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22/08/18

Oppression amongst ophthalmologists: Dr Leo Shanahan v Jatese Pty Ltd [2018] NSWSC 1088

This case concerned alleged oppressive conduct relating to Canberra Eye Hospital Pty Ltd (CEH) which was owned by the majority shareholders (57%) and the minority shareholders (43%).  Each of the CEH shareholders were ophthalmologists who performed cataract surgery at the Hospital.

The dispute began when the minority shareholders retired from practice (and ceased contributing to the revenue of the Hospital) while continuing to hold their shares in CEH.  Frustrated with the refusal of the minority shareholders to transfer their shares to the majority shareholder (or other surgeons who may come to work at the Hospital), the majority shareholders:

  • established their own hospital, which put CEH under financial strain;
  • frustrated attempts by one of the minority shareholders to get another surgeon accredited to work at the Hospital; and
  • procured the appointment of two supposedly independent directors (New Directors) (who were in fact associated with one of the majority directors) and who used their powers to place CEH into voluntary administration just before the new surgeon was due to start and at a time when CEH was clearly not insolvent.

In finding that the minority shareholders had made out their claim of oppressive conduct, Hammerschlag J in the Supreme Court of New South Wales found that:

  • from when the New Directors were appointed, CEH’s affairs were conducted in a sustained and deliberate way contrary to interests of the members as a whole and oppressive to the minority shareholders, and the New Directors, in concert with the majority shareholders, acted so as to prefer the interests of the majority shareholders over the minority shareholders;
  • the majority shareholders had no intention of furthering the interests of CEH because their underlying grievance was the entitlement of the majority shareholders to a share in the profit of CEH;
  • the majority shareholders made no attempt to attract surgeons for CEH (and frustrated the accreditation of the new surgeon sourced by the minority shareholders), took CEH’s valuable employees, failed to provide funding to CEH and sought to take CEH’s head lease;
  • there was evidence that voluntary administration had been under consideration from an early stage, yet the proposal was sprung on the minority shareholders in a way which precluded discussion of it or an opportunity to make an injunction application;
  • voluntary administration was in the interests of the majority shareholders but entirely inimical to the interests of the minority shareholders;
  • the appointment of the voluntary administrator was in bad faith and for improper purposes, and the New Directors acted in a manner so unfair to the minority shareholders that no reasonable director would have thought it to be fair – they consulted with the majority shareholders to the exclusion of the minority shareholders, took secret remuneration from the majority shareholders and prevented the minority shareholders from having any real participation in the process resulting in the appointment of the voluntary administrator.

The minority shareholders also sought an order that the majority compensate them for the difference between what their shares were worth and what they were paid.  However, Hammerschlag J found that while:

  • the oppressive conduct did induce the minority shareholders to sell their shares; and
  • an order requiring the payment of money was within the Court’s power to make orders under section 233(1)(j) of the Act,

the minority shareholders did, in this case, receive fair value for their shares. 

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