Russell v Lee Holdings Pty Ltd - [2017] WASC 283

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: RUSSELL -v- LEE HOLDINGS PTY LTD [2017] WASC 283

CORAM: KENNETH MARTIN J

HEARD: 26 SEPTEMBER 2017

DELIVERED : 26 SEPTEMBER 2017

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

Catchwords:

Practice and procedure - Interlocutory injunction - General meeting of shareholders - Family company - Proposal to issue shares - Dilution risk - C class shares with no voting rights - Statutory oppression

Legislation:

Corporations Act 2001 (Cth)

Result:

Injunction granted

Category: B

Representation:

Counsel:

First Plaintiff                  :     Mr M A Maclennan & Ms A Rumble
Second Plaintiff             :     Mr M A Maclennan & Ms A Rumble
First Defendant              :     No appearance
Second Defendant         :     In person
Third Defendant            :     In person

Solicitors:

First Plaintiff                  :     Bennett + Co
Second Plaintiff             :     Bennett + Co
First Defendant              :     No appearance
Second Defendant         :     In person
Third Defendant            :     In person

Case(s) referred to in judgment(s):

Nil
KENNETH MARTIN J:

(This judgment was delivered extemporaneously on 26 September 2017 and has been edited from the transcript.)

I am dealing today, as indicated, with an application for urgent interlocutory relief. I have emphasised this because the position of the second and third defendants is that they appeared by themselves without legal representation.
In what is not an un-complex situation, I am satisfied that the first defendant, Lee Holdings Pty Ltd (Lee Holdings), is aware of today's proceedings. It is not represented at all. But if it were, it would need, as a corporation, to be represented by a lawyer.
The application that is made by the plaintiffs today effectively seeks to interrupt an extraordinary general meeting (EGM) of Lee Holdings which, according to a notice of proposed resolution, is to be convened tomorrow at 314 Great Eastern Highway, Midland, at 12.30 pm.
The resolution proposed is attachment AJR7 at pages 315 and 316 in the affidavit of Ms Rumble, sworn 21 September 2017. Shana Russell and Nerida Puangkham, as the first and second plaintiffs respectively, rely upon the Rumble affidavit in support of relief today.
The interruption relief now sought, if I can use that overly simplistic terminology, is not final in nature. It is temporary relief sought in circumstances where there is a greater underlying dispute to be resolved. That greater dispute upon the papers that have been filed is a statutory oppression action by the two sisters under the Corporations Act 2001 (Cth). Again at risk of a gross oversimplification, a statutory oppression action can afford minority shareholders in a corporation to obtain relief against a company or the board of a company - if they can demonstrate that their interests have been overridden unfairly or oppressively by those running the company.
I repeat that I am not making any final determinations one way or the other today, in terms of whether or not any statutory oppression has happened or it has not happened relevant to the two plaintiffs as Lee Holdings shareholders. What I must do today, as any judge does on an application like this, heard as a matter of urgency, is evaluate on what is before me the potential merits of the argument about statutory oppression alleged by the plaintiffs as applicants.
So is there a respectable argument raising oppressing for trial or not?
The essence of the evidentiary material that I have to evaluate today is all one-sided. It all comes from the plaintiffs, upon Ms Rumble's affidavit.
That affidavit suggests that there has been disharmony between the three siblings in the Lee family (Shana, Nerida and John). This has manifested in at least three legal actions to date. One is the application that is presently pending by Shana and Nerida seeking access to accounts and documentation as shareholders of Lee Holdings.
Lee Holdings at one point was effectively a 98% shareholder in a valuable subsidiary company, Lee Bros Pty Ltd (Lee Bros).
It does not matter precisely how many millions in assets Lee Bros has. It is enough to say that the underlying assets and wealth of that subsidiary, Lee Bros, was considerable, in the many millions of dollars.
Then it is said by the plaintiffs that within the last 12 months or so, Lee Holdings, effectively as 98% interest holder in Lee Bros, was watered down to a position of only being a mere one per cent interest holder in Lee Bros. That would have an adverse effect on the value of the assets in Lee Holdings vis-à-vis its former subsidiary, Lee Bros.
Now, that is, on its face, a rather surprising situation for the board of Lee Holdings to accept, or agree to. There may be reasons which are historic or otherwise. But, if you are asking, as a neutral outsider today, how is it that a holding company that only a year ago held an interest in a subsidiary that was worth many, many millions of dollars, now finds itself in a position where the worth of its holding in that subsidiary is dramatically watered down to the extent of about 97%, questions immediately arise as to how that all happened and was it fair to all the C class shareholders of Lee Holdings, particularly Shana and Nerida.
Questions have to be answered about how it is that a holding company, through its management, lets that come about. I repeat that I am not making any final determinations about that outcome. But it is presently a matter of extreme curiosity how such a distillation might legitimately happen in a commercial world.
Now, the shareholding position in the first defendant, Lee Holdings, currently sees the two plaintiffs, that is, Shana and Nerida, holding 21,041 fully paid C class shares. Their brother, John, who is the third defendant, also has C class shares. But he has got one less, at 21,040 C class shares. C class shares do not enjoy voting rights at general meetings.
The issued C class shares in Lee Holdings make up the substantial bulk of the presently issued share capital of Lee Holdings, save for two more shares.
First, there is a fully paid A class share worth $1 held by the late Mr Ronald Lee - until his death on 26 July 2016, and now held by his estate. The articles of association of Lee Holdings deal with the position of A class, B class and C class shareholders. But in essence, Mr Ronald Lee, as the founding A class shareholder of Lee Holdings, was given elevated shareholder rights during his life. Mr Ronald Lee founded Lee Holdings many years ago in 1964. He effectively had full control by his governing director's A class share during his life. That control has now passed to his widow.
Upon his death, the articles of Lee Holdings provide that control of the company essentially then passed to Mrs Fay Lee, who is the second defendant and who is present in person today, unrepresented. Mrs Lee, by her one B class share in Lee Holdings, issued for $1, obtained control of Lee Holdings on her husband's death, to then become its governing director. Hence, she holds voting control at general meetings of Lee Holdings.
The former A class reverted, at Ronald Lee's death, to be just an ordinary share in Lee Holdings and with one vote attached to it.
That is all in contrast to the C class shares which make up the bulk of the issued capital in the company, but carrying no voting rights at a shareholders' meeting.
Lee Holdings displays an old style articles of association, reflective of the times in 1964, in the days of odious death duties, when it was not unknown for a governing shareholder of a corporation to effectively rule a corporation with full control during their lifetime. But in saying that, the law has always required corporations to be properly run for the benefit of all shareholders. And where that does not happen, the law provides remedies. There are now very ample remedies via the Corporations Act for situations where companies under the control of a certain voting bloc, can be assessed by a court to be run unfairly to minority shareholder interests - thereby giving the minority interests rights to some relief against statutory oppression via the Corporations Act.
The question I have to answer on the present application is whether there is a sufficient urgency to interrupt the holding of tomorrow's EGM meeting of Lee Holdings.
The interruption sought is at the behest of the two sisters (shareholders), in circumstances where they have no votes to cast tomorrow as mere C class shareholders. It is apparent that tomorrow's notice of resolution would seek to raise $1.5 million for Lee Holdings through an issue at $2 each of three 250,000 tranches of further C class shares - to each of Shana, Nerida and John as the existing C class shareholders.
Shana, Nerida and John, if the resolution were carried tomorrow, could possibly maintain their current shareholding proportions as against each other (ie, one-third each) by subscribing effectively half a million dollars ($500,000) each, to receive the extra 250,000 C class shares to be issued under tomorrow's resolution.
Whilst Shana, Nerida and John cannot vote tomorrow, Mrs Lee can. She can exercise her one B class share rights. That gives her a 76% weighting above anyone else who might potentially vote the other way.
The only other Lee Holdings shareholder who might potentially exercise a vote at tomorrow's EGM of shareholders is the newly appointed administrator trustee company. It might cast the one other potential Lee Holdings vote as the residual one vote enjoyed by the A class share that is now held by Ronald's estate.
Plainly, that one other vote tomorrow would not, on any view, be enough to outweigh the voting wishes of Mrs Lee, were she (as she indicates today is her position) to cast her affirmative vote on her one B class share, as she is likely to do at tomorrow's EGM. The administrator, it seems, now holding the A class share (with one vote) was not informed of the EGM (or at least until just very recently).
The convenience position for granting the injunction that is sought as put, effectively, on behalf of the two sisters as applicants, is that there is no urgency for any funds to be raised by Lee Holdings at present. And they say that it is pre-emptive to see further shares issued. That is in circumstances where there are existing matters of great concern to them in terms of the issuance of the extra shares in Lee Bros 12 months ago. That had the effect of changing the structure of Lee Bros, to what is now a complex situation of control, and the subject of challenge. Things would only be further muddied and made more controversial tomorrow by an issue of further shares in Lee Holdings if the resolution 1 is carried, as seems likely, absent an injunction stopping that event. The issuance of more C class shares in Lee Holdings would also put pressure on Shana, Nerida and John to subscribe for them once that resolution 1 was passed within 21 days or face their interests as shareholders of Lee Holdings being diluted. Otherwise, they would be at risk of having any shareholding interest that they do not take up being taken up elsewhere.
The sisters say, in all the circumstances where they have not yet seen the 30 June 2017 accounts for Lee Holdings, that this is unsatisfactory. The proposed resolution foreshadows that the 30 June 2017 accounts of Lee Holdings be tabled at tomorrow's meeting are to be seen then - ie, at the same time the resolution is moved and voted on.
The most recent financial accounts for Lee Holdings in circulation are the accounts of two financial years ago appended to Ms Rumble's affidavit showing Lee Holdings, effectively, at 30 June 2015 to be in a relatively comfortable financial position - with a healthy surplus of assets over liabilities, at least in terms of value, and no debt to speak of. There is also no sign of any debt or mortgage against the primary (Great Eastern Highway) land assets of Lee Holdings. So there is nothing to indicate a pressing need on those accounts for the issuance of more C class shares to raise capital in order for Lee Holdings to fund its holding company activities in future.
Now, it may be that an updating of those dated accounts for Lee Holdings to 30 June 2017 will show a different picture. But there is no different picture before the court today. Nor is there a financial picture that is current for Lee Holdings that Nerida and Shana have yet seen.
The foreshadowed basis of tomorrow's resolutions is that the 30 June 2017 accounts will be tabled at tomorrow's meeting - for shareholders to then receive only at that time and presumably then render decisions upon them. So, effectively, Nerida, Shana and the administrator would be given no opportunity to evaluate Lee Holdings' 30 June 2017 accounts beforehand. They will be given no opportunity to digest them, to take advice about them, consider their implications, or the like. That, in all the circumstances, they suggest, is unfair, and I agree.
Now, I have heard today from Mr John Lee, the third defendant, appearing in person, and from his mother, Ms Fay Lee, the second defendant, also in person today.
John speaks of a desirability of raising money for Lee Holdings to realise a potentially valuable development investment opportunity at Midland. He says it would be, in those circumstances, helpful if not very desirable for Lee Holdings to raise funds to take up that investment opportunity.
There are also expenditure issues which John and his mother mention for Lee Holdings about repairs to a ceiling at the properties and some security issues for the land against vagrants and undesirables. There were some recent stormwater flooding issues as well, indicating it may be the case that some urgent work needs to be done by Lee Holdings to make the premises watertight, secure, or the like. But none of that is the subject of affidavit evidence from the defendants.
The difficulty is that the court is currently operating, as indeed are the plaintiffs, in circumstances where the most recent financial information towards the first defendant, Lee Holdings, are more than two years old. What the more current, 30 June 2017, Lee Holdings accounts might show when tabled at tomorrow's meeting is a matter I can only speculate about. Lee Holdings, on the evidence before the court today, is in a very healthy financial position.
Lee Holdings' land at Midland is listed in the 2015 accounts at low (1964) historic acquisition values. The market value of that land today is likely to be much higher, as Mr John Lee accepts. Lee Holdings, therefore, looks in a healthy financial position, with a correlatively healthy independent borrowing capacity, one would have thought, if that were needed.
I am asked to, effectively, interrupt tomorrow's planned general meeting to allow more information to be gathered by Shana and Nerida in a context of their pending applications as shareholders in Lee Holdings, which are before the Master on 17 October 2017 in other litigation that has also been commenced by the sisters in this court.
This is a family dispute that displays complexities through a web of companies associated with, basically, brother, sister, mother and now deceased father relationships. Things are more complicated by the corporate structures that surround those relationships. At the end of the day, there remains the Lee family relationship, and with family disputes they are always best resolved consensually around a kitchen table and certainly otherwise than through formal processes unfolding in a courtroom. But absent agreement, a court can only do its best towards complex circumstances, applying the law as it is.
I have to answer the question today whether the plaintiffs, on the evidence before me today - and that evidence is all one way - have made out a seriously arguable case to sustain their relief to interrupt tomorrow's EGM. I am of the view that they have. I am also required to indicate a view about the strength of their prima facie case. I would assess the 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 these plaintiffs. 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.
That is my prima facie assessment reached today on the materials presented as evidence.
In this process I do also need to weigh the convenience of injuncting today, balanced against a possible course of doing nothing and thereby leaving the plaintiffs to later pursue damages or other relief through a trial held at a later time. That has to be weighed.
In the end, bearing in mind the family relationship and bearing in mind the past dealings with restructurings by issues of more shares in the Lee Bros subsidiary, I see a real risk of irremediable harm and prejudice to the plaintiffs in terms of their positions if this court does not intervene now. The underlying complexities of the Lee family relationships stand at risk of being rendered even more complex and difficult to sort out later than they are currently, in my view, if the court does not intervene today.
Furthermore, the administrator and holder of the late Mr Ronald Lee's one A class share should also have a proper opportunity to know about, take advice, and then participate at a meeting of Lee Holdings shareholders that considers the issuance of more capital under proposal that is currently the subject of tomorrow's EGM resolution.
That is not to suggest that Lee Holdings may not, from time to time, need an urgent injection of cash or capital. But there looks to be multiple other ways of achieving that end, none of which require an issuance of more C class shares in Lee Holdings.
Lee Holdings, at least on the materials before me today, currently seems to have a very healthy surplus of assets over liabilities.
In all those circumstances then, I am in the end persuaded, evaluating the relative strength of the plaintiff's prima facie case, combined with the balance of convenience overall to the plaintiffs, that the position overall favours the court granting an interlocutory injunction at this time and, basically, in the terms sought by the plaintiff under its minute of orders to that end. I will order accordingly.