters are all very different, what is consistent is that they are all acrimonious disputes with the parties claiming broad relief. The grievances are then basically reduced to a question of oppression and, with the relationships between the parties having irretrievably broken down, the Court left with the options to either force one party to buy-out the other or wind-up the company. With this in mind, it is easy to appreciate the effectiveness of the Oppression Proceeding Program.

Mark Bolton is an LIV accredited specialist in business law. He has his own practice in Bendigo.

1. [2009] VSC 428.

2. Corporations Act 2001 (Cth)

3. Supreme Court of Victoria, Practice Note SC CC 8 - Oppressive conduct of the affairs of a company, 18 May 2018.

4. At [4.3].

5. [2016] VSC 303.

6. Note 5 above, at [5].

7. [2017] VSC 14.

8. Note 8 above, at [16].

9. [2019] VSC 92.

10. [2018] VSC 426.

11. Corporations Act 2001 (Cth).

12. Note 11 above, at [157].

13. Corporations Act 2001 (Cth).

14. Note 11 above, at [160].

15. Knights Quest Pty Ltd v Daiwa Can Company [2018] VSCA 34.

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