Russell v Lee Holdings Pty Ltd
[2019] WASC 320
•4 SEPTEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RUSSELL -v- LEE HOLDINGS PTY LTD [2019] WASC 320
CORAM: KENNETH MARTIN J
HEARD: 30 AUGUST 2019
DELIVERED : 4 SEPTEMBER 2019
FILE NO/S: COR 227 of 2017
BETWEEN: SHANA FRANCINNE RUSSELL
First Plaintiff
NERIDA JAYNE PUANGKHAM
Second Plaintiff
AND
LEE HOLDINGS PTY LTD
First Defendant
FAY EILEEN LEE
Second Defendant
JOHN ANTHONY CAMPBELL LEE
Third Defendant
AUSTRALIAN EXECUTOR TRUSTEES LIMITED as trustee of the estate of RONALD WILLIAM LEE
Fourth Defendant
FILE NO/S: CIV 2533 of 2018
BETWEEN: LEE HOLDINGS PTY LTD
Plaintiff
AND
LEE BROS PTY LTD
First Defendant
FAY EILEEN LEE
Second Defendant
JOHN ANTHONY CAMPBELL LEE
Third Defendant
AUSTRALIAN EXECUTOR TRUSTEES LTD AS TRUSTEE OF THE ESTATE OF THE LATE RONALD WILLIAM LEE
Fourth Defendant
Catchwords:
Practice and procedure - Statutory oppression actions - Family held corporations - Application to disallow amendments to pleadings without leave
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Application allowed in part
Category: B
Representation:
COR 227 of 2017
Counsel:
| First Plaintiff | : | Mr M A MacLennan |
| Second Plaintiff | : | Mr M A MacLennan |
| First Defendant | : | Mr H M Reynoldson |
| Second Defendant | : | Mr H M Reynoldson |
| Third Defendant | : | Mr M Sims |
| Fourth Defendant | : | Ms D Lukic |
Solicitors:
| First Plaintiff | : | Bennett + Co |
| Second Plaintiff | : | Bennett + Co |
| First Defendant | : | Hotchkin Hanly |
| Second Defendant | : | Hotchkin Hanly |
| Third Defendant | : | Croftbridge |
| Fourth Defendant | : | Gilbert + Tobin |
CIV 2533 of 2018
Counsel:
| Plaintiff | : | Mr MA Maclennan |
| First Defendant | : | Mr M Sims |
| Second Defendant | : | Mr H M Reynoldson |
| Third Defendant | : | Mr M Sims |
| Fourth Defendant | : | Ms D Lukic |
Solicitors:
| Plaintiff | : | Bennett + Co |
| First Defendant | : | Croftbridge |
| Second Defendant | : | Hotchkin Hanly |
| Third Defendant | : | Croftbridge |
| Fourth Defendant | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
Boyd v Feeney [2017] NSWSC 1595
Re Giroday Sawmills Ltd (1983) 49 BCLR 378
Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1
Re Lowes Park Pty Ltd; Headlam v Lowes Park Pty Ltd (1994) 62 FCR 535
Russell v Lee Holdings Pty Ltd [2017] WASC 283
Russell v Lee Holdings Pty Ltd [2018] WASC 275
Salomon v A Salomon & Co Ltd [1897] AC 22
Trafalgar West Investments Pty Ltd as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [No 6] [2014] WASC 278
KENNETH MARTIN J:
COR 227 of 2017 and CIV 2533 of 2018 are civil actions in this court, both being case managed together by me with a view to a looming joint trial of approximately 10 days' estimated duration. Firm trial dates have not yet been set.
Background to the matters
The subject matter of each of the two actions is similar.
COR 227 of 2017 involves contended Corporations Act 2001 (Cth) statutory oppression conduct by which the plaintiffs say they are aggrieved. Essentially, the statutory oppression grievances relate to conduct occurring on or about 14 July 2016, which saw the corporation Lee Holdings (which I will refer to as 'A Co') being heavily diluted as a shareholder from a position of then holding 98.7% of the issued share capital in the corporation Lee Bros Pty Ltd (which I will refer to as 'B Co').
The dilution was a result of the board of B Co (comprising Fay Eileen Lee and her son, John Anthony Campbell Lee, who I will refer as 'F' and 'J' respectively) then issuing 10,000 ordinary A‑class shares and one B‑class share to J, another 2,500 ordinary A‑class shares and one B‑class share to F, and a further 2,500 ordinary A-class shares and one B-class share to the late Mr Ronald William Lee (who I will refer to as 'R') ('the 2016 share issue'). At the time of the 2016 share issue, R was hospitalised and subsequently passed away on 26 July 2016.
It is contended that the 2016 share issue resulted in A Co's majority controlling shareholding position in B Co being diminished from that of a 98.7% holder of B Co's share capital to A Co essentially becoming a negligible shareholder.
It is contended that at the time of the 2016 share issue B Co possessed assets worth in excess of $9 million. At the same time, the once controlling majority shareholding in A Co had been held essentially equally, in one third shares as between the two plaintiff sisters, Shana and Nerida ('S' and 'N' respectively), and their defendant brother, J. At the time the boards of both A Co and B Co were common, comprising J and his mother, F.
In the second action, CIV 2533 of 2018, the contentions are similar, save that S and N, by leave, have caused A Co to pursue B Co plus F and J and the administrator of R's estate for relief, on the basis of, inter alia, alleged statutory oppression.
By way of background, I mention my prior interlocutory reasons for decision concerning the 2016 share issue and the derivative action against B Co which came to authorise what is now CIV 2533 of 2018. To that end, see my earlier reasons being Russell v Lee Holdings Pty Ltd [2017] WASC 283 and Russell v Lee Holdings Pty Ltd [2018] WASC 275.
The present applications
The present interlocutory applications see the plaintiffs in COR 227 of 2017 and in CIV 2533 of 2018 move the court to disallow some of the recent amendments as made to the defence pleadings in both actions by J, both amended without leave and filed on behalf of J on 26 July 2019.
The recent amendments to J's defence pleadings in both actions are similar. So also then is the basis of the plaintiffs’ challenge as now raised under the present interlocutory applications to disallow some of those amendments to J's defence pleadings in both actions.
Given the commonality of the challenged defence pleadings of J in both actions and virtually identical interlocutory argument challenges put against them, it is convenient for present purposes merely to refer to J’s amended defence pleading in COR 227 of 2017. What I will say and conclude about it applies mutatis mutandis to J's amended defence pleading in CIV 2533 of 2018.
For the purposes of the present exercise, I have received the plaintiffs' extensive written outline of submissions of 13 August 2019 (filed in COR 227 of 2017) and the first and third defendants' (J's) outline of submissions of 13 August 2019 in opposition (filed in CIV 2533 of 2018). I then further received the benefit of verbal submissions of counsel made at the hearing of this matter at a special appointment on 30 August 2019.
Given that there is a looming mediation to be conducted between the parties on Friday, 6 September 2019, it is said to be important the parties hold the benefit of my decision on the present application before that mediation hearing takes place. Consequently, I do not recite at any great length the parties' elaborations over their respective rival positions in any greater detail.
The challenge put against J's amended defences
The challenge against the amendments to J's defence pleadings via Rules of the Supreme Court 1971 (WA) (RSC) O 21 r 3 is, in effect, in the nature of a de facto strike out application made against the impugned pleas.
The challenges of the plaintiffs proceed on the basis that the recently introduced pleas either fail conceptually to disclose any reasonably arguable defence (ie, against the plaintiffs' case grounded upon the alleged statutory oppression) or, secondly, that the proposed amendments introduce and carry with them many new and historically controversial factual contentions - in some cases extending back to the time of the incorporation of both A Co and B Co at the behest of R in 1964.
The plaintiffs say that the attempt to introduce historic material is illegitimate, on the basis that the impugned oppressive share issue conduct of 2016 cannot be excused or rationalised from its character as statutory oppression contrary to s 232 of the Corporations Act by the attempted excursion into ancient corporate history of A Co and B Co by trawling back over the affairs of both corporations across the 50 years prior to mid‑2016.
Accepting that some contextual material is legitimate, the plaintiffs' position is nonetheless, that much of the materials which J's amendments introduce, particularly as regards exploring and aggregating all the alleged former benefits received by the plaintiffs from either A Co or B Co over time (or by entities or trusts related to S and N, on a direct or indirect basis) is largely unresponsive to resisting statutory oppressive conduct of 2016, but in any event is completely disproportionate to the potential scale of the trial exercise that will be required if all such pleas are allowed to stand to be pursued at a trial.
The challenge of the plaintiffs (and by A Co in the derivative action) against the present pleas is on the two‑fold basis I have indicated above. Augmenting the second of those challenges is a contention that to allow the recent amendments made to J's defence pleadings to stand would infringe modern case flow management principles by requiring the devotion of inordinate and disproportionate legal resources towards engaging with many historical factual issues at a trial. Many of these facts are said to be factually controversial and then will require in themselves a series of mini trials to be conducted in order to resolve controversies but for marginal benefit in any event at a trial over statutory oppression.
The new pleas
It is convenient for present purposes to set out from the amended substituted defence of the third defendant (J in COR 227 of 2017) pars 16(a), (b) and (c) and pars 62(a) - (k) inclusive of the amended pleading.
During the course of the hearing on 30 August 2019 it became apparent that there were some errors within par 62 of J's amended substituted defence. The applications were argued (sensibly) on the basis of clarifying the misdescriptions or errors and approaching the application on the basis that those errors were corrected. Consequently, as I set out par 62 below, I will show corrections to be made during the course of the hearing to various subparagraphs.
In terms of the ultimate position I have reached, I am of the end view that aspects of the plaintiffs' arguments by challenges put against these amendments must be upheld. That result follows essentially on the basis of pragmatic forensic concerns about the oppressively vexatious nature of the content that is otherwise raised within a trial, particularly assessed by modern case flow management proportionality considerations, measuring the potential worth of some of this historic material towards possible defence arguments which J appears to raise in the way of answering the alleged statutory oppression challenges substantively put against him (and F) and against B Co.
Consequently, I will at the end disallow and so strike out pars 62(k)(iii), (iv), (v) (with all its particulars) and (vi) (with its particulars). Save for those excisions, however, the corrected defence pleading in both matters of J may otherwise stand for trial.
Impugned pars 16 and 62 of the third defendant's amended substituted defence filed 26 July 2019
These paragraphs as amended (but corrected) read in the following terms:
16.Save to say that the building was constructed in or about 1904 and to say that Jertvu Pty Ltd is the only tenant on the property, John admits paragraph 16 of the Statement of Claim and says further that:
(a)on or about 24 November 1966, Lee Bros purchased the Midland Property from George Angelo Kakulas, Michael Angelo Kakulas and Stavros Angelo Kakulas;
(b)on or about 24 December 1968, and pursuant to a resolution of the directors of Lee Bros on 25 November 1968, and a resolution of the directors of Lee Holdings on 25 November 1968:
(i)Lee Holdings borrowed the sum of $42,800 from the Commercial Bank of Australia Limited;
(ii)Lee Bros guaranteed the loan to the sum of $40,000;
(iii)Lee Bros assigned the Midland Property to Lee Holdings; and
(iv)Lee Holdings paid (from the monies borrowed) the vendors the purchase price of $42,800; and
(c)the Midland Property is now worth approximately $1 million.
I say now that par 16 does not, on my assessment, infringe any relevant pleading principle. It is relatively confined in its factual ambit and so may stand for trial. The essential battleground in the disallowance application is over par 62.
Paragraph 62 as corrected, reads:
62.Other than to admit the matters pleaded in paragraphs 62.4.5 of the Statement of Claim, John repeats the matters previously pleaded herein and denies each and every other allegation made in paragraph 62 and says further that the New Share Issue was not oppressive to, unfairly prejudicial to or unfairly discriminatory against
Shana Russell and Nerida Puangkham in their capacities as members ofLee Holdings (in its capacity as a shareholder of Lee Bros) in light of the history of Lee Bros and Lee Holdings, the purpose for which those companies were formed and the manner and circumstances in which Lee Holdings became a member of Lee Bros as follows:(a)Lee Bros was incorporated by Ron and Fay on or about 3 July 1964, for the purposes of being the corporate vehicle through which Ron and Fay would from then conduct the business of Lee Bros Butchers, a wholesale and export butcher business, which had been from 1959 until then conducted in Ron's personal name;
(b)Lee Holdings was incorporated by Ron on or about 3 July 1964, for the purposes of being the ultimate holding company of Ron's corporate group including, inter alia, Lee Bros;
(c)upon Lee Bros' incorporation, Ron, in his capacity as director of Lee Bros, caused:
(i)1 ordinary share in Lee Bros to be allotted to Ron at par value of £1;
(ii)1 ordinary share in Lee Bros to be allotted to Fay at par value of £1; and
(iii)150 ordinary shares in Lee Bros to be allotted to Lee Holdings at par value of £1 each;
(d)on 4 October 1972, Ron, in his capacity as director of Lee Bros, caused 1 B class share in Lee Bros to be issued to Lee Holdings at par value of $2;
(e)Lee Holdings received the benefit of the Lee Bros shares issued to it for nominal consideration, in order to give effect to the overarching purpose pleaded in paragraph [62(h) below];
(f)upon Lee Holdings' incorporation, Ron, in his capacity as governing director of Lee Holdings, caused:
(i)1 A class share in Lee Holdings to be allotted to himself at par value of £1;
(ii)1 B class share in Lee Holdings to be allotted to Fay at par value of £1;
(iii)100 C class shares in Lee Holdings to be allotted to Shana, who was then about 6 years old, at par value of £1 each;
(iv)100 C class shares in Lee Holdings to be allotted to Nerida, who was then about 3 years old, at par value of £1 each; and
(v)100 C class shares to be allotted to John, who was then about 10 months old, at par value of £1 each;
(g)in the period 25 August 1966 to 12 September 1975, Ron, in his capacity as governing director of Lee Holdings, caused Lee Holdings to issue further C class shares to each of Shana, Nerida and John in several tranches as pleaded and particularised in paragraph [9] above;
(h)Ron and Fay's overarching purpose in structuring the shareholdings in Lee Holdings and Lee Bros in the manner pleaded in subparagraphs (c) to (g) above, and the reason why the Articles of Association of Lee Holdings contain the provisions pleaded in paragraph 15 of the Statement of Claim and paragraph 15 above, was to ameliorate the potentially adverse effects the then State and federal laws in respect of probate and estate duties would have had on the passing of Ron and Fay's assets to their children on their deaths, while ensuring absolute management control of the corporate group and those assets was retained exclusively by Ron during his lifetime, and after his death by Fay during her lifetime, in the capacity of governing director of the group holding company, Lee Holdings;
(i)Shana, Nerida and John did not provide any consideration to Lee Holdings for the C class shares in Lee Holdings issued to them, and the benefit of those shares was in the nature of a gift from Ron to each of them;
(j)Ron gifted Shana, Nerida and John the Lee Holdings C class shares issued to each of them to give effect to the purpose pleaded in paragraph 62(c) [h] above;
(k)as to Lee Holdings and Lee Bros:
(i)all of the assets of those companies were transferred to them by Ron and Fay on their incorporation or have been acquired and accumulated as a consequence of the efforts, work, skill and investment acumen of Ron and Fay in the period July 1964 to present;
(ii)paragraph 16 above is repeated;
(iii)Shana and Nerida have not invested, directly or indirectly, any money or other assets in either of those companies;
(iv)Shana and Nerida have not materially contributed, directly or indirectly, to the financial success of the business operated by eiher of those companies other than by Shana's involvement in a business known as Western Meat Processors, with respect to which Lee Bros received interest payments upon loans it had made to Western Meat Processors, as well as dividends, and with respect to which Shana (through a corporate entity) also received dividends;
(v)in the period July 1964 to present, Shana has received, directly or indirectly, financial benefits from those companies;
Particulars
A.Horseshoe Investments Pty Ltd ("Horseshoe") is and at all material times has been a company of which Shana was a director and shareholder;
B.Jertvu Pty Ltd ("Jertvu") is a company of which Horseshoe owns 50% of its shares;
C.Swan Regional Services Pty Ltd as trustee for the Fertal Unit Trust ("Fertal") is a trust which was set up by, amongst others, Ron through the corporate vehicle of Lee Bros, in 1967;
D.Fission Pty Ltd ("Fission") was a company of which Shana was a director and shareholder from 1984 until it was deregistered in 1990;
E.Shagay Pty Ltd trading as “Western Meat Packers” ("Packers") is and at all material times has been a company of which Shana was a director and shareholder;
F.Between approximately 1984 to 1990, Lee Bros, alternatively Ron, provided stock to Fission on credit terms that were more favourable than Fission would have been able to obtain from an arms-length supplier;
G.In or about July 2002, Lee Bros loaned $600,000 to Horseshoe, at an interest rate of 5.6071%, being less than Horseshoe would have been obliged to pay if the loan was obtained at commercial market rates;
H.In or about April 2003, Lee Bros loaned $450,000 to Packers;
I.In or about June 2004, Lee Bros loaned $100,000 to Packers;
J.In or about June 2004, Lee Bros entered into an agreement with Horseshoe by which, in effect, Lee Bros transferred to Horseshoe 100,000 units in the Fertal Unit Trust, at a price below their true market value, on interest free credit terms;
K.In or about July 2004, Lee Bros loaned $200,000 to Packers;
L.From approximately 1995 to 2016, Lee Holdings carried out substantial improvements to the Midland Property at a total cost of approximately $850,000, including a substantial renovation in 2008 or 2009 at a cost of approximately $300,000, the primary purpose of which was to improve the facilities for the tenant, Jertvu, and with respect to the 2008/2009 renovations, to allow Jertvu to satisfy certain ISO 9002 standards and therefore improve its business;
M.Ron contributed approximately $469,000 (by way of loan to Lee Holdings) to the improvements described in particular L above and did not cause the rent paid by Jertvu to Lee Holdings to increase to market rates, or to take into account the improvements that had been made to the Midland Property. Ron forgave his loan to Lee Holdings in June 2016;
N.Shana received dividends from Lee Holdings of approximately $230,000 between 2006 and 2014; and
O.Further particulars may be provided following the completion of discovery and prior to trial.
(vi)in the period July 1964 to present, Nerida has received, directly or indirectly, financial benefits from those companies.
Particulars
A.Nerida received dividends from Lee Holdings of approximately $230,000 between 2006 and 2014; and
B.Further particulars may be provided following the completion of discovery and prior to trial.
I will disallow the amendments seen above as pars 62(k)(iii), (iv), (v) and (vi), on the basis that as framed they are vexatious and oppressive. They will not be allowed to stand.
Otherwise, the balance of the impugned amendments in par 62 present to be relatively confined and manageable. They can stand on the basis that pursuant to the submissions of J, they provide surrounding A Co and B Co context that is arguably relevant to understanding the response(s) that J seeks to provide to the plaintiffs’ challenges of oppressive conduct which is brought against him (inter alia).
Evaluation re par 62 of J's amended defence
The conclusion as regards disallowing pars 62(k)(iii) - (vi) is reached on the second tier challenge of the plaintiffs, rather than the first challenge of no reasonably arguable defence being raised. My decision is reached essentially as a pragmatic assessment towards reasonably proportional resourcing considerations and expenditures, including allied forensic considerations relating to discovery and a likely undue consumption of trial time over issues so potentially marginal as to be overwhelmingly disproportionate to any potential benefit to a potential end defence result for J.
The position is exemplified by the pleas seen under pars 62(k)(v) and (vi) as regards the plaintiffs and to the alleged benefits they are said to have received, either directly or indirectly over time. Irrespective of the proven factual correctness of these pleas, their establishment at a trial is highly unlikely to bear greatly on an evaluation of the 2016 share issue from the perspective of a statutory oppression action.
The tenor of the foreshadowed arguments under these pleas and their particulars, so called, is that even if made out, they go nowhere (albeit counsel for the plaintiffs contends that such particulars as given are, in truth, pleas of material facts and, in that respect, they are grossly deficient - an argument which is unnecessary to resolve).
The defence amendment pleas essentially foreshadow arguments to be taken by J at a trial to the effect that the impugned 2016 share issue could be answered vis-a-vis the challenge of statutory oppression or unfair or discriminatory conduct - on a basis of a quasi accounting exercise going back in time to 1964 to collect and then presumably balance out over time all the direct or indirect benefits ever received by S and N from A Co or B Co measured as against J's own benefit position. But a descent into tit for tat - 'I get less, they get more' - in a family company context is as unhelpful as it is unedifying when pushed to the extremes as did the pleas I have disallowed. It is the case, of course, that the shares held by S, N and J in A Co (essentially on a one-third each equal basis) were allocated to them at the time A Co was formed by R as a holding company in 1964 and when S, N and J were all infants. But time has obviously marched on in the 55 years which have subsequently elapsed to the present.
The basis for these defence pleas is sought to be justified by reference to observations made by single judges at various places, including in Canada. In Re Giroday Sawmills Ltd (1983) 49 BCLR 378, Taylor J said:
[T]he court cannot, I think, disregard the fact that the petitioners received their shares without charge and as a part of the scheme through which their father intended to benefit members of his family. Can these petitioners say that they are unfairly dealt with, prejudiced or oppressed when their father desires to use the scheme he has so created in such a way as to benefit other members of the family without also giving a similar benefit to them?
Those remarks were referred to with evident approval by Burchett J in Re Lowes Park Pty Ltd; Headlam v Lowes Park Pty Ltd (1994) 62 FCR 535, 550.
To defend the amendments, reliance was also placed on an observation made by Black J in Boyd v Feeney [2017] NSWSC 1595 at [37]. His Honour had said:
... fairness cannot be considered in a vacuum, and in relation to a family company can only be considered in the light of the history of the company and the family and the purpose for which the company was formed, and that a person who receives the gift of an interest in a company in a situation of this kind is in a somewhat different position from one who has invested his own funds in a company from which he cannot extract himself or herself.
Those remarks were referred to in Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 [178] by the same judge.
Whilst it is obviously necessary to conduct a bespoke factual and contextual analysis concerning the particular circumstances surrounding the underlying corporate structure(s) in every contended statutory oppression action, the need for an historic context must not be pushed to unreasonable limits. Evaluating context around a corporation where the shares are held by family members will not justify an approach that is so disrespectful to the legal corporate structures chosen that corporate principles, including the distinct legal character of the separate corporate entity recognised since Salomon v A Salomon & Co Ltd [1897] AC 22, are effectively thrown out the window.
Statutory oppression
Every case is factually different and it is undoubtedly correct, as Black J has observed, with respect, to remember to distinguish a position of a proprietary company involving closely held shares within a family as against the situation of a publicly listed corporation.
In Trafalgar West Investments Pty Ltd as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [No 6] [2014] WASC 278, I discussed the shares held within a family shareholding environment and said at [91]:
I should say at the outset that, in my view, it would be incorrect in legal principle to approach this issue on a basis that there is some unlegislated category of corporation, whether one terms it a 'close held family company' or otherwise, the conduct of whose affairs can never be oppressive or which fall to be assessed at some lesser standard. The day-to-day experience of the courts rather suggests that loose or informal management practices, underlying personal relationships and frequently uncommercial conduct or decision making (from a company's perspective) routinely characterise the operations of family companies. Yet these circumstances are highly conducive to the manifestation of corporate oppression scenarios.
See also generally [92] - [105].
For the present case, my assessment is that the defence amendments I would disallow under pars 62(k)(iii) - (vi) cross the line in a sense that they foreshadow - trying to answer the charge of alleged statutory oppression - a form of quasi inquiry into the affairs of the two corporations stretching back over more than half a century.
That foreshadowed exercise by the amended defence pleading would go well beyond providing appropriate context. It would attempt to set a platform for what looms as 'tit for tat' arguments over historic benefits said to have been received by the plaintiff sisters or their respective entities, stretching back over time (including over the receipt of dividends paid by A Co). This platform would be used in order to argue that the so-called benefits received over time by the plaintiff sisters as presumably contrasted to J's own benefits, might somehow be used to excuse or rationalise the June 2016 share issue conduct - which changed A Co from being a true holding company with approximately $9 million worth of shares in B Co, holding assets that would be distributed between J and his two sisters on a pari passu winding up basis at approximately $3 million each - to a very different shareholding situation where the worth of the plaintiffs’ shareholdings in A Co were greatly diminished, due to A Co's loss of its majority shareholder position concerning B Co.
Whether the 2016 share issue is ultimately capable of being excused or rationalised within a context of a Lee family company is a matter to be determined at a trial. In my view, however, a pursuit therein of collateral mini‑trials stretching back years, to explore benefit receipts of years long gone is most unlikely to be helpful in that overall oppression inquiry, or at least of such small value as to provide no sensible basis to justify the disproportionate amount of legal resources that will inevitably be required to pursue the exercise.
In short then, if the current defence pleas under pars 62(k)(iii) - (vi) are allowed to stand and were required to be evaluated at trial, I assess that this would lead to pursuing matters at the absolute periphery of potential relevance in terms of their possible contribution towards potentially answering the plaintiff sisters' statutory oppression claim. Moreover, they carry the significant forensic potential to require a consumption of disproportionately high levels of legal resources to resolve - essentially, by way of chasing down collateral issues that are out of all proportion to the cost of pursuing that exercise.
J will still be allowed to raise, as family company context, the pleaded contextual observations under par 16 and under pars 62(a) - (h), (j), (k)(i) and (ii). Most of those matters seem to be relatively confined and easily proven or disproven as historic facts. Indeed, most seem to present as potentially uncontroversial pleas, distinct from the quasi account taking exercise of benefits otherwise foreshadowed against the plaintiffs as regards direct or indirect benefits to them or a related company - an exercise I assess to be out of all proportion to its potential assistance to J within a looming trial as context, which cannot to be justified.
For those reasons, I will strike out in each respective defence pleading of J only pars 62(k)(iii) - (vi) inclusive. Otherwise, the pleadings may stand.
Costs
Given the result which, as matters have transpired, delivers a measure of mixed success on both sides of the present application, my prima facie view is that the costs of these applications ought to stand as costs in the cause or causes longer term. Should the parties wish to be heard concerning a different costs order, then that issue may be addressed on the papers.
Final orders
Consequently, I propose to issue orders striking out pars 62(k)(iii), (iv), (v) and (vi) on the publication of these reasons and otherwise reserve all issues of costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate to the Honourable Justice Martin4 SEPTEMBER 2019
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