When artificial intelligence and the law collide: why using ChatGPT as your legal advice can lead to oppression
On 10 July 2026, the New South Wales Supreme Court handed down the decision in In the matter of Lanmar Pty Ltd (No 2) [2026] NSWSC 800, making findings of oppression for the purpose of section 232 of the Corporations Act 2001 (Cth) (Act).
The case provides an example of how artificial intelligence (AI) ought not to be used and the consequences it can have on a company, its directors and its shareholders.
The Court’s decision is a clear reminder of how disputes between directors and shareholders ought not to be dealt with and the consequences that can arise if dealt with inappropriately, including forcing the sale of their shares on the open market.
Facts
Lanmar Pty Limited (Lanmar) had three equal shareholders:
WLLHLL Holdings Pty Limited (WLLHLL), the plaintiff, which entity was controlled by Drew Landes;
MDTI Holdings Pty Limited (MDTI), the third defendant, which entity was controlled by Martin Drebber, the first defendant; and
PCKOC Holdings Pty Limited (PCKOC), the fourth defendant, which entity was controlled by Peter O’Connor, the second defendant.
Messrs Landes, Drebber and O’Connor (together, the Directors) were also the three directors of Lanmar.
Lanmar, a defence consulting firm, provided engineering, asset management, advisory and consulting services to customers. Its main client was the Department of Defence.
WLLHLL alleged that since around April 2021, Lanmar’s shareholders agreed to conduct the business in accordance with the ‘Lanmar Principles’. By those principles, it was alleged that each shareholder (and underlying controller of the shareholder, being the Directors) agreed to participate in the management of Lanmar and that, ‘[the] owners are to consider the efforts and value brought to the business through the efforts of each owner to asset if profits through distributions, dividend [sic], bonus [sic] etc should be skewed/altered to compensate appropriately’.
In accordance with those principles, the Directors agreed to the payment of certain dividends from time-to-time. There was no dispute that the Lanmar Principles were not legally binding.
In early 2025, Lanmar commenced preparing a tender for a substantial Naval Asset Management System Support (NAMSS) project for the Department of Defence.
During that process, Messrs Drebber and O’Connor (together, the Defendant Directors) became dissatisfied with Mr Landes’ involvement in and contributions to the business. That was plainly evident from text messages between the Defendant Directors, which included the following: ‘Okay, I think he [Mr Landes] needs to go’; ‘Let’s talk it over Monday. It needs to be addressed’; and ‘He’s [Mr Landes] a complete dud’.
The Defendant Directors then consulted ChatGPT about how to deal with Mr Landes. ChatGPT generated a document called ‘HR problem resolution’ which:
incorrectly framed the issues between the Defendant Directors and Mr Landes as one determined by employment law (i.e. ChatGPT treated Mr Landes as an employee rather than as a director and controller of one of Lanmar’s shareholders);
prescribed a ‘START’ framework that was ‘plainly directed to employee relations and not corporate governance’;
contemplated steps that would potentially contravene the Defendant Directors’ directors’ and fiduciary duties, including the diversion of business opportunities away from Lanmar toward companies that did not include Mr Landes; and
included, as a final step, removing Mr Landes from ‘any daily management or operational responsibilities, essentially making them more of a passive shareholder in the business.’
In reliance on ChatGPT’s ‘advice’, the Defendant Directors took several steps over a series of months to exclude Mr Landes from the business. That conduct included:
staff being hired without Mr Landes’ involvement;
Mr O’Connor demanding that Mr Landes hand over management of Lanmar’s Xero accounting and payroll platform;
Mr O’Connor directing Mr Landes not to proceed with a presentation to a potential client;
Mr Drebber demanding that Mr Landes hand over all management responsibilities relating to Lanmar’s finances;
Mr Drebber expressly excluding Mr Landes from the NAMSS tender, stating that ‘these discussions will relate to service areas into which you are not operationally integrated’;
Mr Drebber instructing Lanmar’s bankers not to speak with Mr Landes; and
the Defendant Directors holding meetings regarding Lanmar’s business and growth without Mr Landes’ knowledge.
Relief Sought
In light of the Defendant Directors’ conduct, WLLHLL commenced proceedings and sought the following relief from the Court:
an order under section 233 of the Act that MDTI and PCKOC (i.e. the other shareholders of Lanmar) purchase WLLHLL’s shares in Lanmar; or
alternatively, an order that Lanmar be wound up or a receiver be appointed to sell the shares in Lanmar.
The decision
The Law
The Court referred to the ‘well-established principles’that apply to oppression proceedings and the application of sections 232 and 233 of the Act; in particular, the Court observed that those provisions are directed at:
… conduct involving “commercial unfairness” or where the conduct complained of involves visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to the ordinary standards of reasonableness and fair dealing, is unfair.
Critically, the Court observed (at [230]) that ‘exclusion from participation in a company’s management may be oppressive when combined with a failure to make a reasonable offer to buy the plaintiff’s shares.’
Application
Applying those principles to the issues at hand, the Court found that:
the exclusion of WLLHLL and Mr Landes from participation in Lanmar’s management from February 2025 onwards, in circumstances where WLLHLL was not given a chance to remove its capital from Lanmar on reasonable terms, was oppressive, despite finding that the Defendant Directors may have likely held a genuine belief about Mr Landes’ underperformance in the business;
the departure from a previous understanding between the parties that dividends would be paid, which the Defendants sought to justify on the basis that the tender involving the NAMSS contract commercially justified Lanmar cutting back the payment of cash out of Lanmar, was oppressive – the failure to pay dividends was ‘directed to removing income that would be received by WLLHLL and other shareholders …’; and
offers made by the Defendants in the period December 2025 to March 2026 were not reasonable in the sense that they did not have the effect of neutralising the oppressive conduct. This was the case because the offers required the payment of amounts to WLLHLL for its shares in Lanmar by several instalments over a significant period of time, despite WLLHLL being required to transfer its shares and Mr Landes being required to resign as a director immediately – that would have exposed WLLHLL to ‘credit, performance and earnings manipulations and contract scope risk in respect of the future payments for at least 18 months’.
In reaching that conclusion, however, the Court observed that as neither party had established the value of WLLHLL’s shares (the Court rejecting the expert evidence relied on by both parties because of various issues with their expert reports), WLLHLL could not establish that the offers were not reasonable in amount.
A buy-out order
Having found that WLLHLL had established grounds of oppression for the purpose of section 232 of the Act, the Court then turned to determine what relief was appropriate.
The primary relief sought by WLLHLL was that the other shareholders purchase its shares in Lanmar. To that end, the parties relied on expert reports to try and establish the value of WLLHLL’s shares.
The Court had serious concerns about the methodologies and approaches adopted in the parties’ respective expert reports; those concerns were so significant that the Court refused to accept either experts’ opinion about valuation. By way of example, the Court was concerned that the expert reports relied on unclear financial forecasts for Lanmar and failed to properly address the risks associated with Lanmar’s reliance on the NAMSS contract with the Department of Defence
In the circumstances, the Court was left with no evidence about the value of WLLHLL’s shares.
On that basis, the Court could not grant WLLHLL’s primary relief.
The Court also observed that submissions by the Defendants that they did not have the financial capacity to purchase WLLHLL’s shares, had a buy-out order been made, would not have been determinative in whether a buy-out order would have been made.
Alternative relief
In light of the difficulties in valuing the shares in Lanmar, and the Court’s concerns to try and permit Lanmar to continue operating given that it was a ‘viable company’ and employed approximately 40 employees, the Court instead ordered that a receiver be appointed for the sale of the shares in Lanmar on the open market.
The Court observed that that appointment was narrower than the appointment of a receiver and manager over Lanmar’s business – the receiver’s role of selling the shares was limited to the share sale and Lanmar’s business could continue operating under existing management.
The Court also observed that had any of the relevant parties not properly co-operated with the receiver, then the Court could make orders addressing those issues, including an order for the appointment of a receiver and manager over Lanmar’s entire business.
The Court did not consider it necessary to make a winding-up order. However, the Court did indicate that had it not made an order for the appointment of a receiver as it had, then it would have ordered the winding-up of Lanmar on ‘just and equitable grounds’ pursuant to section 461(1)(k) of the Act given the failure of the relationship between Lanmar’s directors and shareholders.
The Court made a series of orders providing for the appointment of a receiver to sell all of the shares in Lanmar en bloc (i.e. to facilitate a sale of the company as opposed to the underlying business and assets), which the Court expressly indicated would not prevent Lanmar separately continuing as a going concern.
Take Aways
This case provides a stark warning for directors and shareholders of companies who rely on AI for their advice.
In this case, ChatGPT incorrectly identified that the relationship between Lanmar’s directors was governed by employment law, as opposed to corporate governance laws.
The Defendant Directors’ treatment of Mr Landes as an employee, as opposed to a director and owner of the business, was the ultimate catalyst for the entire dispute. Had the Defendant Directors sought proper advice, then perhaps the case could have been avoided.
If directors and shareholders have a falling out or otherwise have concerns about how they are contributing to the business, then those issues must be raised in appropriate ways, rather than some of the parties simply trying to force out the other parties; that has the potential to lead to disputes and may give rise to findings of oppression. Having and following constitutions, articles of incorporation, shareholders’ agreements and other corporate governance documents in place can assist to ameliorate any such risks.
Obtaining professional advice as soon as possible is important. Had the Defendants sought legal advice rather than relying on ChatGPT, they could have been advised about the terms of an offer that could have been made to Mr Landes and WLLHLL after they had excluded Mr Landes and WLHLL from participating in the business. Had reasonable offers been made, then the oppression may have been cured, and the Defendants may have been successful in the proceeding.
Finally, the case demonstrates the flexibility of the remedies that the Court can fashion to address oppressive conduct, in particular how oppressive conduct can lead to business owners losing control of and their interests in their business. The case also serves as a reminder for what necessarily needs to be established in order to allow the Court to make such various orders.
These issues are not easy to navigate. Commercial and corporate governance laws can be complex; ignorance or a failure to appreciate their nuances will not absolve a director, shareholders of business owner from their responsibilities. As this case shows, a failure to understand and implement those obligations can have significant consequences for directors and shareholders and could result in you losing your interests in your business.
If you have any questions regarding this decision or would like assistance handling commercial conflicts, Sladen Legal is happy to assist.
Please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Jake Cole
Special Counsel
T: +61 3 9611 0112 | M: + 61 413 557 157
E: jcole@sladen.com.au
Amy Green
Senior Associate
T: +61 3 9611 0175 | M +61 439 835 480
E: agreen@sladen.com.au
This article was prepared with the assistance of Charlie Cooper, Law Clerk.
