Hylepin v Doshay: excuses for shareholder oppression?

On 19 November 2021, the Full Court of the Federal Court of Australia published its decision in the case of Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 (Hylepin v Doshay).  Hylepin v Doshay was appealed from the decision in Hylepin Pty Ltd v Doshay Pty Ltd [2020] FCA 1370 that concerned a shareholder oppression claim and allegations of breach of directors’ duties pursuant to the Corporations Act 2001 (Cth) (Corps Act).

Background of Hylepin v Doshay

The dispute concerned claims brought by the Appellant, Hylepin Pty Ltd (Hylepin), a minority shareholder in Doshay Pty Ltd (Doshay), against Doshay and its director, Mr John So (Mr So).  Hylepin, which held 45,000 shares in Doshay since 1987.  Proceedings were commenced in 2016, alleging that Mr So’s conduct was oppressive or contrary to the interests of members, and involved breaches of fiduciary duty.

From 1987 onwards, Mr So was a shareholder, managing director, and general manager of Doshay, which operated the Dragon Boat Restaurant.  In his roles, Mr So invested in various projects, sometimes through Doshay, sometimes personally, and sometimes through related corporate entities.

Oppressive conduct contrary to member interests

Hylepin challenged six (6) main categories of conduct, referred to as “impugned transactions”, spanning 1988 to 2019, alleging they were contrary to the interests of the members, oppressive to Hylepin or both.

The Impugned Transactions included:

• investment in related restaurant companies;
• property acquisitions;
• Evaluator Pty Ltd transactions;
• alteration of the share register;
• non-payment of dividends; and
• lease non-renewal.

Investment in related restaurant companies

Firstly, Hylepin alleged that Mr So caused Doshay to acquire shares in, and advance loans to, four (4) other companies that operate restaurants, being:

• Westlake Restaurant Pty Ltd (Westlake) which operated the Westlake Chinese Restaurant, in which Doshay invested in FY1988;
• Lyleable Pty Ltd (Lyleable), which operated a ‘Dragon Boat’ restaurant pursuant to a Franchise Agreement with Doshay entered into in February 1989;
• Jadetrex Pty Ltd (Jadetrex), operated the ‘Dragon Boat Palace’ restaurant pursuant to a Franchise Agreement with Doshay entered into in March 1990; and
• Dragon Wall Pty Ltd (Dragon Wall), which operated a Chinese takeaway restaurant business from 1990.

Hylepin complained that the Respondents held personal interests in those companies and that Mr So caused Doshay to invest in and transfer substantial sums to those companies without any loan agreements, security or interest and without disclosing his conflicts to Doshay.

Property acquisitions

Secondly, Hylepin alleged that Mr So used Doshay’s assets, without its consent, to acquire two (2) properties (Property Acquisitions), in the years 2000 and 2004, for Global 2000 Melbourne Pty Ltd (Global 2000), a company that he was a director of and in which he held a majority shareholding, through a company called Global Crest Pty Ltd (Global Crest).

Evaluator transactions

Thirdly, Hylepin alleged that, in 2001 and 2003, Mr So caused Doshay to buy shares in and transfer funds to Evaluator Pty Ltd (Evaluator), which was directed by Global Crest (Evaluator Transactions).  Evaluator was established specifically to acquire the Café Puccini business, which was located next to the Dragon Boat Restaurant.  Eventually, parts of the Café Puccini premises were used by Doshay for expanding the Dragon Boat Restaurant and operating a new business: the DB Express Noodle Bar.

Alteration of the share register

Fourthly, Hylepin alleged that, in May 2004, Mr So wrongly caused Global 2000 to correct its register of members and lodge a form with the Australian Securities and Investments Commission (ASIC) to show that out of the ten (10) shares, Doshay owned four (4) and Mr So owned one (1).  In fact, Doshay owned five (5) shares while Global Crest owned the other fifty percent (50%).

Non-payment of dividends

Fifthly, Hylepin alleged that Mr So caused Doshay to fail or refuse to pay dividends to its shareholders at any time prior to 9 November 2018, despite retained profits of more than $8.6 million for the previous financial years.  Before the trial however, Doshay provided Hylepin with $300,000 and an accompanying dividend statement, who in turn adduced no evidence of complaints or requests for payment from him or other members.

Lease non-renewal

Finally, Hylepin alleged that, on 9 May 2019, Mr So resolved not to exercise the option to renew Doshay’s lease of the premises at which it operated the Dragon Boat Restaurant.  Hylepin claimed that this decision was made for Mr So’s own personal convenience and without proper regard for the interests of Doshay or its members.

Original decision

The primary Judge dismissed Hylepin’s claims based on oppression or breach of fiduciary duty, except for making a declaration that Doshay was the rightful owner of five (5) shares in Global 2000 (Share Declaration), finding that the error did not involve oppression or a breach of duty. 

Issues before the Full Court

Hylepin appealed on the following grounds, which constituted the issues considered by the Full Court:

• whether the primary Judge erred in finding that Mr So did not breach his fiduciary duties in relation to the Property Acquisitions and the initial investment in the Evaluator Transactions (First Ground); and
• whether the primary Judge erred by failing to find that certain transactions either separately or cumulatively were oppressive, and in particular failed to find that neither the conduct that culminated in the Share Declaration nor the conduct by way of the buyout of Global Crest’s shares in Evaluator was oppressive (Second Ground).

Fiduciary duties

The Full Court affirmed the primary Judge’s application of the principles governing fiduciary duties and rejected the First Ground of Hylepin’s appeal. 

A director of a company is under a fiduciary obligation not to promote his or her personal interest by making or pursuing a gain or benefit in circumstances in which there was a conflict or a real or substantial possibility of a conflict between his or her personal interest and the interests of the company without the fully informed consent of the company.^[1]

The primary Judge also noted the following matters:

• the question whether there is a real possibility of conflict is assessed objectively;^[2]
• one way of ascertaining whether the interest of the fiduciary is remote or insubstantial is to ask whether the interest is such that a reasonable person would think there is a real or substantial possibility of the fiduciary being swayed by it;^[3]
• where a director of a company with a conflicting interest has caused the company to engage in a transaction, it is no defence that the impugned transaction has brought a benefit to the company that would not otherwise have been available or that the transaction was objectively reasonable;^[4]
• a conflict of duties may arise where a person is a director of two companies that transact with each other, because a company is entitled to the unbiased and independent Judgement of its directors – a director of a company who is also a director of another company may owe conflicting fiduciary duties;^[5]
• but it is not always the case that a conflict of duties arises where a person is a director of two companies transacting with each other – the scope of the fiduciary duty depends upon the circumstances and the nature of the relationships in issue;^[6]
• nor does a company director breach their fiduciary duties merely because they are also a shareholder of a company and so also benefit personally from promotion of the company;^[7]
• a director of one company that holds an investment in a second company may be nominated as a director of a second company to further the interests of the investment.  Frequently, no conflict of duty arises because relevant decisions are in the interest of both the appointor company and the appointee company.  A nominee director only acts in breach of their duty owed to a company if they would not have made a decision as director of one of the companies but for the interests of the other company.^[8]

Crucially, the scope of the duty is “context-specific“.

Property Acquisitions

The Court found that Mr So brought the investment opportunity to Doshay in his personal capacity, and Doshay’s interests and Mr So’s personal interests (through Global Crest) in securing the property for the joint venture were aligned, negating any “substantial risk of conflict“.^[9]  The finding that Mr So would have made the same decision regardless of the identity of the other investors reflected that his personal interest was not the actuating motive and was not inconsistent with his duty,.

Evaluator Transactions

The initial Evaluator investment was held not to be a breach because the transaction served Doshay’s clear commercial interests by protecting its Dragon Boat Restaurant from competition and providing additional space.

The Full Court noted that the primary Judge did find Mr So breached the conflict and profit rules when he caused Doshay to buy out Global Crest’s interests in Evaluator.  Mr So benefited because his related entity, Global Crest, was repaid its loan by Doshay, at a time when Evaluator was loss-making.  However, this finding was subject to the six (6) year statutory limitation period.

Oppression claims

The primary Judge found that the impugned transactions generally were “not uncommercial or improper” and were undertaken with the aim of increasing Doshay’s value while recognising business risks, rejecting Hylepin’s Second Ground of appeal.

The Full Court reiterated that the test for statutory oppression under section 232(e) of the Corps Act is concerned with “commercial unfairness,” requiring a departure from the standards of fair dealing that imposes a disadvantage, disability, or burden on a member.  This test is judged objectively, asking whether reasonable directors would have decided that the conduct was unfair.  Proof of mere prejudice or discrimination is insufficient.

The Full Court upheld the primary Judge’s rejection of the assertions that the transactions constituted oppression:

• Evaluator buyout: Despite the finding that the Evaluator buyout constituted a breach of fiduciary duty, the Court held it was not statutory oppression.  This was because the decision was commercially justified: it protected Doshay’s business by securing a strategic lease over the adjacent Café Puccini premises and prevented potential insolvency if the loan were recalled.  The conduct was found not to be dishonest or fraudulently concealed.
• Lyleable and Jadetrex Loans: The loans made to these entities were considered commercially understandable attempts to expand Doshay’s business through franchising the ‘Dragon Boat’ name, even though they ultimately failed financially.  Such transactions were found “not out of the ordinary” or “uncommercial“.
• Share register alteration: The attempt in 2004 to alter the Global 2000 share register was found by the primary Judge to be an “honest but erroneous view” held by Mr So due to inaccuracies in Doshay’s financial statements, rather than dishonest conduct.  The Full Court found that this mistake was not commercially unfair or oppressive, noting that nothing beyond theoretical prejudice resulted before the issue was corrected by the Court’s declaration.
• Failure to renew lease: The decision by Mr So not to renew the Dragon Boat Restaurant lease was supported by commercial reasons, including difficult trading conditions, unfavourable lease renewal terms, and the intention to negotiate a better lease.  The primary Judge’s finding that this was a matter of sound business judgment was upheld, as Hylepin failed to show it was commercially unreasonable or lacked due care and diligence.
• Cumulative Effect: The Full Court agreed that the conduct, when viewed collectively or in combination, did not constitute a pattern or course of conduct that could be described as oppressive or unfair.

Decision and orders

The Full Court dismissed the entirety of Hylepin’s appeal.  Hylepin was ordered to pay the Respondents’ costs of the appeal.

Implications

The Hylepin v Doshay decision provides important guidance on the distinction between a breach of fiduciary duty and statutory oppression.  The case affirms that even where a breach of fiduciary duty exists, as in the Evaluator buyout, relief for oppression may be denied if the conduct leading to the breach was undertaken for a valid commercial purpose that aimed to further the corporate object.

The judgment underscores that the test for oppression is the objective standard of “commercial unfairness” or a departure from “accepted standards of corporate behaviour“.  Conduct that amounts merely to business mismanagement, or that occurred long ago and was disclosed in accounts available to members, will generally not meet the high threshold for statutory oppression.

Links and further references

Related articles

For an example of where the decision of Hylepin v Doshay was used to establish a finding of breach of duty and oppressive conduct, see our article on the case of Groves v Tas Fumigation and Pest Services Pty Ltd [2025] FCA 1089.

Legislation

Corporations Act 2001 (Cth)

Cases

Groves v Tas Fumigation and Pest Services Pty Ltd [2025] FCA 1089

Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201

Hylepin Pty Ltd v Doshay Pty Ltd [2020] FCA 1370

Further information about director’s duties

If you need advice on shareholder oppression or director’s duties, contact us for a confidential and obligation free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances

[1] Boardman v Phipps [1967] 2 AC 46 at [124].

[2] Boardman v Phipps [1967] 2 AC 46 at [124].

[3] Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] (2008) 39 WAR 1 at [4512].

[4] Allco Funds Management Limited v Trust Company [2014] NSWSC 1251 at [167].

[5] R v Byrnes & Hopwood (1995) 183 CLR 501 at [516]‑[517].

[6] Howard v Commissioner of Taxation (2014) 253 CLR 83 at [34], [60]‑[61].

[7] Howard v Commissioner of Taxation (2014) 253 CLR 83 at [34].

[8] Mills v Mills (1938) 60 CLR 150 at [186].

[9] Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201 at [80].

Recent insights about corporate governance