Arhanghelschi v Ussher [2013] VSC 253 (16 May 2013): Oppression, conduct of the affairs of trustee company oppressive, unfairly prejudicial, or unfairly discriminatory, sections 232 and 233 Corporations Act

May 27, 2013 |

In Arhanghelschi v Ussher [2013] VSC 253 the Supreme Court, per Ferguson J, consider the claim of oppression and the construction of the unit trust deed.

FACTS

Dr Arhanghelschi, the Plaintiff, and the four defendants are radiologists who conducted a practice in Ballarat under the name Base Imaging Group Pty Ltd (“BIG”).  Through BIG the doctors successfully tendered for work from the Ballarat Health Services (“BHS”) in 2009. In June 2010 they established a unit trust which performed its obligations under the BHS contract. Each doctor held 20% of the units in the trust.

The four defendant doctors wished to part company with Arhanghelschi.   On 4 March 2013 three of the unit holders gave notice under the Deed  stating that they wished Arhanghelschi  to cease to be involved in the business with immediate effect [13]. On 7 March 2013 the defendants gave notice requiring the trust to convene a meeting [15]. That meeting took place on 15 March where the directors resolved that Arhanghelschi  resign as a director of BIG and from his position with BHS [17].  No reason was given at the meeting for the action taken but at trial the defendant’s evidence was that Arhanghelschi was unapproachable, he took long lunches, left early and arrived late, and finally was working for a Bendigo radiology group [19].

 

DECISION

Is there an obligation of good faith and reasonableness

Her Honour stated that a Unitholders Deed must be construed using an objective approach to ascertain the intention of the parties [31]. In that context she found that the relevant clause regarding expulsion did not require any reason to be given if the majority of unit holders determine they no longer wish another unit holder to be involved in the business [32]. Her Honour cited Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL as authority for the proposition that a court is reluctant to imply into commercial contracts a general term of good faith and fair dealing [39]. The court need only consider whether any obligation of good faith applies in the exercise of particular power in the contract in question [41]. In this case the relevant provision was drafted such that it was clear in its intent that in the event that a majority of shareholders may act legitimately in their own self interest without disclosing any reason to doing so [41]. The clause permitted a majority of shareholders to take action against another whether or not he or she was in default under the Deed. In any event the court was not persuaded that the actions of the majority unit holders were unreasonable, irrational or unfair in all the circumstances [44].

Oppression action under the Corporations Act

The court rejected the claim of oppression under the Corporations Act 2001. Her Honour found there was nothing commercially unfair doen to Arhanghelschi [51]. Arhanghelschi entered into a business which was governed by the Unitholders Deed. That the provided for the Unitholders to remove another and that decision was to be by majority vote.  Arhanghelschi  knew this. He had read the deed before it ws executed. He had obtained independent legal advice beforehand. He was not at a disadvantage with respect to the other doctors. He was not an under undue pressure nor was he misled [52]. The Court found that a commercial bystander in the circumstances would not consider the steps taken by the majority Unitholders as being unfair [54].

ISSUE

Ferguson J undertook a very thorough black letter consideration of the principles applying to interpretation of a Unit Trust Deed generally and this Deed in particular. The salutary lesson here is that the construction of the trust deed is critical having regard to potential future disputes. The unit holders prepared a draft of the deed, discussed it and included various provisions regarding dispute resolution as a result of those discussions. The provision that ultimately worked against Arhanghelschi was the clause which granted the majority a broad discretion and did not require reasons to be given or fault to be laid before action is taken to remove a unit holder.  It then became necessary for Arhanghelschi to claim an implied duty to act in good faith and be reasonable.  Or oppression.  Implying a good faith obligation generally is not part of the law of the state of Victoria. Implying it into specific clauses is also quite difficult, as this case shows.

 

 

 

One Response to “Arhanghelschi v Ussher [2013] VSC 253 (16 May 2013): Oppression, conduct of the affairs of trustee company oppressive, unfairly prejudicial, or unfairly discriminatory, sections 232 and 233 Corporations Act”

  1. Kellie Wilson

    Fundamental to the argument is if this was in fact a partnership or a unitholders agreement.

    What is interesting is that Dr Rick Ussher, Dr Ian Revfem and Dr David McKenna from Base imaging group brought forward evidence regarding Dr Arhanghelschi’s conduct that was not proven to be factual. Dr Ian Revfem gave evidence that was based on Dr Revfems perception rather than any fact. One must ask what motivation did the defendants have with regard to putting into evidence perceptions when arguing the “Black Letter”of the law.

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