Rodda v Lifestyle Loans Vic Pty Ltd

[2015] VSC 628

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2015 03850

IN THE MATTER OF LIFESTYLE LOANS VIC PTY LTD ACN 005 563 100

TIMOTHY JOHN RODDA	Plaintiff
and
LIFESTYLE LOANS VIC PTY LTD ACN 005 563 100	First Defendant
And
FRANCESCO SAURO	Second Defendant

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JUDGE:	SIFRIS J
WHERE HELD:	Melbourne
DATE OF HEARING:	6 November 2015
DATE OF JUDGMENT:	16 November 2015
CASE MAY BE CITED AS:	Rodda v Lifestyle Loans Vic Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2015] VSC 628

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CORPORATIONS LAW – Standing – Whether someone whose name is not on the register, but alleges he is a member, falls within the definition of member for the purposes of the oppression provisions of the Corporations Act 2001 (Cth) in circumstances where such membership is disputed.

CORPORATIONS LAW – Oppression proceedings generally not available or desirable where membership disputed – Membership is a jurisdictional requirement.

PRACTICE AND PROCEDURE – Nature of relief – Whether proceeding should continue in present form – Whether standing should be dealt with as a preliminary issue.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	D T Forbes	Muir Legal
For the Defendant	P G Cawthorn QC	Victor C Andreou

HIS HONOUR:

Introduction

1. The plaintiff (Rodda) claims that he is a member of the first defendant (Lifestyle Loans) and as such is entitled to claim relief pursuant to the oppression provisions of the Corporations Act 2001 (Cth).

1. The second defendant (Sauro) is the sole registered member of Lifestyle Loans.  The defendants deny that Rodda is a member and in any event deny that they have engaged in oppressive conduct.

1. The defendants contend that the proceeding is fundamentally misconceived and that Rodda should first establish by separate proceeding that he is a member.  Rodda contends that the threshold issue can and should be determined within the oppression proceeding.

Background

1. Rodda’s affidavit in support effectively states that he and Sauro worked as quasi partners in the business of Lifestyle Loans, and that they had an agreement that they would be equal shareholders who contributed to, and benefited equally from, the business.

1. Rodda’s affidavit sets out how Sauro gradually assumed control of Lifestyle Loans and caused it to fail to pay commissions due to Rodda and to employ relatives who performed only a notional amount of work in the company.

1. Sauro denies that there was ever any agreement for mutual shareholding, and alleges that Rodda and his companies were only ever subcontractors to Lifestyle Loans.

Applications

1. The Originating Process is dated 22 July 2015 and is supported by a three page affidavit by the plaintiff dated 26 July 2015. The Originating Process seeks an order that the first defendant be wound up and the plaintiff be registered as a member of the first defendant in the same number of shares as the second defendant.

1. The defendants make application by Interlocutory Process dated 26 October 2015 that the proceeding be dismissed under s 234 of the Corporations Act 2001 (Cth) or s 62 of the Civil Procedure Act 2010 (Vic) since the plaintiff is not, and never has been, a member of Lifestyle Loans.

1. Alternatively, it is claimed that there is no real prospect of success in respect of the relief claimed under paragraph 2 of the Originating Process, and that relief may not be sought under Part 2F.1 of the Corporations Act 2001 (Cth).

Relevant legislation

1. Section 62 of the Civil Procedure Act 2010 (Vic) provides:

Defendant may apply for summary judgment in proceeding

A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff's claim or part of that claim has no real prospect of success.

1. Section 234 of the Corporations Act 2001 (Cth) provides:

Who can apply for order

An application for an order under section 233 in relation to a company may be made by:

(a)member of the company, even if the application relates to an act or omission that is against:

(i)the member in a capacity other than as a member; or

(ii)another member in their capacity as a member; or

(b)a person who has been removed from the register of members because of a selective reduction; or

(c)a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or

(d)a person to whom a share in the company has been transmitted by will or by operation of law; or

(e)a person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into:

(i)the company’s affairs; or

(ii)matters connected with the company’s affairs.

1. Section 231 of the Corporations Act 2001 (Cth) provides as follows:

Membership of a company

A person is a member of a company if they:

(a)are a member of the company on its registration; or

(b)agree to become a member of the company after its registration and their name is entered on the register of members; or

(c)become a member of the company under section 167 (membership arising from conversion of a company from one limited by guarantee to one limited by shares).

The submissions

1. The gravamen of the defendants’ submission was that Rodda was not a member of Lifestyle Loans and had no standing to bring this proceeding.  Accordingly it was submitted that his prospects of success were fanciful.[1]

   [1]Reference was made to Lysaght Building Solutions v Blanalko (2013) 42 VR 27.

1. Central to the defendants’ submission was that an oppression proceeding was not the occasion to determine membership issues.  Rather, membership was a threshold issue, and if disputed, was required to be determined first and separately.  The defendants referred to cases where a party was entitled to be registered as a member — a far better position than Rodda — but was held not to fall within the definition of member for the purpose of oppression proceedings.[2]

   [2]Reference was made to Niord Pty Ltd v Adelaide Petroleum ML (1990) 54 SASC 87 and Titlow v Intercapital Group (Aust) Pty Ltd (1996) 20 ACSR 201

1. Rodda submitted that all that was required was to establish at trial that he was a member of Lifestyle Loans, and that he had a real prospect of doing so.  It was submitted that he should be given an opportunity of doing so in this proceeding in order to avoid another case.  Finally, it was submitted that such a course was cost effective and desirable given the intent and provisions of the Civil Procedure Act 2010 (Vic).

Consideration

1. In my opinion, there is substance in the submissions made by the defendants. 

1. Rodda does not fall within the definition of member, and accordingly, the oppression provisions are not engaged.  It is not desirable that a proceeding of this kind continue as presently framed with the hope that the threshold issue will, as part of the proceeding, be established.  This is not only inefficient and undesirable, but is a jurisdictional issue that prevents the matter from proceeding. 

1. There is a dispute as to whether Rodda is a member of Lifestyle Loans, and this dispute needs to be resolved before the oppression proceeding continues.  It is not desirable to use the very oppression proceeding, which presupposes uncontested membership, to establish the threshold requirement of membership.  This is an antecedent issue that requires prior determination.

1. I have considered dealing with the issue relating to contested membership as a preliminary issue within this proceeding.  Upon reflection, however, I do not think this is a desirable course.  Such a case requires pleadings and appropriate discovery and is best dealt with as a commercial matter, whether in this Court or the County Court.  Lifestyle Loans should not endure a proceeding under the oppression provisions, and which may result in its winding up, in circumstances where the plaintiff does not have a right to bring the proceeding.

1. The final question is whether this proceeding should be kept alive.  I will hear from the parties as to the most appropriate form of order in light of these reasons, and costs.