S & J Holdings (WA) Pty Ltd as trustee for Steven Gledich Testamentary Trust v Sandra Stefanovich as trustee for Sandra Stefanovich Testamentary Trust
[2018] WASC 320
•23 OCTOBER 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: S & J HOLDINGS (WA) PTY LTD as trustee for STEVEN GLEDICH TESTAMENTARY TRUST -v- SANDRA STEFANOVICH as trustee for SANDRA STEFANOVICH TESTAMENTARY TRUST [2018] WASC 320
CORAM: KENNETH MARTIN J
HEARD: 25 SEPTEMBER 2018
DELIVERED : 23 OCTOBER 2018
FILE NO/S: COR 90 of 2017
BETWEEN: S & J HOLDINGS (WA) PTY LTD as trustee for STEVEN GLEDICH TESTAMENTARY TRUST
Plaintiff
AND
SANDRA STEFANOVICH as trustee for SANDRA STEFANOVICH TESTAMENTARY TRUST
First Defendant
OJG ENGINEERING PTY LTD
Second Defendant
Catchwords:
Practice and procedure - Application to substitute plaintiff - Proposed statutory oppression action - Relevant member at all times seeking substitution as plaintiff - Opposed application - Discretionary considerations relief - Application granted
Legislation:
Corporations Act 2001 (Cth)
Result:
Substitution application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr G M Abbott |
| First Defendant | : | Mr J E Ferreira |
| Second Defendant | : | Mr D M Fairweather |
Solicitors:
| Plaintiff | : | Williams & Hughes |
| First Defendant | : | Douglas Cheveralls Lawyers |
| Second Defendant | : | Fairweather Litigation |
Case(s) referred to in decision(s):
Patrick Gerard Gladwyn Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2017] WASC 335
Patrick Gerard Gladwyn Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2018] WASC 166
Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169
Woodings v Stevenson [2001] WASC 174; (2001) 24 WAR 221
KENNETH MARTIN J:
Under the plaintiff's chamber summons filed 12 June 2018 (Chamber Summons) it seeks orders in terms that:
1.Steven Gledich be substituted as the Plaintiff in this action in place of S & J Holdings (WA) Pty Ltd.
2.The Plaintiff have leave to file and serve an Amending Originating Process in terms of the Minute of Amended Originating Process attached …
The plaintiff's originating process was filed on 4 May 2017 (Originating Process) as an originating process under the corporations rules of this court (Supreme Court (Corporations) (WA) Rules 2004). On its face it seeks relief pursuant to s 232 and s 233 of the Corporations Act 2001 (Cth) (Corporations Act) for statutory oppression whereby either the first or second defendant be ordered to acquire the plaintiff's two shares in the second defendant at fair value and 'without any discount by reason [that] the plaintiff is a minority shareholder in the second defendant'. The relief sought against the second defendant additionally seeks a 'corresponding reduction of the second defendant's share capital'.
Whilst on its face the statutory oppression litigation manifests in the corporate context, at the heart of it lays a disputation between Steven Gledich and his mother, Mrs Jerka Gledich, and sister, Mrs Sandra Stefanovich. Steven's sister is the first defendant in her capacity as the (former) trustee of the Sandra Stefanovich testamentary trust. The trustee of that trust has changed since this litigation was commenced. It is now a corporate entity acting in the trustee role, vis-à-vis that testamentary trust.
The corporation OJG Engineering Pty Ltd (OJG) is the operator of a light engineering business that was originally founded by Steven and Sandra's father, Mr Obrad Gledich, many years ago. Obrad died in 2011 and, according to Steven, since that time his sister, Sandra, and his mother, Jerka, have operated and controlled OJG. Steven's grievances encompass his dismissal of employment from OJG by his mother and sister following his father's death, after being excluded from the management and operations of OJG.
After the death of Obrad the OJG shareholding structure reflects that Jerka holds a 50% interest and the two siblings, Sandra and Steven, hold a 25% shareholding interest each.
Steven relates that he is a boilermaker and welder by trade and holds other technical qualifications which he says enabled him to be involved at all levels of OJG's engineering and steel fabrication business. At par 33 of his affidavit filed 4 May 2017 Steven related:
33.All of my personal assets, including the SGTT [Steven Gledich Testamentary Trust] shares in OJG, are subject to freezing orders under the Criminal Property Confiscation Act 2000 (WA) (CPCA) and an objection by the SGTT to the freezing order in Supreme Court Action No. CPCA 81 of 2015. Further, Jerka's house, that I reside in at 12 Cookham Road, Lathlain, that is the subject of the disputed division 7A loan from OJG that is recorded as owing by me in the books of OJG, is the subject of an objection to confiscation by Jerka in CPCA litigation that was initiated by Jerka in Supreme Court CPCA Action No. CPCA 82 of 2015.
34.After my lawyers explained my concerns, about the way that Sandra is operating OJG (involving related party and uncommercial transactions), to Mr Ian Jones, practice manager of the Office of the Director of Public Prosecutions for WA (Mr Jones), Mr Jones obtained the agreement from the DPP to consent to orders to allow me to bring this action for minority shareholder oppression against Sandra and OJG.
Mr Gledich appends to that affidavit a copy of an extract of orders in CPCA 81 of 2015 which Mr Gledich says:
34.[A]llow me to proceed with this action and for the proceeds of the sale of the SGTT's [Steven Gledich Testamentary Trust] in OJG (or the dividends from the liquidation of OJG) to be set aside and managed by the Public Trustee on behalf of the DPP until the determination of my criminal charges.
Since May 2017 Mr Gledich has stood trial in respect of drug charges in the Western Australian District Court and has been acquitted. There are some residual issues in the present litigation about the effect of freezing notices issued by the State against Steven's shares in OJG.
Mr Gledich appended a company search of OJG as attachment SG1 to the May 2017 affidavit which he swore in support of the Originating Process commenced in this litigation. From that search it is apparent that:
(a)OJG had only two directors appointed at that time, namely, his mother, Jerka, and sister, Sandra. Jerka was also the company secretary.
(b)The current share capital of OJG is spread across four classes of shares, namely, ordinary A class shares, an ordinary B class share, an ordinary C class share and ordinary shares.
The search shows that the two ordinary A class shares are held by Jerka, the one issued ordinary B class share is held by Sandra, the one issued ordinary C class share is held by Steven, and of the four ordinary shares one each is held by Steven and Sandra, with the remaining two ordinary shares held by Jerka. That reflects the 50%/25%/25% shareholding split between the three surviving family members.
The standing of S & J Holdings (WA) Pty Ltd to bring the present proceedings
A review of the materials within Mr Steven Gledich's affidavit filed 4 May 2017, particularly the corporation's search of OJG, shows that at all material times Steven personally has been the relevant shareholder in OJG, not S & J Holdings (WA) Pty Ltd ( S & J Holdings). That is relevant since an oppression action can only validly be brought by a member of the corporation, ie, a shareholder, generally speaking: see s 231, s 232(d) and (e), s 233(1)(d) and s 234(a). In recent times I have had occasion to discuss this requirement: see the Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169 reasons and the two Jebb judgments Patrick Gerard Gladwyn Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2017] WASC 335 and Patrick Gerard Gladwyn Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2018] WASC 166. A person who is not a member (ie, shareholder) at the time the originating process is commenced (here as at 4 May 2017), generally speaking, does not have a right to advance statutory oppression litigation.
It is clear that at all relevant times the OJG relevant member regarding Steven's shares was he and only he. How it came about, therefore, that his lawyers commenced the present litigation in the name of the present plaintiff (which is a corporation related to him) is said to be a mistake. The mistake would seem to be an error that arose after proceedings commenced as COR 30 of 2015, which sought for Steven, as the relevant member of OJG, to obtain access to books and records of OJG under s 247A of the Corporations Act. In due course, orders in those terms were issued by Master Sanderson (26 August 2015).
The circumstances in which S & J Holdings, the corporation, came to issue these oppression proceedings are said to be mistaken but are not adequately explained. Around May 2017 the crimes confiscation of profits litigation was still live. So also was Steven's pending criminal trial in the District Court of Western Australia where it appears that he had been charged on indictment for the possession of drugs (methamphetamine) contrary to the Misuse of Drugs Act 1981 (WA) (Misuse of Drugs Act).
At around this time it looks as if Steven, with the benefit of advice, caused the plaintiff to be incorporated and arranged for it to become the trustee of his testamentary trust in lieu of himself. The corporation S & J Holdings (WA) Pty Ltd has Mr Gledich and his partner, Ms Jennifer May Humphry, as its directors. Ms Humphry is identified as the corporate secretary.
There are two ordinary shares issued in S & J Holdings, both of which are held by Steven. The company was only incorporated on 11 December 2015. At around this time there would appear to have been some muddled thinking at Steven's end regarding the oppression action. The basis for this misapprehension seems to lie in the perception that because the beneficial entitlement to the two shares held by Steven in OJG was for his testamentary trust, when S & J Holdings became the replacement trustee of that trust in lieu of Steven, the replacement trustee thereby became the proper party to commence an oppression action.
Close to the same time it appears that efforts were made to have the second defendant, OJG, transfer the legal ownership of Steven's two shares to S & J Holdings. However, that never happened despite requests that it be done.
The standing deficiency as regards the current plaintiff, S & J Holdings, was noticed and pointed out by the lawyers for Sandra Stefanovich at a very early stage in correspondence with the lawyers for S & J Holdings. There does not appear to have ever been any serious dispute about the existence of this deficiency from those lawyers. However, it appears this defect in circumstances was not addressed but, rather intensive efforts to mediate a resolution of the dispute was favoured on a basis of putting legalities aside while those efforts were made. Regrettably, however, the dispute between brother, sister and mother to date has not been resolved. The defect appears to have been pointed out by the lawyers for the first defendant as early as 9 June 2017 and then repeatedly highlighted since that time. The second defendant also pointed out that deficiency, making an express reference to principles which I discussed in Patrick Gerard Gladyn Jebb as trustee for Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2017] WASC 335.
After a further unsuccessful effort at mediation in early May 2018, there was a request by the lawyers for the first defendant on 3 May 2018 that the matter be admitted to my CMC list. Since 23 May 2018 the litigation has been case managed in my list.
On 12 June 2018 the plaintiff filed its interlocutory summons seeking leave for Steven to be substituted as plaintiff, and on 29 June 2018, I issued consent orders in terms of the parties' Memorandum of Consent, programming a hearing of that application. As subsequent affidavits and written submissions filed on all sides reflect, there is no real dispute that the present plaintiff, S & J Holdings, lacks the standing to properly pursue the present litigation. Hence, it seeks the substitution of Steven and then the making of orders programming the present dispute to a trial upon pleadings (which all sides would appear to agree are necessary in present circumstances to crystallise the precise nature of the alleged statutory oppression contended for by Steven).
The real controversy, however, is whether the appropriate course is simply, as the first defendant contends, to dismiss the present litigation as conceptually deficient, leaving, in the absence of any apparent limitation concerns, Steven to properly commence fresh proceedings in his name against the appropriate parties. That course, however, is opposed by the plaintiff and Steven, who contend that that would be a wasteful exercise and that the proper course is to allow the substitution of the plaintiff as is sought.
A significant amount of the underlying controversy would appear to be driven by a concern on the part of the present plaintiff, S & J Holdings, not to incur a costs exposure to the present defendants upon a dismissal of the present proceedings for lack of standing. That is the essential nature of the present controversy. In addition, the parties accept that any substitution of a plaintiff pursuant to O 18 r 6 carries with it discretionary considerations.
In the ensuing section of these reasons I will simply collect and summarise the different affidavits which have been relied upon on all sides in advancing the present application. I should add that whilst the position of Sandra, as first defendant, is to actively oppose the present substitution application, the position taken by OJG was, effectively, to take a neutral stance, albeit pointing out by way of assistance to the court some issues of potential concern which present in evaluating this substitution application.
I should also note that at the end of the written submissions filed by the first defendant's lawyers on 3 September 2018 there is a helpful three‑page chronology which I will append at the conclusion of these reasons as Annexure A.
Material relied upon in the present application
The parties' respective submissions both in writing and by counsel
Doc No
Date Filed
Document Description
32
24/08/2018
Plaintiff's (S & J Holdings) Submissions in support of Chamber Summons dated 12 June 2018 for leave to substitute and join parties
34
03/09/2018
First Defendant's (Sandra) Outline of Submissions, List of Authorities and Chronology
35
06/09/2018
Second Defendant's (OJG) submissions in relation to Plaintiff's Application for leave to amend parties
2
04/07/2017
Affidavit of Steven Gledich in support of Originating Process for orders under ss 232 & 233 of the Corporations Act 2000 (Cth)
9
12/06/02017
Affidavit of Josias Eduard Ferreira sworn on 9 June 2017 in support of the Defendants' Temporary Stay Application
14
25/01/2018
Affidavit of Steven Gledich sworn 24 January 2018
15
04/04/2018
Affidavit of Guy James Douglas sworn 4 April 2018
24
12/06/2018
Affidavit of Steven Gledich sworn 12 June 2018 in support of Chamber Summons for leave to substitute and join parties
29
01/08/2018
Affidavit of Sandra Stefanovich sworn 1 August 2018
30
01/08/2018
Affidavit of Jerka Gledich sworn 1 August 2018
31
16/08/2018
Affidavit of Steven Gledich sworn 16 August 2018
36
06/09/2018
Affidavit of Tiffany Jayde Blight sworn 6 September 2018
Determination
Applying O 18 r 6(2)(b), I am of the view that an order should be made substituting Steven in person as the plaintiff in this litigation in lieu of the current plaintiff, S & J Holdings (WA) Pty Ltd. I reach that conclusion, essentially, for the following reasons.
(1)Relevantly speaking, for the purposes of a statutory oppression action under pt 2F.1 of the Corporations Act, the correct plaintiff is Steven personally.
(2)Whilst it is true that it has taken too long for the substitution application to be made and that the standing defect regarding the proper plaintiff has been pointed out to Steven's lawyers since at least June 2017, the delay is explicable in part by the need to secure the clarification arising out of the completion of Steven's trial for criminal drug charges in the District Court of Western Australia (which resulted in his acquittal). Time was also diverted towards attempts to resolve the present dispute by two mediations, with the last mediation occurring in early May this year. Hence, the delay in proceeding with the present application is satisfactorily explained.
(3)Mr Ferreira, counsel for Sandra, the first defendant, argues that the explanation for the so-called mistake in commencing this litigation in the name of a party other than Steven personally is implausible and unsatisfactory. However, on my assessment, the explanation for the error as to selecting the proper plaintiff is somewhat explicable by reference to the changes which unfolded in respect of the trusteeship of the testamentary trust created in respect of Steven's shares as a result of Obrad's will (by which the testamentary trusts were established for both Steven and Sandra). Whilst the position is far from perfect, at least some explanation has been provided and there would appear for a time to have been, particularly in the correspondence exchanged between the lawyers for the plaintiff and the first defendant, a misapprehension concerning the requested transfer of the legal ownership from Steven to the trustee of this testamentary trust. In the end, the second defendant did not accede to that request. Had it registered S & J Holdings as the owner of those shares, and were that the position at the commencement of the Originating Process in this litigation, then the position would have been explicable.
(4)One concern raised on behalf of the second defendant, OJG, related to the position regarding the freezing notice issued by the DPP and its current status vis-à-vis Steven's two shares in OJG, notwithstanding the carve-out reflected in the cancellation of part of that freezing notice. On my assessment, this concern does not inhibit a substitution of plaintiff order being made, as is sought by Steven. The relevant question is the position as at the commencement of the present action, namely, as at 4 May 2017, which shows that Steven was then the registered owner of the shares. Whatever might ensue from the freezing notice and those shares, it is the 'membership' of Steven at the commencement of the litigation which is the critical factor. The terms of the subsequent carve‑out as regards the partial cancellation of the freezing notice then make it clear that any rights associated with Steven's membership of OJG as a shareholder are not sought to be forfeited under the provisions of the Criminal Property Confiscation Act 2000 (WA) legislation. Furthermore, Steven has been subsequently acquitted by a jury in respect of the Misuse of Drugs Act charges.
(5)A significant opposing consideration advanced by Mr Ferreira (counsel for the first defendant) on behalf of Sandra was said to be related to costs, with the correlative submission that it would be cleaner if the present action were ended and Steven left to commence a fresh statutory oppression action in his own name. On my assessment, cost considerations should not be a significant driver of the present determination in circumstances where, although there may be some wastage occasioned by the present application, the parties consensually participated in two mediations in this action. Despite the two unsuccessful mediation outcomes, the parties appear to have put aside strict legalities in order to attempt to reach a sensible resolution of the dispute. Furthermore, some delays were attributable to the need to see the outcome of Steven's jury trial on drugs charges in the District Court of Western Australia. In the circumstances, I do not perceive that any legal costs truly attributable to the present action cannot be redressed and provided for by ordering that the first and second defendants have their costs of the present application in any event, in the aftermath of the plaintiff's substitution.
(6)Another consideration raised by the second defendant, OJG, through counsel, was its concern that the materials provided on Steven's behalf had not indicated a basis for showing his arguable case of merit regarding statutory oppression. Allied to that was an expressed concern for Steven to identify through pleadings all alleged statutory oppressive conduct to be relied upon. However, there was no controversy at the hearing that should the action advance to a trial, it should do so on the basis of pleadings ordered to be exchanged between the relevant participants. Concerning the point about Steven's arguable case of merit, I am of the view that there is just enough within the material filed on Steven's behalf to suggest that he may be able to make out a case at a trial for buy‑out relief of his OJG shares, depending upon how the ultimate facts are found at trial. That is enough in the interlocutory circumstances which prevail.
(7)A further issue was again raised, properly, by OJG through counsel concerning whether, in fact, all proper parties had been joined as defendants. In particular, a question was raised as to whether Sandra was a proper party in light of the fact that the corporate trustee of her testamentary trust was now a corporation controlled by her acting as trustee. The question also arose as to whether any relief from oppression was sought against the directors of OJG in the oppression action - possibly thereby rendering Jerka as a necessary plaintiff. However, these are issues which should be capable of resolution, particularly bearing in mind the nature of the buy‑out relief sought on the basis of the proposed amended originating process once the order substituting Steven as the plaintiff is made.
In conclusion, I am of the view, particularly applying Woodings v Stevenson [2001] WASC 174; (2001) 24 WAR 221and the observations of Owen J made in that decision, that an order should issue substituting Steven as the appropriate plaintiff. However, both defendants should have their costs of the present application. The Chamber Summons of 12 June 2018 seeking this interlocutory relief at par 3 effectively accepted that the defendants should have their taxed costs of this application. Having heard the application, I am of the view that this is appropriate relief.
Like the parties, I am also of the view that the action should henceforth proceed upon the basis of pleadings. There should be further orders in terms that within a period to be agreed upon, Steven as the substituted plaintiff is to file and serve a statement of claim identifying with clarity and precision all of the statutory oppression conduct complained of and the material facts and particulars relied upon for that relief under the Originating Process.
The parties should now confer about these published reasons and, in due course, submit a minute, hopefully agreed, implementing a timetable and course for the future. The issue concerning whether Sandra's trustee corporation needs to be made a defendant should also be considered.
ANNEXURE A
FIRST DEFENDANT'S CHRONOLOGY
No
Date
Event
Reference
1.
15/06/2011
Steven Gledich (Steven) released from prison after 18 months in prison for drug trafficking.
Affidavit Sandra sworn 1/08/2018 (Affidavit Sandra) paragraph 11
2.
20/06/2011
Sandra Stefanovich (Sandra) appointed director of OJG Engineering P/L (OJG).
Affidavit Sandra paragraph 7
3.
22/06/2011
· Steven Gledich testamentary trust (SGTT) established
· Death of Obrad Gledich (Obrad).
Affidavit Steven sworn 11/06/2018 (Affidavit Steven) attachment 'SG3'
4.
13/06/2013
Probate if [sic] will of Obrad granted to Sandra and solicitor David Bayly
Affidavit Steven paragraph 5
5.
25/07/2013
One ordinary share in OJG transferred to Steven
Affidavit Steven paragraph 5 and 'SG1'
6.
30/06/2014
One ordinary C class share in OJG transferred to Steven
Affidavit Steven paragraph 5 and 'SG1'
7.
09/01/2015
Steven's employment with OJG terminated.
Affidavit Sandra paragraph 15
8.
22/07/2015
Jerka Gledich (Jerka) replace [sic] Steven as Trustee SGTT.
Affidavit Steven paragraph 5 and 'SG3'
9.
September 2015
Steven arrested for drug trafficking
Affidavit Sandra paragraph 17
10.
22/09/2015
Steven's assets including his shares in OJG frozen
Affidavit Sandra paragraph 18
11.
18/12/2015
· Jerka replaced as trustee of SGTT by S&J Holdings P/L (S&J).
· Signed share transfer form for transfer shares from Steven to S&J.
Affidavit Steven paragraph 5 and 'SG4'
Affidavit Steven paragraph 10 and 'SG7'
12.
16/03/2017
Statutory declaration by Steven declaring: 'I am a 25% shareholder in OJG Engineering Pty Ltd
Pages 78 - 79 'SG3' Affidavit Steven sworn 1 May 2017 (Main Affidavit Steven)
13.
28/04/2017
Freezing notice cancelled regarding Steven's rights against OJG, Sandra and Jerka pursuant to the Corporations Act in relation to his shares in OJG
Affidavit Sandra paragraph 19
14.
4/05/2017
Proceedings commenced by S&J against Sandra and OJG for orders pursuant to s 233 of the Corporations Act (Main Proceedings).
Affidavit Steven paragraph 11 and Main Affidavit and Originating Process Steven.
15.
22/05/2017
Appearances filed for both defendants in Main Proceedings by Douglas Cheveralls Lawyers (DCL).
Affidavit Steven paragraph 12
16.
09/06/2017
Letter DCL to Steven's lawyers Williams+Hughes (W+H) raising issue with S&J's standing
Affidavit Sandra paragraph 47
17.
August 2017
Steven acquitted of charges of drug trafficking after trial
Affidavit Sandra paragraph 17
18.
31/08/2017
First mediation conference in the Main Proceedings
Affidavit Sandra paragraph 14
19.
5/09/2017
Open offer to settle by defendants to plaintiff
Affidavit Steven paragraph 15 and 'SG5'
20.
9/10/2017
Notice change representation - OJG now represented by Fairweather Litigation (FL) in Main Proceedings
Affidavit Steven paragraph 16
21.
20/10/2018
Sandra receive [sic] blank envelope with blank piece of paper inside
Affidavit Sandra paragraph 23 - 24
22.
15/11/2017
· Alleged shareholders meeting between Steven and Jerka appointing Steven and removing Sandra as director of OJG.
· Steven appointed and removed as a director and Sandra removed and re-appointed as a director.
Jerka sworn 31 July 2018
SG1 to Affidavit Steven
23.
16/11/2017
Meeting Jerka with lawyers of Sandra, OJG and Steven and do statutory declaration re previous day's events.
Affidavit of Jerka sworn 31 July 2018
24.
22/11/2017
Letter lawyer Jerka regarding events on 15/11/2017
Affidavit of Jerka sworn 31 July 2018
25.
29/11/2017
FL letter raised the lack of standing of S&J in Main Proceeding
Affidavit Steven paragraph 18 and 'SG6'
26.
11/06/2018
Affidavit Steven in support application for substitution.
Affidavit Steven
27.
12/06/2018
Application by chamber summons for substitution of S&J by Steven
Chamber Summons
28.
01/05/2018
Second mediation conference in Main Proceedings
Affidavit Steven paragraph 17
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 CORBOY23 OCTOBER 2018
0