Oppression Inception? An oppression suit within an oppression suit
There’s a huge variety of conduct that can found an oppression suit pursuant to Section 232 of the Corporations Act 2001 (Cth). The “commercial unfairness” test for proving oppression can be described as a little vague.
This vagueness makes life difficult for corporations and those that control them, as the consequences of an oppression suit can be brutal, including the existential threat of the company being wound up.
But what happens if a party claims it is being oppressed, commences legal proceedings, and then claims that the defendants’ conduct within the legal proceedings is itself oppressive?
How does the court deal with oppression within oppression?
Case Study: Oppression within oppression?
The decision of Sellar v Lasotav Pty Ltd; In the Matter of Lasotav Pty Ltd  FCA 1766 offers some useful insights.
Oppression proceedings were commenced by plaintiffs who were 6.275% shareholders in a company that owned a marina. The defendants included the company and shareholders who owned a 70% stake and who were also directors.
As the litigation progressed, evidence came to light that the defendant shareholders’/directors’ legal fees were being paid by the company. The defendants therefore had the benefit of a "war chest" not available to the plaintiff.
Further: money spent from the "war chest" reduced the value of the very company the parties were arguing about!
The plaintiffs sought an immediate injunction to stop the company from paying the defendants' legal fees for reasons including:
- Using company funds to defend an oppression suit may constitute oppression; and
- An injunction ought to be granted because the plaintiffs' lack of funds meant there was a "decidedly uneven playing field".
The Court found that the case law tended to support plaintiffs’ “oppression within oppression” claim.
The plaintiffs had to show that they would suffer irreparable injury for which damages (or compensation) would not be an adequate remedy unless an injunction was granted, and that the balance of convenience favoured the granting of an injunction. The plaintiffs failed to satisfy these requirements. However, the Court found that if the “oppression within oppression” claim was made out then damages paid at the end of the litigation would be sufficient, and there was no need for an immediate injunction in the middle of the broader litigation.
This finding meant that the "balance of convenience" test required for immediate injunctive relief was not made out.
The plaintiffs’ application failed and they were obliged to pay the defendants’ costs of the “oppression within oppression” proceedings.
Any consideration of the law of oppression must serve as a “wake up call” for those who control the conduct of corporations. While the plaintiffs failed in their interlocutory application this time, the decision was finely balanced.
It is important for companies, and those that control them, to remember that conduct which does not breach any other laws (and which may not necessarily constitute a breach of directors' duties) may still put the company in a position where it is at risk of being wound up.