Supreme Court New South Wales Medium Neutral Citation: Lukaszewicz v Polish Club Limited [2019] NSWSC 595 Hearing dates: Written submissions 15 May 2019 Decision date: 21 May 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: Declaration to be made in respect of conduct as to admission and exclusion of members of the Club. Directions made for further submissions. Proceedings otherwise dismissed. Catchwords: CORPORATIONS – members' rights and remedies – oppression – orders to be made. Legislation Cited: - Corporations Act 2001 (Cth) ss 232 Cases Cited: - Attorney-General (NSW) (Ex rel Corporate Affairs Commission) v Australian Softwood Forests Pty Ltd [1979] 2 NSWLR 73 - Backoffice Investments Pty Ltd v Campbell [2007] NSWSC 161; (2007) 61 ACSR 144 - Coyte v Norman; Centre Capital (Newcastle) Pty Ltd v B Scorer [2016] NSWSC 1428 - E & J Gallo Winery v Lion Nathan Australia Pty Ltd (No 2) [2009] FCAFC 47 - Lukaszewicz v Polish Club Limited [2019] NSWSC 446 - Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286 - Nellbar Pty Ltd v Jones Partners Pty Ltd [2018] WASC 292 - OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 - OXS Pty Ltd v Sydney Harbour Foreshore Authority and Minister for Planning and Environment [2014] NSWSC 1284 Texts Cited: - PW Young, C Croft and ML Smith, On Equity (Lawbook Co, 2009) Category: Procedural and other rulings Parties: Kazimiera Lukaszewicz (First Plaintiff) Mick Wykrota (Second Plaintiff) Waclaw Jagoszewski (Third Plaintiff) Dariusz Plust (Fourth Plaintiff) Polish Club Limited (First Defendant) Ryszard Borysiewicz (Second Defendant) Hania Geras (Third Defendant) Robert Czernkowski (Fourth Defendant) Mateusz Konopka (Fifth Defendant) Eleonora Olivia Danuta Paton (Sixth Defendant) Representation: Counsel: M B Evans/E P Anderson (Plaintiffs) M T McCulloch SC/R W Notley (Defendants) Solicitors: Knap Lawyers (Plaintiffs) Wotton + Kearney (Defendants) File Number(s): 2017/90789 Judgment Background 1. By their Second Further Amended Statement of Claim ("SFASC"), the Plaintiffs sought a range of relief in respect of the affairs of the First Defendant, Polish Club Limited ("Club"). I heard the proceedings on 29 – 31 January; 1 February; 6 February; 22 February; 26 – 28 February; 1 March and 5–8 March 2019 and delivered judgment on 23 April 2019 ([2019] NSWSC 446) ("Judgment"). The Plaintiffs largely failed to establish their claims and their entitlement to relief. 2. I addressed (at Judgment [193]ff) an allegation that two individual Defendants and other Defendants "to the extent to which they were involved in the decisions taken" to suspend or expel members or refuse full membership of the Club, had acted in a manner oppressive of the members of the Club, and, in particular, in a manner oppressive of the members of the Club as a whole in specified respects. I observed that: "It seems to me that the process adopted by the Club in that respect, in which individual Defendants participated, although largely as a minority of the management committee and over differing periods, was oppressive as a whole, although the improper purpose alleged against individual Defendants in respect of particular decisions has not been established. That process, focusing on whether individual board members knew particular applicants through their dealings with the Club rather than on the sponsors' assessment of those applicants or objective information as to their history, would tend to promote the admission of those who chose to associate with the current management committee, and tend to exclude those who preferred not to do so including because they took different views as to the Club's interests, from full membership and the exercise of voting rights. The latter class of persons would be admitted only as associate members or offered such membership and not admitted if, as was often the case, they were not prepared to accept what they could readily perceive as a "lesser" status. At least [three directors] recognised and welcomed that outcome, as is demonstrated by the exchange of emails immediately prior to the March 2017 AGM to which I referred above. It seems to me that [a fourth director] at least acquiesced in it, reflecting his perception of what loyalty to the Club and the management committee required. [A fifth director] also accepted it because of his more exacting standard for the admission of full members, which the majority of the management committee did not apply to all applicants for membership. When combined with the active steps taken (as noted in [a director's] email to which I referred above) to seek out and admit new full members who the management committee was confident shared its views, and with the frequent exercise of disciplinary powers against dissenting members (albeit where they have not been shown to be wrongly exercised), that approach had the capacity to manipulate the majority of the Club's membership by increasing the number of members who were likely to share the views of the management committee. That conduct, considered as a composite whole, seems to me to constitute oppression, in the sense of a visible departure from the standards of fair dealing, and to impose a disadvantage, disability or burden on the minority of the Club who would, over time, have less influence in a general meeting over its direction. This is plainly not a case, by contrast with Gaiman v National Association for Mental Health [1971] Ch 317, which was distinguished in Sandy v Yindjibarndi Aboriginal Corporation RNTBC (No 4) [[2018] WASC 124; (2018) 126 ACSR 370] at [354ff], where the admission of the particular applicants for membership would have placed the existence of the Club at risk. I will make declarations to give effect to that finding, as Mr McCulloch submitted was the proper course if I reached it. That finding does not presently support the wider relief sought by the Plaintiffs, as to the appointment of a receiver or the removal of directors, where the former would have the substantial risks to the Club to which I refer below and the latter is not justified on the merits. My finding of oppression in this respect does not have any impact on the result of the March 2017 AGM … Oppression is not established in respect of the applicants set out in Schedule 2 of the SFASC given the findings that I have reached above or in respect of the applicants set out in Schedule 4 of the SFASC for the reasons noted above." 1. I also observed (Judgment [292]) that: "I will hear the parties as to the form of the declarations that I have indicated I will make above. The injunction restraining the Defendants from taking any steps to sell or dispose of the Club's real property must be discharged, although that will not authorise such a sale of property of the Club other than in accordance with the necessary procedures under the Club's constitution. I will make directions for the conduct of an inquiry as to damages suffered by the Club, and to the extent applicable the other Defendants and any third parties, which may fall within the scope of the Plaintiffs' undertaking as to damages given in support of interlocutory relief. The Plaintiffs have had only limited success in the proceedings and I will hear the parties as to costs." 1. On delivering my judgment on 23 April 2019, I made orders directing the parties to bring in agreed short minutes of order to give effect to the Judgment, including as to costs, or if they were unable to reach agreement, their respective short minutes of order and short submissions as to the differences between them, indicating whether an oral hearing was requested, by 14 May 2019. I also listed the matter for further directions in the Corporations Directions List on 27 May 2019. The parties subsequently submitted draft orders, as to which there was some agreement. The parties are in disagreement as to the form of a declaration that should be made to give effect to the finding of oppression to which I have referred above, and as to whether an order discharging the interlocutory injunction previously obtained by the Plaintiffs should be stayed. Form of declaration 1. The Plaintiffs propose that declarations should be made in two paragraphs as follows: "1 DECLARATION that, the management committee of the Polish Club Limited (the Club) engaged oppressive conduct in the management of the affairs of the said Club in that, with respect to applications for membership as an ordinary member of the Club, particularly with regard to the persons listed in Schedule 1 of the Further Amended Statement of Claim, members of the management committee: (a) Actively sought to recruit new members who would support the strategy of the then current management committee; and/or (b) Considered the suitability of individual applicants on the basis of whether they personally knew the particular applicant through their dealings with the Club, rather than on the sponsors' assessment of those applicants or objective information as to their history and character; (c) And in the result tended to promote the admission of persons as members who chose to associate with the current management committee and tended to exclude those who were likely to take different views as to the Club's interests from those of the then current management committee; and the said committee thereby pursued a policy of manipulating the majority of the Club's membership by increasing the number of members who were likely to share the views of the management committee. 2 DECLARATION that the conduct of the management committee as stated in Declaration 1 above constituted oppressive conduct in that: (a) It involved a visible departure from the standards of fair dealing; (b) It imposed a disadvantage, disability or burden on the minority of the Club who would, over time, have less influence in a general meeting under the direction of the said management committee. 1. The Plaintiffs' submissions in respect of the form of declaration amounted to no more than an assertion that it more accurately reflected the findings set out in paragraphs 193 and 194 of the Judgment than the Defendants' proposed declaration, having regard to a reference to an email set out elsewhere in the Judgment. I do not accept that submission. 2. The Defendants submit that the declaration sought by the Plaintiffs that the management committee, as a whole, engaged in oppressive conduct, without any temporal limitation, is not supportable where I had not found (Judgment [193]) that the relevant conduct was engaged in by the management committee as a whole, or all of the Defendants, and had expressly found that the individual Defendants engaged in that conduct largely as a minority of the management committee and over differing periods. The Defendants also submit that the proposition that members of the management committee engaged in oppressive conduct by actively seeking out and admitting new full members who shared its views does not fairly reflect the findings in Judgment [194], which involved the combination of several matters. The Defendants also submit that a declaration that the management committee pursued a policy of manipulating the majority of the Club's membership is not supported by the Judgment, where I had observed (Judgment [175]) that I was not persuaded there was impropriety in the decisions made by the management committee to offer full or associate membership to the relevant persons. The Defendants also submit that the Plaintiffs' proposed paragraph 2 is unnecessary if a declaration is made in paragraph 1 that the relevant conduct was oppressive conduct, and it is unnecessary to state the legal principles as to why that conduct was oppressive conduct. 3. The declarations proposed by the Plaintiffs should not be made. It seems to me that the criticisms of the form of the first of those proposed declarations advanced by the Defendants, to which I referred above, are well-founded. It seems to me that the reference to "the management committee of the Polish Club" having engaged in such conduct is inappropriate, where I had held (Judgment [193]) that the relevant conduct of the individual Defendants was undertaken largely as a minority of the management committee over differing periods, and that the improper purpose alleged against the individual Defendants had not been established. I made no findings in respect of the several members of the management committee at relevant times who were not party to these proceedings and have not had an opportunity to be heard in them. Second, the words "with respect to applications for membership as an ordinary member of the Club, particularly with regard to the persons listed in Schedule 1 of the [Second] Further Amended Statement of Claim" do not properly reflect the findings that I had reached, where I did not find that the persons listed in Schedule 1 were not properly admitted to membership and where I had found that oppression was not established in respect of other applicants for membership referred to in Schedules 2 and 4 of the Second Further Amended Statement of Claim. 4. The Defendants submit that the second of the Plaintiffs' proposed declarations is unnecessary given that the Court is declaring, in either paragraph 1 of the Plaintiffs' proposed orders or paragraph 1 of the Defendants' proposed orders, that the relevant conduct was oppressive conduct, and it is unnecessary to state the legal principles as to why that conduct was oppressive conduct. That proposed declaration seems to me, in paragraph (a), to impose an unnecessary gloss upon the findings that I had reached, and, in paragraph (b) to misstate those findings by referring to a general meeting "under the direction of the said management committee". 5. The Defendants in turn propose that a declaration should be made that: "The Court declares that, with respect to the determination by the management committee of the Polish Club Limited (the Club) of applications for membership as an ordinary member of the Club, where members of the management committee focussed solely on whether they knew the particular applicant through their dealings with the Club, rather than on the sponsors' assessment of those applicants or objective information as to their history and character, those members of the management committee engaged in oppressive conduct." 1. It seems to me that that declaration narrows or oversimplifies my findings and does not address the combination of matters to which I had referred, including the seeking out of supportive members and the use of disciplinary proceedings against dissenting members. That form of declaration arguably also inappropriately seeks to attribute oppressive conduct to particular persons, rather than recording a state of affairs, although it fairly recognises that my findings were not directed to all members of the management committee at all times. 2. For these reasons, I will not make the declarations in the form sought in paragraphs 1 and 2 of the Plaintiffs' draft orders, or the alternative form of declaration proposed by the Defendants. I have not neglected that there is also authority, which the parties did not address in submissions, that the Court should not generally make a declaration, even if it has jurisdiction to do so, unless it is satisfied that the declaration sought is appropriate and that it has sufficient practical utility; or where that declaration would merely be prefatory to other relief: Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286; Attorney-General (NSW) (Ex rel Corporate Affairs Commission) v Australian Softwood Forests Pty Ltd [1979] 2 NSWLR 73 at 76 per Hutley JA (with whom Reynolds and Samuels JJA agreed); E & J Gallo Winery v Lion Nathan Australia Pty Ltd (No 2) [2009] FCAFC 47; OXS Pty Ltd v Sydney Harbour Foreshore Authority and Minister for Planning and Environment [2014] NSWSC 1284 at [6], aff'd OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120; PW Young, C Croft and ML Smith, On Equity (Lawbook Co, 2009) at 1084; Coyte v Norman; Centre Capital (Newcastle) Pty Ltd v B Scorer [2016] NSWSC 1428. On the other hand, such a declaration may here have utility in reducing the scope for disputes within the Club as to admission of members in the future and there are cases where such a declaration has been made in oppression cases, including Backoffice Investments Pty Ltd v Campbell [2007] NSWSC 161; (2007) 61 ACSR 144 (at first instance) and recently in Nellbar Pty Ltd v Jones Partners Pty Ltd [2018] WASC 292. I also recognise that Mr McCulloch (who appeared for the Defendants) had accepted at the hearing that it would be appropriate to make such a declaration if I reached the findings made in the Judgment. 3. I will, with hesitation, formulate a declaration that will give effect to the Judgment, when read in the context of that Judgment, and allow the parties a brief opportunity to make submissions in respect of it. That declaration is as follows: DECLARE that, between [start date and end date] the affairs of Polish Club Limited ("Club") were conducted in a manner that was oppressive within the meaning of s 232 of the Corporations Act 2001 (Cth) in that the focus in considering membership applications on whether individual members of the management committee knew particular applicants through their dealings with the Club, rather than other relevant matters including the sponsors' assessment of those applicants and objective information as to their history, when combined with active steps taken to seek out and admit new full members who shared the management committee's views and the exercise of disciplinary powers against dissenting members, had the capacity to alter the Club's membership by increasing the number of members who were likely to share the views of the management committee. 1. The parties will need to make submissions as to an appropriate starting date for that declaration, which cannot be before the date when the individual Defendants together constituted a majority of the management committee, and an end date, which cannot be after the determination of the last of applications within Schedule 1 to the Second Further Amended Statement of Claim. I will direct the parties to make any further submissions, limited to any question as to the form of that declaration, by 5pm on 28 May 2019. I will then make substantive orders at the same time as making that declaration with any appropriate amendments. Stay of order discharging injunction 1. The parties have agreed a form of order to give effect to my finding (Judgment [292]) that the injunction restraining the Defendants from taking any steps to sell or dispose of the Club's real property must be discharged. The Plaintiffs seek an additional order staying the order discharging the injunction until the expiry of 28 days from the date of the making of final orders in the proceedings. That order is not agreed between the parties, and the Plaintiffs do not trouble to make submissions to support it. The Defendants submit that any application for a stay or for a further injunction should be made by the appropriate application being filed and served with supporting evidence and the Defendants should be given an opportunity to file and serve evidence in reply. They indicate that the Defendants would also seek an oral hearing of any such application. I need not address that question since no such application has been made. 2. No basis for a stay of the order discharging the injunction has been identified, and I am not persuaded that I should order such a stay. I am reinforced in that view where final orders will not be made in the proceedings for some time, given the approach which the parties have adopted in respect of costs, and the possibility of an inquiry as to damages in respect of the interlocutory injunction obtained by the Plaintiffs. Other directions 1. The directions that I made on 23 April 2019 required the parties to submit agreed short minutes of order as to costs, or otherwise their respective short minutes of order as to costs and submissions as to the differences between them by 14 May 2019, and contemplated that the parties would make substantive submissions as to costs. They have instead agreed a different approach, which provides for further evidence and submissions as to costs over an extended period and a future hearing as to costs. I will make directions as to that process in the form the parties have agreed between them. The parties have also agreed that any directions as to an inquiry as to damages suffered by the Club, other Defendants or any third parties, be stood over to a specified date. Directions 1. I make the following directions: 1 Direct the parties to serve, and send to the Associate to Black J, any further submissions limited to any question as to the form of declaration set out in paragraph 13 above by 5pm on 28 May 2019. 2 By 5pm on 27 May 2019, the Defendants file and serve, and send to the Associate to Black J, an outline of written submissions with respect to any orders as to the costs they seek in these proceedings, along with any affidavit attaching any offers of compromise on which they intend to rely. 3 By 5pm on 6 June 2019, the Plaintiffs file and serve, and send to the Associate to Black J, an outline of written submissions with respect to any orders as to the costs they seek in these proceedings, along with any affidavit attaching any offers of compromise on which they intend to rely. 4 The question of the costs of these proceedings be listed for hearing before Black J for one hour at 9:15am on 13 June 2019. 5 Directions as to an inquiry as to damages suffered by the Club, or the other Defendants or any third parties, be stood over before the Corporations List Judge on 17 June 2019. ********* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 May 2019