Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 2)
[2013] WASC 143
•29 APRIL 2013
TRAFALGAR WEST INVESTMENTS PTY LTD AS TRUSTEE FOR THE TRAFALGAR WEST INVESTMENTS TRUST -v- SUPERIOR LAWNS AUSTRALIA PTY LTD [No 2] [2013] WASC 143
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 143 | |
| Case No: | COR:59/2011 | 27 FEBRUARY 2013 | |
| Coram: | KENNETH MARTIN J | 29/04/13 | |
| 14 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| A | |||
| PDF Version |
| Parties: | TRAFALGAR WEST INVESTMENTS PTY LTD AS TRUSTEE FOR THE TRAFALGAR WEST INVESTMENTS TRUST SUPERIOR LAWNS AUSTRALIA PTY LTD KINGSLEY CRAIG FLUGGE MARGARET FLUGGE JEROME MATTHEW FLUGGE LINLEY FLUGGE DAMIEN CRAIG FLUGGE |
Catchwords: | Futility Motion for judgment by defendants Statutory oppression action Loss of standing by transfer away of member's shareholding Subsequent retransfer of same shares Viability of action |
Legislation: | Companies (Western Australia) Code, s 320 Companies Act 1948 (UK) Corporations Act 2001 (Cth), s 233, s 234 Corporations Law 1989 (Cth), s 420A |
Case References: | Mijac Investments Pty Ltd v Graham [No 2] [2009] FCA 773; (2009) 72 ACSR 684 Panfida Ltd v Hartogen Energy Ltd (1988) 51 SASR 404 Re Spargos Mining NL (1990) 3 WAR 166 Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2012] WASC 460 Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2012] WASC 460(S) Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169 Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 3] [2012] WASC 319 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
SUPERIOR LAWNS AUSTRALIA PTY LTD
First Defendant
KINGSLEY CRAIG FLUGGE
Second Defendant
MARGARET FLUGGE
Third Defendant
JEROME MATTHEW FLUGGE
Fourth Defendant
LINLEY FLUGGE
Fifth Defendant
DAMIEN CRAIG FLUGGE
Sixth Defendant
(Page 2)
Catchwords:
Futility - Motion for judgment by defendants - Statutory oppression action - Loss of standing by transfer away of member's shareholding - Subsequent retransfer of same shares - Viability of action
Legislation:
Companies (Western Australia) Code, s 320
Companies Act 1948 (UK)
Corporations Act 2001 (Cth), s 233, s 234
Corporations Law 1989 (Cth), s 420A
Result:
Application dismissed
Category: A
(Page 3)
Representation:
Counsel:
Plaintiff : Mr S Penglis (pro bono counsel for plaintiff)
First Defendant : Mr M Bennett
Second Defendant : Mr M Bennett
Third Defendant : Mr M Bennett
Fourth Defendant : Mr M Bennett
Fifth Defendant : Mr M Bennett
Sixth Defendant : Mr M Bennett
Solicitors:
Plaintiff : Karp Steedman Ross-Adjie
First Defendant : Bennett & Co
Second Defendant : Bennett & Co
Third Defendant : Bennett & Co
Fourth Defendant : Bennett & Co
Fifth Defendant : Bennett & Co
Sixth Defendant : Bennett & Co
Case(s) referred to in judgment(s):
Mijac Investments Pty Ltd v Graham [No 2] [2009] FCA 773; (2009) 72 ACSR 684
Panfida Ltd v Hartogen Energy Ltd (1988) 51 SASR 404
Re Spargos Mining NL (1990) 3 WAR 166
Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2012] WASC 460
Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2012] WASC 460(S)
Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169
Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 3] [2012] WASC 319
(Page 4)
- KENNETH MARTIN J:
Introduction
1 The defendants move to have the plaintiff's action dismissed on the basis it is bound to fail and therefore wholly futile to pursue any further. A 'killer-point' the defendants contend is fatal to the plaintiff's present statutory oppression action is said to arise. The point is that the plaintiff, Trafalgar West Investment Pty Ltd (Trafalgar) ceased to be a member (shareholder) of the first defendant corporation Superior Lawns Australia Pty Ltd (Superior Lawns) when it voluntarily transferred its shares to Trafalgar's sole director, Mr Patrick Jebb (Mr Jebb), during 2011.
2 As a result of the transfer and consequent cessation by Trafalgar to be a member of Superior Lawns, the defendants say Trafalgar lost, then and for all time, any right to continue the statutory oppression action which it had commenced in this court. The action seeks orders and relief pursuant to s 233 of the Corporations Act2001 (Cth), in Ch 2F, pt 2F.1.
3 Essentially, the defendants contend it is a case of Trafalgar's statutory cause of action being terminally undermined by its cessation to be a shareholder of Superior Lawns. The defendants accept, however, that Trafalgar may be able to commence a fresh action for statutory oppression although there would likely be, it is said, adverse forensic consequences for Trafalgar if it commenced a fresh action.
Some background facts
4 The circumstances in which Trafalgar came to transfer its 30% minority shareholding in Superior Lawns to Mr Jebb, are contained within my reasons of 29 May 2012 (see Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169). The events, as explained, resulted in me granting a temporary stay of Trafalgar's statutory oppression action, on 14 June 2012.
5 The circumstances in which Mr Jebb some time later sought to retransfer those same shares in Superior Lawns back to Trafalgar, then to have Trafalgar reregistered as a member of Superior Lawns in respect of those shares and Superior Lawns' subsequent reticence to register Trafalgar, are contained within my reasons for decision of 11 September 2012 (see Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No3] [2012] WASC 319).
6 To summarise a rather unusual factual background, I would observe that:
(Page 5)
- (a) the underlying factual circumstances in which Trafalgar's shareholding in Superior Lawns was transferred to Mr Jebb in 2011 and then sought to be retransferred by him back to Trafalgar, are unique and (hopefully) unlikely to ever arise again;
(b) in large measure what has proven to be an essentially unproductive and wasteful transfer, then retransfer of Trafalgar's shareholding in Superior Lawns, is attributable to some inept tactical decision making by Trafalgar's sole director, Mr Patrick Jebb, a legal practitioner in this State;
(c) the decisions of Mr Jebb have effectively delivered something akin to a two year, wholly unnecessary, delay in the progression of the litigation; and
(d) Mr Jebb is more recently and helpfully assisted by counsel on a pro bono basis.
7 The recent legal assistance has seen Trafalgar and Mr Jebb seek to 'right the ship' to the extent possible.
Some key underlying features
8 It is necessary at the outset to note:
(a) The parties agreed that this application concerning the asserted futility, as advanced by the defendants, should be argued and determined as a final application, rather than be dealt with on an interlocutory basis. It is accepted that either the defendants' 'killer-point' is right or wrong. The parties are in accord in seeking a final determination now, rather than merely an interlocutory decision grounded upon the low threshold criteria of potential arguability.
(b) It is agreed the defendants' futility challenge should be assessed and determined on the basis the court is to assume its orders of 30 November 2012 (in the related action COR 105 of 2012), made in the aftermath of my reasons in Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2012] WASC 460 concerning a requirement for the registration of the shares as retransferred back to Trafalgar by Mr Jebb, have been implemented by Superior Lawns. This is notwithstanding that the actual registration may not yet have finally been completed by Superior Lawns (see Trafalgar West Investments Pty Ltd v
- Superior Lawns Australia Pty Ltd [2012] WASC 460(S) [2]). The parties were agreed in asking me to assume that Trafalgar's re-registration as a shareholder in Superior Lawns had occurred or, if per chance it had not, that this was imminent.
- (c) It is accepted by the defendants that when Trafalgar brought its application commencing this statutory oppression action on 24 March 2011, Trafalgar was then a registered (minority) shareholder of Superior Lawns. Accordingly, it is further accepted that Trafalgar did then meet the s 234(a) Corporations Act threshold requirement of being a 'member' of Superior Lawns, for a purpose of Trafalgar pursuing orders for relief under s 233 of the Corporations Act (see s 231). Trafalgar's first argument in resisting the defendants' futility challenge is that, by meeting that membership criteria at the time its application was commenced, that was, and is, all that was required of Trafalgar. Hence, it is said, that anything that occurred subsequently (in terms of Trafalgar ceasing later to be a member of Superior Lawns) is of no consequence. I will evaluate this plenary argument by Trafalgar later in the reasons.
(d) It being assumed (as outlined above in pars (a) and (c)) that since Trafalgar is to be assessed now as once again a member of Superior Lawns, the defendants accept that hypothetical success on their futility point and any ensuing dismissal of this action, will not inhibit a re-enfranchised Trafalgar commencing a fresh statutory oppression action against the same defendants. The defendants accept that course is open to Trafalgar in light of Murray J's decision in Re Spargos Mining NL (1990) 3 WAR 166. I deal with some of the ramifications of that decision as a discrete component of these reasons. Notwithstanding that potential for a fresh action by Trafalgar, the defendants still contend for a dismissal of this present action, thereby forcing Trafalgar to commence a second action, if it chooses, at a subsequent time. That outcome is said to be of forensic advantage to the defendants, since:
(i) there may be limitation of action consequences adverse to Trafalgar which follow on from such events; and
(ii) the nature of the discretionary relief that is obtainable for statutory oppression, by reference to s 233, will need to be assessed at the time any fresh proceedings were
- commenced. In a practical sense, a commencement of a second action, it is said, would occur in circumstances where, by reason of the 2011 rights issue by Superior Lawns in which Trafalgar did not participate, Trafalgar would commence any fresh proceedings on a basis of being then only a .01% shareholder in Superior Lawns, rather than as the 30% shareholder it was at the time the present action, COR 59 of 2011, was begun. This could bear upon discretionary relief should Trafalgar ultimately succeed in the fresh action.
Observations concerning Re Spargos Mining
9 Whilst Re SpargosMining does not directly address the futility point that is now advanced by the defendants, it is nonetheless a significant decision in a contextual sense, particularly bearing in mind the paucity of case authority bearing upon the present futility argument. Accordingly, it is appropriate to afford the decision close attention.
10 In Re Spargos Mining Murray J held in relation to s 320 of the (now repealed) Companies (Western Australia) Code that it was not necessary for a petitioner for statutory relief against oppression to have been a member at the time, or times, when the actual acts or omissions alleged to constitute oppression took place. Before Murray J it had been argued that this level of standing was necessary, otherwise, an applicant would be akin to an 'intermeddler', who had not suffered any real harm, if it only acquired a shareholding subsequent to the occurrence of the oppressive conduct. Murray J reached a contrary conclusion. He did so by reference to the particular words of s 320, phrased somewhat differently to the present s 234. In reaching a conclusion that s 320 only required membership at the time proceedings were commenced, Murray J took what was then an expansive approach to the provision's potential application to a party who had subsequently become a member. In doing so he declined to follow an earlier first instance decision suggesting that a shareholding held only at the time application was made, would be insufficient (see Panfida Ltd v Hartogen Energy Ltd (1988) 51 SASR 404). In 1990, in Re Spargos Mining Murray J concluded, at 172:
It would seem to me that if the legislature had intended that only an aggrieved member should be able to apply to the court under s 320, it would have said so.
11 Nevertheless, from the facts underlying Re Spargos Mining the aggrieved member concerned, Mr Jenkins, had given evidence at the trial.
(Page 8)
- Clearly Mr Jenkins had remained a member up until the time of trial, indeed, to the time of the judgment in his favour. In evaluating oppression relief pursuant to s 320 of the Companies (WA) Code, Murray J observed that it was sufficient for Mr Jenkins, at the relevant time, to be 'honestly of the view that the affairs of the company were being conducted oppressively and in a way which was unfairly prejudicial and unfairly discriminatory against the shareholders and contrary to their interests as a whole' (173).
12 In 1990, s 320(1)(a)(i) of the Companies (WA) Code required there to be an opinion held by a member, 'that affairs of the company are being conducted in a manner … ' (see the emphasis in decision of Murray J) that was oppressive. Murray J noted s 320(1)'s requirement for a subsisting situation of oppression, by his emphasis on the word 'are' (that is, the present tense). It is clear that s 320's terminology had led Murray J to observe (earlier in Re Spargos Mining, (at 170)) that the petition for relief brought by Mr Jenkins pursuant to s 320(1) was, 'by a person who was thenand remains a member of Spargos believing in terms of par (a)(i)' (my emphasis).
13 Reference to Mr Jenkins as someone who 'remains a member' was a significant underlying foundational fact in that case, notwithstanding the overriding focus of Re Spargos Mining was over whether or not membership was required at the time the asserted harm was sustained by reasons of statutory oppression, as well as the time when the member commenced proceedings. It was unnecessary for Murray J to consider in Re Spargos Mining what would have been the position had Mr Jenkins not remained a member up to the time of trial for judgment.
14 Bearing in mind then the nature of the underlying corporate oppression mischief addressed by s 233 of the Corporations Act, as well as the character of the relief span to be afforded by pt 2F.1 to alleviate such a mischief, on a discretionary basis, I have difficulty accepting the proposition that a member of a corporation (shareholder) can merely, as a member, commence an action contending for relief against statutory oppression by the relevant corporation, but then voluntarily dispose of the shares and nevertheless validly press on with the action for personal relief against oppression.
15 My concerns about a voluntary disposition scenario effectively undermining the rationale for a court's intervention and relief are reinforced by what I assess to be the prima facie non-assignability of the statutory cause of action under pt 2F.1. See generally Mijac Investments
(Page 9)
- Pty Ltd v Graham [No 2] [2009] FCA 773; (2009) 72 ACSR 684, 696 - 697 [33] (Gordon J). That decision concerned the assessed non-assignability of a statutory cause of action pursuant to section 420A of the then Corporations Law. However,Gordon J also observed, and I respectfully agree, that this position would also hold true for allegations of oppression under pt 2F.1 of the Corporations Act. She said:
Section 420A imposes a duty to take all reasonable care on the controller of a property of a corporation in exercising a power of sale. A right to sue for the breach of that duty would be a personal right. It is owed by the controller to the company, creditor and shareholders. The duty the controller owes is not property and cannot be assigned as a chose in action. That analysis applies equally to allegations of breaches of s 232 of the Corporations Act by a controller.
Parties' submissions concerning the futility point
The defendants
17 At the outset of their respective submissions, counsel for both parties said that the issue confronting me was fundamentally one of construing the text of s 234 of the Corporations Act. It is therefore convenient to set this section out:
234 An application for an order under section 233 in relation to a company may be made by:
(a) a member of the company even if the application relates to an act or omission that is against:
(i) the member in a capacity other than as a member; or
(ii) another member in their capacity as a member; or
(b) a person who has been removed from the register of members because of a selective reduction; or
- (c) a person who has ceased to be a member of the company if the application relates to the circumstances in which they cease to be a member; or
(d) a person to whom a share in the company has been transmitted by will or by operation of law; or
(e) a person whom ASIC thinks appropriate having regard to investigations it is conducted or has conducted into:
(i) the company's affairs; or
(ii) matters connected with the company's affairs.
19 Counsel for the defendants submitted that s 234 suffers from a 'dearth of authority' vis-à-vis its interpretation. As a commencing point, the defendants therefore invoked the history and evolution of the statutory oppression action, beginning with s 210 of the Companies Act 1948 (UK) c 38, and its progenitor - the Report of the Committee on Company Law Amendment (Committee on Company Law Amendment, Parliament of the United Kingdom, Report of the Committee on Company Law Amendment (1945)). They also referred me to the Report of the Company Law Committee (Company Law Committee, Parliament of the United Kingdom, Report of the Company Law Committee (1962)), which recommended the Companies Act be amended, to allow petitions by a personal representative or other person 'to whom shares are transmitted by process of law'.
20 The thrust of the historical excursion was to draw my attention to the resemblance between the text of s 234(d) of the Corporations Act and the English statutory oppression provisions. Section 234, it is said, reflects the same underlying policy as the English legislation and law reform materials. That is, that legislative intervention to permit redress against oppression has always been, and remains, exceptional and closely confined.
21 Drawing a distinction to s 234(a), the defendants emphasised the relatively confined scope of s 234(b) - (e), as regards situations in which non-members are permitted to apply for relief under s 233. None of these
(Page 11)
- limited scenarios - selective reduction, grievances over the circumstances of loss of membership, transmission of shares by will or operation of law, or approval by ASIC - are of any present direct application to Trafalgar.
22 The voluntary disposal of its shares by transfer to Mr Jebb, it is contended, puts Trafalgar's continued pursuit of relief at loggerheads with the intended remedial function of pt 2F.1 and amounted to a self-inflicted 'mortal blow'. If not, as it were, dead on arrival, the patient was said to have died at the time its shares were transferred to Mr Jebb, and Trafalgar's membership in Superior Lawns thereby ceased, thus taking it outside the terms of both s 234(a) and, as well, the very narrow supplementary standing provisions in s 234(b) - (e).
The plaintiff
23 Counsel for the plaintiff contended a resort to either s 234(b) - (e), or to the legislative history of the statutory oppression action was wholly unnecessary. The words of s 234(a) are, it was said, clear and - given no more than their ordinary meaning - apply to cover Trafalgar's position, notwithstanding an admitted subsequent loss of its membership in Superior Lawns.
24 As mentioned, Trafalgar's first construction position is that all s 234(a) requires is that Trafalgar be a member of Superior Lawns at commencement of its application. That pre-requisite was clearly met. Hence, Trafalgar says subsequent events in terms of the cessation of membership in Superior Lawns in 2011, are irrelevant, or of no consequence.
25 Second, in the alternative, Trafalgar agrees that if a cessation of membership in 2011 was significant, that nonetheless, temporary difficulty has now been overcome by the retransfer back to it of the same shares from Mr Jebb, and its subsequent re-registration as a member. It is said in that context, that any hiatus in terms of an interrupted membership of Superior Lawns after its oppression action was validly commenced, is still of no consequence.
26 As I mentioned, I have reservations about Trafalgar's first submission, particularly bearing in mind the character of the mischief to be addressed by s 233 orders. If an applicant pursuing relief for statutory oppression were no longer a member at the time of trial and when orders for relief were to be made, then the remedial work of s 233 would present to me as being rather artificial, in those circumstances.
(Page 12)
27 Nevertheless, it is not necessary for me to resolve that plenary point, as Trafalgar now has had these same Superior Lawns shares retransferred to it. I prefer to evaluate the futility attack on the underlying factual edifice of Trafalgar's alternative argument, namely that any standing difficulties were temporary, and have since been corrected, by the shares being retransferred, with Trafalgar now re-registered as legal owner of these shares in Superior Lawns. On that second basis, Trafalgar says it did not sustain a terminal injury by reason of it voluntarily transferring away these shares to Mr Patrick Jebb, as:
(a) Trafalgar still held that statutory cause of action, given this personal action's essential non-assignability;
(b) having now had the shares retransferred and having been re-registered as a member of Superior Lawns, there is no logical rationale for its action to be terminated, possibly exposing Trafalgar to potential adverse costs orders, or to forensic disadvantages, including limitation of action problems, should Trafalgar commence a fresh oppression action; and
(c) arguments grounded upon Trafalgar's position as trustee of the Trafalgar West Investment Trust, and its removal as trustee. Essentially, Trafalgar contended the legal ownership of the shares in Superior Lawns needed to be aligned with the identity of the applicable trustee of the trust at the relevant time. With Mr Jebb appointing himself as trustee in lieu of Trafalgar in 2011, there was every justification, it was said, for the actual entity who was the existing trustee to be the member of Superior Lawns. I am unmoved, however, by these beneficial ownership/trustee contentions. The regime of the Corporations Act, particularly pt 2F.1 concerning oppression, is constructed to apply to members of corporations, not to beneficial owners of shares. Trafalgar asserted that to render the operation of s 233 contingent on legal ownership would create inconvenience for trustees and trust beneficiaries. On my assessment, this is not a relevant consideration. Corporate constitutions routinely and with every justification forestall attempts that seek to appraise corporations with knowledge about beneficial interests in shares. Otherwise, the logistical problems of dealing with beneficial share ownership would be intolerable. Corporations are regulated by reference to who is registered as the legal owner of the shares (the member). Any underlying interests concerning beneficial ownership of the shares held by a member, are an irrelevant distraction.
(Page 13)
Disposition
28 As I mentioned, there is no prior case dealing directly with the futility argument, which arises in factual circumstances which are unique and (hopefully) unlikely to ever arise again. To the extent Re Spargos Mining is of some peripheral assistance, its emphasis was upon the criterion of membership in the corporation against which relief is sought, at the time the relevant application is brought by the member but also, implicitly as well, in the case of Mr Jenkins, his continuing membership in the corporation up to the point of trial and judgment.
29 Following a re-registration of Trafalgar's ownership of shares in Superior Lawns, in the aftermath of Trafalgar v Superior Lawns [No 3] the position now is that Trafalgar has recovered the shares it had held when it commenced the action. Does the hiatus period in terms of its cessation of membership, which occurred after the action was otherwise validly commenced, deliver any terminal blow to the action?
30 The fact Trafalgar lost legal ownership of those shares for a period of time, occasioned the temporary stay order I thought appropriate, as explained in Trafalgar v Superior Lawns [No 2]. But I am not now of the view the temporary stay should now be lifted, in light of Trafalgar recovering the same shares, and again becoming a member of Superior Lawns, for the purpose of meeting s 234(a).
31 In my view, Trafalgar was only temporarily disenfranchised by that loss of membership, arising out of its voluntary transfer of its Superior Lawns shares to Mr Jebb. The underlying cause of that disenfranchisement has been redressed. In my assessment, there is no convincing basis shown to dismiss this action, thereby forcing Trafalgar to commence fresh proceedings in pursuit of relief against oppression. Such a course may occasion forensic disadvantages in terms of limitation of the action considerations and affect overall discretion the court exercises to grant relief, framed by reference to considerations appropriate to the time when the relief is sought.
32 In reaching this view, I do not mean to suggest that should Trafalgar succeed at trial, the discretion of the court to fashion appropriate orders, in the face of proven statutory oppression pursuant to s 233, would in any way be constrained against taking cognisance of the transfers and retransfers of shares, which occurred here, concerning Trafalgar. Such events may be relevant considerations to be weighed overall by the court in ultimately assessing final relief, should oppression be proven.
(Page 14)
33 Any such evaluation should happen in the context of a trial of the present action, which, in my view, is not futile. There is nothing in the words of s 234 or, for that matter, pt 2F.1 of the Corporations Act as a whole that takes me to that severe conclusion.
34 The defendant's futility application will be dismissed. I will hear the parties as to appropriate dispositive orders, including as to costs, if they cannot be agreed.
10
5
4