JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : TRAFALGAR WEST INVESTMENTS PTY LTD -v- SUPERIOR LAWNS AUSTRALIA PTY LTD [No 3] [2012] WASC 319 CORAM : KENNETH MARTIN J HEARD : ON THE PAPERS DELIVERED : 11 SEPTEMBER 2012 FILE NO/S : COR 138 of 2010 BETWEEN : TRAFALGAR WEST INVESTMENTS PTY LTD 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
FILE NO/S : COR 76 of 2011 BETWEEN : TRAFALGAR WEST INVESTMENTS PTY LTD (Page 2)
SUPERIOR LAWNS AUSTRALIA PTY LTD
Defendant
Catchwords:
Orders - Undertakings - Consequences of transfer of shares after orders - Rights issue - Audited financial reports - Assertion of changed circumstances
Legislation:
Corporations Act 2001 (Cth), s 293, s 315(2)
Result:
No variation to orders previously made
Category: B
Representation:
COR 138 of 2010
Counsel:
Plaintiff : No appearance
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
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
(Page 3)COR 76 of 2011
Counsel:
Plaintiff : No appearance
Defendant : No appearance
Solicitors:
Plaintiff : Karp Steedman Ross-Adjie
Defendant : Bennett & Co
Case(s) referred to in judgment(s):Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2011] WASC 171Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169
(Page 4)
1 KENNETH MARTIN J: My reasons in Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169 delivered 29 May 2012 dealt with applications in these two corporations actions (as well as in a third action, COR 59 of 2011 - the statutory oppression action) to substitute Mr Patrick Jebb for the plaintiff, Trafalgar West Investments Pty Ltd (Trafalgar) or, in the alternative, for Mr Jebb to be made a co-plaintiff with Trafalgar. I refused those applications by Mr Jebb and Trafalgar for the reasons expressed. My reasons indicated that a temporary stay of action COR 59 of 2011 was appropriate, because Trafalgar had ceased to be a shareholder in the first defendant, Superior Lawns Australia Pty Ltd (Superior Lawns) as of 9 January 2012, its shareholding having been transferred to Mr Jebb. Trafalgar's lack of standing as a shareholder from that point posed problems for the continued pursuit of that statutory oppression action.
2 After publication of my reasons on 29 May 2012, the parties submitted rival minutes as to appropriate dispositive orders, including as to costs, in all three actions. As a result of conflict between the minutes, each action was relisted for a directions hearing before me on 14 June 2012.
3 At that hearing I made dispositive orders in Trafalgar's and Mr Jebb's plaintiff substitution applications in COR 59 of 2011 only. Orders included a temporary stay of that action. I also ordered that Trafalgar and Mr Jebb pay within 14 days the defendants' taxed costs of the application in COR 59 of 2011.
4 As part of the costs orders I removed the ceiling as regards maximum allowances on a taxation otherwise applicable under the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2010.
5 However, different considerations apply to COR 138 of 2010 and COR 76 of 2011. In the statutory oppression action the loss of Trafalgar's standing as shareholder in Superior Lawns as from January 2012 carried with it adverse ramifications for the overall viability of that oppression action.
6 By contrast, COR 138 of 2010 and COR 76 of 2011 are the applications brought by Trafalgar to enforce its statutory right as a shareholder to an inspection of documents of Superior Lawns and to the provision by Superior Lawns of director's reports and audited financial reports for the financial years ended 30 June 2009 (in COR 138 of 2010)
(Page 5) and 30 June 2010 (in COR 76 of 2011). The obligation to provide these reports arose by reason of Trafalgar's invocation, whilst a 30% shareholder in Superior Lawns, of statutory rights under s 293(1) and (3)(c) of the Corporations Act 2001 (Cth).
7 Section 293(1) allows a shareholder holding at least 5% of the votes in a small proprietary company to require that company by written direction to prepare a financial report and a directors' report for a particular financial year. By s 293(3)(c) the financial report can be required by the direction to be audited. 8 That is primarily what Trafalgar did in respect of the financial year ended 30 June 2009 by a written direction of 29 June 2010 (the subject of COR 138 of 2010). Trafalgar gave a similar written direction to Superior Lawns under s 293(1) on 19 November 2010 for the financial year ended 30 June 2010, (this being the subject of the enforcement orders sought in COR 76 of 2011).
9 At the time each of the above directions were given by Trafalgar under s 293(3), it held 30% of the shares, and so, more than 5% of the votes, in Superior Lawns. The s 293(3) statutory entitlement to a directors' report and audited financial report arose out of written directions given by Trafalgar, about which there is and can be no dispute.
10 In this context I mention s 315(2) of the Act, which requires small proprietary companies to provide reports to members not later than two months after the date of a direction, or four months after the end of the financial year (whichever is later). Section 315(2) refers to the obligation of the small proprietary company to report to members 'under section 314'. Section 314 explains the content of the reporting requirements.
11 From all this it may be seen it is the giving of the written direction by the shareholder who then holds more than 5% of the votes in a corporation that creates the obligation for the corporation to provide the directors' report or financial report (audited if required) under s 293.
12 Trafalgar's originating processes in COR 138 of 2010 and COR 76 of 2011, after an expiry of the time mentioned in s 315(2), sought to compel Superior Lawn's compliance with these statutory obligations. COR 138 of 2010 was commenced on 17 August 2010 in respect of the financial year ended 30 June 2009. COR 76 of 2011 was commenced on 15 April 2011 in respect of the 30 June 2010 financial year.
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13 COR 138 of 2010 and COR 59 of 2011 have been in my CMC List since 28 March 2011. I have also case managed COR 76 of 2011 since it was commenced on 15 April 2011.
14 By COR 138 of 2010 and COR 76 of 2011, Trafalgar was essentially seeking to compel Superior Lawns to comply with the shareholder directions given by Trafalgar in accord with s 293(1), after the expiry of the time limit for compliance with such directions stipulated by s 315(2) of the Act. There has been no suggestion at any point that the directions given by Trafalgar to Superior Lawns on 29 June 2010 and 19 November 2010 were invalid, or otherwise than fully effective in triggering Superior Lawns' statutory reporting obligations under s 293(3)(c). By s 315(2)(a), Superior Lawns was obliged to provide an audited financial report for each financial year two months after the date of the written direction, namely, by 29 August 2010 (for the 30 June 2009 financial year) and two months after 19 November 2010, namely, by 19 January 2011 (for the 30 June 2010 financial year).
15 The statutory obligations upon Superior Lawns to provide the directors' report and audited financial reports were fully vested when Trafalgar commenced COR 138 of 2010 and COR 76 of 2011. That position is in sharp contrast to COR 59 of 2011 where the plaintiff complaining of statutory oppression must be a shareholder at the time of commencing proceedings and thereafter. That status is fundamental to the relief sought in an oppression action.
16 More background to the three actions can be found in my earlier reasons: see Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2011] WASC 171 delivered on 20 April 2011, revised and published on 13 July 2011. See [3] - [9], concerning the 30 June 2009 audited financial report and [36] - [37], concerning the 30 June 2010 audited financial report.
17 Those earlier reasons explain the anticipated arrival of audited financial reports for Superior Lawns for the 30 June 2009 and 30 June 2010 financial years was significant to my conclusion concerning the interlocutory injunctive relief sought by Trafalgar in the statutory oppression action (COR 59 of 2011). In COR 59 of 2011, I decided to discharge an interim injunction obtained ex parte by Trafalgar, which was preventing Superior Lawns from proceeding with a proposed rights issue to shareholders. Superior Lawns' proposed rights issue carried the potential consequence of diluting Trafalgar's then 30% shareholding in Superior Lawns, if Trafalgar did not (it had not then decided) subscribe
(Page 7) for the further shares being offered. Part of the rationale articulated by Superior Lawns for the rights issue was to raise funds to meet the auditing and accounting costs then being incurred and which were likely to be further incurred in respect of the provision of audited financial reports for the 30 June 2009 and 2010 financial years by the work of external auditors, Grant Thornton, who had been engaged at that time.
18 All three actions were before me on 20 and 21 April 2011, although Trafalgar's application to continue interim injunctive orders to trial was the significant application dealt with. 19 For COR 138 of 2010 and COR 76 of 2011, at the 20 April 2011 hearing there was no opposition raised by any defendant to the premise that Superior Lawns had then become obliged to comply with Trafalgar's s 293(1) shareholder directions of 29 June 2010 and 19 November 2011. The more important and supervening problem was how the accounting and auditing work was to be paid for: see [2011] WASC 171 [8] - [9].
20 Part of my evaluation of the balance of convenience and end decision to allow the Superior Lawns' rights issue to proceed, subject to some undertakings from the defendants, proceeded on the basis that the funds raised, if the rights issue was allowed to proceed, would be used to pay for the completion of audited financial reports for the 30 June 2009 and 2010 financial years. And with the 30 June 2011 financial year then only six weeks off completion, I also thought it appropriate that the court receive from the first defendant its undertaking provide audited accounts for that 30 June 2011 financial year as well. Completion of three years of audited accounts for Superior Lawns presented to me as desirable assistance in any longer term pursuit of the statutory oppression action or its resolution. In the event of the statutory oppression action proceeding to a trial and Trafalgar there obtaining relief, a compulsory buy out order of its shares was a strong possibility. Even though the rights issue was implemented, a court's relief may extend to buy out at valuation orders formulated from a prior date for the 30% shareholding in Superior Lawns. Audited financial accounts for Superior Lawns over three financial years would be of assistance in any such valuation of Trafalgar's 30% minority shareholding were that eventually required.
21 That undertaking was one precondition for me then making orders effectively discharging the interim injunction: see [2011] WASC 171 [37]. I also required a further undertaking that certain related party loans on Superior Lawns' books would not being repaid before trial: see [38].
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22 Counsel for the defendants on 20 April 2011 indicated that it was likely that these undertakings could be provided although limited client contact and other logistical problems inhibited such undertakings being given on 21 April 2011. That day, I made some orders to effectively discharge the interim injunctive orders then preventing Superior Lawns' proposed rights issue, effective once the two undertakings I had identified were provided.
23 Subsequently, on 6 May 2011, the written undertakings (signed by the second, third and fourth defendants) given on behalf of the first defendant were received by the court. These provided:
The first defendant undertakes: 1. to appoint an auditor to carry out, in accordance with the orders of the court in COR 138 of 2010, an audit of the first defendant's financial records for the year ended 30 June 2011;
2. from the receipt of funds pursuant to the rights issue notified to shareholders on 18 March 2011 (Rights Issue), not to discharge in whole or in part so much of the loan accounts of the first defendant as are the subject of allegations contained in the affidavit of Patrick Gerald Gladwin Jebb, sworn 23 March 2011 (the first defendant otherwise being at liberty to otherwise utilise the proceeds of such Rights Issue to discharge or reduce loan accounts in the first defendant's financial records that are not the subject of allegations);
3. to inform the plaintiff's solicitors within seven days of the Rights Issue being completed, of the identity of persons who are issued shares pursuant to the Rights Issue notified to shareholders on 18 March 2011; and
4. that it will not declare or pay any dividend on any shares issued pursuant to the Rights Issue until further order of the court.
24 Effectively then, as from 6 May 2011, upon the court's receipt of those undertakings, the interim injunction preventing the rights issue ended. 25 In the meantime, the parties had been conferring over appropriate orders in COR 138 of 2010 and COR 76 of 2011, following the hearings on 20 and 21 April 2011 and in light of my ex tempore reasons. In the end, the parties were in substantial agreement over the orders, except for one contentious order the defendants would not accept and which, in the end, I also thought inappropriate. This dispute was resolved on the papers by reference to the parties' rival minutes. Otherwise, the parties were in substantive accord as to orders. Consequently, I made orders on the
(Page 9) papers on 25 May 2011 in COR 138 of 2010 and COR 76 of 2011 in terms (conditioned by Trafalgar's cross-undertaking to reasonably co-operate with the carrying out and completion of any audit of Superior Lawns' financial reports), that: 1. [Superior Lawns] shall provide all reasonable cooperation and assistance (including where reasonably within the financial capacity of [Superior Lawns] providing money to Grant Thornton (the auditor) on account of fees: 1.1 to enable the completion of the present audit and preparation of an audited financial report (as that term is defined in the Corporations Act 2001 (Cth) (CA)) (financial report) and a directors' report (as that term is defined in the CA) (directors' report) for [Superior Lawns] for the year ended 30 June 2009; 1.2 to undertake and complete thereafter and as soon as reasonably practicable an audit and preparation of a financial report and a directors' report for [Superior Lawns] for the year ended 30 June 2010; and
1.3 as soon as practicable after 30 June 2011, to commence and complete an audit and preparation of a financial report for the year ended 30 June 2011.
2. The second to fifth defendants must reasonably cooperate with the carrying out and completion of any of [Superior Lawns'] financial reports as mentioned in this order.
26 The orders I made on the papers on 25 May 2011 are consistent with a full recognition at the time of Superior Lawns' statutory obligations to provide these reports under s 293(3), which obligations had not been met and of which some were being enforced in COR 138 of 2010 and COR 76 of 2011, as to the 30 June 2009 and 30 June 2010 financial years. 27 As regards the 30 June 2011 financial year, there had not been a written s 293 direction by Trafalgar. But the commitment by undertaking to provide that year's audited financial report was clearly part of the price paid for there being no continuance of the interim injunction preventing Superior Lawns' rights issue.
28 Hence my orders made in respect of the 30 June 2009 and 30 June 2010 financial years in COR 138 of 2010 and COR 76 of 2011 were effectively made to enforce compliance with Trafalgar's vested statutory rights to obtain those reports, for which the time for compliance by Superior Lawns had well and truly passed. The orders are not, in my
(Page 10) view, to be assessed as interlocutory. They were end relief which is final in character.
29 From that background it will be recognised that the orders and undertakings of April and May 2011 were all in place well before Mr Jebb's most unwise and unhelpful (to Trafalgar) dealings with Trafalgar's shares in Superior Lawns in January 2012 (which I detail in [2012] WASC 169). 30 That is all background now to the rival minutes I have received from the parties for COR 138 of 2010 and COR 76 of 2011 (of 5 June 2012 from the defendants' solicitors and of 8 June 2012 on behalf of Trafalgar and Mr Jebb). The defendants' minute seeks orders in COR 138 of 2010 in terms:
1. The Plaintiff's application dated 9 January 2012 for leave to substitute Mr Patrick Jebb as the plaintiff in this action and, as amended on 25 January 2012 to, in the alternative, join Mr Patrick Jebb as the Second Plaintiff in this action, be dismissed. 2. The Plaintiff pay the Defendants' costs of and incidental to the Plaintiff's application to be taxed and paid within 14 days, if not otherwise agreed.
3. The orders of the Court made 21 April 2011 be discharged.
4. The action be dismissed.
5. The Plaintiff pay the Defendants' costs of the action to be taxed and paid within 14 days, if not otherwise agreed.
31 On the other hand, a minute of proposed orders of 8 June 2012 submitted by Trafalgar and Mr Jebb in COR 138 of 2010 seeks diametrically opposed orders in terms: 1. The Defendants' application, contained in submissions dated 8 February and made orally 14 February, for the action to be struck out, be dismissed. 2. The Plaintiff's application dated 9 January 2012 for leave to join Mr Patrick Jebb as the Second Plaintiff in this action be dismissed.
3. The plaintiff be at liberty to apply for costs orders in respect of these proceedings.
4. The Plaintiff to be at liberty to apply for enforcement of orders made 21 April 2012.
(Page 11) 5. Costs to be in the cause.
(The rival minutes submitted in COR 76 of 2011 are identical for the defendants and, for the plaintiff very similar, save that the proposed order 3 as to the plaintiff being at liberty to seek costs orders in respect of the proceedings is not sought. There is no prospect of such a costs order being made.)
32 Bearing in mind Mr Jebb and Trafalgar suffered a heavy loss on the plaintiff substitution application, orders 1 and 2 in the defendants' minute in each action do present to me as appropriate orders. The defendants have already received their taxed costs of that application (with scale maximum allowances removed for the purposes of the taxation in the statutory oppression action, COR 59 of 2011). Furthermore, the plaintiff substitution applications were heard together at the same time (and effectively argued as one application). Consequently, I would only allow the defendants, by proposed order 2, towards their costs in COR 138 of 2010 and COR 76 of 2011, the extra disbursements (if any) they incurred in respect of these two actions. Otherwise the defendants' costs as the successful parties are more than adequately catered for under the taxed costs orders I have already made in their favour in COR 59 of 2011.