Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2]
[2012] WASC 169
•29 MAY 2012
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: TRAFALGAR WEST INVESTMENTS PTY LTD -v- SUPERIOR LAWNS AUSTRALIA PTY LTD [No 2] [2012] WASC 169
CORAM: KENNETH MARTIN J
HEARD: 14 FEBRUARY 2012 & ON THE PAPERS
DELIVERED : 29 MAY 2012
FILE NO/S: COR 138 of 2010
BETWEEN: TRAFALGAR WEST INVESTMENTS PTY LTD
Plaintiff
AND
SUPERIOR LAWNS AUSTRALIA PTY LTD
First DefendantKINGSLEY CRAIG FLUGGE
Second DefendantMARGARET FLUGGE
Third DefendantJEROME MATTHEW FLUGGE
Fourth DefendantLINLEY FLUGGE
Fifth Defendant
FILE NO/S :COR 59 of 2011
BETWEEN :TRAFALGAR WEST INVESTMENTS PTY LTD as trustee for the TRAFALGAR WEST INVESTMENTS TRUST
Plaintiff
AND
SUPERIOR LAWNS AUSTRALIA PTY LTD
First DefendantKINGSLEY CRAIG FLUGGE
Second DefendantMARGARET FLUGGE
Third DefendantJEROME MATTHEW FLUGGE
Fourth DefendantLINLEY FLUGGE
Fifth DefendantDAMIEN CRAIG FLUGGE
Sixth Defendant
FILE NO/S :COR 76 of 2011
BETWEEN :TRAFALGAR WEST INVESTMENTS PTY LTD
Plaintiff
AND
SUPERIOR LAWNS AUSTRALIA PTY LTD
Defendant
Catchwords:
Substitution of plaintiff - Joinder - Oppression action - Conflict of interest - Corporate representation by legal practitioner
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA), O 4 r 3(2), O 18 r 7(2)
Result:
Application refused
Category: B
Representation:
COR 138 of 2010
Counsel:
Plaintiff: Mr P G G Jebb
First Defendant : Mr M L Bennett
Second Defendant : Mr M L Bennett
Third Defendant : Mr M L Bennett
Fourth Defendant : Mr M L Bennett
Fifth Defendant : Mr M L 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
COR 59 of 2011
Counsel:
Plaintiff: Mr P G G Jebb
First Defendant : Mr M L Bennett
Second Defendant : Mr M L Bennett
Third Defendant : Mr M L Bennett
Fourth Defendant : Mr M L Bennett
Fifth Defendant : Mr M L Bennett
Sixth Defendant : Mr M L 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
COR 76 of 2011
Counsel:
Plaintiff: Mr P G G Jebb
Defendant: Mr M L Bennett
Solicitors:
Plaintiff: Karp Steedman Ross-Adjie
Defendant: Bennett & Co
Case(s) referred to in judgment(s):
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 [2011] WASC 171
KENNETH MARTIN J:
Overview
In three Corporations Act actions, Mr Patrick Jebb on 9 January 2012 applies in person a second time to be substituted as the plaintiff, pursuant to Rules of the Supreme Court 1971 (WA) (RSC) O 18 r 7(2). I first refused a similar application by Mr Jebb on 7 December 2011. He seeks his personal substitution as plaintiff in lieu of the corporation, Trafalgar West Investments Pty Ltd (Trafalgar). Alternatively, Mr Jebb applies to be added as second plaintiff, with Trafalgar, on the basis that he would then be the active plaintiff and essentially carry Trafalgar along with him.
The three actions are said to have been brought by Trafalgar 'as trustee for the Trafalgar West Investments Trust' (the Trust). The heading of COR 59 of 2011 carries that description of Trafalgar.
It is clear that at the time each action was begun, Trafalgar was a corporate trustee of the Trust. That all changed on 26 October 2011. Mr Jebb, as the Trust's appointor, at that time appointed himself as the new trustee of the Trust, replacing Trafalgar: see a Deed of Change of Trustee, annexure PGJ1 to Mr Jebb's affidavit of 27 October 2011.
The three actions
COR 59 of 2011 is a complicated statutory oppression action. It was commenced urgently, in the context of Trafalgar's pursuit of interim injunctive relief, on 24 March 2011.
The other corporations matters (COR 138 of 2010 and COR 76 of 2011) are said by Mr Jebb to concern some residual taxed costs outcomes still requiring resolution. Accordingly, it is the oppression action (COR 59 of 2011) that requires primary focus, as regards the still contested installation of Mr Jebb as a plaintiff, either in lieu of Trafalgar or, alternatively, by Mr Jebb's addition as the second plaintiff.
Basis of application
Mr Jebb has been explicit about his motives in seeking to become the plaintiff in the three actions. He believes becoming the, or a, plaintiff in the three actions will solve the problem Trafalgar currently faces: it cannot afford legal representation but, as a corporate litigant, it is required by RSC O 4 r 3(2) to have legal representation.
Trafalgar's solicitors of record, Karp Steedman Ross‑Adjie, have unsuccessfully sought to be removed from the record. Their accounts have not been fully met by Trafalgar. Karp Steedman Ross‑Adjie remain on the record for Trafalgar in the three actions, but now acts effectively as a 'post box' for service of documents upon Trafalgar.
On occasion I have given Mr Jebb leave to speak in chambers as a McKenzie friend on Trafalgar's behalf. He did so at this application and at his earlier unsuccessful application to be substituted for Trafalgar as the sole plaintiff. Mr Jebb also speaks in his own interest.
Mr Jebb's conflict in acting as Trafalgar's legal representative
On 25 October 2011, I declined the application to replace Karp Steedman Ross‑Adjie with Mr Jebb as solicitors of record for Trafalgar. Mr Jebb is a legal practitioner who holds a current practising certificate. My chief concern was that Mr Jebb has a clear conflict of interest in so acting. He would have a significant personal conflict of interest in acting as Trafalgar's legal representative. Mr Jebb is sole director and 50% shareholder (with his former wife) in Trafalgar.
Many affidavits already filed by Mr Jebb on behalf of Trafalgar in the oppression proceedings show that he is Trafalgar's significant material witness in the oppression action. The action raises over 40 alleged instances of oppressive conduct sought to be ventilated on behalf of Trafalgar as a 30% minority shareholder against the first defendant, Superior Lawns Australia Pty Ltd (Superior Lawns), plus five other defendants (essentially members of the Flugge family).
Mr Jebb's proposed substitution for Trafalgar as sole plaintiff in the action seeks to replace a corporate plaintiff with an individual. If that were to occur, the constraints which prevent corporate plaintiffs being represented in proceedings other than by a legal representative would be alleviated, at least in Mr Jebb's eyes. Mr Jebb then seeks, effectively, to act for himself in person as the substituted plaintiff but also, as he sees it, in the interests of the Trust, of which he is, by his hand, sole trustee as of 26 October 2011. It is this discretionary trust (see the copy of the Deed of Trust of 3 December 1991, annexure PGJ2 to Mr Jebb's affidavit of 11 November 2011) which Mr Jebb contends has held the beneficial interest in the 30% minority shareholding in Superior Lawns since June 2006.
Trafalgar faces a security for costs application brought by the defendants, which is deferred at present. Trafalgar's inability as a corporation, and Mr Jebb's correlative inability, as Trafalgar's sole director and 50% shareholder, to fund further independent legal representation for Trafalgar by Karp Steedman Ross‑Adjie, suggests Trafalgar's and Mr Jebb's financial resources are heavily constrained. Yet the oppression action is very complex. The statement of claim filed for Trafalgar on 22 July 2011 runs to some 100 pages. The prospect of that action being run by a self‑represented litigant (albeit a legal practitioner) is less than ideal.
The Trust
Part of the basis for Mr Jebb's present application is that the minority shareholding interest which has suffered oppression has always, it is said, been held on trust by a trustee for the benefit of the Trust. The minority interest consists of the 345 ordinary and one 'D' class share in Superior Lawns, amounting to 30% of Superior Lawns' shares.
Mr Jebb, having become the new trustee of the Trust on 26 October 2011, suggests that his proposed substitution as plaintiff for Trafalgar simply aligns the plaintiff in each action with the current trustee of the Trust. It is put by Mr Jebb that his substitution should, in essence, follow as a matter of course.
But Mr Jebb ignores two key questions. First, who was the relevant member (i.e. the shareholder) holding the minority shareholding in Superior Lawns, at the times when the allegedly oppressive conduct occurred? And second, who was the relevant shareholder in Superior Lawns when this oppression action was begun, on 24 March 2011?
Standing to bring an action for oppression against a member is fundamentally derived from the plaintiff's status as a member of that company. The equitable holding of shares does not confer the required standing to complain of statutory oppression, as I explain.
Causes of action ventilated in the three actions
All three actions brought by Trafalgar in this court seek to advance statutory causes of action under the Corporations Act 2001 (Cth). COR 138 of 2010 and COR 76 of 2011 were begun on 17 August 2010 and 15 April 2011, respectively. Relief in these two actions is sought by Trafalgar pursuant to s 247A(1) (inspection of the books of Superior Lawns by a shareholder) and s 293 (preparation of audited financial reports).
A s 247A application to inspect books may be made by 'a member of a company': see s 247A(1) (also s 237). A s 293 application seeking preparation of audited financial reports can be made by a shareholder who holds at least 5% of the votes in a small proprietary company: see s 293(1) and s 293(3)(c).
COR 138 of 2010 and COR 76 of 2011 have both been commenced and pursued by Trafalgar to date, on the basis that Trafalgar is the relevant member of Superior Lawns.
In COR 138 of 2010, orders for the inspection and auditing of accounts have been made in favour of Trafalgar on that premise as to its status.
In COR 138 of 2010 and COR 76 of 2011, affidavits have been sworn by Mr Jebb supporting the statutory relief sought by Trafalgar, on the basis that Trafalgar was the proper applicant for statutory relief. I refer to Mr Jebb's affidavits on behalf of Trafalgar in those actions: in COR 138 of 2010, sworn 16 August 2010, 21 October 2010, 25 November 2010, 4 February 2011, 7 February 2011 and 17 February 2011; and in COR 76 of 2011, sworn 15 April 2011.
The oppression action, COR 59 of 2011, was commenced by Trafalgar in urgent circumstances on 24 March 2011. Urgent interim injunctive relief was sought and obtained by Trafalgar against Superior Lawns as well as members of the Flugge family on 25 March 2011.
Trafalgar commenced the proceedings seeking statutory relief for alleged oppression. It did so as the relevant member of Superior Lawns, pursuant to s 232 and s 233 of the Corporations Act 2001 (Cth). Trafalgar has proceeded to act as plaintiff in COR 59 of 2011, on the basis it is the relevant member of Superior Lawns: see s 231(a) and s 234.
Section 234 provides:
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 ceased 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 conducting or has conducted into:
(i)the company's affairs; or
(ii)matters connected with the company's affairs.
It will be seen (s 234(b) and (c)) that only in the limited circumstances specified, which do not apply here, may a former member bring the action.
Mr Jebb swore affidavits on 23, 24 and 25 March 2011 in support of the injunctive relief sought by Trafalgar. Subsequently, he swore further affidavits on 17 August 2011 and 9 September 2011.
In reasons published on 13 July 2011 (see Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2011] WASC 171), I refused (on terms) Trafalgar's application seeking that the interim injunction it had obtained be extended until trial. That was in the context of Trafalgar's efforts to prevent a foreshadowed rights issue by Superior Lawns, essentially because Trafalgar did not wish its existing 30% shareholding in Superior Lawns to be diluted.
The 30% minority shareholding in Superior Lawns
Since Mr Jebb, as guardian and appointor of the Trust, caused Trafalgar to cease to be trustee of the Trust on 26 October 2011 and appointed himself as trustee in lieu, three relevant, correlative events have transpired, namely:
(a)Trafalgar, by Mr Jebb's hand, signed share transfer forms dated 8 December 2011 for 345 ordinary and one 'D' class share in Superior Lawns (Mr Jebb's affidavit of 9 January 2012, annexure PGJ3). The transferee was Mr Jebb personally. Consideration for these transfers was nil. Presumably this was on the basis that there has been no effective change in the Trust's equitable ownership of the shares - only a change of trustee.
(b)Trafalgar ceased on 9 January 2012 to be recorded as a member of Superior Lawns.
(c)From 9 January 2012 Mr Jebb has been recorded as the holder of 345 ordinary shares and one 'D' class share in Superior Lawns (Mr Jebb's affidavit of 25 January 2012).
Standing
In order to have standing to validly commence a statutory oppression action, Trafalgar needed to be a member of Superior Lawns at the time proceedings were commenced on 24 March 2011. It was.
Mr Jebb was not then a member (subject to what I will address later, as to the correction of an error in the Superior Lawns register of members). This is explained in an affidavit of 18 January 2012 of Ms Sandra de Roo, who is an accountant employed by the accounting firm engaged by Superior Lawns since September 2000.
In Re Spargos Mining NL (1990) 3 WAR 166, after referring to Panfida Ltd v Hartogen Energy Ltd (1988) 51 SASR 404, Murray J observed (171 ‑ 172):
[H]is Honour took the view that as in the case before him, a party who was a member only at the time when the application was made, would ordinarily not be able to demonstrate a sufficient interest to confer standing, despite the words of s 45 which his Honour thought to be only an aid, albeit an important aid, to the court in resolving the question of locus standi. That proposition is one with which, with respect, I find considerable difficulty … 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.
…
The court is here asked to provide a remedy if it is of the opinion that the circumstances proved demonstrate what may be described as operative unfairness to a member, a group of members or the members of a company as a whole. In my view the application may within the terms of s 320(1) be made by any person who is then a member. His interest as a member is a sufficient interest in terms of the statute to confer standing to bring proceedings which are, of course, at his risk, if the court is unpersuaded to the opinion required by s 320(2).
(my emphasis in bold)
See also Ford HAJ, Austin RP and Ramsay IM, Ford's Principles of Corporations Law (14th ed, 2010) [11.440].
The opposition to Mr Jebb's applications
The defendants object to Mr Jebb's proposal that he replace Trafalgar as plaintiff, or even that he be joined as a co‑plaintiff. They assert, by written submissions of 8 February 2012, that:
10.In accordance with Justice Murray's decision in Re Spargos Mining … it is a person's status as a member at the time of bringing the application that confers standing to bring proceedings. Mr Jebb does not have standing to maintain these actions as he was not a member of the First Defendant at the time the various actions were commenced.
11.Whilst Mr Jebb may have standing to apply under s 234(a) in respect of conduct that occurred before he became a member of the First Defendant (see Re Spargos at 7), this would need to be considered in the light of proceedings brought by Mr Jebb. This would raise issues (to be considered then) as to whether a subsequent member of a proprietary company can complain about the prior conduct of all of the shareholders.
In Re Spargos, Murray J assessed the then applicable statutory oppression provision, namely s 320(2)(a) of the Companies Code. A component of that former provision read:
[T]hat affairs of a company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members (in this section referred to as the 'oppressed member or members') or in a manner that is contrary to the interests of the members as a whole.
(my emphasis in bold)
Connoting the relevant criterion of a present shareholding, Murray J drew attention to use of the word 'are', in the context of the court's powers to address statutory oppression. The context of those observations 22 years ago was an argument as to whether a member of Spargos Mining NL, Mr Jenkins, who was a member at the commencement of proceedings and when the matter came to trial, had standing. Mr Jenkins was found to have standing, notwithstanding that the allegedly oppressive conduct he complained of occurred before he had become a member of Spargos. Mr Jenkins had remained a member of the company to the time of trial, and that was enough. His application for statutory relief by reason of oppression was ultimately successful.
The defendants invoke Re Spargos to contend that Trafalgar's 9 January 2012 cessation as a member of Superior Lawns (upon the transfer of its shares to Mr Jebb) has terminally undermined Trafalgar's viable pursuit of the three actions. Trafalgar is now only a former member of Superior Lawns. The defendants make the further argument that the oppression action does not fall within any of the bases in s 234 upon which a former member may legitimately bring or continue an action for oppression.
The wording of the oppression provisions in Part 2F.1 of the Corporations Act have evolved from that of s 320(2)(a) of the Companies Code. The word 'are', which was very significant to Murray J's affirmative conclusion as to standing, is no longer relevantly used in s 234.
The consequence of Trafalgar ceasing to be a member of Superior Lawns
Trafalgar's cessation as member of Superior Lawns presents a problem for it in terms of it viably maintaining this action as from 9 January 2012. A prejudicial outcome for Trafalgar is a potential consequence I had warned Mr Jebb of, on his first unsuccessful application to be substituted as plaintiff on 7 December 2011. At that hearing I said (ts 174):
The statement of claim is drawn on the basis of the corporate trustee's position. I am also a bit concerned that you might actually be non‑suiting yourself in the sense that if you do actually substitute yourself as a natural person trustee plaintiff that the antecedent incidence that you complain about as being oppressive to a shareholder, namely, the corporate trustee as shareholder, might be prejudiced.
Then, at ts 181:
It seems to me that it would be unwise for a straight substitution to be sanctioned at this point in time, at least until the state of the register by reference to the first defendant's constitution is corrected and brought into line with the position that Mr Jebb now articulates, namely, that there is a new trustee who is the legal owner of these shares.
For that to be the case it seems to me that there needs to be a transfer tendered and processed and, secondly, the statement of claim to the extent that it is now overtaken by these events needs to be brought into alignment with that state of affairs, and although I am not in a position to give legal advice to anybody, that considerable care ought to be taken in that exercise lest the causes of action that are presently articulated be irretrievably prejudiced by a change of that nature.
Essentially then, by reason of the disconformity with the constitution of the first defendant, and secondly, the state of disharmony between what is sought and the statement of claim, it seems to me that I can't accede today in relation to the substitution application.
Undaunted, Mr Jebb has now brought a second application for substitution.
However, the 100 page statement of claim filed in advancement of the oppression proceedings against Superior Lawns remains unaltered. It is drafted on a foundational basis that Trafalgar is the relevant member that suffered oppression and that pursues the relief under s 233. This is problematic for Trafalgar, as I explain.
Further submissions from Mr Jebb
At the special appointment on 14 February 2012, it emerged that Mr Jebb had regrettably not been provided with a copy of written submissions of 8 February 2012 filed on behalf of the defendants opposing his second application seeking substitution. When that oversight came to light at the hearing, I adjourned briefly to allow Mr Jebb to consider those written submissions, just then provided to him.
After a brief adjournment Mr Jebb seemed content to proceed. The matter was argued and at the end I reserved my decision. Subsequently, however, Mr Jebb sought leave to file further written submissions. This was not opposed by the defendants. Accordingly, I have received and evaluated Mr Jebb's further written submissions of 28 February 2012.
Mr Jebb's last written submissions now level a number of strong allegations against the defendants, particularly against Superior Lawns as first defendant, as regards the state of its register of members. Mr Jebb contends that the register of members of Superior Lawns has, since 2006, shown he, not Trafalgar, to be the holder of 345 ordinary shares and one 'D' class share. Mr Jebb says that this has been the position since 16 June 2006.
Mr Jebb's recent submissions level serious accusations at the defendants, including accusations as to purported registrations of amended transfers by him and so‑called secret and improper amendments to the register of members. He even uses the word 'subterfuge', arguing that it is 'entirely improper for a Company to unilaterally remove a member from a register'.
Mr Jebb now seems to suggest his lodgement of share transfers from Trafalgar to himself under a letter of 8 December 2011, enclosing the transfer forms, was a 'nullity'. At par 24 he says:
Given that the register has recorded Mr Jebb as a shareholder for almost six years, and the repeated instances above where the Company and the defendants have affirmed the accuracy of the register, it is vexatious for those controlling the Company to secretly and improperly remove Mr Jebb's name from the register, and then claim transfers improperly procured justify the matter be struck out.
However, Ms Sandra de Roo on behalf of the defendants provides both a plausible and proper explanation for the erroneous reference to Mr Jebb on the register, in her affidavit filed in COR 59 of 2011, affirmed 18 January 2012. Mr Jebb had that affidavit of Ms de Roo. She says that Mr Jebb was misdescribed by that entry. Her January 2012 affidavit was mentioned in the defendants' written submissions of 8 February 2012, at par 7:
Mr Jebb has not previously been a member of [Superior Lawns] (see Affidavit of Sandra de Roo affirmed 18 January 2012).
The ASIC records as to the identities of Superior Lawns' members show Trafalgar, not Mr Jebb, to be the relevant member of Superior Lawns, from June 2006 onwards. Ms de Roo says the ASIC records and searches reflect the true position. She says that the Superior Lawns register of members was corrected, once the error was discovered. There is nothing to contradict this evidence. It accords with the information held on ASIC's database since 2006.
ASIC searches for Superior Lawns appended to many of Mr Jebb's affidavits in the three actions uniformly record the holder of 345 ordinary shares and one 'D' class share constituting the 30% shareholding in Superior Lawns to be Trafalgar, not Mr Jebb. In each of the many supporting affidavits sworn across the three actions Mr Jebb has said that Trafalgar was the relevant shareholder in Superior Lawns. It is far too late to contend otherwise.
As of 28 February 2012, Mr Jebb looks to be contending, or at least attempting to contend, that he, not Trafalgar, has been the relevant shareholder in Superior Lawns since 2006. The most recent position, however, is directly irreconcilable with at least four of Mr Jebb's affidavits sworn in the three actions pending in this court. Inspection and audited accounts orders have already been obtained by Trafalgar in COR 138 of 2010. They were issued on the foundational basis that the relevant member of Superior Lawns, and proper applicant, was Trafalgar, not Mr Jebb.
A contradictory change of position of this magnitude cannot now be countenanced. That is particularly so, in light of the fact that Ms de Roo's January 2012 affidavit explained the reference to Mr Jebb on the register as an error that was corrected.
If I permitted Mr Jebb to run a case inconsistent with a position he has assisted Trafalgar on oath to advance for almost 18 months it would, in my view, be such a wholesale and inconsistent change of position as to constitute an abuse of the court's process. I will not allow that to occur.
Trafalgar's position
Trafalgar held its rights of action against Superior Lawns. Mr Jebb, I have found, has a conflict of interest which prevents him from representing the interests of Trafalgar as its legal representative.
I am of the view that it would be inappropriate to unilaterally remove Trafalgar as plaintiff and substitute Mr Jebb as plaintiff in the three actions. Trafalgar may well have undermined its standing in the oppression action from the time it transferred its shares in Superior Lawns to Mr Jebb.
The relief a court may grant under s 233 of the Corporations Act is discretionary. So the ramifications of Trafalgar's cessation as a member of Superior Lawns may prove to be wider than just a loss of standing.
Discretion in the relief granted under s 232 and s 233 is an important consideration. It is one thing to afford redress where an existing member's interests have been and remain affected by oppressive conduct. It is another thing to grant redress to a former shareholder that has disposed of their shareholding. Redressing the position of a current shareholder that has acquired shares from another party, knowing that the transferor of those shares has claimed to have been oppressed and had issued proceedings, is a distinct, third scenario.
These three distinct scenarios each involve unique considerations as to the appropriate relief, even assuming oppression affecting a shareholder is established at a trial.
Discretionary considerations as to relief reinforce the problems Trafalgar now looks to face, given its position since 9 January 2012 as a former member of Superior Lawns.
I am of the view that the defendants' objections against Trafalgar's further pursuit of the oppression action must be accepted. Trafalgar is not a viable plaintiff at present. This difficulty has been brought about by Mr Jebb's tactical manoeuvres. They are a stark manifestation of the clear underlying conflict he faces, as between his own interests and Trafalgar's interests.
Mr Jebb's tactical manoeuvres to circumvent an inconvenient outcome as regards the legal representation of Trafalgar have led to these problems. It is possible (the point has not yet been argued) that Trafalgar's present difficulty could be alleviated by a re‑transfer back to it of the shares it once held in Superior Lawns.
But until that occurs, I am of the view that Trafalgar has been disenfranchised. As a consequence there must be at least a temporary stay of the oppression proceedings.
Substitution of Mr Jebb for Trafalgar
Mr Jebb seeks as his first preference the total removal of Trafalgar as plaintiff and the substitution of himself. That course, in my view, is untenable. Mr Jebb was not a member of Superior Lawns when these oppression proceedings were commenced. Trafalgar was. Questions over the shares' equitable ownership by the Trust are not to the point. It is status as a member that generates the right to pursue statutory relief for oppression.
The late injection of Mr Jebb as plaintiff in lieu of Trafalgar will get him nowhere in this existing action. The question is whether he was a member of Superior Lawns at the time the oppression proceedings were commenced, on 24 March 2011. He was not. Nor is there any suggestion of the assignment of Trafalgar's choses in action to Mr Jebb, even assuming statutory causes of action of this kind are capable of valid assignment (itself a difficult issue, upon which I have not heard argument).
The proper plaintiff is the party who was the member at the time proceedings were commenced. If that party divests its shareholding in the period after commencement of proceedings and before trial, it cannot legitimately maintain the oppression action, unless it brings itself within the former member provisions set out in s 234 of the Corporations Act.
It may also be recalled that in the present case, in previous reasons, I observed that notwithstanding the breadth and magnitude of the oppression allegations raised by Trafalgar, the likely remedy, were Trafalgar to be successful, would be a buyout order of its shares at a value to be assessed. But what is the point of a buyout order in circumstances where a former member no longer holds its minority shareholding? There is nothing to be bought from that departed former member. An acquirer or holder of the shares, after the action was commenced by someone else, does not have standing to continue the proceedings.
As a result, a substitution of Mr Jebb as plaintiff in lieu of Trafalgar would be pointless and so, I refuse that application.
Mr Jebb as a co‑plaintiff
The residual question is whether Mr Jebb can or ought be joined as the second plaintiff, alongside Trafalgar. This would be, as Mr Jebb made clear to me in his oral submissions, on the basis that Mr Jebb, as of 9 January 2012, became the holder of a 30% minority shareholding in Superior Lawns and trustee of the Trust of which Trafalgar was formerly trustee.
In weighing this alternative, I again take account of the fact that Mr Jebb is a solicitor holding a current practice certificate. He is of course tied, as sole director and 50% shareholder, to Trafalgar. He is also closely tied to the Trust: he is guardian, appointor and one of two primary beneficiaries (along with his ex‑wife).
On the other hand, Mr Jebb's personal interests have proven, even in what has occurred to date, to be at odds with Trafalgar's distinct interests. Mr Jebb, in his capacity as a legal practitioner, has a conflict of interest acting for Trafalgar. I made that determination on 25 October 2011. My views have been reinforced by what has transpired since then. The present application is essentially Mr Jebb's undisguised manoeuvre to circumvent the perceived inconvenience of that ruling as to Trafalgar's legal representation. What is proposed does not sufficiently protect the distinct interests of a corporation whose rights of action against Superior Lawns are not Mr Jebb's.
Fundamentally, Mr Jebb presents to me as wanting to 'row his own boat' in the oppression action, apart from Trafalgar. He would, I have little doubt, do that by tactical decisions that may do damage, if they have not already, by ignoring Trafalgar's separate interest as a corporate party holding its own potential rights of action against Superior Lawns.
There is potential, accepted by the defendants in argument at the hearing, for these oppression proceedings to be discontinued by Trafalgar, then for Mr Jebb to commence his own proceedings as a present member under s 234. Mr Jebb would, upon commencement of a fresh action, be the relevant member of Superior Lawns. Were that to occur it may remove or regularise some concerns. Irrespective of that possibility, it remains clear that putting Trafalgar and Mr Jebb together as co‑plaintiffs in COR 59 of 2011 carries with it the very concerning prospect of entrenching the present irreconcilable tensions between Mr Jebb's interests and those of Trafalgar.
Mr Jebb, to the extent he is advancing personal causes of action, at best holds them only from the time at which he became a member of Superior Lawns. That did not occur until he was registered and recorded on Superior Lawns' register of members on 9 January 2012.
Trafalgar's actions seeking orders for inspection and audited accounts are different. Orders have been made to date on the basis that Trafalgar was the applicant for relief. Substitution of Mr Jebb for Trafalgar in those proceedings now, on the basis of his acquisition and legal ownership of a 30% minority interest in Superior Lawns, is not appropriate. The operative question is, who was the member holding the relevant interest in Superior Lawns at the times demands were issued seeking inspection and production of audited financial accounts? That beginning premise is quite incompatible with Mr Jebb's late injection into those actions, as sole or even as second plaintiff.
Furthermore, as I mentioned, Trafalgar's statement of claim in COR 59 of 2011 has not been amended. It pleads an oppression action as being advanced on the basis that Trafalgar was the relevantly oppressed member at the time the impugned conduct happened, as well as at the time proceedings were commenced. Trafalgar is no longer a member of Superior Lawns. Tensions between Trafalgar's interests and those of Mr Jebb are well illustrated in his most recent written submissions. The real prospect of further damage to Trafalgar's interests, by adding Mr Jebb as the second plaintiff, in circumstances where he effectively proposes to run the action and carry Trafalgar along in his wake, is not acceptable.
Trafalgar's present difficulties in its current oppression action as a former member are such that Trafalgar's action should be stayed, at least until Mr Jebb transfers the Superior Lawns shares back to Trafalgar. But even if that transfer were to happen, the prospect of adding Mr Jebb as a dominating extra plaintiff alongside Trafalgar would still not be acceptable. The clear conflict between the interests of Trafalgar and Mr Jebb has already created enough problems.
Orders
I refuse both the substitution and the joinder applications. Furthermore, COR 59 of 2011 should be temporarily stayed at least until Trafalgar gets back the Superior Lawns shares currently held by Mr Jebb.
The defendants' solicitors should file a minute giving effect to these reasons within seven days from publication of these reasons. I will hear argument over orders and costs if necessary at a time to be fixed administratively.
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