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Disputes between shareholders occur for many issues, from simple day-to-day business matters to complicated issues of corporate governance. A recent case demonstrates that a dispute can often escalate to litigation if simple rules of decision-making are not followed.

In Carolia Pty Ltd v Crompton, four director/shareholders established a joint venture business in accordance with a part written/part oral agreement. Over the course of the problematic joint venture, meetings were held and resolutions passed without the required notice, inadequate agenda, and in the absence of the agreed quorum. In response, the plaintiff/shareholders claimed that the agreement had been repudiated and sought damages. The court found that the breaches had serious repercussions which resulted in the loss of the value of the plaintiff’s shares and this amounted to repudiation. The plaintiffs were awarded damages for the proven value of their shares.

Interestingly, the judge made the following comment: “It is sad because the amounts in issue while not small are not really large and the expenses of the trial which lasted for nine days may well be out of proportion to any possible result, and the actual cost to the parties will certainly be out of proportion”.

It is important for agreements between shareholders to be clearly documented in a professionally drafted shareholders agreement. This will include guidelines as to governance and should also include a dispute resolution clause to encourage disputes to be resolved before the matter escalates to an expensive court battle.

The commercial lawyers at Matthews Folbigg Parramatta can provide legal advice on commercial disputes and can assist in drafting contracts including shareholders agreements.

Phillip Brophy – or 9635 7966