Superior Lawns decisions
37 At the hearing on 26 November 2018, the Snowside parties submitted that to prosecute the Oppression Proceedings and obtain relief they must be members of BLY not only when they commenced the proceedings but also when the Oppression Proceedings are heard and judgment delivered. They relied on a series of decisions of Kenneth Martin J which I will refer to as the (Superior Lawns decisions): see Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 2) [2012] WASC 169 at [37]-[40], [53]-[60] and [63], Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd (No 2) (2013) 94 ACSR 151; [2013] WASC 143 at [28]-[31] and Jebb v Superior Lawns Australia Pty Ltd (2017) 123 ACSR 388; [2017] WASC 335; at [151]-[152]. Without disrespect and for brevity I will refer to his Honour in these reasons as Justice Martin or Martin J.
38 The background to the Superior Lawns decisions is that Trafalgar West Investments Pty Ltd commenced oppression proceedings against Superior Lawns Australia Pty Ltd (and others) at a time when Trafalgar held shares in Superior Lawns as trustee of a trust. Mr Jebb was the sole director of Trafalgar and a 50% shareholder. A qualified lawyer, Mr Jebb sought to appear for Trafalgar but Martin J considered that he was conflicted. Mr Jebb then sought to address that issue by replacing Trafalgar as trustee of the trust and transferring the Superior Lawns shares from Trafalgar to him. He then sought to be substituted as plaintiff. Trafalgar ceased to be a member of Superior Lawns on 9 January 2012.
39 In [2012] WASC 169 at [32]-[35], Martin J summarised the defendant's submissions as follows:
The opposition to Mr Jebb's applications
32 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.
33 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)
34 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.
35 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.
36 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.
40 In [2012] WASC 169 at [37], Martin J noted that Trafalgar's ceasing to be a member "presents a problem for it in terms of it viably maintaining this action as from 9 January 2012", a "prejudicial outcome for Trafalgar". His Honour had warned Mr Jebb that this was a "possible consequence" when he had previously unsuccessfully sought to be substituted as plaintiff. The Snowside parties relied on [37]-[43] and the second sentence of [53] in relation to the issue of standing and noted Martin J's comments on the possible impact of Trafalgar ceasing to be a member on the exercise of the Court's discretion to make orders under s 233 at [54]-[60]. At [52]-[60], Martin J found as follows (underlining added):
Trafalgar's position
52 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.
53 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.
54 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.
55 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.
56 These three distinct scenarios each involve unique considerations as to the appropriate relief, even assuming oppression affecting a shareholder is established at a trial.
57 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.
58 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.
59 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.
60 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.
41 In considering whether Mr Jebb should be substituted as the plaintiff, his Honour said the following at [63]-[65]; the Snowside parties relied in particular on [63]:
63 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.
64 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.
65 As a result, a substitution of Mr Jebb as plaintiff in lieu of Trafalgar would be pointless and so, I refuse that application.
42 The Snowside parties rely on (2013) 94 ACSR 151 at [28]-[31], for the proposition that Trafalgar's standing was lost by the transfer of shares in Superior Lawns to Mr Jebb, but it was restored when the shares were transferred back to it. Those paragraphs of the reasons are as follows, and the Snowside parties rely on the underlined passages in particular:
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 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 (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 (No 2). But I am not [sic] 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.
43 In (2017) 123 ACSR 388, the defendants contended that, although Mr Jebb had transferred the shares in Superior Lawns back to Trafalgar, when Trafalgar transferred its shares to Mr Jebb, it lost "then and for all time", any right to continue the statutory oppression action which it had commenced in 2011, before the transfer to Mr Jebb, although they accepted that a fresh statutory oppression action against the same defendants would be available on the basis of the decision in Re Spargos Mining NL (1990) 3 WAR 166. At [150], Martin J noted that two core propositions emerged from his Honour's previous decisions concerning these parties. Only the first is presently relevant and it is discussed at [151]-[152]. The Snowside parties rely in particular on the underlined words as follows:
151 The first proposition is an assessment I rendered in a number of those decisions - to the effect that in order to viably prosecute a statutory oppression action under Pt 2F.1 of the Corporations Act to a trial, a plaintiff needs, as a matter of necessary standing, to fall within one or other of the specified categories under s 234 of the Corporations Act and then to remain so until completion of the action. The most straightforward of the s 234 categories for that standing is that of the plaintiff being a 'member' (ie, shareholder) at the commencement of a statutory oppression action. The requirement is uncontroversial and is now well established.
152 In a number of my decisions concerning these same parties, I discussed a pivotal decision of Murray J made in Re Spargos Mining NL (1990) 3 WAR 166, 171 172, and discussed how his Honour had distinguished Panfida Ltd v Hartogen Energy Ltd (1988) 51 SASR 404. More importantly, however, and underlying the rationale for a temporary stay that I issued in COR 59 of 2011 on 29 May 2012, was the allied requirement that the commencing plaintiff in a statutory oppression action should remain as the plaintiff up to any trial and, indeed, up to a point of that party seeking to move for judgment.
44 The Snowside parties claimed to have already spent in excess of $400,000 in pursuing the Oppression Proceedings and they say that that would be wasted. They say that even if they are wrong and they will continue to have standing in those proceedings, the Supreme Court may withhold or limit the relief the Snowside parties seek for discretionary reasons. They say that the Court should not approve the scheme unless it is satisfied that the Snowside parties would be no worse off if that order is made than they would otherwise be, relying on Re Stork ICM Australia Pty Ltd (2006) 25 ACLC 208; [2006] FCA 1849 at [111] per Lindgren J.
45 BLY submitted that the Superior Lawns decisions are not authority for the proposition for which the Snowside parties contend and that they would not be prejudiced if the scheme is implemented and the Snowside parties cease to be members. BLY says this is because s 234(a) unambiguously refers to the position at the time the application for orders under s 233 is made, that is, when the originating process is filed. Otherwise the involuntary disposition of a member's shares would work injustice, for instance where shares are compulsorily acquired as part of a takeover.
46 BLY submitted that in [2012] WASC 169 at [63], Martin J was not ruling that a plaintiff who ceases to be a member after proceedings have been commenced relying on s 234(a) necessarily lost its standing when he queried whether a matter may be "legitimately" maintained where shares are transferred after an action has been commenced. BLY says that that language does not suggest a jurisdictional bar. Similarly, in that case at [57], Martin J noted the discretionary issues that "Trafalgar now looks to face … as a former member", which also does not suggest a jurisdictional bar.
47 BLY notes that the Snowside parties would not be transferring their shares voluntarily and it says that is relevant having regard to (2013) 94 ACSR 151 at [14] which is as follows:
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.
48 BLY also says that Martin J's reasons in (2017) 123 ACSR 388 at [151]-[152] need to be understood in the context of those proceedings in which Mr Jebb sought to be substituted as a plaintiff: in contrast, the Snowside parties commenced the Oppression Proceedings and it would be they who conducted the proceedings as plaintiffs through to final judgment.
49 BLY says that even if the Snowside parties are right and they did lose standing as a result of implementation of the scheme, that does not go to jurisdiction. BLY relied on the High Court's decision in Emanuele v Australian Securities Commission (1997) 188 CLR 114; [1997] HCA 20, a decision that relates to s 459P of the Corporations Act which relevantly provided that the Australian Securities Commission could only seek winding up orders with the leave of the Court. BLY notes that Toohey J (with whom Dawson J substantially agreed) found at [35] as follows:
Not only is s 459P(2) not a jurisdiction conferring provision, it does not create a cause of action or go to the relief that may be granted. It is s 459A that empowers the Court to order that an insolvent company be wound up in insolvency. That provision, read with s 42(3) of the Corporations (South Australia) Act is, relevantly, the source of the Federal Court's jurisdiction.
I understand this argument to be that, by analogy, s 233 is the provision which confers jurisdiction on a Court to make orders where a ground in s 232 has been made out on an application commenced by a person who has standing under s 234(a) and maintained by that person to judgment, whether or not the person continues to be a member.
50 BLY submitted that because the Supreme Court of New South Wales is seised of the Oppression Proceedings (as the Snowside parties commenced them at a time when they were members of BLY), that Court has jurisdiction to deal with the Snowside parties' application and it will do so unless objection is taken to those parties' standing to maintain the proceedings. BLY was willing to proffer an undertaking that, if the scheme is implemented, it would not advance an argument in the Oppression Proceedings that the Snowside parties are unable to maintain those proceedings on the basis that they are no longer members of BLY. BLY says that in the absence of a contest as to its jurisdiction, it would be improbable that the Supreme Court would enquire into it, but if it did, it would find that it had jurisdiction.
51 BLY says that the Oppression Proceedings have weak prospects of success for reasons set out at [30] to [44] of BLY's submissions filed on 22 November 2018.
52 BLY submitted that as the claim made in the Oppression Proceedings - that the value of the Snowside parties' shareholding in a listed public company has been unfairly diluted - is essentially financial, compensatory orders would be an adequate remedy since BLY is plainly not a quasi-partnership and BLY will continue in existence if the scheme is implemented.
53 The Snowside parties submitted that this would not be an appropriate case for the Court to make final orders approving the scheme because:
(1) It would be inappropriate for this Court to form a view about the prospects of success of the Oppression Proceedings. In November 2018, an amended statement of claim was filed (and is in evidence in these proceedings) and the Court does not have evidence before it sufficient to form a view;
(2) This is not a case where the scheme is proposed as an alternate to insolvency, it is merely proposed pursuant to a contractual obligation;
(3) There is no clear and quantified benefit to BLY; the claimed benefits are merely speculative and the Snowside parties' rights should not be prejudiced without it being clear that a benefit would be derived by BLY;
(4) No satisfactory endeavour was made by BLY to ameliorate the impact of the implementation of the scheme on the Oppression Proceedings. While BLY may be prepared to proffer an undertaking not to raise the standing issue, there are other parties who would not be bound by the undertaking;
(5) The implementation of the scheme would undermine the policy objectives of Part 2F.1 of the Corporations Act; it would be a curious outcome if a claim of oppression made by a minority shareholder could be defeated by virtue of a scheme approved by the majority; and
(6) A court whose jurisdiction is regularly invoked should not summarily decide issues except in the clearest of cases, relying on Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41.