Russell v Lee Holdings Pty Ltd - [2018] WASC 275

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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] WASC 275
Decision Date: 5 SEPTEMBER 2018

CaseChat Overview and Summary

In the matter of Russell versus Lee Holdings Pty Ltd, the issue before the court involved an application by minority shareholders to prosecute a derivative action on behalf of the corporation. The shareholders sought to challenge decisions made by the company's directors. The case was heard in the Supreme Court of New South Wales. The central legal issue was whether the court should exercise its discretion to grant leave for the minority shareholders to proceed with the derivative action.

The court considered various discretionary factors in making its decision. These factors included the likelihood of success of the claim, the potential benefit to the company, and whether the directors had acted in bad faith. The court examined the evidence presented and found that the minority shareholders had established a prima facie case that the directors had breached their fiduciary duties. Additionally, the court noted that the potential benefit to the company, in terms of rectifying the alleged wrongs and preventing future harm, outweighed any prejudice to the directors.

Based on these considerations, the court exercised its discretion in favour of the minority shareholders. The court granted leave for the shareholders to prosecute the derivative action, emphasising the importance of holding directors accountable for their actions and protecting the interests of the company and its shareholders. The court's decision recognised the need to balance the rights of minority shareholders with the potential impact on the directors and the company. The court was satisfied that the minority shareholders had demonstrated sufficient grounds for the court to intervene and that the action was in the best interests of the company.

Orders