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shareholder oppression

What evidence do you need to prove shareholder oppression?

by

Dundas Lawyers

reviewed by

Malcolm Burrows

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10–14 minutes
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Quick summary of evidence in shareholder oppression

To prove oppression under section 232 of the Corporations Act 2001 (Cth), a shareholder must show, on evidence, that the company’s affairs were conducted unfairly. In Sharif v Vitruvian, contemporaneous documents proved that a share cancellation was oppressive, but a claim of exclusion from management failed for want of evidence.

Key insights

  • Oppression is judged objectively, but evidence of purpose or motive can help show that conduct was unfair.
  • Where the parties’ accounts conflict, the Court relies on documents and uncontested events, not on what either side now says.
  • Each ground of oppression needs its own evidence: in Sharif, the exclusion from management claim failed because none was led.
  • Contemporaneous file notes proved the plan behind the share cancellation and the later share issue.
  • Evidence of loss must be objective; a witness who is not called may count against the party who could have called them.

On this page

In Sharif v Vitruvian Investments Pty Ltd (No 3) [2023] FCA 920 (Sharif), a 15 per cent shareholder in a start-up won his oppression claim after the sole director cancelled his shares. But one of the four aspects of oppression he alleged failed outright, and the Court found both principal witnesses so unsatisfactory that it relied on the documents to decide what happened.[1] This article explains what a shareholder must prove under the Corporations Act 2001 (Cth) (Corporations Act), and what Sharif shows about the evidence that wins and loses oppression claims. For an overview of how we help, see our shareholder oppression lawyers page.

——— The test

What must a shareholder prove to establish oppression?

That the conduct of the company’s affairs was oppressive, unfairly prejudicial or unfairly discriminatory, judged objectively on the evidence.

If the Court is satisfied of that, it can make any order it considers appropriate.[2] The question is whether, in the eyes of a commercial bystander, the conduct was so unfair that reasonable directors would not have thought it fair. It is the effect of the conduct that matters, not the motives behind it.[3]

Motive is still relevant evidence. If a decision-maker set out to achieve some unfairness against a member, it may be concluded more readily that the effect of the decision was unfair.[4]

The Court also looks at the circumstances of the particular relationship. It does not judge the commercial wisdom of the conduct, only whether it falls outside what reasonable directors would consider fair.[5]

In short, the test is objective, but it is applied to facts that the shareholder has to prove.

——— Credibility

What happens when the parties’ evidence conflicts?

The Court looks for independent evidence, especially documents created at the time, and tests each witness’s account against them.

In Sharif, the accounts of the shareholder and the director were diametrically opposed on key points. Colvin J found them both to be unsatisfactory witnesses whose evidence on critical matters could not be relied upon unless independently verified, so he began with the documentary record, the uncontested events and the inferences available from the chronology.[6]

Consistency

Inconsistent accounts

The shareholder’s explanations of how he had described his qualifications were inconsistent and unconvincing, and reflected adversely on his credibility.[7]

Timing

Explanations raised late

The director’s claim that he had been concerned about the shareholder’s qualifications was rejected. Part of it was offered for the first time in cross-examination, and the Court found it was a “revisionist version of the events” constructed after settlement negotiations failed.[8]

Documents

The contemporaneous record

Emails, file notes and draft agreements created at the time were used to test both accounts and to find what had actually happened.[6]

Focus

Relevance

Claims that were abandoned left large parts of the shareholder’s evidence with little or no relevance, and the Court did not address it.[9]

In short, a well-documented case is far more persuasive than a well-told one.

——— Exclusion

Why did the exclusion from management claim fail?

Because there was no evidence that his removal as chief executive was wrongful, or that he was shut out of the company’s affairs in any other way.

Wrongful exclusion from management may be a form of oppression.[10] But the shareholder was not a director, and there was nothing to show that he had been engaged or issued shares on terms, or on a common expectation, that he would keep a management role. The director could always resolve to remove him as chief executive, and no submission was made as to why that would be unfair.[11]

Colvin J noted that there was “no evidence of any requests for information made by Mr Sharif that were refused or any respect in which he sought to provide input into the decisions being made concerning the management of the affairs of the company that were refused”. His description as a co-founder was not explored in cross-examination, so the Court did not take it into account.[12]

GroundEvidence before the CourtResult
Exclusion from managementNo agreement or shared expectation of a continuing management role; not a director; no refused requests for information; no submission on unfairnessFailed
Cancellation of sharesAdmitted breach of the capital reduction rules; the claimed justification was not made out; file notes showing the planSucceeded

By contrast, the cancellation ground was supported by an admitted breach of the Corporations Act, the failure of the only justification offered for it, and the file notes of the director’s meetings with his lawyers.[13] See our article on when cancelling a shareholder’s shares is oppressive.

In short, each ground needs its own evidence; a strong ground does not carry a weak one.

——— Documents

How did the documents prove the oppression?

A file note of the director’s meeting with his lawyers showed the plan, and the Court preferred it to the director’s evidence.

The file note of a meeting on 12 June 2020 recorded: “after kick him out can issue shares … Loan dollars now and convert to equity after he is out”. The director said he could not recall why that advice was given and denied acting on it. The Court did not accept that evidence and found that he was giving effect to the advice.[14]

The director said the company was in real distress at the time. There was no sign of that in any contemporaneous document, which instead showed an upbeat position with a capital raising planned.[15]

Two weeks after the cancellation, shares were issued that the director called a conversion of loans to equity. Relying on the timing, the valuation implied by later share issues and the file notes, the Court found the issue had no true commercial justification and, viewed objectively, its purpose was to dilute the shareholder.[16]

Even so, a plan to dilute was not oppressive by itself; it was still necessary to show that the steps actually taken were objectively unfair.[17]

In short, documents made at the time, before the dispute, are usually the most reliable evidence of what was intended.

——— Loss

What evidence is needed to prove loss and the right remedy?

Objective evidence of what would have happened without the oppression, including evidence from anyone whose decision it depended on.

Relief turned on whether the shareholder could and would have taken part in later capital raisings if his shares had not been cancelled. The company said he lacked the financial capacity, and that it had not been shown that funds held jointly with his wife would have been used.[18]

His wife was available but was not called, and the Court inferred that her evidence would not have helped his case.[19] His own account of what he would have done was evidence of a hypothetical. The Court preferred an objective assessment of the family’s finances and was not persuaded that he would have made even the modest further contribution his available funds allowed.[20]

He was still awarded a transfer of three million shares from the director’s company, before any further shares were issued, and was substantially successful overall.[21]

In short, proving oppression is only half the case; the remedy depends on evidence too.

Do you have the evidence to prove oppression? Dundas Lawyers reviews the documents early and tells you where your case is strong and where it needs work. Call 07 3221 0013 or submit an enquiry online.

——— Practical tips

Practical tips for building the evidence

1

Keep the record

Save emails, messages, board papers and notes of meetings as events happen, not after the dispute starts.

2

Prove each ground

For every form of oppression you allege, identify the documents and witnesses that prove it.

3

Ask and record

Make written requests for information and for input into decisions, so any refusal is on the record.

4

Call the right witnesses

If an outcome depends on someone else’s decision, such as a spouse’s agreement to invest, have them give evidence.

If the company is withholding its records, see our article on a shareholder’s right to inspect company books.

Frequently asked questions about evidence in oppression cases

Do I have to prove the majority intended to oppress me?

No. The test is objective and looks at the effect of the conduct. But evidence that the conduct was aimed at you can make it easier to show that its effect was unfair.

Is being removed as a director or manager enough?

Not on its own. In Sharif, removal as chief executive was not oppressive because there was no evidence of an agreement or expectation that he would keep a management role, or that he was otherwise shut out.

What evidence carries the most weight?

Documents created at the time, before the dispute arose. In Sharif, a lawyer’s file note of a meeting proved the plan behind the share cancellation.

What if it is my word against theirs?

The Court will look for independent evidence to resolve the conflict. In Sharif, both principal witnesses were found unreliable unless their accounts were verified by documents or uncontested events.

Does it matter if I do not call a witness?

It can. Where a party could have called a witness on an important issue but did not, the Court may infer that the evidence would not have helped that party.

Can I lose part of my claim and still win?

Yes. In Sharif, the exclusion from management ground failed, but the shareholder succeeded on the share cancellation and was substantially successful overall.

Key takeaways about evidence in shareholder oppression

  • Oppression is judged objectively, but motive and the parties’ relationship are relevant evidence.
  • Where accounts conflict, the Court relies on documents and uncontested events.
  • Each ground needs its own evidence; in Sharif, exclusion from management failed for want of it.
  • Contemporaneous file notes proved the plan behind the cancellation and dilution.
  • Relief depends on objective evidence of loss, and missing witnesses can count against you.

Need advice about the evidence in a shareholder dispute? Call Dundas Lawyers on 07 3221 0013 or submit an enquiry online.

Our approach to evidence in oppression cases

Dundas Lawyers acts for shareholders and directors in closely held companies. We gather and review the documents before proceedings begin, test each ground of oppression against the evidence available, and focus the case on the claims that can be proved, so the Court sees a clear, documented account of what happened.

For more on proving oppression, watch our short video:

Further reading

For further reading on proving shareholder oppression, see the following articles written by the team at Dundas Lawyers.

Links and further references

Legislation

Corporations Act 2001 (Cth) ss 232, 233

Cases

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55
Joint v Stephens [2008] VSCA 210
RBC Investor Services Australia Nominees Pty Ltd v Brickworks Ltd [2017] FCA 756
Sharif v Vitruvian Investments Pty Ltd (No 3) [2023] FCA 920
Sharif v Vitruvian Investments Pty Ltd (No 5) [2024] FCA 134
Wilmar Sugar Australia Ltd v Mackay Sugar Ltd [2017] FCAFC 40

Further information

If you need advice on how to navigate a shareholder oppression matter, contact us for a confidential and obligation‑free discussion.


Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au

Doyles Recommended TMT Lawyer 2024

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] Sharif v Vitruvian Investments Pty Ltd (No 3) [2023] FCA 920, [1]–[2], [22], [50]–[53] (‘Sharif’).

[2] Corporations Act 2001 (Cth) ss 232, 233.

[3] Sharif (n 1) [246], quoting Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55, [8]–[9].

[4] Sharif (n 1) [247], quoting Wilmar Sugar Australia Ltd v Mackay Sugar Ltd [2017] FCAFC 40, [73].

[5] Sharif (n 1) [248], citing Joint v Stephens [2008] VSCA 210, [136] and RBC Investor Services Australia Nominees Pty Ltd v Brickworks Ltd [2017] FCA 756, [42].

[6] Sharif (n 1) [50]–[51].

[7] Ibid [174]–[179], [182].

[8] Ibid [209], [215].

[9] Ibid [30].

[10] Sharif (n 1) [249], citing Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [176].

[11] Sharif (n 1) [250]–[251].

[12] Ibid [252]–[253].

[13] Ibid [5], [256]–[259], [273].

[14] Sharif (n 1) [273].

[15] Ibid [274]–[275].

[16] Ibid [277], [279].

[17] Ibid [260].

[18] Sharif (n 1) [20], [280].

[19] Ibid [297].

[20] Ibid [303]–[305].

[21] Ibid [53], [312]; Sharif v Vitruvian Investments Pty Ltd (No 5) [2024] FCA 134, [19].

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