Barnard v Yip
[2022] WASC 86
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: BARNARD -v- YIP [2022] WASC 86
CORAM: MASTER SANDERSON
HEARD: 24 JANUARY 2022
DELIVERED : 14 MARCH 2022
PUBLISHED : 14 MARCH 2022
FILE NO/S: COR 138 of 2021
BETWEEN: NIGEL DAVID BARNARD
First Plaintiff
BENJAMIN FRASER
Second Plaintiff
GLENNANIE PTY LTD
Third Plaintiff
AND
AREN WENG YIP
First Defendant
KIM LENG YIP
Second Defendant
FREDDIE SWEE HAN LOW
Third Defendant
Catchwords:
Corporations law - Application for leave to bring an action on behalf of company - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Application dismissed
Representation:
Counsel:
| First Plaintiff | : | AP Hershowitz |
| Second Plaintiff | : | AP Hershowitz |
| Third Plaintiff | : | AP Hershowitz |
| First Defendant | : | MGS Crowley |
| Second Defendant | : | MGS Crowley |
| Third Defendant | : | MGS Crowley |
Solicitors:
| First Plaintiff | : | Jacobson and Associates |
| Second Plaintiff | : | Jacobson and Associates |
| Third Plaintiff | : | Jacobson and Associates |
| First Defendant | : | Exceed Legal |
| Second Defendant | : | Exceed Legal |
| Third Defendant | : | Exceed Legal |
Case(s) referred to in decision(s):
Blakeney v Blakeney [2016] WASCA 76
Carpenter v Pioneer Park Pty Ltd; ANZ Banking Group [2004] NSWSC 973
Huang v Wang [2016] NSWCA 164
Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583
MASTER SANDERSON:
This is the plaintiff's application for leave pursuant to s 237 of the Corporations Act 2001 (Cth) to bring proceedings on behalf of Bickley Brook Pty Ltd (Bickley). Broadly speaking, the proposed action is against the directors of Bickley for alleged breaches of their directors' duties. As a preliminary matter, the defendants raise the fact that Bickley is not a party to these proceedings. The defendants say that not only should the company be a party to the proceedings, but they are the sole necessary party: See Huang v Wang [2016] NSWCA 164 per Barrett AJA [85].
This point, which is substantive and not merely procedural, was flagged by the defendants in their written submissions. As counsel pointed out, Bickley's rights or liabilities are necessarily affected by an application under s 237 because an order effects 'domestic process by which a company makes decisions relevant to initiation and continuation of legal proceedings': See Carpenter v Pioneer Park Pty Ltd; ANZ Banking Group [2004] NSWSC 973.[1] An order made in favour of the plaintiff would expose Bickley to the consequences of litigation, including possible cost consequences. It is essential a company be party to the proceedings.
[1] Carpenter v Pioneer Park Pty Ltd; ANZ Banking Group [2004] NSWSC 973 [16].
During the course of his submissions, counsel for the plaintiff said that, if it was necessary to do so, the plaintiff would join Bickley as a defendant to the proceedings. However, he did not make any oral application to that effect. If he had done so, it would have been necessary to adjourn the matter to allow Bickley to be heard. In my view, the failure to join Bickley as a party is sufficient reason to dismiss this application. However, the application was fully argued, and I have determined it should fail. To that extent, the fact Bickley was not given the opportunity to be heard will not prejudice its rights. I therefore propose to deal with the merits of the application as they were argued.
Before setting out the relevant facts, I should say something about the legal framework in which this application is brought. A person may bring an application seeking leave to initiate representative proceedings if he or she is one of those persons referred to in s 236(1) of the Corporations Act 2001 (Cth). In fact, the plaintiff falls within s 236(1)(a)(i). There was no challenge by the defendant to the plaintiff's legal standing to bring this application.
The application falls to be determined under the provisions of s 237. That section reads as follows:
Applying for and granting leave
(1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
(2)The Court must grant the application if it is satisfied that:
(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b) the applicant is acting in good faith; and
(c) it is in the best interests of the company that the applicant be granted leave; and
(d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and
(e) either:
(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.
(3) A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that:
(a) the proceedings are:
(i) by the company against a third party; or
(ii) by a third party against the company; and
(b) the company has decided:
(i) not to bring the proceedings; or
(ii) not to defend the proceedings; or
iii) to discontinue, settle or compromise the proceedings; and
(c) all of the directors who participated in that decision:
(i) acted in good faith for a proper purpose; and
(ii) did not have a material personal interest in the decision; and
(iii) informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate; and
(iv) rationally believed that the decision was in the best interests of the company.
The director's belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold.
(4) For the purposes of subsection (3):
(a) a person is a third party if:
(i) the company is a public company and the person is not a related party of the company; or
ii) the company is not a public company and the person would not be a related party of the company if the company were a public company; and
(b) proceedings by or against the company include any appeal from a decision made in proceedings by or against the company.
Note: Related partyis defined in section 228.
It follows then that each of the five criteria must be satisfied before leave to bring a derivative action can be granted. They are:
a)it is probable that the company will not itself bring the proceedings or properly take responsibility for them, or for the steps in them; and
b)the applicant is acting in good faith; and
c)it is in the best interests of the company that the applicant be granted leave; and
d)the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and
e) either;
(i) at least 14 days before the making of the application the applicant gave written notice to the company of their intention to apply for leave and the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.
In this case, there is no question that the first and last of these criteria have been satisfied. Bickley is controlled by the defendants and they have no intention of taking the action the plaintiff proposes the company should take. Notice of these proceedings was given to the company. It is the defendants' position that none of the other three criteria have been satisfied. The plaintiff accepts it must satisfy all five criteria. If one or other of the criteria are not satisfied, then leave will not be given. If all five criteria are satisfied, then leave must be given - no discretion is retained by the court.
The general principles relevant to the grant of leave under s 237 where set out by Palmer J in Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583. In this jurisdiction, the section was considered in some detail by the Court of Appeal in Blakeney v Blakeney [2016] WASCA 76. That decision requires some consideration. The Court of Appeal set out the relevant background facts as follows:
3The following background facts, found by the master, are, subject to some minor refinements, not in dispute:
(1)Tim and William are brothers. They are the only two shareholders and directors of Geraldton Builders and Fabricators.
(2)Geraldton Builders and Fabricators is the trustee of the T&B Investment Trust. The brothers are beneficiaries of that trust. The master described them as the primary beneficiaries. The trust deed was not in evidence before the master but a copy of the deed was received in evidence in the appeal. It reveals that the two brothers are members of a widely defined class of potential beneficiaries under a discretionary trust. The two brothers are also joint guardians and joint appointors.
(3)The T&B Investment Trust was established to own plant, equipment, trailers, vehicles, spare parts and cranes which were utilised by a company known as Geraldton Cranes and Haulage Pty Ltd. Geraldton Cranes and Haulage owned and conducted a crane hire and truck haulage business from premises in Boyd Street, Geraldton. Its only directors and shareholders were William and Tim.
(4)Geraldton Builders and Fabricators has been in deadlock. There have been extensive negotiations between Tim and William in an attempt to resolve that deadlock. Before the master, William contended that the deadlock remained. Tim asserted that an asset split agreement had been reached under which the brothers had agreed to go their separate ways and divide the assets of their company.
(5)It was common ground that Geraldton Builders and Fabricators acquired a Liebherr 250 tonne mobile crane (the Crane), for which it paid $2,666,200. The Crane was financed through an agreement with the National Australia Bank (NAB). Repayments on the loan amounted to $31,123.73 per month. The master described the agreement as a hire purchase agreement, but the instrument itself reveals that Geraldton Builders and Fabricators was the owner of the Crane and granted an equitable mortgage to the bank.
(6)William contended that the Crane is and always has been the property of Geraldton Builders and Fabricators. Tim contended that as part of the asset split agreement he acquired the right, title and interest in the Crane to the exclusion of Geraldton Builders and Fabricators.
(7)It was common ground that the Crane was leased to Norwest Crane Hire in July 2013 naming Blakeney's Transport as lessor.
(8)All payments made by Norwest Crane Hire have been retained by Blakeney's Transport. Blakeney's Transport has paid loan repayments to the NAB.
The appeal itself raised three questions. First, was the application brought in good faith? Second, was it in the best interests of the company to grant leave? Third, was there a serious question to be tried? The appeal itself was decided on the basis that the grant of leave was not in the best interests of the company.
One of the main factors which influenced the Court of Appeal's decision was the fact that the plaintiff (respondent to the appeal) had not given an undertaking to be responsible for the costs of the action and had not provided any evidence he was in a position to meet those costs. At first instance, I had decided this was not fatal to the application because the defendant in the representative proceedings could, if it saw fit, have applied for security for costs. At that stage, the court could have determined whether security for costs was appropriate and who should provide that security. The Court of Appeal found that approach to be mistaken. While it did not go so far as to say that a person seeking leave to bring representative proceedings must provide a full indemnity to the company against any costs order, it is plain from reading the decision that the court was of the view, if the company was at risk with respect to costs, taking proceedings could not be in its best interests. The decision does leave open the possibility leave could be granted conditional upon an indemnity being provided by the plaintiff with respect to costs. The plaintiff does not, in his evidence, address this issue. Not only does he not give an undertaking to be responsible for the costs of the company in any representative proceedings, he gives no evidence of his financial capacity to meet any costs order.
It is also relevant to note the court found it was not in the best interests of the company to grant leave when any derivative action would, in effect, be furthering a dispute between two individuals. The court put the position this way:
84In substance, the real dispute was one between the two brothers: Tim asserted that an asset split agreement had been reached, while William denied that this was so. Other avenues existed for the ventilation and determination of that dispute. In circumstances where Geraldton Builders and Fabricators was in deadlock, an application for the appointment of a new trustee could have been made. Alternatively, if the trustee, Geraldton Builders and Fabricators, refused to bring proceedings against the appellants, there is at least a respectable argument that William, as a beneficiary, guardian and appointor under the trust deed, would be 'the person best placed to advance the claim' and could have commenced proceedings on behalf of the trust. There is some uncertainty as to whether and in what circumstances the object of a discretionary trust can commence proceedings if the trustee refuses to do so. It is not necessary to determine whether, in this case, special circumstances would have existed to justify the commencement of proceedings by an object of a discretionary trust. In any event, William could have brought and could bring proceedings against his brother seeking a declaration that no asset split agreement had been reached. Geraldton Builders and Fabricators would be a necessary party to those proceedings. However, it could be made a defendant, adopting an essentially passive role. Instead, the grant of leave under s 237 makes it the primary moving party, with its interests being represented by one of the protagonists in the dispute between the brothers.
85As we have said, we accept that the existence of alternative mechanisms for the pursuit by an applicant of their grievances is not in itself fatal to the grant of leave. Nevertheless, the existence of such other means may be relevant to whether it is in the best interests of the company for leave to be granted (see [62] above). In the circumstances of this case, we do not think it was open to find that it was in the company's best interests for it to be the sole moving party in proceedings involving a dispute about an asset of which it is trustee, where the dispute was, in substance, between the two brothers and which may ultimately involve a number of parties, thereby exposing the company to costs, in circumstances where its interests would be represented by one of the warring parties.
Turning then to the facts, the application is supported by two affidavits of Nigel David Barnard, the first sworn 6 August 2021 and the second sworn 8 October 2021. In response, the defendants rely on an affidavit of the first defendant sworn 13 December 2021. Reduced to their essentials, these affidavits represent accusations and counter‑accusations of dishonesty on the part of Mr Barnard on the one hand, and the first defendant and his associates on the other hand. The affidavits have as attachments a series of documents which deal with a series of transactions which each of the parties use in a different way. Having read this affidavit material, it is very difficult to reach a conclusion there is a serious question to be tried. But for the purposes of this application, I am prepared to accept that is the case. In doing so, I am applying the standard which would be applied in a summary judgment application. In other words, if action was brought in the name of the company the defendants could not, in my view, succeed in a summary judgment application under O 16 r 1 of the Rules of the Supreme Court 1971 (WA). That is not to say the company would succeed at trial. But I would accept, based upon a view of the evidence most favourable to the company, there is a serious question to be tried.
It was the position of the defendants that this application was part of the plaintiff's attempts to force the defendants to pay a higher price for the plaintiff's shares. The evidence shows the defendants have offered the plaintiff 90 cents for every share he holds. The plaintiff wants $1.02 for each share. The defendants say the plaintiff's price is unrealistic because it is not justified by the financial position of Bickley. There is some support in the evidence for the defendants' contention. In any event, I am satisfied the plaintiff is attempting to squeeze a better offer out of the defendants and bringing derivative proceedings is part of that process. In other words, I am satisfied, on the evidence, the plaintiff is not acting in good faith. He is effectively acting for a collateral purpose. That being so, one of the requirements of the section is not satisfied and the application fails.
There are two other reasons why the application should be dismissed. First, as in the Blakeney case, the real dispute here is between the plaintiff on the one hand and the defendants on the other. There are other mechanisms for resolving that dispute. For instance, an oppression action could have been brought by the plaintiff in which he sought an order the defendants buy his shares in Bickley. The use of a derivative action to further the dispute is not then in the best interests of the company. Second, as was emphasised by counsel for the defendants, the plaintiff is in a position of conflict. The defendants make allegations against him with respect to his dealings with the affairs of Bickley. He denies any wrongdoing. But there is sufficient evidence in the affidavit of the first defendant to raise whether or not the plaintiff has breached his duties as a director of Bickley. In such circumstances, it would be inappropriate to grant the plaintiff leave to bring representative proceedings.
For these reasons the application will be dismissed. The plaintiff ought pay the defendants' costs of the application, including reserved costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AH
Associate to Master Sanderson
14 MARCH 2022
0
4
0