Lukin v Lukin and Lukin No. Scgrg-97-1611 Judgment No. S6651

[1998] SASC 6651

LUKIN  v  LUKIN and LUKIN

Chamber Application
Bleby J

The plaintiff immigrated from Croatia in 1956.  Soon after, he became a professional fisherman, and in 1969 moved, with his family, to Port Lincoln, and began operating a tuna boat in partnership with his wife.  The defendants are his two sons.  A number of companies now make up the Lukin group of companies and are involved in extensive fishing and fish processing operations and investments in real estate.

The plaintiff, in this proceeding, seeks declarations that various shares held in companies comprising the Lukin group by the two defendants are held on trust by them for the plaintiff.  No consequential relief is sought.

From the plaintiff’s More Explicit Statement of Claim, and this is largely confirmed by affidavits which have been filed in connection with the current application, the original company in the group was Orao Pty Ltd.  In 1972 that company purchased 75% of the then family fishing business.  The plaintiff and his brother were appointed directors, and the shares were held by trustees on trust for three family trusts, of which the defendants were beneficiaries.  In 1983 the trusts were wound up, and the issued shares were then transferred in equal shares to the defendants.  This company owns the land upon which the group’s tuna processing factory at Port Lincoln is built, and also owns other developed and undeveloped land in Port Lincoln.

Karina Fisheries Pty Ltd is the main operating company in the group.  Of the 200 shares issued, 199 are held by the plaintiff, and one is said to be held by the second defendant on trust for the plaintiff.  This company holds a substantial tuna quota and other fishing licences, and owns four fishing vessels, a number of vehicles, substantial fishing equipment, marina berths, dinghies, barges and the plant and equipment of the tuna processing factory.  It also holds 23 out of the 24 issued shares in Marit Enterprises Pty Ltd.

Lukin Fisheries Pty Ltd was incorporated in 1981.  It owns and operates the original vessel in the fleet, the Orao, which is now used for prawn fishing.  The company also owns a valuable prawn fishing licence.  Tuna Farmers Pty Ltd operates a tuna farm in cages, a scheme largely designed and developed by the plaintiff.  It owns the cages themselves, an aquaculture licence and two apartments in an Adelaide suburb.  It is also the trustee of the Lukin Family Trust.  It was incorporated in 1992.  The issued shares in both these companies are held in equal numbers by the two defendants.

Lukin Enterprises Pty Ltd was incorporated in 1981.  It owned a fishing vessel which was lost in bad weather in 1989.  It currently holds a substantial tuna quota and is also involved in tuna fishing and farming.  The plaintiff and the two defendants are all equal shareholders.

Marit Enterprises Pty Ltd was a company acquired by the group in 1987 to take the benefit of its accumulated tax losses.  Some of the tuna quota of Karina Fisheries Pty Ltd was allocated to this company.  Apart from the 23 shares held by Karina Fisheries Pty Ltd, the other share is held by the plaintiff.

D Three Pty Ltd was incorporated in 1986.  It now operates the group’s sale of sardines and pilchards.  The issued shares in the company are held by the two defendants in differing proportions, but are said to be held on trust for the shareholders of Karina Fisheries Pty Ltd.

Until the end of March or early in April 1997 the directors of all these companies were the plaintiff and the defendants or some combination of them, although the plaintiff was a director of all of them, and his brother was also a director of Orao Pty Ltd.  In March or April 1997 (the dates very from one company to another), and in circumstances to which I will later refer, the plaintiff’s wife was added as a director to all of the companies except D Three Pty Ltd.

The plaintiff alleges that all the shares held by the defendants in the various companies were issued at the direction of the plaintiff in order to comply with legislative requirements (that there be more than one shareholder), fishing licence requirements of the SA Government and for tax, financial risk and asset protection considerations, on the advice of the plaintiff’s solicitors and accountants.  It is said that in each case the shares were issued upon the understanding that the beneficial interest in the shares would be retained by the plaintiff and that the rights attaching to the shares would always be subject to the control and direction of the plaintiff.  It is said that the plaintiff acted as managing director of the group and that both defendants worked at various times and in different capacities within the group. 

The cause of the plaintiff making claims for declarations appears to be that prior to 1997 the defendants, it is alleged, did not assert that they had any proprietary rights to the shares.  However, the plaintiff has separated from his wife, and on 20 March 1996 proceedings were instituted in the Family Court of Australia between the plaintiff and his wife.  Those proceedings comprise competing applications for orders for property settlement as between those parties.  Numerous interlocutory orders have been made by that Court since those proceedings were commenced.  On 12 March 1997 the defendants were granted leave to intervene in those proceedings.  The only basis of their intervention was for the protection of their shareholdings in the respective companies.  On the same date the defendants and the plaintiff’s wife also obtained orders that the plaintiff’s wife be appointed as a director and secretary of most of the companies, that the plaintiff be restrained from conducting any business on behalf of the group without authorisation from the board of directors of each of the companies, and that decisions concerning the Lukin group fishing strategies, sales or generation of income could only be resolved by a meeting of the relevant board of directors.  Those orders were confirmed in the Family Court on 14 July 1997.  The plaintiff therefore claims that he has been improperly excluded from acting unilaterally in relation to the commercial activities of the Lukin group.  If the plaintiff were to succeed in obtaining the declarations that he seeks in this Court, he would no doubt have some justification for seeking to regain control of the group, and for seeking to revoke the orders made by the Family Court depriving him of that control.

Although the proceeding in this Court was not issued until 27 November 1997, the strongest inference is that it was issued in response to the orders of the Family Court to which I have referred and to the attitude of the defendants taken in those proceedings in relation to the shares.  It is perhaps not insignificant that the trial of the property settlement proceedings in the Family Court was due to commence on 1 December 1997.  As it happened, much of the time allocated for the trial was taken up by negotiations to try and settle the proceedings, but they failed.  The property settlement proceedings are therefore still pending in the Family Court.

By application dated 18 February 1998 the defendants applied pursuant to s5 of the Jurisdiction of Courts (Cross‑Vesting) Act 1987 (SA) for an order transferring this proceeding to the Family Court of Australia.

By virtue of s5 of that Act, the proceeding must be transferred to the Family Court if it appears to this Court that the proceeding “arises out of, or is related to” the proceedings in the Family Court “and it is more appropriate that the relevant proceeding be determined by... the Family Court”. Alternatively it must be transferred if it appears to this Court that it is otherwise in the interests of justice that the proceeding be determined by the Family Court. Considerations as to what is “more appropriate” will generally be dictated by the interests of justice: Bankinvest AG v Seabrook (1988) 14 NSWLR 711; Mourd v Atlantis Nominees Pty Ltd (1990) 14 Fam LR 222.

The case for the defendants was that this proceeding was related to those in the Family Court, in that it related to the same property, namely the assets of the Lukin group of companies, that both proceedings involved issues as to what interests each party has in the assets of the Lukin group, and this proceeding was said to be ancillary or complimentary to the Family Court proceedings.  It was said that it was more appropriate that the proceeding be determined by the Family Court because the entitlements of the plaintiff and the defendants to interests in the Lukin group of companies should be decided in proceedings involving all parties interested in the group; the Family Court proceedings would necessarily traverse the same type of material as will be involved in this proceeding; and there will be unnecessary expense and duplication if the proceedings continue in separate courts.

The plaintiff, on the other hand, argued that the matters to be determined in this Court are discrete matters concerning the beneficial ownership of the shares in the several companies - a matter which must be determined independently of, and preliminary to, the determination of the property settlement proceedings in the Family Court.  The plaintiff’s claim in this Court relates only to issues which arose at the time of the creation of the interests of the defendants in the shares.  The defendants have therefore not discharged their onus of proof to show that these proceedings are related to the Family Court proceedings in the relevant sense, and the substance and character of the claims in this proceeding do not make them more appropriate to be determined in the Family Court.

I have already observed that there is a strong inference that this action was commenced in response to actions taken in and by the Family Court which had the effect of depriving the plaintiff of sole control of the activities of the Lukin group.  But for those actions, there is nothing to suggest that the plaintiff had any other reason to commence this action.  In that sense this proceeding arises out of the proceedings in the Family Court.  However, in my opinion the proceeding is also related to the proceedings in the Family Court.

The plaintiff’s application places in issue the beneficial entitlement to the shares which have been issued to the defendants. That question will need to be resolved by reference to what was said and done by various parties at the time when the shares were issued or transferred to the defendants. It does not appear that the plaintiff relies on any written declaration of trust. Without any other evidence, the fact of the issue of the shares to the defendants would appear to give them a prima facie case to beneficial entitlement to the shares. Without the plaintiff’s claim, the shares would not normally form part of any property settlement between the plaintiff and his wife. The plaintiff’s action in this Court, by seeking the declarations that he does, seeks to ensure that the beneficial interest in the shares is his. It must follow, if he is correct, that the shares will become the subject of the property settlement proceedings in the Family Court. Because there is not alleged to be any written declaration of trust, the plaintiff’s action in this Court will require not only an analysis of the circumstances under which the shares were allotted but an analysis of subsequent actions as to whether those actions were consistent with the plaintiff’s assertion. If the plaintiff succeeds, however, that very history will immediately become relevant to questions of the proper settlement of the plaintiff’s interest in the shares on his wife and on the defendants in the Family Court proceedings. In other words, by bringing this action, the plaintiff is inviting the litigation in the Family Court to be broadened to include orders affecting that property. That will necessarily involve that Court also in consideration of the circumstances surrounding the issue or transfer of the shares as well as the subsequent conduct of the parties (See s79(4), Family Law Act 1975). Therefore, in a very real sense, these proceedings are related to the Family Court proceedings. The plaintiff’s action in this Court ensures that.

If the plaintiff were to succeed in this Court, there is no doubt that the defendants, or the plaintiff’s wife on their behalf, would seek orders of settlement in their favour of some or all of the property found by this Court to be beneficially owned by the plaintiff. There would seem to be no doubt that, subject to the relevant considerations mentioned in subs(4) of that section, s79(1) of the Family Law Act 1975 (Cth) would enable the Court to order settlement of such property on the defendants or either of them as children of the marriage.

No defence has yet been filed in the proceedings in this Court, but by virtue of the provisions of the Jurisdiction of Courts (Cross‑Vesting) Act 1987 (Commonwealth), it would be open for this Court to entertain a plea by way of counterclaim that in the circumstances of the case, if the plaintiff were to succeed, this Court should make an order settling the property on the defendants in accordance with s79 of the Family Law Act 1975. Therefore, by one means or another, it seems almost inevitable that if the proceedings continued in this Court, both Courts would need to spend a substantial amount of time analysing facts not only surrounding the issue of the shares, but also the actions of the various parties since that time.

The next question is whether it is more appropriate that the proceeding in this Court be determined by the Family Court.  If this proceeding continues, I have already pointed out that it would appear to involve, almost inevitably, a substantial portion of the evidence being heard in both Courts.  That produces an obvious inconvenience and unnecessary cost.  If the Family Court were to await determination of the issues raised in this proceeding, besides having to re‑hear some of the evidence, the Family Court would inevitably be delayed in the resolution of its proceedings while this proceeding is resolved.  The trial of those proceedings has already been delayed once, and such further delay could be quite substantial.  The proceeding in this Court is not the sort of proceeding which would be quickly resolved.

It is argued by the plaintiff that the scheme for the cross‑vesting of jurisdiction between courts is not intended to deprive the existing courts of their traditional role, or to provide that litigation should not be conducted in the court most appropriate to its determination.  In other words, jurisdiction shopping should be avoided (see Leithead v Leithead (1991) 109 FLR 177 per Murray J at 181. See also Chapman v Jansen (1990) 100 FLR 66 per Fogarty J at 80-81. It is said that this Court’s traditional role in determining disputes as to the beneficial ownership of property is therefore not intended to be disturbed by the application of the cross‑vesting legislation.

This Court does have such a traditional role.  On the other hand, quite independently of the cross‑vesting legislation, the Family Law Act, by s78, also confers jurisdiction on the Family Court of Australia in proceedings between parties to a marriage with respect to existing title or rights in respect of property, to declare the title or rights, if any, that a party has in respect of the property.  It has the power to make consequential orders to give effect to the declaration.  It would therefore be open for the Family Court to make the very declarations that the plaintiff seeks in this Court.  That would no doubt be subject to hearing the defendants as interveners in those proceedings.  However, even without s78, it would still be open to the defendants to argue, as interveners, that their shares cannot be subject to any orders of that Court as between the plaintiff and his wife by virtue of the defendants’ beneficial ownership of the shares.  Indeed that seems to have been the position taken by the defendants as interveners in those proceedings.  Therefore arguments based on the traditional jurisdiction of courts and what has been described as “jurisdictional creep” would carry little weight in these circumstances, given the independent powers of the Family Court.

To the extent that the question of whether it is more appropriate that the relevant proceeding be determined by the Family Court is dictated by the interests of justice, those interests will obviously vary from case to case.  The broad approach indicated in many of the cases (eg Chapman v Jansen (supra) per Nicholson CJ at 74-75), suggests that it is inappropriate to make detailed comparisons of the merits of one particular court against another.  Such was not argued in this case, and I would refrain from entering into such comparisons in any event.  The proceedings in respect of the property settlement are now well advanced in the Family Court.  Much of the groundwork for that case has been laid.  It is groundwork that will be relevant to and can be readily built on for the resolution of the issues in this case.  The interests of justice will be served if that process is allowed to happen.

I reject the plaintiff’s argument that this case is analogous to Skaventzos v Tirimon (1991) 162 LSJS 53. The only nexus in that case on the facts as they then stood was that resolution of the proceedings in this Court would affect the asset position of the two defendants in the Family Court proceedings. The proceedings in this Court for recovery of a loan were then viewed by this Court as being in the nature of arm’s length proceedings involving separate issues from the Family Court proceedings, and so the transfer to the Family Court was not ordered. Olsson J, who decided that case, considered that the issues arising in it were “completely self‑contained and not dependent, in any sense, upon matters falling for decision in the property settlement proceedings” (supra at p58). That cannot be said of this case. However, when later the plaintiffs in that case had amended their statement of claim to claim not only the repayment of a loan against the parties to the marriage but, in association with the loan, an interest in the former matrimonial home, the proceedings clearly became related, and a cross‑vesting order was made: Skaventzos v Tirimon (1993) 61 SASR 103. That case presents a number of similar features to this: the plaintiff’s claim to beneficial ownership will have to be resolved in both proceedings; it is preferable and desirable that it be decided promptly and in one action; there is a number of common factual issues, and it would be unreasonable to expect the defendants to have to litigate in both courts with the attendant delay and expense. All those factors make it more appropriate that the proceeding be transferred to the court which has the function of determining the broader issues, of which the factual issues in this action form part.

Accordingly, I am satisfied that this proceeding both arises out of and is related to the proceedings in the Family Court, and for the reasons which I have expressed, it is more appropriate that this proceeding be determined by the Family Court.  I therefore order that the action be transferred to the Family Court of Australia at the Adelaide Registry.