Federal Court of Australia

Scott v Aulich, in the matter of Aulich Civil Law Pty Ltd (in liq) [2025] FCA 1329

ORDERS

THE COURT ORDERS THAT:

1.    Within 14 days of these orders, the parties bring in agreed or competing orders giving effect to the reasons for judgment.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    This is a shareholder’s oppression suit under ss 232 and 233 of the Corporations Act 2001 (Cth). The plaintiff seeks orders for compensation against two of the directors of each of two companies, Aulich Civil Law Pty Ltd (ACL) and Aulich Property Trading Pty Ltd (APT). She seeks sums representing the extent of her loss caused by the conduct of the directors in issuing new shares in the companies to the existing shareholders at par value very considerably below what she says their true value was thereby dramatically diluting her shareholding and its value. Alternatively to compensation based on the lost value of her shareholding, the plaintiff seeks an order setting aside the new share issues and compensation for the dividends she would have been paid had her shareholdings not been diluted. The plaintiff initially sought the winding up of APT on the basis of ss 233(1)(a) and 461(1)(k), but that by the time of the hearing that was not pressed.

2    ACL and APT are the companies whose affairs are alleged to have been conducted in a manner oppressive to, unfairly prejudicial to, or unfairly discriminatory against the plaintiff. They carried on business as solicitors’ firms – ACL in civil law and APT in conveyancing. This case is the culmination of a falling out between some of the main protagonists behind the two businesses.

3    It is necessary to refer to many people, corporations and businesses in these reasons. It is therefore convenient to begin by identifying the key players. The natural persons referred to all live or work in Canberra and the corporations and business are all based in Canberra. Although this proceeding was commenced in the Queensland registry of the Court, it was subsequently transferred to the ACT registry and the trial was heard in Canberra.

The key players

4    Joanna Scott is the plaintiff. She works or worked as a barristers’ clerk. She and John (Jack) Pappas, a barrister, are married to each other.

5    Benjamin Aulich, a solicitor, is the first defendant. Gracie Gill Pty Ltd, the fourth defendant, is Mr Aulich’s company through which he held shares in ACL and APT.

6    Erin Taylor, a solicitor, was the second defendant. Lily & Ruby Holdings Pty Ltd, which was the fifth defendant, is Ms Taylor’s company through which she held shares in ACL and APT. Prior to the hearing in this matter, the plaintiff settled her claims against Ms Taylor and Lily & Ruby Holdings (with a cross-claim brought by some of the other defendants against her also settling shortly thereafter) whereafter they were removed as parties and played no further role in the proceeding.

7    Mr Aulich and Ms Taylor are, or were at relevant times, in a de facto relationship and cohabiting.

8    Peter Woodhouse, a solicitor, is the third defendant. Angiesal Pty Ltd, the sixth defendant, is Mr Woodhouse’s company through which he held shares in ACL and APT. By the time of the trial, Angiesal was in liquidation.

9    ACL and APT are the seventh and eight defendants, respectively. ACL was placed into administration by a director’s resolution on 19 September 2024. On 24 October 2024, the creditors of ACL resolved to wind up the company. Mr Woodhouse, the sole remaining director of APT, has said that APT is likely also shortly to be placed into external administration. It is common ground that the shares in both companies are now practically worthless. The demise of ACL did not strictly arise from the events relevant to Ms Scott’s claim of oppression or to the effects of the COVID-19 pandemic (as will come to be discussed), but rather from the Council of the Law Society of the ACT on 16 July 2024 not renewing Mr Aulich’s practising certificate. That followed a disciplinary hearing against Mr Aulich which concluded in a finding of professional misconduct, a public reprimand and the levying of a fine. The sanction meant that Mr Aulich was no longer able to continue as the principal solicitor for ACL. APT, on the other hand, ceased trading in or around late 2021.

10    By the time of the trial, the only active remaining defendants were Mr Aulich, Mr Woodhouse, Gracie Gill and APT. The other defendants were either in external administration and the proceeding thus stayed in respect of them, or the claims against them had been discontinued. For convenience, I will refer to the remaining active defendants as the defendants.

11    Aulich Criminal Law Pty Ltd (Aulich Criminal Law Co) is a company that had Mr Aulich and Mr Woodhouse as directors and shareholders through their shareholding companies. It was formerly Ben Aulich & Associates Pty Ltd (aka BAP or BA & A) but changed its name after Mr Woodhouse became a shareholder and director with Mr Aulich in about 2012. Aulich Criminal Law is a firm (Aulich Criminal Law Firm) through which, and it is the trading name under which, Mr Aulich and Mr Woodhouse later practised criminal law. Its members were Gracie Gill and Woodsal Investments Pty Ltd (another of Mr Woodhouse’s companies) each as trustee for family trusts.

12    At the relevant times, being 2019 to 2021, ACL and APT conducted business in conjunction with several related entities, although Ms Scott only ever had an interest in ACL and APT. That is to say, not all of the entities had the same shareholders. The related entities included Aulich Criminal Law Firm and Aulich Property Investments Pty Ltd. ACL, APT and Aulich Criminal Law Firm shared premises, employees, office equipment, information technology systems and legal practice software. They paid management fees in respect of those shared services to Aulich Pty Ltd which employed the staff and provided the relevant services. ACL and APT did not have employees and it did not lease premises; leasing of premises was carried out by Aulich Leasing Pty Ltd. The shares in Aulich Pty Ltd were held by ACL, APT and Aulich Criminal Law Co.

13    Michael Williams, a chartered accountant, was the accountant for each of Mr Aulich, Mr Woodhouse, Gracie Gill, Angiesal, ACL, APT and Ms Scott. He prepared annual financial reports for each of the relevant entities, and he gave advice from time to time.

The witnesses

14    Ms Scott relied on two affidavits deposed to by her. She was not cross-examined. She also relied on a number of affidavits by her solicitor, Ian Bisson, which dealt with formal matters concerning discovery of documents, company searches, solicitors’ correspondence and the like. He was not cross-examined. Ms Scott also relied on two expert reports of Peter Haley as an accountant valuer. Mr Haley was also not cross-examined.

15    The defendants relied on two affidavits of Mr Woodhouse and an affidavit of Mr Williams. Both Mr Woodhouse and Mr Williams were cross-examined. Although the defendants had served an expert report of Aaron Torline, a chartered accountant with expertise in insolvency and restructuring, they ultimately elected not to read or tender his report. Mr Aulich did not give evidence.

16    It should be added that a joint report of Mr Haley and Mr Torline resulting from a joint conference of experts on 6 February 2025 was tendered. However, its utility is limited in light of Mr Torline’s report not being admitted into evidence.

The heart of the claims of oppression

17    As I will come to, at the times of the conduct that is at the heart of the allegation of oppression, Ms Scott, Gracie Gill (ie indirectly, Mr Aulich), Angiesal (ie indirectly, Mr Woodhouse) and Lily & Ruby Holdings (ie indirectly, Ms Taylor) each held 25 of the 100 issued shares in each of ACL and APT. The directors of ACL and APT were Mr Aulich, Mr Woodhouse and Ms Taylor.

18    On 1 April 2020, the three directors of ACL passed a circulating resolution to issue 99,900 additional shares in ACL at par value of $1.00 per share. The share price was not valued formally but rather “it was agreed by the directors that the shares would be offered at the value currently held and was determined on the basis that ACL required an ‘injection’ of approximately $100,000.00 of capital”. Ms Scott did not take up her allotment of 24,975 shares so on 24 April 2020 the directors resolved to offer her allotment to the other shareholders (Gracie Gill, Angiesal and Lily & Ruby Holdings) who took them up in equal proportions. Ms Scott’s shareholding was consequently diluted from 25% to 0.025%.

19    Ms Scott says that as at 30 June 2020 (ie immediately prior to the share issue), ACL had a net asset value of $2,843,199 with the result that her shareholding decreased from a value of $710,800 to $711 as a consequence of the share issue. Alternatively, Ms Scott says that as at 1 April 2020, when the directors’ resolution was passed, ACL had a net asset value of $1.975 million with the result that her shareholding decreased from a value of $493,845 to $494 on that valuation. As will become apparent (see below at [129]), the dollar difference in the valuations at the two different times is ultimately immaterial to the final relief. Ms Scott also says, in the alternative, that had she remained a 25% shareholder in ACL (ie but for the oppressive conduct) she would have been paid dividends of $205,000 from 2020 to 2023 instead of the $205 that she was paid.

20    With regard to APT, a general meeting of the shareholders passed a resolution on 30 March 2021 to issue an additional 40,000 shares in the company at par value of $1.00 per share and that the shares be offered to the shareholders in proportion to each shareholder’s then current holding of shares in the company. Ms Scott did not attend the meeting, but the other three shareholders all voted in favour of the resolution. Ms Scott did not take up her allotment, with the result that it was offered to the existing shareholders who all took it up in (almost) equal proportions. The result was that Ms Scott’s shareholding in APT was diluted from 25% to 0.0623%.

21    Ms Scott says that as at 30 June 2021 APT had a net asset value of approximately $135,439 with the result that her shareholding decreased from a value of approximately $33,860 to only $84. As APT did not pay dividends in the relevant period, Ms Scott makes no alternative claim in relation to dividends not paid to her.

The facts in detail

Background

22    Ms Scott and Mr Pappas were married in 2001. Mr Pappas worked as a barrister and Ms Scott worked as a barrister’s clerk for the chambers in Canberra of which Mr Pappas was a member. Mr Aulich was a solicitor who briefed barristers in those chambers, including Mr Pappas. As a consequence, Mr Pappas and Ms Scott came to know Mr Aulich and the three of them became close personal friends. In about 2019, Mr Aulich and Ms Taylor commenced a personal or de facto relationship which subsisted at the time of the key events referred to below.

23    Mr Aulich’s firm through which he practised criminal law was Ben Aulich & Associates. In about 2009, Mr Woodhouse commenced working as a solicitor at Ben Aulich & Associates and became a 50% shareholder with Mr Aulich in about 2012. In late 2011 or early 2012, Mr Aulich and Mr Woodhouse began to discuss the possibility of establishing a civil law practice in addition to their criminal law practice. Given the high regard they had for Mr Pappas who had experience in civil law, and the close friendship that they had developed with him, they discussed their plans with Mr Pappas.

24    Those discussions culminated in the incorporation of ACL in 2012 with each of Ms Scott, Mr Aulich and Mr Woodhouse contributing $10,000 in capital and being issued one third of the shares. It was agreed that Ms Scott’s shareholding would be held in trust by Mr Woodhouse’s company, Angiesal, in order to avoid Mr Pappas’s interest in the company through his wife’s shareholding becoming public as it was perceived that that would cause Mr Pappas to become embarrassed with other solicitors’ firms in Canberra who might then not brief him. Mr Aulich and Mr Woodhouse’s shareholdings were held by their companies, Gracie Gill and Angiesal.

25    Subsequently, Jonathan May, a solicitor, became an additional shareholder, with each shareholder owning a quarter of the shares. Mr May’s interest was held by his company Jackal Pty Ltd.

26    In about mid-2014, the four shareholders agreed to incorporate a further company for the conduct of a conveyancing practice and to capitalise the new company from accumulated profits in ACL. Each acquired an equal one-quarter shareholding in the new company, Aulich Conveyancing Pty Ltd, which would later be renamed Aulich Property Investments Pty Ltd (API). Once again, Ms Scott’s shareholding was held in trust for her by Angiesal. Mr May ceased to have an interest in either of ACL or API after leaving the firms from about mid-2015, with Lisa Barlin, a solicitor at another firm, acquiring his shares in ACL and Jacinta Geaghan, a conveyancing clerk, acquiring his shares in API.

27    Subsequently, in October 2018, APT was incorporated to acquire and thereafter conduct the conveyancing practice previously carried on by API. Upon its formation, the directors were Mr Aulich, Mr Woodhouse and Ms Geaghan. Although there were different shareholders and directors at different times, with Ms Scott never being a director, Gracie Gill, Angiesal and Ms Scott, whose shares were held on trust by Angiesal, remained shareholders.

28    Presumably because she was not a director and not actively involved in the companies, unlike the other ultimate shareholders (ie Mr Aulich, Ms Taylor and Mr Woodhouse), Ms Scott was not given regular financial information about the companies; she was not provided with the management accounts and financial reports for either ACL or APT. Because of that, she was not in a position to properly value her shareholdings in the companies.

Early 2020

29    By the beginning of 2020, the shareholders of both ACL and APT were Gracie Gill, Angiesal (for itself and as trustee for Ms Scott) and Lily & Ruby Holdings, Ms Taylor’s company. This was after Ms Taylor acquired the shares in ACL and APT formerly held by Ms Barlin and Ms Geaghan respectively in around mid-2019. The directors were therefore Mr Aulich, Mr Woodhouse and Ms Taylor. Ms Scott was never an officer or employee of ACL or APT, as already mentioned.

30    Each of ACL and APT had shareholders agreements but because she was not in her own right a shareholder, but rather only a beneficial shareholder, Ms Scott was not a party to either agreement.

31    Although the reasons for it were not canvassed in the evidence, the personal relationship between Mr Pappas and Mr Aulich began to deteriorate in about 2018. Ms Scott puts it as the relationship beginning to break down, whereas Mr Woodhouse says that Mr Pappas and Mr Aulich had had disagreements about a number of matters from which he understood that their personal and professional relationship had severely deteriorated. From some of the correspondence, which I will get to shortly, it is clear that following this deterioration Mr Aulich harboured considerable personal animosity towards Mr Pappas. Also, as a result of the relationship between Mr Pappas and Mr Aulich breaking down, the relationship between Mr Pappas and Ms Scott, on the one hand, and Mr Aulich, Mr Woodhouse and Ms Taylor, on the other, was also strained.

32    In March 2020, there was a growing appreciation in Australia of the impending COVID-19 pandemic. On 3 March 2020, the Governor of the Reserve Bank of Australia (RBA) in a media statement said that coronavirus had “clouded the near-term outlook for the global economy” and that global growth in the first half of 2020 would be lower than earlier expected.

33    On 12 March 2020, Mr Pappas wrote by email to Mr Aulich. It is not apparent on the evidence what precipitated the correspondence other than, in a general sense, the breakdown in their relationship which had occurred by then (T48:17-19). Mr Pappas stated that the “best way forward” would be for Ms Scott to allow all the other shareholders in ACL and APT to buy out her shares. He said that if that was done, “you” (it not being clear whether that was in the singular or the plural) would not have to worry about Ms Scott or him having an opinion about the way the firms were run from time to time. Mr Pappas asked that Mr Aulich let him know how that proposed outcome might best be achieved and said that Ms Scott would be “completely flexible about the timing of any buy-out”.

34    Mr Aulich forwarded Mr Pappas’s email to Ms Taylor and Mr Woodhouse that same day. There followed a three-way email conversation between them. Ms Taylor commented that she supposed that what Mr Pappas had said “signals the start of the war”. Mr Aulich responded in agreement. Ms Taylor said that the “gloves are off” and “if that’s the start of the war then why bother holding back”. Ms Taylor also said that she thought that Mr Pappas knew that the other shareholders could not afford to buy out Ms Scott “at current values” and that Mr Pappas was “probably just setting up a starting position for an oppression argument as well as throwing in the towel on the friendship”. In relation to oppression, Mr Aulich said that they needed to be really careful and to get some advice. Mr Woodhouse also said that Mr Pappas knew that the other shareholders “don’t have any money” and that “[m]aybe Brides [sic] can buy him out”.

35    That was a reference to the possibility of Bridie Harders (who was to become a salaried partner from 1 July 2020) buying out Ms Scott. A proposal for this to occur by a financing arrangement whereby the dividends paid to Ms Harders as the new shareholder would be paid to Ms Scott in reduction of the purchase price over time was canvassed. In that context it was reported that Ms Taylor had a short time previously bought her 25% share for $550,000. Mr Aulich said that it would be hard to argue against a valuation of $500,000 to $550,000. Mr Woodhouse said that if Mr Pappas (ie Ms Scott) was prepared to accept that amount then he would be willing to borrow to pay that amount to avoid a fight about money – he confirmed in evidence that that was his true state of mind (T50:10-12). Mr Woodhouse preferred a non-confrontational parting of ways.

36    There followed a discussion about what do about existing briefs with Mr Pappas as well as whether to brief him in the future. Apparently, Mr Pappas used to refer work to the three Aulich firms and they would in turn brief him to do the advocacy. Mr Woodhouse said that he did not expect Mr Pappas to continue to refer such work to him, but if Mr Pappas did then Mr Woodhouse would brief him in those matters. Mr Aulich said that he thought that Mr Pappas would not refer any further work to them which would “hurt” them.

37    Also on 12 March 2020, the Prime Minister and Treasurer jointly announced a $17.6 billion economic plan in response to the growing COVID-19 pandemic which included a cash flow boost to small businesses referred to as Boost Cash Flow for Employers. On the face of it, the Aulich firms would qualify for the payments. On the same day, the ACT reported its first COVID-19 infection, and on 16 March 2020 the ACT Minister for Health declared a Public Health Emergency. Restrictions were placed on non-essential, organised public gatherings of more than 500 people. Schools remained open.

38    On 18 March 2020, the Aulich firms announced that employees who were able to work from home, where practicable, had been instructed to do so for the foreseeable future. Client meetings and court hearings continued.

39    On 19 March 2020, Jodie Hinton, the Aulich firms’ internal accountant, emailed Mr Aulich, Mr Woodhouse and Ms Taylor cash flow projections for the businesses for the next three months. She said that this was in order to determine “when running out of cash may become an issue, should the economy turn to absolute shit”. The projections were based on a number of assumptions, including fee revenue being fees already received and ready to be transferred from trust to the businesses “plus some funds that [Ms Taylor] has indicated will come in for ACL – so this is an absolute worst case scenario”. She said that on those assumptions “we would run out of cash/hit our overdraft limit in April” but that “we can confidently say, this won’t happen”.

40    Ms Hinton went on to discuss each of the businesses and their expected revenue. In respect of ACL, she identified that $90,000 should be received within the next two weeks and that another approximately $280,000 could be expected “soon”. Ms Hinton raised the possibility of some staff working part-time and the “partners” taking reduced salaries. She also suggested that it might be worthwhile seeing whether their overdraft limits at the banks could be increased.

41    The cash flow projections themselves were contained in a series of spreadsheets. The first spreadsheet dealt with the businesses on a consolidated basis, which was then backed up by a spreadsheet for each of the separate businesses. On a consolidated basis, even on the worst-case scenario assumption that she had identified but which was not expected to occur, $122,000 was expected in revenue in the next six weeks of which $95,000 was in ACL. At the end of three months the group would be expected to be nearly $1 million in cash flow deficit.

42    Mr Woodhouse said that he knew that “the vast majority of the income that came in to each of the three firms came in through ACL” (T55:14-16). On Ms Hinton’s spreadsheets, ACL and APT together were projected to account for about 90% of the income and 44% of the expenses of the group, which Mr Woodhouse accepted (T56:22-34). Mr Woodhouse also accepted that the spreadsheets showed that to the extent the Aulich group needed funding, it was the criminal law firm with the greatest need (T57:22-24).

43    On 20 March 2020, the ACT government announced an economic survival package as the first phase in a plan to protect as many jobs as possible and support Canberra households and businesses. The package included a rebate on commercial rates and interest-free deferrals of payroll tax for all businesses up to a payroll threshold of $10 million. On the face of it, the Aulich entities would qualify for that support.

The meeting on 20 March 2020

44    Ms Hinton’s cash flow projections were discussed at a meeting late in the afternoon on 20 March 2020 at Mr Aulich and Ms Taylor’s home (T57:45-46). Present were Mr Williams, Mr Aulich, Ms Taylor, Mr Woodhouse, Ms Hinton and Monica McGrath, the office manager. Mr Williams and Mr Woodhouse gave evidence about what was discussed at the meeting, in chief, in cross-examination and re-examination. Relevantly, I am satisfied that the following was discussed in the context of the uncertain financial position of the businesses going forward arising from the pandemic.

45    First, the federal government’s Boost Cash Flow and other possible government support, cost-cutting measures and trying to ensure the payment of invoices by clients were discussed.

46    Secondly, the discussion was generally about the Aulich businesses as a whole, without differentiation between each of the different companies. There was a discussion about the predicted cash flow shortfall and the need to put money into the businesses, but no specific mechanisms of how to do that were discussed. Mr Williams said that the advice that he gave and the discussions about the financial effects on the businesses as a result of the COVID-19 pandemic were about the group as a whole and were not limited to ACL and APT (T36:29-32; T39:9-17; T39:47-40:2). He had concerns about the group as a whole, not merely ACL and APT (T39:19-24).

47    Thirdly, however, there was a specific discussion about making an initial $100,000 capital contribution to ACL with each shareholder paying $25,000. The evidence is that the option of a shareholder loan, interest-free or otherwise, was rejected in the course of this discussion (T39:38-41:28; T59:15-17). Mr Woodhouse accepted that it was decided at the meeting that all of the shareholders of ACL would be required to contribute funds to the company by way of a share issue (T60:8-9, 22-27). He accepted that that outcome to the meeting may have been discussed between him and Mr Aulich in advance of the meeting (T60:11-20). He understood that if Ms Scott did not take up the share issue, the effect would be to dilute her shareholding (T60:29-32).

48    Fourthly, Mr Aulich, Mr Woodhouse and Ms Taylor were prepared to go into combined personal debt up to $1 million to keep the businesses trading (T62:1-6). The requirement of $1 million was based in part on Ms Hinton’s spreadsheets which projected a cash shortage in the businesses as a whole of $1 million after 3 months on a “worst case scenario” but which was not expected to occur (T61:25-30). Mr Aulich said that he would maintain a record of expenditure which he would subtract from the figure of $1 million “working backwards”. Such a tally was maintained.

49    Fifthly, there appears to have been no discussion about raising capital in the other businesses. Nor was it apparently taken into account that of the various businesses, ACL was in the least need of a capital injection. It is not apparent from the evidence about the meeting, or otherwise, why ACL was singled out as the company in which a capital contribution should be made, or why a contribution in that business would assist the other businesses.

50    Sixthly, various cost saving measures were discussed, including making some staff redundant, not paying rent, individuals putting “holds” on their mortgages and Mr Aulich and Mr Woodhouse possibly selling their cars which were owned or financed through the criminal law firm. Generally, the outlook was regarded as grim.

The ACL share issue

51    On 24 March 2020, Mr Aulich sent an email to Mr Pappas and Ms Scott forwarding Ms Hinton’s email of 19 March 2020 with the cash flow projections attached. With reference to the projections, Mr Aulich said that it was inevitable that they would need to make a cash call on all shareholders to ensure that there was an ability to pay staff in the future. He said that it had to be assumed that the shareholders would need to make regular payments into ACL and APT for the next 6 to 12 months. He said that if Mr Pappas and Ms Scott could not meet the cash calls, or were not willing to, they should let him know as soon as possible. Mr Aulich did not deal with Mr Pappas’s request only 12 days before that Ms Scott be bought out by the other shareholders.

52    On 25 March 2020, Mr Aulich emailed Mr Woodhouse and Ms Taylor. He said that it was necessary to issue 24,975 more shares at $1.00 and that “he” (ie Mr Pappas but formally Ms Scott as the shareholder through Angiesal) would either pay and “we get $24,975” or not pay in which case “we [will be] free to then distribute shares to rest of us”. That would mean 99,975 shares would be held by “us” and 25 shares held by “him” and that “for every $100K we distribute we have to give him $25”. Mr Aulich said of this: “That’s kinda cool.” Mr Aulich went on to say that Mr Woodhouse might also need to tell Mr Pappas that Angiesal was no longer prepared to hold the shares on trust for Ms Scott and that ASIC documents would be filed accordingly. Mr Aulich ended: “Don’t do this yet but this is how we deal with it. Wait to see what he does.”

53    Mr Woodhouse acknowledged the email and said that Mr Pappas “will have a fit”. That was because Mr Pappas wanted Ms Scott’s shareholding to be bought out; she did not want more shares, or to have shares in her own name; rather, she wanted to sever ties with the group (T68:9-18).

54    Mr Aulich replied, this time only to Mr Woodhouse (ie dropping Ms Taylor off the chain):

Yeah – I say we wait a week. He might just ignore. Then we issue the offer to buy 24975 shares at $1 and you advise you wont hold Joanna’s on trust any further. Sorry you have to do that and he will think it is personal from you too I suppose. If you’d rather hold them that’s ok too but fuck that – I would throw him out and make her be on ASIC for everyone to see.

55    Mr Woodhouse replied saying that he did not want to hold Ms Scott’s shares anymore and had not for a long time, and that Ms Scott could nominate someone else to hold them if she wanted to. Mr Aulich replied:

Nah – just get rid of them and they can work that shit out. As far as we concerned we will let ASIC know and they can sort it out after that.

I know you haven’t. just thought about it today and thought – don’t anymore. There’s no requirement making you do it. Fuck him and fuck her.

56    On 27 March 2020, Mr Williams wrote to Mr Aulich, Mr Woodhouse and Ms Taylor setting out some information on the economic position and outlook, and in particular what stimulus measures were available from the government. Mr Aulich then forwarded Mr Williams’s email to Mr Pappas and Ms Scott so that they would “be up to speed with what we are doing”. He said that he would need to understand their position as they would shortly be having to make “cash calls for all shareholders in equal proportions”. Once again, he asked that he be advised as soon as possible if they were able and willing to make payments into ACL and APT with the other shareholders. In light of the discussion at the meeting on 20 March 2020 and the emails on 25 March between Mr Aulich, Mr Woodhouse and Ms Taylor, the reference to making a “cash call” was obviously a reference to a share issue, which is also how it was apparently understood by Mr Pappas.

57    On 31 March 2020, Mr Pappas replied to Mr Aulich. He reiterated, with reference to his email of 12 March 2020, that Ms Scott had made the decision to depart the companies. He said that he and Ms Scott had been expecting to hear something about the proposed purchase of her shares but understood that that had probably taken a “back seat” because of the then present COVID-19-related crisis. He asked that there be some agreement reached concerning the value of Ms Scott’s shares as at 12 March 2020 although Ms Scott would not require any payment until the crisis had passed and the firm was back firmly on its feet and in the black. He said that neither he nor Ms Scott had thought it necessary to give formal notice under the shareholders agreement but that Mr Aulich should let him know if he took a different view. He said that he had not copied the other “partners” as he expected that Mr Aulich would keep them informed.

58    Importantly, Mr Pappas offered to lend ACL money on an interest-free basis until the crisis had passed. However, he said that if he was going to do that he would first need to be happy and assured that Ms Scott’s shares would be redeemed fairly which required an agreement on a figure and “a rough mechanism for payment down the track”. He said that neither he nor Ms Scott had been privy to the finances of the firm for some time, but that the figure at which Ms Taylor had bought in would be some guide as to Ms Scott’s share value.

59    Mr Aulich promptly forwarded Mr Pappas’s email to Mr Woodhouse, Ms Taylor and Ms Harders. He said that Mr Pappas had “gone stark raving mad” and disparaged Mr Pappas’s suggestion that Ms Scott’s shares be bought for $500,000 and that Mr Pappas lend them money. That was notwithstanding that only three weeks earlier he had said that it would be hard to argue against $500,000 (see [35] above). Mr Woodhouse responded by asking whether Mr Pappas’s offer to lend would prevent or inhibit them in making a cash call on shareholders. Mr Woodhouse was concerned that Mr Pappas’s offer of a loan with no interest might mean that ACL could not justify an equity raise (T70:15-16). Mr Aulich replied that he could not see how the offer to lend would have that effect and that he would draft a response to Mr Pappas.

60    A few hours later, Mr Aulich replied to Mr Pappas’s email, including to Ms Scott. It is a long email. The gist of it is as follows:

    With reference to some history including the assertion that Mr Pappas and Ms Scott had only put in a small amount of money to start ACL and APT, had contributed little and had continued to be paid profit distributions, Mr Aulich said that their position was “unconscionable”. He said that their position was not “fair or moral”.

    Mr Aulich tilted at many windmills, including an assertion that Mr Pappas was trying to “verbal” him, Mr Pappas’s use of the word “quasi-partnership” with reference to the companies and complaints about Mr Pappas and Ms Scott supporting another firm of solicitors in preference to the Aulich business.

    The companies did not need a loan but needed capital to keep them alive and that they were “worth negative” at that moment.

    “All new shares issued shortly for ACL and [APT] will be offered to you and Jo to purchase in equal proportion to the shares you already hold. There is no money in the companies at the moment and we are in dire times. You are either with us or not. You can choose to buy them and bunker down with us or not. Your choice.”

    Mr Aulich said that he was not prepared to let any shareholder hold shares on behalf of any other shareholder anymore and that documents for ASIC would be drafted so that Ms Scott would be on the record as the shareholder. He said that he would lodge documents with ASIC later that day.

61    Fifteen minutes later (still on 31 March), Mr Aulich wrote to Ms McGrath, the office manager, copying Mr Woodhouse, Ms Taylor and Mr Williams. He said that “We have a directors meeting today to issue more shares in ACL”. In the context of the rest of the email, which I will come to, I understand that to mean that he intended it to be recorded that there was a meeting of directors in which a resolution was adopted by circular. As will be seen, that occurred the next day. He attached a rough manuscript draft of an offer to be made to each of the shareholders, ie Ms Scott, Gracie Gill, Angiesal and Lily & Ruby Holdings, of an allotment of new shares in ACL so that each shareholder would hold 25,000 shares. He asked Ms McGrath to attend to the details after checking the ASIC register. He also asked Ms McGrath to complete the ASIC documentation to show that the 25 shares held on trust by Angiesal would now be held directly by Ms Scott.

62    On 1 April 2020, Mr Aulich, Mr Woodhouse and Ms Taylor adopted a circulating resolution of the directors of ACL allotting an additional 99,900 shares at a cost of $1.00 per share and offering the new shares to the shareholders in proportion to each of their current holding of shares in the company. Although the copy of the resolution that is in evidence was not signed, Mr Woodhouse confirmed in evidence that that was the resolution that was adopted and implemented.

63    Also on 1 April 2020, Mr Aulich wrote to Ms Scott attaching a notice of an offer to her (in her name) to purchase 24,975 shares in ACL at $1.00 per share pursuant to cl 16.2(b) of the ACL constitution. The offer was stated to be open for acceptance for 21 days. Neither the email nor the offer contained any additional information such as whether other shares were also being issued and, if so, to whom they were being offered.

64    A few minutes later, Mr Aulich forwarded the email that he had sent to Ms Scott to Ms Taylor and Mr Woodhouse. He outlined four “plays” that he saw being available to Mr Pappas/Ms Scott: (1) pay for the new shares and stay in the company; (2) seek an injunction against ACL issuing further shares on “some oppression type argument”; (3) apologise; or (4) not pay and have their shareholding diluted. He concluded by saying that threatening to register the shares in Ms Scott’s name directly “forces his hand and we know what he [sic] going to do”. That is to say, Mr Aulich regarded the threat to register the shares in Ms Scott’s name as giving him leverage against Mr Pappas as it would embarrass Mr Pappas with other firms of solicitors.

65    There were responses from Mr Woodhouse and Ms Taylor that were antagonistic towards Mr Pappas.

66    On 2 April 2020, Mr Pappas replied to Mr Aulich. He expressed some dismay at Mr Aulich’s “various hurtful and inaccurate claims and comments” but declined to respond to them. He sought to reassure Mr Aulich that Ms Scott would take no action to jeopardise the Aulich businesses during the COVID-19 crisis but also that he would not stand by and see her bullied out of her share in the businesses or allow the economic circumstances to be used to water down the value of her shareholding. He asked that Ms Scott be provided with the full description of each shareholder in ACL and APT, the number of shares held as a 12 March 2020 and the correct address of each shareholder.

67    Also on 2 April 2020, Mr Aulich replied to Mr Pappas. He said that ACL was “worth nothing – in fact negative”. He said that he was trying to generate capital to pay staff and not to water down the shares. He said that Ms Scott was free to purchase shares like all other shareholders and that if she thought that her shareholding was valued at what Ms Taylor had paid then she was free to make an offer to all the other shareholders to buy them out at that price.

68    On 22 April 2020, the 25 shares held by Angiesal as trustee for Ms Scott were registered with ASIC as being held by Ms Scott directly. That was achieved by Ms McGrath following the instructions of Mr Aulich.

69    Also on 22 April 2020, Mr Aulich wrote to Mr Woodhouse, Ms Taylor and Mr Williams copying Ms Hinton and Ms McGrath saying that Mr Pappas and Ms Scott had not accepted the offer to purchase more shares in ACL. He then put in train the process of offering her allotment to the other shareholders.

70    On 24 April 2020, there was a meeting of the directors of ACL. A resolution was passed offering Ms Scott’s allotment of 24,975 ordinary shares to the other shareholders in equal shares proportionate to their shareholding. Each of the other shareholders accepted the offer. The ASIC register was altered that day to reflect the issue of an additional 99,900 shares in ACL bringing the total number of issued shares to 100,000 so that Ms Scott held 25 shares and Gracie Gill, Angiesal and Lily & Ruby Holdings each held 33,325 shares.

71    The new shares were paid for by drawing from money in savings in the criminal law practice to Gracie Gill and Angiesal and then paying that to ACL, with Gracie Gill paying for both Mr Aulich and Ms Taylor’s shares. The result is that the share offer brought no new cash into the group.

72    Ms Scott gave three reasons for her not having accepted the share offer. First, she says that it was impossible for her to assess the merits of the offer because she had not been given financial information about the companies other than Ms Hinton’s “worst case scenario” cash flow projections on 24 March 2020. She says that she was also unaware of the total number of shares that were to be issued, how much money was proposed to be raised or to whom else offers to purchase shares had been made.

73    It will be recalled that Ms Scott was told that the shares were issued and offered to her personally pursuant to cl 16.2(b) of the ACL constitution. That clause provided that unless by ordinary resolution the company authorised otherwise, any share offer must be made to the existing members in proportion to their existing shareholding. However, there is nothing to suggest that Ms Scott had or had access to a copy of the ACL constitution and given that her shares were held by Angiesal in trust, there is nothing to suggest that she knew that there was no ordinary resolution of the company authorising the offer of shares only to her. However, in his email of 2 April 2020, Mr Aulich informed Mr Pappas that Ms Scott was “free to purchase shares like all other shareholders” implying that a share offer had been made to all the shareholders. That would in any event ordinarily have been expected to be the position in a quasi-partnership type company such as ACL. I therefore do not accept that Ms Scott’s failure to appreciate that the offer that was being made to her was also likely to have been made to all the other shareholders was reasonable. I do, however, accept that she did not have financial information available to her to enable her to assess the proper value of her shareholding or the financial position of the company.

74    As an aside, I also accept that Ms Scott did not have the copies of the constitutions of either ACL or APT. The defendants submit that I should not make that finding. They say that I should infer from the fact that Ms Scott exhibited the constitutions to her affidavit of 17 May 2023 that she did have copies of the constitutions. However, there is no evidence of where she got those copies from or when she got them – it could have been from the defendants after the proceeding was commenced. Rather, the inference to be drawn is to the contrary because prior to the commencement of the proceeding a letter of complaint by Ms Scott’s solicitor to Mr Aulich dated 21 August 2021 stated that she did not have the constitutions. Mr Aulich responded at length to the allegations in the letter, including vituperatively, but did not deny that allegation. It would have been very much in the interests of Ms Scott at that time for her to have had the constitutions because it would have aided her solicitor in formulating the complaints and claims then being asserted. The fact that the solicitor apparently did not have them, and Mr Aulich did not dispute the claim that Ms Scott did not have them, grounds the inference.

75    The second reason given by Ms Scott for not having accepted the share offer was that she continued to believe that Angiesal held her 25 ordinary shares in ACL on trust for her. She said that she understood the effect of that arrangement to be that Angiesal would manage those shares on her behalf and protect her interest in ACL in connection with any proposed issue of shares in ACL.

76    Whilst I must accept that that was her understanding since she was not challenged on it, that too was not a reasonable understanding. That is because Mr Aulich communicated the share offer directly to Ms Scott (via Mr Pappas as her representative) in her name and not in the name of Angiesal. It was thus clear that the formality of the registered shareholder being Angiesal as trustee on behalf of Ms Scott was not being observed. That is also consistent with Mr Aulich’s intention, which had been communicated to Ms Scott via Mr Pappas, that Ms Scott would no longer be allowed to hold her shareholding pursuant to a trust arrangement.

77    The third reason given by Ms Scott for not accepting the share offer was that only a few weeks earlier she had communicated to Mr Aulich her desire to dispose of her interest in ACL. Since then, the correspondence that had been exchanged was acrimonious. The offer came unexpectedly and was not accompanied by any explanation of the terms of the alleged “capital raising” or other information which would allow her to determine whether it should be accepted. She says that in those circumstances she was concerned the offer was motivated by a desire on Mr Aulich’s part to harm her interests.

78    I accept that as an explanation for why Ms Scott did not accept the share offer. I accept that she was not in a position to assess the financial position of ACL and accordingly what the offer was worth and she wanted the other shareholders to buy her out. I also accept that she was suspicious of Mr Aulich’s motives.

The APT share issue

79    Despite the indications in some of the correspondence canvassed above that there would be share issues in ACL and APT at the same time, for reasons not apparent from the evidence the APT share issue was not progressed until 2021. The evidence also does not cover what occurred between the ACL share issue that was finalised on 24 April 2020 and the APT share issue nearly a year later.

80    On 5 March 2021, Mr Aulich wrote by email to Ms Scott, Ms Taylor and Mr Woodhouse. He attached a profit and loss statement for APT from July 2020 to 22 February 2021 and a balance sheet as at February 2021. The profit and loss statement showed a loss over that period of $38,350 notwithstanding revenue of nearly $311,000. The principal expense was some $316,000 paid in management fees, presumably to Aulich Pty Ltd. The balance sheet showed total equity of $406,000 including assets in the form of related party loans to Lily & Ruby Holdings ($45,408), Aulich Leasing Pty Ltd ($19,500) and API ($242,046).

81    In the email, Mr Aulich proposed that a general meeting of the company be held pursuant to cl 5.2 of the APT constitution to discuss the financial reports with a view to allotting further shares to shareholders in equal proportions pursuant to cl 29.1(a) of the constitution. He proposed that the meeting be held at the Aulich offices at 11.00am on Tuesday, 30 March 2021.

82    Clause 5.2 of the APT constitution provided for the notice requirements relating to the convening of an extraordinary general meeting of the members of the company. Clause 29.1(a) provided for the passing of a resolution of the company in general meeting to consolidate and divide all or any of the company’s share capital into shares of a larger amount than its existing shares. As with ACL, there is nothing to suggest that Ms Scott had or had access to a copy of the APT constitution.

83    There is in evidence a draft of the minutes of a meeting of the directors of APT dated 5 March 2021, ie the same date as Mr Aulich’s email. Although the minutes are unsigned, Mr Woodhouse in cross-examination confirmed that a meeting did occur on that date (T81:32-40). It records that the issue of 10,000 ordinary shares offered to Ms Scott at $1.00 per share had not been taken up even though Ms Scott had yet to reply to that effect and there were some 25 days before the general meeting and, as will be noted below, a further 21 days before the offer expiry date. The existence of this minute in such circumstances seems to indicate that it was anticipated in advance that as with ACL, Ms Scott would not accept the share offer. That is also consistent with Mr Woodhouse’s recollection that there was no expectation of the APT issue being taken up by Ms Scott due to her non-participation in the ACL issue the previous year (T82:1-2; T86:18-33).

84    On 30 March 2021, a minute of the general meeting of the shareholders of APT was signed by Mr Aulich, Mr Woodhouse and Ms Taylor. The minute records a resolution that the shareholders were in favour of the allotment of an additional 40,000 shares at a cost of $1.00 per share with the new shares to be offered to the shareholders in proportion to each shareholder’s current holding of shares in the company. It also records Ms Scott’s absence from the meeting. There is also a manuscript file note of the meeting of shareholders on that day at 11.15am with Ms Scott being marked as absent.

85    As mentioned, cl 29.1(a) of the APT constitution provided for the members to consolidate and divide all or any of the company’s share capital into shares of a larger amount than its existing shares, but the power to allot shares remained with the directors under cl 23. I accept the submission on behalf of Ms Scott that Mr Aulich, Mr Woodhouse and Ms Taylor must be understood to have acted as directors of APT under cl 23.9 of the constitution in making the new share issue and offering it in equal proportions to the existing members of the company.

86    Also on 30 March 2021, Mr Aulich sent an email to Ms Scott attaching the minute of the meeting of the shareholders of APT held that day and an offer to acquire 10,000 ordinary shares in APT at a cost of $1.00 per share. The email explained that although a declaration of trust dated 6 October 2014 stated that Angiesal held the shares on trust for Ms Scott, at that time the ASIC register reflected that Ms Scott held the shares herself. Mr Aulich invited Ms Scott to let him know if the ASIC register was not correct so that he could seek to have the register amended.

87    Although in her affidavit Ms Scott identifies the offer attached to the email as being in the terms reflected in the preceding paragraph, in the court book a copy of the earlier offer to purchase shares in ACL appears where the offer in relation to APT should appear. I infer that the wrong offer was exhibited to the affidavit in error, and that what was intended to have been exhibited was an offer in relation to shares in APT as stated by Ms Scott in her affidavit. Corresponding offers to the other shareholders in APT, which are in the court book, confirm that offers were made to each of the four shareholders to purchase 10,000 shares at $1.00 per share and that the offers remained open for 21 days, ie until 20 April 2021.

88    The offers to the other shareholders of APT were accepted by each of them on 30 March 2021.

89    On 21 April 2021, Mr Aulich wrote to Mr Woodhouse and Ms Taylor saying that Mr Pappas/Ms Scott had not exercised the option to purchase shares in APT. He asked Ms McGrath to draft the resolution to offer the shares to the other shareholders in equal proportions as had been done for ACL.

90    That was presumably done because the ASIC register records that with effect from 6 May 2021 there were 40,100 issued shares in APT that were held as follows:

    Gracie Gill – 13,358

    Angiesal – 13,359

    Lily & Ruby Holdings – 13,358

    Ms Scott – 25

91    Ms Scott gives a few reasons why she did not accept the share offer in APT. First, she says that she had not consented to directly becoming a member of APT, or received any notice from Angiesal that it had ceased, or purported to cease, holding her shares on trust for her. She says that she was concerned that responding to the offer would be taken to be some form of acceptance of what she believed to be improper conduct engaged in by Mr Aulich on that question.

92    Secondly, she says that the offer was not accompanied by any explanation of why the share issue was being undertaken over a year after the proposal to issue further shares in APT was first raised by Mr Aulich. She says that the documents described by him as “financial reports” were plainly not financial reports and only raised more questions. By way of example, she says that it appeared that APT’s expenses largely comprised very substantial “management fees” and its assets included substantial loans to a shareholder and other entities in the Aulich group and “disbursements”. Further, she says that she had not been provided with any other financial information for APT.

93    Although her reasons explain why she did not take up the share offer, they do not explain why she did not respond to Mr Aulich in these terms nor attend the meeting, or insist that Mr Woodhouse for Angiesal attend the meeting on her behalf, and ask pertinent questions or why she did not otherwise seek further information and explanation.

Applicable principles

94    Section 232 of the Corporations Act relevantly provides as follows:

232     Grounds for Court order

The Court may make an order under section 233 if:

(a)     the conduct of a company’s affairs; or

(b)     an actual or proposed act or omission by or on behalf of a company; or

(c)     a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d)     contrary to the interests of the members as a whole; or

(e)     oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

95    There is no issue in this case that the conduct that is complained of is within s 232(a) in that it is the conduct of the affairs of ACL and APT by their directors that is impugned, in particular noting the expansive definition of the “affairs” of a body corporate in s 53 including its inclusion of “membership” (s 53(a)) and “internal management and proceedings” (s 53(c)) of that body corporate. Instead, the question is whether the conduct comes within s 232(e). It is not suggested that the impugned conduct is otherwise within s 232(d), with Ms Scott ultimately only being one of the members of the companies with a minority interest.

96    The reference to oppression, unfair prejudice and unfair discrimination in s 232(e) is to be understood objectively as a composite whole and has as a core minimum content the notion of unfairness: Wayde v NSW Rugby League Ltd [1994] HCA 68; 180 CLR 459 at 472 per Brennan J; Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692 at 704 per Young J, cited with approval in Dynasty Pty Ltd v Coombs [1995] FCA 610; 59 FCR 122 at 130 per Spender, O’Loughlin and Branson JJ. See further Mackay Sugar Ltd v Wilmar Sugar Australia Ltd [2016] FCAFC 133; 338 ALR 374 at [8]-[15] per Gilmour, Jagot and White JJ. As explained by Siopis, Rares and Davies JJ in Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; 314 ALR 62 at [9], citing Wayde at 472-473 and Campbell v Backoffıce Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [176] (and adopting the language of Young J in Morgan at 704):

The test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend upon the motives for what was done. It is the effect of the acts that is material.

97    Thus, “a defendant may act oppressively even though its motives are honest”: Mackay at [12]. However, even though subjective motives are not determinative on their own, purpose or motive may nonetheless be relevant to a court’s analysis of whether there has ultimately been unfairness considered objectively. “For example, if the decision-maker was motivated to make a decision to achieve some particular unfairness against a member, that fact might enable it to be concluded more readily that the effect of the decision is as the decision-maker intended (namely, unfair)”: Wilmar Sugar Australia Ltd v Mackay Sugar Ltd [2017] FCAFC 40; 345 ALR 174 at [73] per Dowsett, Jagot and White JJ. If an impermissible purpose is the dominant purpose behind the relevant conduct, or where there are multiple purposes at least “causative in the sense that, but for its presence, ‘the power would not have been exercised’”, that conduct will be invalidated: Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; 162 CLR 285 at 294. Thus, conduct which confers a benefit on a company may nonetheless still be unfair in the circumstances: Soulos v Pagones [2023] NSWCA 243; 416 ALR 181 at [177] per Ward P, Meagher and Mitchelmore JJA agreeing.

98    Hence, it is of paramount importance for the court to discern whether there is a commercial purpose moving the impugned conduct. If there is no commercial reason for conduct that has an oppressive or prejudicial effect, recognising that the assessment of whether there is sufficient commercial reason is in the ordinary course for the company’s management and the court will thus be slow to question a bona fide management decision honestly arrived at, then the conduct will be regarded as unfair: as discussed in The Wellness Group Pte Ltd v OSIM International Ltd [2016] SGHC 64; 3 SLR 729 at [185]-[186] per Chua JC.

99    Relevantly in the context of shareholder dilution, Chua JC in The Wellness Group considered rights issues absent commercial impetus (even if fairly and reasonably priced) unfair per se as a “rights issue requires shareholders to either invest more money in the company by subscribing to the rights issue, or let their shareholdings be diluted in value and voting power. Shareholders are entitled to expect that they will not be subject to this dilemma unless the company has a commercial reason to have a rights issue”: at [185]. Further to this, in Matthew v AIQ Pte Ltd (in liq) [2023] SGHC 361, Mavis Chionh Sze Chyi J observed “it should be remembered that even if there are good commercial reasons for the rights issue, it is a fact that every rights issue will dilute the shareholding of those shareholders who choose not to subscribe [to] it” (at [350]). Hence, as Sifris J noted in Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; 114 ACSR 1 at [148], “[i]f a majority shareholder’s dominant purpose in raising capital through a share issue is to reduce the proportional shareholding of the minority, unfairness and oppression may be established. This is, or may be, all the more so in small companies where the assumption and expectation is that the parties will be equal, or close to equal shareholders, akin to a quasi-partnership.” Of course, the purpose behind a dilution “depends on the peculiar facts and circumstances” and “is always a question of fact derived from the evidence and the drawing of necessary inferences”: Strategic Management at [148]. This is because, as noted in Matthew, “the intention to dilute non-subscribing shareholders often has to be inferred”: at [351].

100    In every case alleging oppression, the task of determining whether there has been commercial unfairness is to be undertaken in the context of the particular relationship which is in issue, and the assessment of commercial unfairness will commonly involve a balancing exercise between competing considerations which may include an examination of the conduct of the applicant: Mackay at [14] citing Joint v Stephens [2008] VSCA 210; 26 ACLC 1,467 at [136] per Nettle, Ashley and Neave JJA. Specifically, the conduct of the applicant may be such as to render conduct by the respondent which is prejudicial, nevertheless not unfair or it may affect the relief that the court considers appropriate to grant: Joint v Stephens at [136] citing Re London School of Electronics Ltd [1986] Ch 211 at 222 per Nourse J; Morgan at 706.

101    Section 233(1) provides that the court can make any order under the section that it considers appropriate in relation to the company, expressly giving the example in para (j) of “requiring a person to do a specified act”. That has been understood to include an order that a director compensate a shareholder for loss suffered by the shareholder provided that it is not a loss that is derivative of the loss sustained by the company: LPD Holdings (Aust) Pty Ltd v Phillips [2013] QSC 225; 281 FLR 227 at [58] per Philip McMurdo J (noting that holding (5) in the headnote to the FLR report is stated too broadly and is not supported by the Court’s reasons); In the matter of JGS Investment Holdings Pty Ltd [2014] NSWSC 1532 at [19]-[20] per Black J; Chaudhary v Bandicoot Group Pty Ltd [2017] FCA 517 at [20] per Besanko J; cf In the matter of Bailey Roberts Group Pty Ltd (in liq) [2025] NSWSC 227 at [273] per Black J. The question of derivative or reflective loss does not arise in this case as the loss alleged to have been suffered by Ms Scott is the diminution in the extent and hence value of her shareholdings in ACL and APT, which clearly represents her loss as a shareholder; it is not a loss that arises from a loss to or devaluation of the companies. The defendants do not contest that the Court has the power to order compensation from a director to a shareholder, nor do they contest that Ms Scott’s alleged loss is not derivative or reflective of the companies’ loss (T179:43-180:8; T182:27-30).

Consideration

102    There are a number of reasons which lead me to the conclusion that the share offer in ACL was principally done for the improper purpose of diluting Ms Scott’s shareholding in order to minimise her interest in the company (and through this, that of Mr Pappas). Moreover, that purpose was realised.

103    First, it is apparent that Mr Aulich was the lead player amongst the other shareholding interests, being himself, his de facto partner Ms Taylor and Mr Woodhouse. That is apparent from the lead that he took in communicating on behalf of all of them with Mr Pappas, his leadership of the discussions between them and his leadership of the processes of making the share allotments in ACL.

104    Secondly, Mr Aulich and Mr Pappas had developed a toxic relationship about which Mr Aulich felt very strongly. That is evidenced by his angry and vituperative responses to calm and measured communications from Mr Pappas and, later in the piece, from Ms Scott’s solicitor. It is also evidenced by the tone of his communications with the other shareholding interests about Mr Pappas. The latter in particular show that his animosity to Mr Pappas was not limited to rhetorical exchanges but had developed into an intention to cause harm to Mr Pappas’s interests. It is further evidenced by Mr Aulich’s insistence that Ms Scott no longer be allowed to have her shares held in trust by Angiesal, the reason for which was plainly to expose Mr Pappas’s interest in the Aulich companies in order to prejudice his position with competing solicitors. Mr Aulich insisted on that against Mr Woodhouse’s willingness for Ms Scott’s shares to continue to be held in trust albeit not by Angiesal. Ms Taylor also showed a similarly retaliatory attitude to Mr Pappas in her references to “the start of the war” and that “the gloves are off” when all that Mr Pappas had done at that time was to say that Ms Scott wanted out on the basis that the other shareholders buy her shares at value. That was an entirely reasonable and conventional proposal in the circumstances.

105    Thirdly, whilst I accept that in March 2020 there was genuine concern amongst Mr Aulich, Ms Taylor and Mr Woodhouse about the outlook for the Aulich companies in view of the developing COVID-19 pandemic (especially in light of Ms Hinton’s “worst case scenario” cash flow projection spreadsheets that they relied on), and that they did not have available to them the after-the-fact financial information which shows that the companies got through that period relatively well (and certainly not in accordance with the worst case projections), there is no reasonable justification for the defendants’ decision to raise capital in ACL and not in any of the other companies. That is apparent from the detail of Ms Hinton’s projections which, as mentioned, they put principal reliance on. Those in fact showed ACL to be in the best position of all the companies in the group; there was less reason to raise capital in ACL than in any of the other companies. Mr Williams confirmed in his evidence that the concern at the meeting on 20 March 2020 was about the group as a whole, and not about ACL or APT in particular. That is all in addition to the fact that ACL had cash reserves of over $2 million in April 2020 and did not require funding.

106    Fourthly, even if it is accepted that in the decision-making process the immediate provenance of new capital was immaterial to Mr Aulich and his partners and that the decision to have the share issue occur in ACL was entirely incidental in view of future distribution to the wider Aulich group, when the capital was raised in ACL it was not introduced into the group. Rather than having the share issue improve the cash flow of the group with a new injection of capital, the capital in question was in fact taken from other companies in the group. Thus, the raising of capital in ACL only recirculated existing funds within the group as a whole. In this way, the transaction did not align with the stated objective of responding to the additional capital requirements brought on by the COVID-19-related crisis. Neither did the refusal of Mr Aulich and his partners to accept Mr Pappas’s offer of an interest-free loan conform comfortably with the previous representations of needing an immediate working capital injection to tide the Aulich group over the crisis.

107    Fifthly, between the time when Ms Hinton’s spreadsheets were first circulated (on 19 March 2020) and considered and the directors’ resolution on 1 April 2020, no revision of the financial position was undertaken with reference to various government support measures that had been announced in the interim. This was despite the fact that Mr Williams in his email of 27 March 2020 had put the directors on notice of those stimulus measures. Even if those measures were insufficient to avoid the requirement of additional capital, the evidence does not show that there was serious, ongoing consideration of the appropriateness of the amount being requested from shareholders as part of the capital call since the initial projections. If there was such consideration, certainly Ms Scott was not made aware of it – according to Mr Woodhouse, no updated financial documents concerning ACL were ever given to Ms Scott after 31 March 2020 (T76:43-45).

108    Sixthly, Mr Pappas made clear to Mr Aulich as early as 12 March 2020 that Ms Scott wished to be bought out; she had no interest in continuing to have any shareholding in any companies in the group. That stood to reason because of the falling-out between Mr Pappas and Mr Aulich which obviously had a knock-on effect on the other relationships, notably Ms Scott’s with Mr Aulich and the other shareholding interests. Forcing Ms Scott to the choice between making a further contribution of capital to the company or having her shareholding devastatingly diluted was not in any way responsive to her legitimate wishes; it was antithetical to them.

109    Seventhly, the prejudicial scheme and intent behind the ACL share allotment is apparent from Mr Aulich’s email to the other shareholding interests on 25 March 2020 (discussed at [52] above). It is apparent from the subsequent email exchanges between the shareholding interests, including Mr Aulich’s statement that he would “throw [Mr Pappas] out”. It is also apparent from the fact that alternative funding options such as shareholder loans were rejected out of hand in the lead-up to the ACL share issue.

110    Eighthly, the issue of ACL shares occurred at nominal value of $1.00 each. The value of the company by net asset value was close to $2 million at the time (on the lowest valuation proposed by Ms Scott). There were 100 shares, each share would have been worth around $20,000 on a net asset value basis. Hence, each $1.00 share was issued at a significant undervalue.

111    Finally in relation to the purpose of the share issue, Mr Aulich did not give evidence. Instead, the defendants relied on the evidence of Mr Woodhouse. But as I have explained, he was not the main player driving what occurred. Mr Aulich is the obvious witness to give evidence about why it was decided to raise capital in ACL (and later in APT) and not in the other companies, and to explain the need for raising capital. His absence grounds the inference, which I draw, that his evidence would not have assisted the defendants’ case: Jones v Dunkel [1959] HCA 8; 101 CLR 298 at 308 per Kitto J, 312 per Menzies J, 320-321 per Windeyer J; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361 at [63]. That is to say, he would not have been able to provide a reasonable commercial rationale for the ACL share issue.

112    Turning now to the oppressive effect of the share issue, it is clear that it diluted Ms Scott’s interest in a devastating way. The details of that are canvassed above. Having recorded that her interest in ACL went from 25% to 0.025% (and $710,800 to $711), no more needs to be said about it. This is a case where the purpose of the capital raisings was not to raise capital but to inflict prejudice on a minority shareholder, and that purpose was achieved.

113    The third, fourth and fifth considerations identified above with respect to why I have found that the other shareholders made the share issue for an ulterior purpose also go to support a finding of oppression. In short, there was no commercial reason for the share issue in ACL rather than in other companies in the group. No reasonable director considering the matter would think such an outcome, in the absence of genuine commercial rationale, a fair one.

114    Many of the considerations going to an absence of commercial rationale for the ACL share issue can also be said of the APT share issue. Mr Aulich together with the other shareholding interests put in train the same process to dilute Ms Scott’s interest in APT, around a year after that occurred for ACL. That was following through on what, on 31 March 2020, he had told Mr Pappas would be done (see [60] above). Mr Aulich continued to play a leading role in coordinating with Mr Woodhouse and Ms Taylor. In the absence of evidence to the contrary, least of all that provided by Mr Aulich himself, there is no reason to think Mr Aulich did not continue to harbour the same animus against Mr Pappas between the ACL share issue and the commencement of preparations for the APT share issue. Indeed, the opposite is suggested by the unilateral amendment of the ASIC register for APT to have Ms Scott directly hold the shares previously held on trust by Angiesal, as had been done for ACL the year before. To similar effect, it can be inferred that Ms Scott continued to have no desire to maintain her interest in APT because of the falling out and that Mr Aulich continued to have a desire to dilute Ms Scott’s interest to adversely affect Mr Pappas. The share issue which eventuated was also done at nominal value.

115    Even more so than the share issue for ACL, which it can be accepted occurred at the peak of the COVID-19 crisis with reference to worst-case contingency planning, it may be questioned whether APT required further funding in April 2021 by way of an external capital injection. The profit and loss statement and balance sheet for APT provided to Ms Scott, Mr Woodhouse and Ms Taylor on 5 March 2021 indicates to the contrary. Although the profit and loss statement showed a loss of $38,350 over the preceding period, the balance sheet nevertheless recorded that APT had receivable loan balances exceeding $306,000. While some of these were from other Aulich entities which may have been unable to repay the loan amounts in the near term, $45,408 was owing from Lily & Ruby Holdings controlled by Ms Taylor. It is not outside the realm of possibility that there may have been a reasonable business case for the APT share issue at that time. However, no further explanation was provided to Ms Scott beyond these circumstantial figures. In light of the intent and lack of commercial rationale demonstrated for the ACL issue the year preceding, the better inference, which I draw, is that the dominant purpose behind the APT issue was to facilitate a like scheme to dilute Ms Scott’s interest.

116    Absent a commercial rationale, the dilution that resulted was ultimately oppressive in circumstances where Ms Scott’s shareholding went from 25% to 0.0623%, and thus $33,640 to $84.

117    The defendants submit, correctly, that this was not a situation where Ms Scott as plaintiff was deprived of the opportunity to participate in the ACL or APT share issues: cf Sharif v Vitruvian Investments Pty Ltd (No 3) [2023] FCA 920; 171 ACSR 256 at [261] per Colvin J. For both companies Ms Scott was given notice of the offer of additional shares and invited to participate. The defendants submit that Ms Scott chose not to participate and thus willingly exposed herself to the risk of dilution in the ordinary course. In the case of APT, Ms Scott did not attend the general meeting or take action having notice of that impending meeting. Although not articulated fully by the defendants, I take this to be an argument that Ms Scott’s own conduct might render the impugned conduct not unfair or disentitle her to the form of relief sought. I do not, however, understand the defendants to be suggesting that Ms Scott had engaged in some kind of prejudicial conduct so as to provoke or be responsible in some way for their conduct in relation to ACL and APT: cf Fexuto Pty Ltd v Bosnjac Holdings Pty Ltd [2001] NSWCA 97; 37 ACSR 672 at [90] per Spigelman CJ; Morgan at 706. Such an argument would not in any event be tenable where there is no evidence detailing the precise cause(s) of the breakdown in the relationship between Mr Pappas and Mr Aulich at the heart of the case.

118    A broad comparison, however, could be drawn between Ms Scott’s failure to engage as detailed above with the scenario in In re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273. There, Nourse J held that asserted defaults including failure to provide records and accounts, refusal to execute a loan agreement and failure to agree to a share split on the part of a director “running a quasi-partnership company virtually as his own” was not unfair “because the applicant had not shown any interest in being involved in management or decision making”: at 292 as summarised in Re Scientific Management Associates Pty Ltd [2019] NSWSC 1643; 141 ACSR 115 at [280] per Rees J and cited in Chief Disruption Officer Pty Ltd v Michel [2022] FCA 1302; 164 ACSR 476 at [31] per Goodman J.

119    More specifically analogous is Matthew in which a defendant argued that the diluted plaintiff shareholder “was not incapacitated from participating in the Rights Issue: he simply chose not to”, thereby rendering the conduct not unfair (at [333]). In view of that plaintiff’s awareness of the impending rights issue, including participating in board meetings regarding it, and the existence of genuine commercial reasons for it, Mavis Chionh Sze Chyi J did not find the rights issue to be unfair (at [362]-[369]).

120    However, in the context of the particular facts before me, Ms Scott’s conduct does not detract from the objective unfairness of the conduct causing the dilution of her shareholding in ACL and APT. That objective unfairness arises from the absence of genuine commercial reasons actuating the share issues. Mr Aulich, Ms Taylor and Mr Woodhouse were otherwise aware of Ms Scott’s opposition to the prospect of an increase in her capital contribution to ACL or APT by way of Mr Pappas’s email of 12 March 2020, well before the offers were made to Ms Scott. It is doubtful that further signalling of her opposition to the share issues, including attendance at the general meeting for APT, would have led to a different outcome when the directors had the exclusive power to allot shares and had already developed a firm intention to dilute her interest and thereby exclude Mr Pappas from the Aulich ventures. When Ms Scott/Mr Pappas was notified of an impending “cash call” for ACL, Mr Pappas wrote back on Ms Scott’s behalf to make clear that there was no intention of taking up any share offer. As already discussed, the directors would have been aware of this when transmitting the subsequent offer for APT. It was not the case that there was mute acquiescence from Ms Scott.

121    For those reasons, I am satisfied that the circumstances in s 232(e) are established in respect of both the ACL and APT share allotments and that the power to order relief under s 233 is enlivened. It remains to consider what relief, if any, should be granted.

Relief

122    At the commencement of the suit, Ms Scott sought a conventional buy-out order of her interests in ACL and APT in addition to alternative orders setting aside or declaring invalid the ACL and APT share issues or otherwise winding up the companies. However, by amended originating process, Ms Scott now seeks the payment of compensation by Mr Aulich and Mr Woodhouse amounting to the diminution in value of her shares in ACL and APT, or alternatively the ACL dividends foregone by her. Compensation is therefore the principal form of relief sought by Ms Scott (T106:13-22). That presents some complexity to fashioning the appropriate relief.

123    As counsel for Ms Scott acknowledged at the outset of the trial, compensation directly from the directors to a shareholder under s 233 of the Corporations Act is a novel remedy albeit accepted by the defendants to be within power (see [101] above). Counsel for the defendants submitted that to make such an order in this case would be the first instance of this being done in Australia. Certainly, research of counsel has not brought to my attention any case where an order of this type has been made.

124    However, where ACL is already in liquidation and APT will soon be going into external administration, it seems pointless to contemplate any form of winding up or setting aside/declaring invalid the underlying share issues. In exercising the broad discretion under s 233, “the Court should seek to grant whatever relief is best suited to deal with the particular oppressive conduct” and, “relatedly, the relief granted should be commensurate with the oppression found”: Chief Disruption Officer Pty Ltd v Michel (No 4) [2023] FCA 25 at [14]-[15] per Goodman J and the authorities cited there.

125    The oppression already having occurred in the share issues for ACL and APT, and Ms Scott having suffered loss for it not otherwise attributable to or derivative of loss to the companies, this is the rare case where the novel remedy of compensation from the directors to a shareholder is warranted. Such a remedy appears to be the only form of relief that would meaningfully address Ms Scott’s loss, now otherwise irremediable through the companies themselves as they are no longer (or will no longer be) going concerns.

126    I reject the proposition advanced by the defendants that the demise of the companies represents an intervening event which has “ended” any oppression such that Ms Scott should be left without any remedy due to the vicissitudes of time. While I accept that there is no ongoing oppressive conduct, it is nonetheless the case that Ms Scott’s oppression has remained unremedied. To not recognise the loss caused to a shareholder and fashion an appropriate form of relief for them simply because there is no longer a viable company in which oppression can continue to occur would be a most unjust outcome. She bears no responsibility for what has happened to the Aulich companies. It must be borne in mind that Ms Scott’s intention at the time the oppressive conduct occurred was to sell her interest in the Aulich companies. Had she been able to do so, then the diminution in value caused by the liquidation of ACL and the impending external administration of APT would be irrelevant to her now. It is only because of the defendants’ oppressive conduct that that has not occurred. She is clearly in a worse position than if that conduct had not occurred, irrespective of which valuation would ultimately have been agreed between the parties as to her interests.

127    I therefore consider that the most appropriate form of order is that Mr Aulich and Mr Woodhouse, jointly and severally, pay compensation quantified in accordance with the diminution in value which occurred at the time of the dilution for each of ACL and APT. That would have the effect of restoring Ms Scott to the position she would have been in but for the oppressive conduct, erring on the side of the oppressed to the extent there is doubt: ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 at 540 per Young J. That is to arrive at compensation amounts equivalent to what would have been paid to Ms Scott if buy-outs had been ordered and made effective at the time of the dilution in each company.

128    The defendants’ conduct meant that Ms Scott was not able to realise the value of her shares when she wanted to get out of the companies and when the oppressive conduct occurred. Although immediately after the share issues, Ms Scott’s diluted shareholding had some (albeit marginal) value, that need not be taken into account because the shares were ultimately worth nothing at the time of trial and the oppressive conduct had the effect of preventing Ms Scott from realising any value for her shares. To put it differently, the oppressive conduct denied Ms Scott the buyout of all her shares at fair value.

129    The unchallenged expert evidence of Mr Haley is that Ms Scott’s 25% interest in ACL immediately before the share issue in April 2020 was $710,800 based on a net asset value of the company of $2,843,199. On that basis, Ms Scott might have claimed $710,800 less the value of dividends received by her. However, recognising the common ground in the correspondence between the parties that her shares probably had a value of about $500,000 or $550,000 based on what Ms Harders had paid for her 25% interest (see [35] above), Ms Scott claims only $500,000 less dividends received subsequent to the dilution. That is the amount she should be compensated.

130    Ms Scott’s 25% interest in APT immediately before the share issue in May 2021 was $33,860 based on a net asset value of $135,439. That is the amount she should be compensated, less any dividends received subsequent to the dilution.

131    Pre-judgment interest is also sought on both those amounts from 24 April 2020 and from 6 May 2021 respectively. Account must also be taken of any notional interest earned on the dividends that were paid subsequent to dilution.

Conclusion

132    As explained, Ms Scott should be compensated by Mr Aulich and Mr Woodhouse on the basis of the value of the shares in ACL and APT at times proximate to the share issues in those companies that caused her shareholdings to be diluted, less the benefits she received in dividends subsequent to those times. Account should be taken of pre-judgment interest on those amounts, as well as the notional interest earned on the dividends subsequent to them having been paid.

133    The ultimate quantification of the compensation orders to be made in favour of Ms Scott is a matter for calculation and agreement by the parties. If the parties are unable to agree, then the resolution of their competing positions will have to be determined.

134    On the information currently presented, Ms Scott should have her costs of suit.

135    I will direct that the parties bring in agreed or competing minutes of order within 14 days.

Associate:

Dated:    31 October 2025

SCHEDULE OF PARTIES