Russell v Lee Holdings Pty Ltd
[2018] WASC 275
•5 SEPTEMBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RUSSELL -v- LEE HOLDINGS PTY LTD [2018] WASC 275
CORAM: KENNETH MARTIN J
HEARD: 6 AUGUST 2018
DELIVERED : 6 AUGUST 2018
PUBLISHED : 5 SEPTEMBER 2018
FILE NO/S: COR 58 of 2018
MATTER: Sections 236 and 237 of the Corporations Act 2001 (Cth)
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 LTD
Fourth Defendant
Catchwords:
Corporations Law - Application for leave for minority shareholders to prosecute derivative action - Discretionary considerations - Leave granted
Legislation:
Corporations Act 2001 (Cth), s 236, s 237
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr M L Bennett |
| Second Plaintiff | : | Mr M L Bennett |
| First Defendant | : | No appearance |
| Second Defendant | : | Mr J M Healy |
| Third Defendant | : | Mr J M Healy |
| Fourth Defendant | : | No appearance |
Solicitors:
| First Plaintiff | : | Bennett + Co |
| Second Plaintiff | : | Bennett + Co |
| First Defendant | : | No appearance |
| Second Defendant | : | Cullen Macleod Lawyers |
| Third Defendant | : | Cullen Macleod Lawyers |
| Fourth Defendant | : | No appearance |
Case(s) referred to in decision(s):
Blakeney v Blakeney [2016] WASCA 76
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWSC 97
Russell v Lee Holdings Pty Ltd [2017] WASC 283
Trafalgar West Investments Pty Ltd as Trustee for the Trafalgar West Investments Trust v Superior Lawns [No 7] [2015] WASC 280
KENNETH MARTIN J:
(This judgment was delivered extemporaneously on 6 August 2018 and has been edited from the transcript.)
This is an application by two sisters, Shana Francinne Russell and Nerida Jayne Puangkham. They are the sisters of John Anthony Campbell Lee, the third defendant, and the daughters of Fay Eileen Lee, the second defendant. For the purposes of their legal standing to bring the present application, the sisters meet the description of 'shareholders', although they are C‑class shareholders in Lee Holdings Pty Ltd (Lee Holdings). Lee Holdings is the first defendant on the present application.
The nature of the present application by an amended originating process of 12 April 2018, effectively asks the court for leave, pursuant to s 236 and s 237 of pt 2F.1A of the Corporations Act 2001 (Cth), for the sisters to bring a derivative action on behalf of Lee Holdings against the entities they identify in a draft statement of claim.
The underlying situation is that this is yet another sad case of a fractured family with grievances driven by money. There is already related surrounding litigation arising from circumstance in which Lee Holdings, back in 2016, was the subject of governing directors' control under the late Mr Ron Lee. Mr Lee passed away on 26 July 2016. His estate is currently being administered by the fourth defendant, Australian Executive Trustees Ltd. For the purposes of the present application, the fourth defendant indicates that it intends to simply abide by the court's decision and does not otherwise participate.
Likewise, the first defendant, Lee Holdings, does not actively participate or oppose the present application brought by the sisters, if I may use that generic terminology for the plaintiffs.
The sisters' derivative action leave application is opposed by their mother, the second defendant, Fay, and their brother, John, the third defendant.
Fay and John, if I may also respectfully so refer to them, are now effectively the governing board for both Lee Holdings Pty Ltd and of another key Lee subsidiary corporation entity, Lee Brothers Pty Ltd (Lee Bros).
The affidavit material put before me for the applicants consists of two affidavits sworn by Shana Russell. There are two resisting affidavits respectively sworn by John and Fay. That constitutes all the underlying evidence on this opposed application seeking leave for the sisters to, in effect, cause Lee Holdings to sue Lee Bros for shareholder oppression.
The application is also supported by the parties' extensive written submissions. In that respect I will simply refer first to and incorporate by reference the written submissions of the sisters of 4 July 2018, and then the brief reply submissions filed on 27 July 2018, supporting the application for leave to advance these proceeding to cause Lee Holdings to bring the foreshadowed action. Against that proposal were the written arguments of John and Fay, by their outline of responsive submissions of 20 July 2018.
The sisters' written arguments supporting leaving for the derivative action to be brought
I set out below the written arguments in support of leave by the sisters.
Plaintiffs' submissions in support of application for leave to bring derivative proceedings on behalf of Lee Holding Pty Ltd - 4 July 2018
Issue for Determination
1The plaintiffs' application for leave to bring a derivative proceeding in the name of the first defendant (Lee Holdings) against its related entity Lee Bros Pty Ltd (Lee Bros) and the second to fourth defendants requires this Honourable Court to determine whether the criteria in section 237(2) of the Corporations Act 2001 (Cth) is satisfied.
2The plaintiffs (Shana and Nerida) submit that on the evidence before the Court, the criteria are satisfied and leave must be granted.
3The precise scope and nature of the derivative proceeding contemplated by Shana and Nerida is articulated in the Minute of Draft Proposed Statement of Claim filed herewith.
Relevant Background Facts
4The detailed factual background to this application and the proposed derivative proceeding is set out in the Affidavit of Shana Francinne Russell sworn on 11 April 2018 and in the Minute of Draft Proposed Statement of Claim and can be summarised as follows.
5Siblings Shana, Nerida and the third defendant (John) are the children of the second defendant (Fay) and the late Ron Lee, whose estate is now represented by the fourth defendant (Estate).
6Shana, Nerida, Fay, John and the Estate are each shareholders in Lee Holdings which was formerly the holding company of the Lee family group of companies including Lee Bros and Lee Pastoral Pty Ltd (together, the Lee Companies).
7Lee Bros is the cash-rich entity of the group holding cash and investment assets having an estimated value of $20 million.
8Fay and John are the only directors of each of Lee Holdings and Lee Bros. Prior to his passing on 26 July 2016, Ron was also a director of each of Lee Holdings and Lee Bros.
9Fay holds the 'B' Class share in Lee Holdings which confers on Fay the power to exercise the 'Governing Director's' share with special voting rights carrying a weighting of 76% pursuant to Lee holdings' Articles of Association. In his lifetime, Ron's 'A' Class share conferred that power on Ron. Upon his death, Ron's 'A' Class share lost its special voting rights and was effectively converted to an ordinary share.
10Each of Shana and Nerida hold 21,041 'C' Class shares in Lee Holdings and John holds one less at 21,040 'C' Class Shares. The 'C' Class shares carry no voting rights.
11Shana and Nerida are estranged from Fay and John and there has been ongoing litigation between the parties in this Honourable Court since late 2015 concerning, directly or indirectly, their interests in Lee Holdings and the administration of the Estate. The various actions are summarised in Schedule A hereto.
12An ongoing dispute between the parties concerns the issue of shares by Lee Bros to each of Fay, John and Ron in July 2016 mere days before Ron's passing (New Share Issue). Despite having a pre-emptive right to do so, Lee Holdings did not participate in the New Share Issue.
13The New Share Issue resulted in Lee Holdings' interest in Lee Bros being diluted from more than 98% to less than 1%.
14Shana and Nerida maintain an oppression claim against Lee Holdings, Fay, John and the Estate in respect of the New Share Issue in COR 227 of 2017. Each of Lee Holdings, Fay, John and the Estate are actively defending Shana and Nerida's claims. Lee Bros is not a party to COR 227 of 2017.
15The existing oppression claim against Lee Holdings is just one part of the puzzle. As a significantly diluted shareholder in Lee Bros, Lee Holdings itself has cause to complain of oppression in respect of:
15.1Lee Bros' breach of the Articles of Association by failing to observe Lee Holdings' pre-emptive rights to participate in the New Share Issue; and
15.2Fay, John and Ron's conduct (in their capacity as directors of Lee Holdings) in:
15.2.1causing Lee Holdings to waive its pre-emptive rights and/or ratify Lee Bros' breach; and
15.2.2further or alternatively standing by whilst Lee Holdings' majority interest in Lee Bros was diluted contrary to the best interests of Lee Holdings.
16As articulated in the Minute of Draft Proposed Statement of Claim, Lee Holdings has a right to seek relief including:
16.1a declaration that the New Share Issue was invalid;
16.2an order rescinding the New Share Issue ab initio;
16.3alternatively, a declaration that each of Fay, John and the Estate hold 98.7% of the shares issued to them in the New Share Issue on trust for Lee Holdings;
16.4a declaration that Fay, John and Ron (prior to his passing) breached their directors' duties in sections 181(1) and 182(1) of the Corporations Act 2001 (Cth);
16.5further or alternatively damages;
16.6further or alternatively equitable compensation; and
16.7an order pursuant to s 233(1)(a) further or alternatively section 461(1)(e), (f), (g) and (k) of the Corporations Act 2001 (Cth) that Lee Bros be wound up.
17In the circumstances set out below, the grant of leave to Shana and Nerida to seek that relief for Lee Holdings by commencing a derivative proceeding is necessary to vindicate Lee Holdings' position.
Shana and Nerida have standing under section 23(1)(a)
18Each of Shana and Nerida are current members of Lee Holdings and thereby have standing to bring proceedings on behalf of Lee Holdings pursuant to section 236(1)(a) of the Corporations Act 2001 (Cth).
The criteria under section 237(2) are satisfied
237(2)(a) - It is probable Lee Holdings will not itself bring the proceedings
19Significantly, the current directors of Lee Holdings are Fay and John who are themselves defendants in COR 227 of 2017 and are named as defendants in the proposed derivative proceedings.
20Fundamentally, Fay and John have a conflict of interest between their personal and commercial interest in resisting any exposure to liability for breach of their directors' duties and oppression on the one hand and their duty to act in the best interests of Lee Holdings on the other.
21Further complication matters, Fay and John are also the only directors of Lee Bros and a conflict arises in this particular case between their duty to act in the best interests of Lee Holdings on the one hand and their duty to act in the best interests of Lee Bros on the other.
22On 24 January 2018, Shana and Nerida invited Fay and John (in their capacity as directors of Lee Holdings) to cause Lee Holdings to pursue its rights as shareholder of Lee Bros and to pursue each of Fay and John for relief in respect of the conduct and effect of the New Share Issue.
23As at the date of these submissions, more than 5 months has elapsed without Lee Holdings taking any action to pursue its right to relief.
24Fay and John do not state in their evidence filed in opposition to this application that Lee Holdings has or intends to take any such steps. It appears from their evidence that the ground upon which Fay and John oppose this application is because the proposed derivative proceeding is 'duplicitous' of COR 227 of 2017.
25In the circumstances, this Court ought be satisfied that it is probable that Lee Holdings will not itself bring the proposed proceedings, or properly take any steps to pursue its right to relief.
237(2)(b) - Shana and Nerida are acting in good faith
26Shana and Nerida have brought this application in good faith and seek to do no more than is required to redress the oppressive conduct of Lee Bros and Fay, John and Ron (prior to his passing) in effecting the New Share Issue.
27Shana and Nerida have legitimate interests as 'C' Class shareholders in Lee Holdings. Their interest is substantial, representing 66% of the 'C' Class shares, and is more than a mere token interest. The Court may readily infer that the value of Shana and Nerida's interests is likely to be improved if Lee Holdings is successful in its putative claim against Lee Bros.
28Shana and Nerida seek to ensure that Lee Holdings does not stand by in the face of the New Share Issue diluting its interest in Lee Bros and undermining the value of what once was the ultimate holding company of the Lee Companies group.
29Shana and Nerida's application is not brought for any collateral purpose. It is the case that the proposed derivative proceeding flows on from and is aligned with the relief sought by Shana and Nerida in COR 227 of 2017, but this application is not brought to supersede or undermine the existing action.
30In addition to pursuing their legitimate interests as current shareholders of Lee Holdings, Shana and Nerida have a legitimate interest in seeking leave to commence the proposed derivative action in their capacity as beneficiaries of Ron's Estate, which is itself a current shareholder of Lee Holdings.
31Shana and Nerida have gone to great lengths (in CIV 3134 of 2016 and CIV 2952 of 2017) to ensure an independent administrator is appointed to facilitate the proper and efficient administration of the Estate.
32If it were not necessary for Lee Holdings to take the proposed derivative action, Shana and Nerida's interests as beneficiaries of the Estate would be better served if the Estate was not involved in ongoing litigation. In short, this application is not a step Shana and Nerida take lightly.
33Shana is in a position to fund the likely costs of the proposed derivative proceedings.
273(2)(c) - It is in the best interests of Lee Holdings that Shana and Nerida be granted leave
34The principles relevant to this criterion were summarised by the Court of Appeal in Blakeney v Blakeney [2016] WASCA 76 at [52] to [68].
35As a first step, the Court may be satisfied that the rebuttable presumption in s 237(3) of the Corporations Act 2001 (Cth) does not arise in this case because each of the current directors of Lee Holdings, Fay and John, have a material personal interest in the decision whether or not to commence the proposed proceedings.
36Conversely, the fact that Shana and Nerida have a personal interest at stake in the proposed derivative proceeding is not relevant to the criterion in s 237(2)(c).
37As a result of the New Share Issue, Lee Holdings now owns less than 1% of the issued shares in Lee Bros. Prior to the New Share Issue, Lee Holdings held more than 98% of its subsidiary.
38As the ultimate holding company of the Lee Companies group, Lee Holdings was formerly in a position to control the flow of dividends, inter-company loans, investment opportunities and the realisation of investments for its subsidiaries. Now, as the holder of less than 1% of Lee Bros' issued share, Lee Holdings is unable to even require Lee Bros to call an annual general meeting, exercise its vote in a material manner or otherwise influence the financial affairs of Lee Bros.
39Lee Holdings was not in any way compensated for the dilution of its interest in Lee Bros and stands to gain nothing from the New Share Issue. A return to the status quo in existence before the New Share Issue would benefit Lee Holdings and all of its shareholders.
40In that regard, the separate and independent welfare of Lee Holdings, reflected in the interests of its shareholders, would benefit from the grant of leave in the within proceeding.
41Further, Lee Holdings is presently defending litigation concerning its conduct in relation to the New Share Issue. Shana and Nerida allege in COR 227 of 2017 that the conduct of Lee Holdings in purporting to approve the New Share Issue was oppressive to Shana and Nerida as 'C' Class Shareholders, who had no ability to vote on the Lee Holdings' resolution.
42Each of Lee Holdings, Fay, John and the Estate deny they have any liability in that regard and oppose the grant of any relief in COR 227 of 2017. Nevertheless Lee Holdings is at risk of being exposed to liability and to adverse costs orders in that proceeding.
43It is open to Fay and John to cause Lee Holdings to bring a counterclaim in COR 227 of 2017 against each of Fay, John and Lee Bros asserting that Lee Bros' conduct in failing to comply with the pre-emptive rights provisions of Lee Holdings was oppressive.
44Fay and John have not caused Lee Holdings to bring any such counterclaim, a matter which is out of Shana and Nerida's control.
45Lee Holdings must assert its right to relief in a separate proceeding and no alternative mechanisms are available to vindicate Lee Holdings' position.
46The relief sought by Shana and Nerida in COR 227 of 2017, if granted, is inadequate to properly and fully return Lee Holdings to its rightful position in that:
46.1Lee Bros is not a party to COR 227 of 2017 and is not amenable to any order made by this Honourable Court in that proceeding;
46.2as a proposed defendant in the derivative proceeding, Lee Bros will be bound by the Court's orders made in the derivative proceeding;
46.3as Shana and Nerida are not shareholders of Lee Bros, they have no standing to bring any oppression claim against the company, whereas Lee Holdings does have that standing;
46.4accordingly, Lee Holdings is the proposed plaintiff in the derivative proceeding;
46.5as Shana and Nerida do not have standing to bring any action against Fay and John for breaches of their directors' duties in respect of the New Share Issue (although those breaches are relied upon in COR 227 of 2017 as circumstances constituting grounds of oppression);
46.6Lee Holdings has standing to pursue Fay and John for breaches of their directors' duties, which it is proposed Lee Holdings will do in the derivative proceeding; and
46.7Shana and Nerida's Minute of Draft Proposed Statement of Claim for the derivate proceeding seeks as part of the relief an order that Lee Bros be wound up, which is not available in COR 227 of 2017.
47The relief sought in COR 227 of 2017 is only part of the picture. If Shana and Nerida are successful in obtaining orders compelling Fay, John and the Estate to transfer their shares in Lee Bros to Lee Holdings and a winding up of Lee Holdings is ordered, Shana and Nerida's interests as 'C' Class shareholders of Lee Holdings will not necessarily be vindicated because:
47.1the Court does not have power in COR 227 of 2017 to order any adjustment of the value of the new shares issued to each of Fay, John and the Estate to take into account Lee Bros' oppressive conduct to date or any further oppressive conduct that may be identified (particularly in relation to the management of Lee Bros' financial affairs); and
47.2as such, Lee Holdings may ultimately receive transfer of the new shares from Fay, John and the Estate (if ordered in COR 227 of 2017) but remain in a worse financial position than it was in prior to the New Share Issue.
48The proposed derivative proceeding will empower the Court to make such adjustment orders and award such damages to Lee Holdings as may be necessary to account for Lee Bros' oppressive conduct.
49As the value of the Lee Companies group is held in Lee Bros (and Lee Holdings' most significant asset is its interest in Lee Bros) a winding up of Lee Bros may be the only mechanism by which Lee Holdings may realise its asset.
50Lee Holdings' rightful interest in Lee Bros is a majority share but as Lee Bros is a closely held proprietary company controlled by Fay and John (and embroiled in ongoing litigation) it remains an unattractive proposition to third party investors. The Court may infer that there is no ready market for the sale of Lee Holdings' interest in Lee Bros.
51A winding up of Lee Bros will result in a distribution of surplus capital to Lee Holdings that will then be available to Lee Holdings to satisfy any relief or award of costs ordered against Lee Holdings in COR 227 of 2017, or to facilitate the winding up of Lee Holdings if so ordered.
52The relief sought in COR 227 of 2017, in combination with the relief sought in the proposed derivative proceeding, if granted, will ensure the parties' interests are fully restored and disentangled from one another. Without a disentanglement of the parties' interests, it is likely further litigation will ensue.
53If leave is granted, Shana and Nerida will not be placed in any position of conflict or inconsistency. Their position in COR 227 of 2017 is consistent with the position they seek leave to adopt on behalf of Lee Holdings in the proposed derivative action.
54Without the proposed derivative proceeding, Lee Holdings is imperilled as a defendant to COR 227 of 2017 (its defence being directed by Fay and John) with no recourse. The proposed derivative proceeding is therefore necessary and in the best interests of Lee Holdings.
273(2)(d) - Serious question to be tried
55This criterion imposes a low threshold similar to the test applied in the context of an application for an interlocutory injunction.
56Plainly there is a serious question to be tried in respect of whether the affairs of Lee Bros have been conducted in a manner that is oppressive to Lee Holdings and whether Fay and John as directors of Lee Holdings have breached their duties to act in the best interests of the company in respect of the New Share Issue.
57The precise nature and scope of the putative claims are set out in the Minute of Draft Proposed Statement of Claim.
58In that regard, the proposed derivative proceeding will raise issues and factual controversies that are already in dispute in COR 227 of 2017.
59At an interlocutory level, the New Share Issue was considered by this Honourable Court in the course of Shana and Nerida's application for an interlocutory injunction in COR 227 of 2017.
60The Court found on that occasion that:
60.1the dilution of Lee Holdings' interest in Lee Bros from effectively 98% to less than 1% is 'on its face a rather surprising situation for the board of Lee Holdings to accept, or agree to';
60.2'Questions have to be answered about how it is that the holding company, through its management, let that come about … it is presently a matter of extreme curiosity how such a distillation might legitimately happen in the commercial world.'; and
60.3'I would assess material before me as both strong and persuasive in terms of the ascertainment of an underlying long term potential for a Court to ultimately intervene to grant final statutory oppression relief to [Shana and Nerida]. This is in reference to their positions as 'C' Class shareholders in Lee Holdings as regards the management of the corporation in the past - particularly as regards what has taken place with the former subsidiary, Lee Bros.'
61To avoid any unnecessary duplication of work, ensure the actions are conducted in a cost effective manner and avoid any prospect that the Court may deliver inconsistent findings on questions of fact or credit, Shana and Nerida propose that the derivative proceeding (if leave is granted) be case managed and heard together with COR 227 of 2017.
62As part of the joint case management of the proposed derivative proceeding together with COR 227 of 2017, Shana and Nerida contemplate seeking an order that they be permitted to use and rely on evidence adduced in COR 227 of 2017 for the purpose of the proposed derivate proceeding.
63Relevantly, documents evidencing the New Share Issue are already in evidence in COR 227 of 2017 as are matters the second to fourth defendants will presumably rely upon if they opt to defend the proposed derivative proceeding.
237(2)(e) - Shana and Nerida have given written notice to Lee Holdings
64Shana and Nerida, through their solicitors, first gave notice of their intention to bring this application on 24 January 2018.
65After receiving notice that Fay and John intended to seek independent legal advice in respect of Shana and Nerida's notification, Shana and Nerida by their solicitors followed up their notification requesting a response from the directors of Lee Holdings confirming that Lee Holdings would take steps to commence proceedings against Lee Bros and against Fay and John in relation to the New Share Issue.
66Shana and Nerida have not received any substantive responses to their notification.
Conclusion
67In the circumstances, Shana and Nerida's application satisfies the criteria of section 237(2) of the Corporations Act 2001 (Cth).
68If the Court is so satisfied, it must grant leave for Shana and Nerida to commence the proposed derivative proceeding in the name of Lee Holdings.
The opposing submissions of Fay and John opposing the grant of leave to have Lee Holdings bring action against Lee Bros
Second and third defendants' outline of responsible submissions - 20 July 2016
Background
1This application for leave to bring a derivative action in COR 58 of 2018 under section 236 and 237 of the Corporations Act 2001 (Cth) (Act) is the latest in a series of disputes which sees two sisters Shana Russell (Shana) and Nerida Puangkham (Nerida) lining up together against their father Ron Lee (Ron) mother Fay Lee (Fay) and brother John Lee (John). Ron died on 26 July 2016, and his estate is now being administered by an independent executor from Australian executor Trustees Limited.
2Over the past 4 years disputes have arisen between the five members of the Lee family. Those disputes have spawned the commencement of the following actions:
2.1Supreme Court CIV 2605 of 2015 - dispute concerning investment in Western Meat Processors;
2.2Supreme Court CIV 3134 of 2016 - application in respect to Ron Lee's probate;
2.3Supreme Court 2378 of 2017 - pre-action discovery matter in respect to foreshadowed oppression claim;
2.4State Administrative Tribunal GAA 3315/17 - Guardianship and Administration Act 1990 (WA) application by Shana against Fay for production of enduring power of attorney provided by Ron to Fay;
2.5Supreme Court COR 227 of 2017 - Corporations Act oppression claim;
2.6Supreme Court CIV 2952 of 2017 - second application in respect to Ron Lee's probate;
2.7Supreme Court COR 58 of 2018 - Corporations Act derivative proceedings.
3Attached as a schedule are further details of the parties to those proceedings.
4There are also disputes brewing in respect to Fay and John contending that they have equitable interests in certain real property assets which were solely registered in Ron's name at the time of his death. Conferral is continuing with Ron's executor in respect to those claims.
5In order to understand the current application for leave in COR 58 of 2018 (COR 58), and importantly Fay's and John's response, it is essential to appreciate that COR 58 traverses exactly the same matters which are already the subject of oppression proceedings COR 227 of 2017 (COR 227). Set out below is a summary of those similarities.
6In the context of the widespread litigation between this divided family, and in the absence of any explanation by the plaintiffs in COR 58 as to why these proceedings are necessary given COR 227, the plaintiffs' motivations for commencing these proceedings must be seriously questioned.
7These submissions are filed on behalf of Fay and John. Prior to the commencement of this application, Lee Holdings Pty Ltd (Lee Holdings) notified the plaintiffs that it would abide by the outcome in COR 58.
Principles
8Statutory derivative proceedings under sections 236 and 237 of the Act and oppression proceedings commenced by minority shareholders end up in the same position in respect to the Court exercising the discretionary relief contained in section 233 of the Act.
9Whether the Court will grant leave under sections 236 and 237 of the Act for derivative proceedings to be commenced on behalf of Lee Holdings is discretionary and is overlayed by a requirement of 'good faith', which instils the necessity to keep a 'weather eye' on what is the true motivation underlying the application.
10Section 236(2) of the Act provides that:
The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and
(e)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying.
11As stated in Blakeney v Blakeney [2016] WASCA 76, per:
[52]Section 237(2)(c) requires the court to be satisfied that it is in the best interests of the company that the applicant be granted leave. That requires more than satisfaction that the grant of leave may be, appears to be or is likely to be in the interests of the company. Rather, the court must be satisfied that it is in the best interests of the company for leave to be granted.
[53]The expression 'best interests of the company' imports the familiar concept of the interests of the company as a whole: Maher v Honeysett [2005] NSWSC 859 [44]; Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780 [88]; True Value Solar Holdings Pty Ltd v Fernandez [2013] VSCA 27 [13]. The concept of the best interests of a company is concerned with the company's separate and independent welfare: Charlton v Baber [2003] NSWSC 745; (2003) 47 ACSR 31 [52]; Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 [46].
[54]The enquiry as to whether granting leave to bring the proposed derivative action is in the best interests of the company will normally invite attention to at least the following matters. First, the character and scale of the company. Second, the nature of the company's business, so that the effects of the proposed litigation on that business may be considered. Third, whether the substance of what the applicant seeks to achieve can be achieved by means other than a derivative action and without the involvement of the company in any litigation. Fourth, evidence as to the ability of the defendant to meet the judgment, or at least a substantial part of it, so as to assess whether the action will be of practical benefit to the company: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 [57] - [60].
12In this matter it is the elements in sections 236(2)(b) and 236(c) which are in issue, and the following submissions are directed to those matters.
Absence of Good Faith and Not in Lee Holdings Best Interests to Commence Claim - Comparison of Pleaded Material Facts and Relief Claimed in COR 58 and COR 227
13The Lee family businesses have been successful, and the structure of the family group is explained in the diagram annexed to these submissions.
14The salient controversy which permeates COR 58 and COR 227 and grounds the claim for relief in both actions is the conduct associated with the authorisation by Lee Holdings on 7 June 2016 of the issuance of shares by Lee Bros Pty Ltd (Lee Bros), which the plaintiffs say had the effect of decreasing Lee Holdings' shareholding in Lee Bros by 98.7% (Lee Bros Share Issue).
15Overlaying that conduct and the various breaches of duty is the fact that Lee Holdings articles of association provided Ron with extensive powers to act as Lee Holdings' 'Governing Director'. Those powers naturally have important ramifications to the breaches alleged against Ron as compared to those alleged against Fay and John.
16It is accepted that there is a hot contest as to the underlying facts and application of legal principles to that alleged breach of duty, and the satisfaction of the the [sic] element in section 236(2)(d) is not disputed.
17A page turn of the statements of claim prepared in COR 58 and COR 227 identifies that both actions traverse the same facts and alleged breaches.
…
18The only real distinction is the claim for a declaration of trust and equitable compensation. However, there is no suggestion by the plaintiffs that the trust or claim for equitable compensation in COR 58 is necessary because the Court in COR 227 lacks power to unwind the Lee Bros Share Issue, as an alternative to winding up Lee Holdings. It has been held in Patterson v Humfrey [2014] WASC 446 at [56], per Le Miere J that:
The court has power under Corporations Act s 233 to order compensation in favour of the companies whose affairs are in question, notwithstanding the availability of a derivative action.
Disposition
19Although it is conceded by Fay and John that there is an intractable dispute between them on the one hand and Shana and Nerida on the other, the commencement of yet another set of proceedings traversing exactly the same conduct and seeking in essence exactly the same relief is strenuously resisted. Granting leave in COR 58 will only see the costs and burden of the litigation in COR 227 being exacerbated.
20Viewed in the context of the intractable disputes between the Lee family the plaintiffs' motivation for commencement of COR 58 has to be seriously questioned. That is particularly so because the costs have not been insignificant in progressing COR 227 to the stage where pleadings have been closed, discovery has almost been completed and there has been an attendance at a court ordered mediation.
21Viewed objectively COR 58 does not enhance Lee Holdings position because if the allegations in COR 227 are established and oppression is found then the Court in framing the relief will presumably look to restore the parties to the position they were in before the Lee Bros Share Issue was effected. That is exactly what the prayer for relief in paragraph 'CA' of COR 227 is directed to. Unwinding the LB Share Issue will see Lee Holdings reverting to a position where it is LB Bros' major shareholder, and nothing is be gained from allowing COR 58 to be progressed.
22Another important discretionary factor to take into consideration is that the absence of the grant of leave will not deprive Shana and Nerida from advancing their claims because their concerns regarding the underlying conduct relating to the LB Share Issue will be the subject of evidence and findings in COR 227.
23To the extent that Shana or Nerida have some real concern or issue which relates to some material fact or relief in COR 58 not being raised in COR 227, then the appropriate course would be for them to make the necessary amendment application in COR 227.
24Leave to pursue COR 58 should be refused, and the application dismissed with costs.
The sisters' reply submissions pressing for leave
Plaintiffs' outline of submissions in reply - 27 July 2018
The Second and Third Defendants' Concession
1The second defendant (Fay) and the third defendant (John) have failed to address almost all issues in the plaintiffs' primary submissions and effectively concede that:
1.1it is probable that the first defendant (Lee Holdings) will not itself bring proceedings (including as a counterclaim in the Supreme Court proceedings COR 227 of 2017 (Oppression Proceedings)) to pursue its rights as a shareholder of Lee Bros Pty Ltd (Lee Bros);
1.2there is a serious question to be tried in respect of whether the affairs of Lee Bros have been conducted in a manner that is oppressive to Lee Holdings and whether Fay and John as directors of Lee Holdings have breached their duties to act in the best interests of the company; and
1.3the first plaintiff (Shana) and the second plaintiff (Nerida), through their solicitors, have given notice of their intention to bring this application.
2In that context, the only issues for determination by the Court are whether the Court is satisfied that:
2.1Shana and Nerida have brought this application in good faith; and
2.2it is in the best interests of Lee Holdings that Shana and Nerida be granted leave.
The necessity of this application
3Fay and John fail to recognise the distinct and separate causes of action that will be brought in the proposed derivative proceedings (Proposed Proceedings) if this application is granted, which do not arise in the Oppression Proceedings, namely:
3.1Lee Bros' breach of the Articles of Association by failing to observe Lee Holdings' pre-emptive rights to participate in the issue of shares by Lee Bros to each of Fay, John and Ron in July 2016 mere days before Ron's passing (New Share Issue) (which in and of itself could invalidate the New Share Issue); and
3.2Fay, John and Ron's conduct (in their capacity as directors of Lee Holdings) in:
3.2.1causing Lee Holdings to waive its pre-emptive rights (noting Ron's lack of capacity) and/or ratify Lee Bros' breach; and
3.2.2further or alternatively standing by whilst Lee Holdings' majority interest in Lee Bros was extraordinarily diluted contrary to the best interests of Lee Holdings.
4The above causes of action cannot be brought by Shana and Nerida in the Oppression Proceedings and the causes of action have not (and will not be) brought by Lee Holdings as a counterclaim in the Oppression Proceedings.
5Further, the primary relief sought in the Proposed Proceedings includes an order to wind up Lee Bros, and for Lee Bros and/or Fay and/or John to pay compensation or damages to Lee Holdings. Those remedies are not available in the Oppression Proceedings.
6If the court is not satisfied that this application has been brought in good faith or that it is in the best interests of Lee Holdings for leave to be granted, Lee Holdings would be deprived of its right to seek relief to ensure the rights of its shareholders are fully restored.
Risk of duplication
7Shana and Nerida accept that there are common factual matters between the Proposed Proceedings and the Oppression Proceedings. There will be a necessary duplication of the relevant factual matters and issues by virtue of the respective actions arising from the same transaction, however the issues are being considered from a different perspective in the Proposed Proceedings, and as stated above involve different causes of action and forms of relief.
8Shana and Nerida propose that the two actions be case managed and tried together, so that there is no duplication of evidence or other inefficiency.
9There will be no real difficulty or delay in getting the Proposed Proceedings up to speed so that the two actions can be tried together. The exchange of lay evidence and discovery have been substantially completed in the Oppression Proceedings and additional discovery in the Proposed Proceedings will be limited.
Mischaracterisation
10This is not an application that has been brought by Shana and Nerida to further antagonise their relationship with Fay and John; this is a genuine and considered application for Lee Holdings to vindicate its position as against Lee Bros, and Fay and John as directors of Lee Holdings.
Clarification
11Fay and John contend that the Court has a discretion to grant leave even if it is satisfied that the criteria in section 237(2) have been met. This is incorrect, the Court is bound to grant leave if it is satisfied that the criteria have been met.
12To the extent that Fay and John suggest that the prior proceedings have ben unreasonably pursued or prolonged by Shana and Nerida, that suggestion is strenuously denied. It is not to the point in relation to the application to traverse these earlier actions in detail, save to say that Shana and Nerida's position has been substantially vindicated by settlement, or order of the Court in all cases (with the exception of the application brought by Shana under the Guardianship and Administration Act 1990 which was withdrawn a few days after it was filed because Fay, by her solicitors, produced a copy of the enduring power of attorney sought by Shana's application).
13Fay and John have also misunderstood Shana and Nerida's plea in respect of the effect of the staggering decrease of Lee Holdings' shareholding in Lee Bros. Shana and Nerida plead that following the New Share Issue, Lee Holdings' interest in Lee Bros was diluted from approximately 98.7% to approximately 1%.
14Fay and John's reliance on Patterson v Humfrey [2014] WASC 446 is similarly misconceived because:
14.1Lee Holdings has not brought a counterclaim vindicating its position in Lee Bros in the Oppression Proceedings;
14.2Lee Bros is not a party to the Oppression Proceedings; and
14.3Shana and Nerida have no standing in the Oppression Proceedings to bring the claims contemplated in the Proposed Proceedings as they are not shareholders of Lee Bros.
No other avenue
15Absent Lee Holdings making a counterclaim against Lee Bros in the Oppression Proceedings (which it has confirmed it will not do, so directed by Fay and John who are in a hopeless position of conflict in that regard), there is no other avenue for Lee Holdings to seek the appropriate relief required to vindicate its position in Lee Bros.
Summary
16The criteria in sections 237(2)(b) and 237(2)(c) of the Corporations Act 2001 (Cth) are easily satisfied and as such, there should be an order that leave be granted.
Evaluation of arguments - leave granted
In short compass, as became relatively clear upon a distillation of the arguments from counsel today, the criteria for leave as is identified by s 237(2) of the Corporations Act is not in dispute. The Court 'must' grant the application if satisfied upon the five factors as identified under subparagraphs (2)(a) through (e), which I incorporate by reference below:
(2)The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and
(e)either
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.
As was accepted under the clear argument of counsel on behalf of John and Fay - the only criteria remaining in dispute after the exchanges of written submissions are the two criteria under subparagraphs (2)(b) and (c).
So first, and read in context, I must resolve whether under s 237(2)(b) the applicants ‑ the two sisters ‑ are acting in good faith.
Next, and there is some overlap between the criteria in terms of their interrelationship ‑ the court must be satisfied at this stage that it is in the best interests of a company for leave to be given to allow the derivative action to be brought. Relevantly, of course, that company is Lee Holdings ‑ as the corporation in respect of whom it sought that proceedings be brought against, inter alia, Lee Bros.
Albeit not really in dispute now, I should say that I am fully satisfied that the other s 237(2) criteria canvassed by the written submissions are all met ‑ namely, the probability of Lee Holdings not bringing the proceedings if nothing is done (subparagraph (2)(a)), that there is a serious question to be tried via subparagraph (2)(d), and that written notice has obviously been given of the intention to bring this application by subparagraph (2)(e).
So is this application brought, by the sisters, in good faith? In my view, it is. On case authority well established in this area, the fact that there is an underlying family dispute at root here, or that there may be some residual animosity as between the two sisters and their mother and brother, is not the relevant question. The relevant question is whether the application in present circumstances for leave to have Lee Holdings bring the derivative action against Lee Bros, is brought by the sisters in good faith.
The criteria in this area are helpfully collected and explained in a recent decision of the Court of Appeal in Blakeney v Blakeney [2016] WASCA 76. In particular, I would refer to and incorporate by reference what the Court of Appeal said that between [52] ‑ [68].
[52]Section 237(2)(c) requires the court to be satisfied that it is in the best interests of the company that the applicant be granted leave. That requires more than satisfaction that the grant of leave may be, appears to be or is likely to be in the interests of the company. Rather, the court must be satisfied that it is in the best interests of the company for leave to be granted.
[53]The expression 'best interests of the company' imports the familiar concept of the interests of the company as a whole. The concept of the best interests of a company is concerned with the company's separate and independent welfare.
[54]The enquiry as to whether granting leave to bring the proposed derivative action is in the best interests of the company will normally invite attention to at least the following matters. First, the character and scale of the company. Second, the nature of the company's business, so that the effects of the proposed litigation on that business may be considered. Third, whether the substance of what the applicant seeks to achieve can be achieved by means other than a derivative action and without the involvement of the company in any litigation. Fourth, evidence as to the ability of the defendant to meet the judgment, or at least a substantial part of it, so as to assess whether the action will be of practical benefit to the company.
[55]In Robash Pty Ltd v Gladstone Pacific Nickel Pty Ltd Ball J identified the following matters as also relevant to the assessment of whether the grant of leave is in the best interests of the company: the prospects of success of the proposed action, the likely costs and likely consequences if it is not successful; and the nature of any indemnity the applicant has offered to the company. The likelihood of the company recovering under an indemnity is also relevant, as are the resources that the company will need to devote to the proceedings and the resources it has available.
[56]A company may have sound reasons for not pursuing a cause of action and may legitimately have decided that the best interests of the company would be served by not taking action.
[57]It has been said that generally it is reasonable to expect that the pursuit of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by the officer's breach of duty is in the best interests of the company. That will ordinarily be so at least as long as there are reasonable prospects of success, appropriate arrangements have been made in relation to costs and it is expected that a judgment can be successfully executed in whole or in substantial part.
[58]An assessment of whether the grant of leave is in the best interests of the company does not involve the court in a detailed cost-benefit analysis of possible outcomes of the prospective litigation; an analysis that would be almost impossible for it to undertake with any degree of confidence or accuracy. The court should not permit an application for leave to become a trial of the proposed action.
[59]Section 237(2)(c) invites attention not simply to whether it is in the best interests of a company that proceedings be brought on its behalf, but whether it is in the best interests of the company that the particular applicant be granted leave.
[60]It cannot be said that an application is not in the best interests of the company merely because the applicant may also have a personal claim against the proposed defendant. Further, the existence on the part of an applicant of a personal animus against other members of the company does not, of itself, weigh significantly or decisively against the conclusion that the grant of leave is in the company's best interests, because this situation is likely to be common in the types of disputes which lead to derivative actions.
[61]In some cases, the application by a shareholder for leave is made in the context of litigation between shareholders. In one of those cases, McPherson JA observed that the fact that there were two conflicting groups of shareholders, one of whom was unable to set the company in motion to vindicate its alleged rights, provided appropriate circumstances, in that particular case, for the grant of leave under s 237.
[62]The existence of other means for the applicant to pursue their grievance may be relevant to whether it is in the best interests of the company for leave to be granted. However, the existence of alternative mechanisms for the pursuit by the applicant of their grievance is not in itself fatal.
[63]It is not or is most likely not in the best interests of the company for an applicant to be granted leave in circumstances where, because of the applicant's relationship with other companies involved in the proposed litigation, the applicant would have a conflict of duties if the litigation proceeded.
[64]In determining whether the grant of leave is in the best interests of the company, a balance is to be struck between the prejudice that the company will suffer if claims are pressed unsuccessfully on its behalf and there is an adverse costs order, and the advantage that it will gain if the claims are successful.
[65]Where the assertion of the company's claims is a manifestation of aspects of the overall dispute between the parties, it will often be appropriate for the court to address the question of costs in the event that the claims fail. One suitable way of doing that is to grant leave on terms that the applicant is responsible for the costs ordered against the company, and undertakes not to seek contribution or indemnity from the company.
[66]There are many cases in which the grant of leave has been made conditional on an undertaking from the applicant to indemnify the company for the costs of the action, and for any liability for costs incurred by the company, and not to claim contribution from it in respect of any adverse costs order. Some of these cases were collected by Barrett J in Roach v Winnote Pty Ltd and by Davies J in Cooper v Myrtace Consulting Pty Ltd.
[67]It has been said that, at least in some cases, in order to demonstrate that the grant of leave would be in the best interests of the company, it may be necessary for the applicant to demonstrate that, if the proceedings are unsuccessful, the company would be in no worse a financial position.
[68]If the applicant offers an indemnity, but does not have the financial capacity to provide it, the court may find it difficult to conclude that the grant of leave is in the best interests of the company. (footnotes omitted)
It is important that I deal with several submissions put forth for Fay and John resisting the application since, as I have said, I am satisfied that the sisters have actually made good their case for leave, to advance an action through Lee Holdings against Lee Bros.
Mr Healy rightly points out for Fay and John that a court should be cautious before granting an application of this kind. A court must be cognisant of not unnecessarily intruding into or disrupting the business affairs of a corporation, especially a trading corporation. However, corporations invariably manifest as different creatures in their various structures and businesses. Each needs to be individually assessed in terms of what they do and how they might be affected by relief of this nature being given.
In the present situation, Lee Holdings, as the name suggests, is a holding company. I do not assess it to be a business that is actively trading, in terms of any undue potential future disruptions or potential business dislocations - if leave were to be granted for it to effectively become a prosecutor of an oppression action against its former subsidiary, Lee Bros.
Likewise from the perspective of the potential target defendant, Lee Bros, that corporation, as seems to be accepted, presents to be the substantial asset holding or asset-rich entity within the Lee corporate group. Prior to the contentious allocations of shares in Lee Bros which occurred in July 2016, at around or just before the time of the death of the late Mr Ron Lee, Lee Holdings had been a 98.7% shareholder of the asset rich Lee Bros. But as a direct consequence of the contentious 2016 share allocations, (in which Lee Holdings, through its then board, curiously decided not to participate), Lee Holdings shareholding in Lee Bros then became massively diluted - down to less than 2% interest of all the shares of its subsidiary.
The obvious commercial issue supporting underlying concerns about statutory shareholder oppression suffered by Lee Holdings as reflected in prior reasons I delivered in different injunctive circumstances in context of COR 227 of 2017 (see Russell v Lee Holdings Pty Ltd [2017] WASC 283) may be expressed by a simple equation:
97.7% of $12 million of assets ˂ (is less than) 1.3% of $12 million of assets.
There is some uncertainty presently over whether the present value of all the assets owned by Lee Bros is at the level of $12 million or approaching $20 million. But the deterioration in position is obvious, irrespective.
All of those 2016 Lee Holdings/Lee Bros dilution events came to pass as a result of transactions surrounding the ultimate death of former governing director Mr Ron Lee on 26 July 2016. It may be the dilution events are explicable by reference to a managing director's exclusive control held via article 31 of the articles of association of Lee Holdings and which control has now passed (to Fay). The full ramifications of decisions Mr Ron Lee took, albeit he gave, or would appear to have given, powers of attorney to his wife, are yet to be fully tested at a trial. Fay would appear to have executed some minutes or resolutions associated with the dilution events which occurred in 2016 when her husband was then unwell or hospitalised.
At all events, there now presents, upon my assessment presently, a case to be fully investigated and explained as to how and why the enviably healthy financial position of Lee Holdings in mid‑2016 deteriorated carrying the grave associated loss of share value implications for Lee Holdings. In the context of s 237(2) terminology there presents more than a serious question. Indeed, before me today, the existence of the serious question is not in any dispute.
What is much in dispute today is whether there is good faith in the sisters in terms of having Lee Holdings prosecute such an oppression action against Lee Bros and whether it is in Lee Holdings' best interests. Here I will proceed on the basis that there could be a potential need for a full unwinding of this dilution issue and dilution transaction of 2016. That is the relief ultimately sought by the sisters. If there were independent boards for Lee Holdings and Lee Bros (rather than only just John and his mother, Fay) then surely a hypothetically independent board of Lee Holdings would be actively evaluating all its rights in circumstances where in mid‑2016 it went, virtually overnight, from holding a shareholders controlling downstream interest in 98.7% of potentially $12 or $20 million worth of assets down to a situation where Lee Holdings shareholder interest in Lee Bros (and thereby its valuable assets on a liquidation) was watered down by millions of dollars. In a context of that evaluation, shareholders of Lee Holdings stood to gain or be hurt significantly, viewing Lee Bros' assets from a pari passu winding up perspective, in the 2016 dilution transactions and depending on whether those 2016 transactions are ultimately assessed as valid or not.
The real resistance argument put against leave by John and Fay is that a grant of leave is unnecessary and not in the best interest of Lee Holdings. That, they argue, is because the commencement of the new (derivative) proceedings by Lee Holdings against Lee Bros would be unnecessary and wasteful. It would be productive of much cost and ancillary problems. In any event, it is said by Fay and John that substantive justice and relief could be fully granted in the already subsisting proceedings brought by the sisters in COR 227 of 2017 against Lee Holdings for oppression (but, I observe, not against Lee Bros). I must reject this argument.
What is sought by way of a grant of leave today to allow the additional proceedings, (on the basis they be case managed alongside the existing action COR 227) is said by John and Fay to be unnecessary. But the fallacy in that argument is that Lee Bros, the entity that owns the valuable assets and the entity in respect of whom Lee Holdings' shareholders' control was obviously directed away under the 2016 dilution transactions is not yet a party to the COR 227 proceedings, so that relief cannot at present be given against Lee Bros at the behest of Lee Holdings. That may be necessary. Lee Bros may need to be wound up and its assets sold off.
It is true that a limited amount of relief, assuming success in the existing COR 227 action by the sisters might, if they are successful (which is a matter for trial), result in orders being made in that litigation against John and Fay and requiring them to disgorge or return shares they took as regards the 2016 transaction. But Lee Bros cannot be the subject of direct relief in the existing litigation. Lee Bros is the entity in respect of which it is now proposed that proceedings be brought as defendant on a basis that Lee Holdings as the former controlling shareholder was relevantly oppressed by the dilution events that occurred in July 2016, to a point of jeopardising its overall best interests. If that statutory oppression argument of Lee Holdings is to be properly evaluated, Lee Brothers needs to be a party in order for it to be governed by an outcome made the subject of any relief. This is especially the case since Lee Bros (like Lee Holdings) is currently governed by a board comprising only John and Fay.
Fundamentally, upon the (hypothesised) success at a trial by Lee Holdings in the derivative action against Lee Bros for oppression, it may well be that a court is persuaded that the best and most appropriate end relief is for a winding up of Lee Bros and Lee Holdings to be realised at the end or a pari passu reconstructed, pre‑dilution proportions distribution of the as liquidated assets to the shareholders. That relief, of course, is a matter for a trial - but all options for a just outcome should then be on the table if needed.
Lee Bros' assets and liabilities may effectively need to be sold off and converted by a liquidator to be redistributed. It may be that the appropriate relief in those proceedings, assuming nothing in terms of their ultimate outcomes but purely hypothetically, is that both Lee Brothers and Lee Holdings may need to be wound up. A court could not grant that winding up relief if Lee Bros were not made party to the proposed oppression proceedings.
Other subsidiary points were made in way of the resistance by John and Fay - in terms of access to books and records, that is, to the financial books and records of Lee Holdings, being already made available through orders I previously made or which were consented to in COR 227 of 2017. That may or may not be right, but it is not the major consideration presently. I should say, however, on this minor issue that I am concerned that the books and accounts and the financial statements for Lee Bros looks to be lagging at least two financial years behind. It is now the 2018‑2019 financial year, and yet the final accounts which have been provided are only complete for the financial year ended 2016. I see that as being unsatisfactory and something to be swiftly corrected, notwithstanding a tax ruling being awaited as the delay explanation.
There were various other minor or subsidiary resistance arguments put for Fay and John in regard to not granting relief at this point in time but they are not to the point and I am unmoved by them. Rather, I am persuaded that it is overwhelmingly in the best interests of Lee Holdings for it to be given an opportunity through the foreshadowed statutory oppression proceedings for it to take action for statutory oppression against Lee Bros or those who were running Lee Bros at the time, namely, in July 2016, in (derivative) proceedings commenced for it and in which a full panoply of potential relief can be available for Lee Holdings in those proceedings, such as, if assessed as just and necessary, the winding up of Lee Bros.
In reaching that conclusion I could accept that with a bit of manipulation it may have been possible, under an oppression action brought by the sisters, applying the Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWSC 97 line of authority, for the entity, Lee Holdings, to be granted relief under s 233(1)(g). From there, on the authority of Fexuto, it may be that if Lee Bros were then made a party to the existing proceeding it could actually subsume therein something in the nature of a collateral mini‑trial of an oppression action in effect by Lee Holdings made as against Lee Bros. But as case authorities say, some of which I collected in my reasons for decision in Trafalgar West Investments Pty Ltd as Trustee for the Trafalgar West Investments Trust v Superior Lawns [No 7] [2015] WASC 280, an existence of another theoretical pathway does not detract from the pathway of the present requested derivative proceeding brought after a grant of leave under s 236 and s 237 and under criteria which are acknowledged by those cases.
The difficulty with a s 233 approach via the existing proceeding always reverts to the present absence of Lee Bros, in order for a court to potentially hold the capacity to deliver appropriate relief in the circumstances to the full extent that might in the end be required.
I would, in any event, assess it as more preferable and cleaner for a separate application for leave to be made, so a court can at the outset exercise a proper level of control over those sorts of derivative applications. I faced the looming mini‑trial derivative situation in the Trafalgar West Investments statutory oppression litigation. No grant of leave had been sought or given. It was effectively just assumed by the plaintiff entity, Trafalgar, that it would proceed to run a mini oppression action on behalf of the first defendant, Superior Lawns, as against the directors of that defendant entity. However, a key difference in that litigation was that the target derivative action defendants were all then existing defendant parties to that subsisting litigation. Theoretically, it was feasible there, albeit I still thought an uncontrolled situation capable of delivering too many forensic problems at a future global trial. The present facts are not the same. As I have said too often now, Lee Bros is not a party to the COR 227 litigation.
In all the circumstances then, I fundamentally accept the position as was articulated for the sisters in seeking leave. I am now satisfied that all criteria under s 237(2) are met. Accordingly leave should be given and orders issued - the final terms of which I will settle with counsel in due course.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SDL
ASSOCIATE TO THE HONOURABLE JUSTICES K MARTIN AND CORBOY4 SEPTEMBER 2018
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