Betta Products (Australia) Pty Ltd v Crampton
[2009] FCA 520
•20 May 2009
FEDERAL COURT OF AUSTRALIA
Betta Products (Australia) Pty Ltd v Crampton [2009] FCA 520
BETTA PRODUCTS (AUSTRALIA) PTY LTD (ACN 102 333 200) v LESLIE CRAMPTON and LISA CHRISTINA CRAMPTON
VID 176 of 2009
AND
IN THE MATTER OF BETTA PRODUCTS (AUSTRALIA) PTY LTD (ACN 102 333 200); MARKWOOD COURT PTY LTD (ACN 050 031 251)
VID 338 of 2009
GORDON J
20 MAY 2009
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 176 of 2009
BETWEEN: BETTA PRODUCTS (AUSTRALIA) PTY LTD (ACN 102 333 200)
Plaintiff
AND: LESLIE CRAMPTON
First RespondentLISA CHRISTINA CRAMPTON
Second Respondent
JUDGE:
GORDON J
DATE OF ORDER:
20 MAY 2009
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.These proceedings be listed for further directions at 9:30am on 18 June 2009.
2.Costs reserved.
3.Liberty to apply.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 338 of 2009
IN THE MATTER OF BETTA PRODUCTS (AUSTRALIA) PTY LTD (ACN 102 333 200)
BETWEEN: MARKWOOD COURT PTY LTD (ACN 050 031 251)
Plaintiff
JUDGE:
GORDON J
DATE OF ORDER:
20 MAY 2009
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The material filed in VID 176 of 2009 be taken as material filed in this proceeding.
2.Markwood Court Pty Ltd (ACN 050 031 251) have leave to issue proceeding VID 176 of 2009 in the name of Betta Products (Australia) Pty Ltd (ACN 102 333 200) nunc pro tunc.
3.The costs of the application for leave be costs in the cause of proceeding VID 176 of 2009.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 176 of 2009
BETWEEN: BETTA PRODUCTS (AUSTRALIA) PTY LTD (ACN 102 333 200)
Plaintiff
AND: LESLIE CRAMPTON
First RespondentLISA CHRISTINA CRAMPTON
Second RespondentAND
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID 338 of 2009
IN THE MATTER OF BETTA PRODUCTS (AUSTRALIA) PTY LTD (ACN 102 333 200)
BETWEEN: MARKWOOD COURT PTY LTD (ACN 050 031 251)
Plaintiff
JUDGE:
GORDON J
DATE:
20 MAY 2009
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
INTRODUCTION
Proceeding VID 338 of 2009 is an application under ss 236 and 237 of the Corporations Act 2001 (Cth) (“the Act”) by Markwood Court Pty Ltd (ACN 050 031 251) (“Markwood Court”), a shareholder in Betta Products (Australia) Pty Ltd (ACN 102 333 200) (“Betta Products”), for leave to bring proceeding VID 176 of 2009 on behalf of Betta Products against the sole director of Betta Products (Mr Leslie Crampton) and his daughter, Ms Lisa Crampton. Ms Crampton is also a shareholder of Betta Products, as is Mr Crampton.
The principal of Athelbrook Pty Ltd (ACN 068 699 525) (“Athelbrook”), the fourth shareholder in Betta Products, has informed the Court that it supports Markwood Court’s application. The application is opposed by Mr Crampton. Ms Crampton was not served and therefore did not participate in the application.
The circumstances of the applications are both procedurally and factual complex.
PROCEDURAL HISTORY
VID 176 of 2009
On 20 March 2009, Markwood Court filed an originating process supported by an affidavit sworn by its principal, Mr Christopher Hocking. The applicant named in the originating process was Betta Products. The named respondents were Mr Crampton and his daughter, Ms Crampton. The originating process stated that the application was made under ss 237, 241, 1317E and 1317H of the Act. The relief sought included:
1.an order pursuant to s 237(1) of the Act that Markwood Court be given leave to bring this proceeding in the name of Betta Products;
2.a declaration pursuant to s 1317E(1) of the Act that the issue of 136,400 ordinary shares in Betta Products to Ms Crampton on 7 August 2008 was conduct undertaken by Mr Crampton in breach of s 182(1) of the Act;
3.an order pursuant to s 241(1) of the Act that share certificates representing 136,400 ordinary shares in Betta Products in the name of Ms Crampton be cancelled and the register of members in Betta Products be amended accordingly;
4.an order pursuant to s 1317H of the Act that Mr Crampton compensate Betta Products in respect of his breaches of s 182(1) of the Act.
As is apparent, the relief sought in VID 176 of 2009 was directed at leave to issue the proceeding and, if leave were granted, final relief. On 24 March 2009, an interlocutory process was filed seeking an order that Markwood Court be given leave to bring this proceeding nunc pro tunc. On 7 April 2009, the originating process and the interlocutory process came before the Court for directions. At that hearing, counsel for Mr Crampton put the solicitors for Markwood Court on notice that an application under ss 236 and 237 of the Act for leave to issue proceedings in the name of Betta Products should have been commenced by separate proceeding in the Corporations List with Markwood Court as the plaintiff: RTP Holdings Pty Ltd v Roberts (2000) 36 ACSR 170 at [13]ff. At that time, I made procedural orders for the filing of affidavits and submissions in preparation for final hearing of the application for leave including an order that by 4:00pm on 15 April 2009, Markwood Court file and serve an additional proceeding seeking leave to commence this proceeding in the name of Betta Products.
Markwood Court did not file an additional proceeding. Instead, it sought to maintain the position that it was open to it to seek leave in the existing proceeding by filing, on 16 April 2009, an amended interlocutory process which sought two orders (1) an order that Markwood Court have leave under ss 236 and 237 of the Act to bring a proceeding on behalf of and in the name of Betta Products against Mr and Ms Crampton and (2) an order that Markwood Court’s costs of the application for leave be costs in the proceeding under s 242 of the Act.
The amended interlocutory process was heard on 29 April 2009. Counsel for Mr Crampton continued his objection to the procedural course adopted by Markwood Court.
VID 338 of 2009
In light of that opposition, on 4 May 2009, Markwood Court filed separate proceedings by way of originating process (“VID 338 of 2009”) seeking leave to file proceeding VID 176 of 2009 in the name of Betta Products. This was consistent with the procedure adopted in RTP Holdings Pty Ltd 36 ACSR 170. On any view, it is possible for leave to commence proceedings in the name of Betta Products to be granted nunc pro tunc: South Johnstone Mill Ltd v Dennis (2007) 163 FCR 343 at [24]-[59] and RTP Holdings Pty Ltd 36 ACSR 170. Accordingly, any procedural objection raised by Mr Crampton to the application being commenced in VID 176 of 2009 falls away.
BACKGROUND TO THE PROCEEDINGS
BETTA PRODUCTS
Betta Products was incorporated in September 2002. The issues in dispute concern, at least in part, the shareholding in and management of Betta Products. The Australian Securities and Investments Commission (“ASIC”) current and historical extract (as at 18 March 2009) records that the ordinary shareholders of Betta Products are:
Athelbrook 200
Markwood Court 83,752
Lisa Crampton 136,948
Leslie Crampton 112It will be necessary to return to consider the shareholding in further detail later in these reasons for decision. For present purposes, it is sufficient to note that the shareholders in Betta Products fall into two “camps” – the Cramptons on one side and Athelbrook and Markwood Court on the other.
The ASIC extract also records that from 18 November 2008 Mr Crampton was its sole director. Mr Hocking, the principal of Markwood Court, had been a director for the limited period from 7 August until 18 November 2008. The circumstances surrounding Mr Hocking’s removal as a director of Betta Products is another of the issues in dispute between the “camps”.
Before turning to consider the other facts said to give rise to the dispute between the two camps, it is necessary to say something about Betta Products. It is a holding company. Mr Hocking’s evidence was that its major asset now is a majority shareholding (somewhere between 55%-65% according to the differing evidence of Messrs Hocking and Crampton) in Coolshield International Pty Ltd (“Coolshield”) which Betta Products holds via a 50% shareholding in Helical Innovations Pty Ltd (“Helical”). Some of the circumstances giving rise to the involvement of Helical and, via Helical, Betta Products’ shareholding in Coolshield form part of the issues in dispute and are addressed in further detail below. According to Mr Crampton, Coolshield has a number of lucrative products and “is about to become very profitable”.
2005 AND 2006
The dispute between the two “camps” is both factual and legal.
Mr Hocking stated he met Mr Crampton in about 2002 through their mutual interest in open-wheeler Australian Formula 4000 motor racing and that, in 2005, he and Mr Crampton agreed that Mr Crampton would drive one of Mr Hocking’s cars in competition over several years for which Mr Crampton would pay a fee. None of that was directly disputed by Mr Crampton. Mr Hocking then contends that rather than paying him a fee, Mr Crampton agreed to issue to Mr Hocking 10% of the issued shares in Betta Products, a company Mr Crampton described to Mr Hocking as a holding company of various businesses which had the potential to be worth many millions of dollars (“the 2005 Agreement”) but that the shares were not recorded in the ASIC extract as having been issued until 21 August 2006.
Mr Crampton denies the 2005 Agreement. He asserts that the first agreement was reached in June 2006, not 2005, and that it did not involve the issue of shares to Markwood Court but the transfer of 80 shares in Betta Products as is recorded not only in a share transfer form dated 28 June 2006 but also a letter from Mr Crampton (in his capacity as director of Betta Products) to Mr Hocking dated 22 June 2006 which, under the heading “Re Transfer of Race team Equipment and Share Transfer” stated, in part, that:
I refer to our agreement on the above transaction and wish to confirm the following agreement between our Companies:
That in full consideration for [Betta Products] to transfer to … Markwood Court ... 8% or (80) of the Total Ordinary Fully Paid Voting Shares of Betta Products that have been Issued, Hocking Motorsport Pty Ltd ABN 57 070 767 734 will Transfer the Following Items to Betta Products …:
1.Complete Reynard Racing Car No: 97D007.
2.All Race Spares for the above Race Car.
3.Race Transporter Victorian Registration No: 38775S, Complete with all Internal Lockers and Equipment.
4.Golf Buggy Tow Vehicle and Trailer.
…
In addition, it is agreed that in the event that Betta Products … fails to provide a Dividend equal to $170,000.00 by June 30th 2007, that Hocking Motorsport will have the option to take back the Race Car, Transporter, Golf Buggy Tow Vehicle with Trailer and all Race Spares, and that upon this option having been taking (sic), it is agreed that Markwood Court … would transfer all the 80 Shares back to Betta Products … or its Nominee at Par Value of $1.00 Per Share.Chris, I look forward to a long association between us, and I will do my best to ensure we exceed our Targets for Coolshield, Emad Communications, Just-Wipe Technologies and Commercialise Betta Products IT IP’s.
(emphasis added)
The share transfer form (referred to at [14] above) was signed by Mr Hocking and records a share transfer of 80 shares from Ms Crampton for $80.00. Mr Crampton contends that the consideration was stipulated to be $80 at the request of Mr Hocking who wished to save on stamp duty.
Mr Hocking accepts that the letter, an extract of which is set out at [14] above, records an arrangement between he and Mr Crampton but contends that it was a further agreement in relation to a further 8% of the issued shares in Betta Products (“the 2006 Agreement”). It is not in dispute that (1) the assets listed in the letter (see [14]) (“the racing equipment”) were transferred to Betta Products, (2) the approximate value of the racing equipment was $310,000, (3) Betta Products did not pay a dividend of $170,000 and (4) Hocking Motorsport Pty Ltd (ABN 57 070 767 734) did not exercise the option.
Mr Hocking’s complaint however is that, contrary to the terms of the 2006 Agreement, the transfer of issues was effected by Mr Crampton in a way that substantially benefits Ms Crampton because rather than issuing Markwood with 8% of the shares in Betta Products and increasing its asset base by $310,000 (being the value of the racing equipment transferred to Betta Products), Mr Crampton (1) arranged for an existing shareholder (Ms Crampton) to transfer 80 of the shares she held to Markwood Court, (2) created financial records to show that the racing equipment was first transferred to Ms Crampton and (3) created financial records that record the racing equipment was then transferred from Ms Crampton to Betta Products with the value of the racing equipment ($310,000) recorded as a loan from Ms Crampton to Betta Products.
As I have said, Mr Crampton denies that the 2006 Agreement is an agreement separate from the 2005 Agreement and denies that he implemented the 2006 Agreement contrary to its terms. In support of the latter contention, Mr Crampton points not only to the transfer dated 28 June 2006 described earlier (see [14] above) but also to four additional documents. First, an alleged agreement between Ms Crampton and Betta Products dated 1 June 2006 (“the Lisa Crampton Agreement”) which was said to be in the following terms:
“AGREEMENT BETWEEN MISS LISA CHRISTINA CRAMPTON & BETTA PRODUCTS (AUSTRALIA) PTY LTD ABN 42 102 333 200
Dated this the 1st June 2006
It is agreed between Lisa Christina Crampton (The Lender) of Unit 4-169 Albert Street Port Melbourne Victoria and Betta Products (Australia) Pty Ltd (The Borrower) of 17 Oak Ave Miami Queensland 4220 that Lisa Christina Crampton sale of 8% of her Share Holdings in Betta Products being 80 Ordinary Fully Paid Shares to Markwood Court Pty Ltd of 169 Como Pde E Parkdale Victoria 3195 and further in relation to the Ageement (sic) between Betta Products, Markwood Court & Hocking Motorsport of June 2006 as per attached that the Value that was accepted by all parties to the Agreement between Betta-Markwood-Hocking being AUD$310,000.00 in Full consideration for the Shares Lisa Christina Crampton Transferred to Markwood Court and that this amount has been agreed to be treated as a Loan from Lisa Christina Crampton in Betta Products Books of Accounts.
It is further agreed that Lisa Christina Crampton may at her request better secure these loan funds to Betta Products by registering a Fixed & Floating Mortgage over Betta Products and Betta Products hereby agrees to have such Mortgage Registered by Lisa Christina Crampton until such Loan Funds have been Fully repaid by Betta Products (Australia) Pty Ltd.
Signed this First day of June 2006.”
In my view, on its face and without further explanation, the alleged Lisa Crampton Agreement does not appear to assist in resolving the dispute about the existence and / or terms of either the 2005 Agreement or the 2006 Agreement. As is apparent, it is not an agreement to which Markwood Court is a party. Neither Mr Hocking nor the principal of Athelbrook had seen or knew of the existence of such an agreement prior to the hearing of this application. And Mr Crampton did not contend that they had seen or knew of it. Those facts, in the circumstances, are odd. There is the 2006 Agreement dealing with the racing equipment and then there is an alleged agreement between Betta Products and Ms Crampton dealing with the same racing equipment which, on its face, does not appear to sit very comfortably with the 2006 Agreement which makes no mention of Ms Crampton. Moreover, if the Lisa Crampton Agreement is valid, how and where did Markwood Court transfer the racing equipment to Ms Crampton?
The second group of documents relied upon by Mr Crampton are emails Mr Crampton allegedly sent to Mr Hocking on 23 and 26 June 2006 which stated:
23-6-06
Chris, here is the final draft. I will get these off to u today. I will get Share docs signed off by My Daughter Lisa, and she can fwd the docs u need to sign on behalf of Markwood Court and return them to me for Lodging with ASIC etc. I will put your Share Certificate with the Letters u need to sign that I am sending u today.
Regards,
Les26-6-06
Hi Chris, just confirming the letter of agreement should be in your box today, as I sent them off Express Post Friday. Can u Date the Doc’s 23rd June 2006 and send back 1 set to me. I will be sending down Share Transfer docs to my Daughter Lisa to sign and fwd to u for signing and returning to me. U keep the Share Certificate. I am also sending down Pre-addressed Express Post envelopes, as we need to get docs in system with ASIC asap.
Regards,
Les.The final document is a letter from Mr Glen Patman, the external accountant for Betta Products, addressed to Mr Hocking dated 19 December 2007 in the following form:
We advise that we have been appointed Accountants and Tax Agent for [Betta Products].
We are currently preparing the Financial Statements for same. We are investigating the acquisition of the Reynard racing car No 97D007, spares for same, Gold Buggy tow vehicle, trailer and race transporter registration no. 38775S.
We have been advised by the director (Leslie Crampton) that the 80 shares that Markwood Court … acquired as consideration for the above racing equipment was to be transferred to Markwood from the shares held by Lisa Crampton.
That is, the racing equipment would be transferred to Lisa Crampton for the purchase of her 80 shares who would then transfer the racing equipment to [Betta Products]. This would result in [Betta Products] acquiring assets valued at $310000 (by yourself and Leslie Crampton) and Lisa Crampton being shown as a creditor of [Betta Products] to the value of $310000.
The documentation reporting the transaction to ASIC reflects the above. The share transfer document signed by yourself and lodged with the Queensland Government Office of State Revenue also clearly shows that the 80 shares Markwood acquired were transferred from Lisa Crampton who also signed the share transfer document.
However, we have received verbal advise (sic) from another shareholder via his accountant that the above interpretation is incorrect and that [Betta Products] should have issued 80 shares from its unissued capital. This would have resulted in [Betta Products] acquiring assets valued at $310000 and a share premium reserve of $310000. Lisa Crampton would not be a creditor of [Betta Products] for the amount of $310000.
The agreement between [Betta Products], Hocking Motor Sport and Markwood can be interpreted either way.
If you agree with the director’s interpretation please sign in the space below. If you disagree please provide a written explanation as to your interpretation of the transaction.
Please return this letter signed in the space below or your written explanation to this office within twenty eight (28) days.
If you have any queries please do not hesitate to contact this office.
Yours faithfully
MERMAID TAXATION SERVICES
GLEN A PATMANMr Hocking’s evidence was that shortly after he received the 19 December 2007 letter, Mr Crampton telephoned him and asked him if he had received the letter. Mr Hocking said he asked Mr Crampton what the letter was about and was told by Mr Crampton that it was “just a formality” that needed to be attended to as part of the work that was done on Betta Products’ accounts and that he needed to sign the letter and return it to the accountant. Mr Hocking did just that – returned the signed letter to the accountant. Mr Hocking contends that he did not understand the document or its effect.
Mr Crampton’s evidence, filed after Mr Hocking’s version of events, is that he initially rang Mr Hocking to say that the accountant had prepared a letter for Mr Hocking, read the letter to Mr Hocking over the telephone and then shortly thereafter, met with Mr Hocking where Mr Hocking read the letter in his presence, told him he understood it and signed the letter in his presence. Mr Hocking’s reply affidavit did not deal again with this conversation or the letter.
Mr Crampton asserts that there was, in fact, a further transfer of 72 shares for $20,000.16 from Ms Crampton to Markwood Court in August 2006. What I was to make of this transfer is far from clear. Other than simply referring to the transfer, neither the fact nor the circumstances surrounding this transaction were described by Mr Crampton. Mr Hocking did not deal with this transaction at all.
2007 - 2009
According to Mr Hocking, the invariably potted history moves to late 2007 / early 2008 when Mr Crampton arranged a capital raising in Coolshield because, according to Mr Crampton (then Coolshield’s sole director), Coolshield was running out of money and needed capital from its shareholders. At that time, Betta Products itself held shares in Coolshield. To address this lack of capital, Mr Crampton told Mr Hocking that he had arranged for a new investor, the Kanji family, to invest in Coolshield. The investment was brought about by transferring all of the shares Betta Products held in Coolshield to Helical on 8 November 2007. Helical then had two 50% shareholders - Betta Products and the Kanji family.
Coolshield’s capital raising took place on 26 March 2008 when its fully paid issued shares increased from 616 to 97,666. Although ASIC records the shares as having been issued on 26 March, Mr Hocking’s evidence is that Betta Products did not provide its contribution to the capital raising (via Helical) until August 2008.
Not only is the date of the capital raising an issue but also the manner in which Betta Products met its capital raising obligation. Mr Hocking’s evidence is that it was Mr Crampton (as a director of Betta Products) who determined that Betta Products would issue 220,000 new shares at $1.00 per share. According to Mr Hocking, immediately prior to the capital raising, the shares in Betta Products were held as follows:
Ms Crampton 648 (or 64.8%)
Markwood 152 (or 15.2%)
Athelbrook 200 (or 20%)Athelbrook elected not to take up its allocation under the capital raising. Markwood Court subscribed for 83,600 shares at a total cost of $83,600 which it paid. Ms Crampton subscribed for shares and paid for them by debiting her loan account by $136,400. The substance of Mr Hocking’s evidence was that he had only recently become aware of the manner in which Ms Crampton paid for her additional shares in Betta Products. That does not appear to be accurate. A copy of an email which bears the date, 6 August 2008, was adduced in evidence before the Court. On its face, it is an email sent by Mr Crampton to “Glen”, a copy of which was sent to “Chris Hocking” headed “New Shares Issue Betta Products:” The content of the email was as follows:
6-8-08
Glen, as per my telephone call today. I confirm the following details: Re Share Offer & Issue for Betta Product (sic) (Australia) Pty Ltd ABN 42 102 333 200
1.Mr Alvinn M Clark on behalf of Athelbrook Pty Ltd ATF / Clark Superannuation has advised today that he will not be taken up the Share Offer.
2.Mr Chris Hocking of Markwood Court Pty Ltd will be taking up Athelbrook Pty Ltd’s shares.
3.Betta Products (Australia) Pty Ltd will be issuing 220,000 Ordinary shares @ $1.00
4.Please issue a new Fully Paid share Certificate to Markwood Court Pty Ltd for 83,600 shares.
5.Please issue a new Fully Paid share Certificate to Lisa Christina Crampton for 136,400 shares.
6.Please note that Markwood Court (Chris Hocking) will be paying into Betta Products Suncorp bank account BSB 484-799 A/C No 16156-3483 this Friday the 8-8-08 $83,600.00.
7.Lisa Christina Crampton share take up is to have her loan account with Betta Products Debited for $136,400.00 (Debt for Equity Take-Up).
8.Can you also prepare the ASIC Docs for the above, along with the ASIC docs concerning Chris Hocking’s consent to act as a Director of Betta/Emad & Just-Wipe Technologies.
9.Chris Hockings signed Consent form should be with me by the end of today for lodging.
Please advise if there is anything that I may have missed in the above, as we need to complete all transactions/document requirements by this Friday 8-8-08.
Thanks and regards,
Leslie Crampton.
Director
Betta Products (Australia) Pty Ltd ABN 42 102 333 200.Putting to one side whether or not Mr Hocking in fact knew that Ms Crampton did not intend to contribute “cash” but to debit her loan account, Mr Hocking’s position (denied by Mr Crampton) is that although he knew Ms Crampton had a loan account with Betta Products (in the vicinity of $200,000 to $300,000) he mistakenly thought that the loan account had resulted from her lending cash to Betta Products at some earlier point in time, a fact he now knows not to be the position.
The next group of issues concern the accounts of Betta Products, the withdrawal of funds from automatic teller machines (“ATMs”) from Betta Products’ bank accounts by Mr Crampton at, inter alia, gambling venues and the manner in which those withdrawals were accounted for by Betta Products.
Some time in 2007 or late 2008 (there is some dispute about the time), Mr Hocking obtained access to some of the accounts of Betta Products including bank statements which had, so it would seem, initially been provided by Mr Crampton to Mr Clark, the principal of Athelbrook. Mr Hocking’s analysis of those documents apparently revealed that over several years Mr Crampton withdrew funds of Betta Products from ATMs including from ATMs at gambling venues for gambling for his personal benefit. These allegations are not denied by Mr Crampton. In fact, in response to a letter dated 11 February 2009 setting out these findings and putting Mr Crampton on notice that this application would be made, Mr Crampton responded, in part, as follows:
“The Bank Statements you refer to of Betta Products, was obtained “illegally” by your client, via Mr Clark, and I formally wrote to both parties demanding the full return of such, which your client and Mr Clark has failed to do.
In relation to the ATM withdrawals, these have all been taken up correctly and entered in to the Accounts of Betta, and debited against Lisa Crampton’s Loan account.
These facts, on their face, raise two issues. First, a contention that a shareholder is not entitled to access the books and records of a company. That is incorrect as a matter of law: see Pt 2F.3 of the Act.
The second issue concerns the ability of a director of a company to use company funds for his own gambling purposes. Mr Crampton’s response in his affidavit in opposition to this application was to state that he had provided an explanation at a meeting on 18 October 2007 attended by Hocking, Clark and Crampton and then to exhibit two agreements between Mr Crampton and his daughter which on their face are dated 21 and 22 February 2005. Those agreements provide:
(1)AGREEMENT BETWEEN MISS LISA CHRISTINA CRAMPTON & BETTA PRODUCTS (AUSTRALIA) PTY LTD ABN 42 102 333 200
Dated this the 21st February 2005
It is agreed between Lisa Christina Crampton (The Lender) of 133 Hansworth Street Mulgrave Victoria 3170 and Betta Products (Australia) Pty Ltd (The Borrower) of 171 Evans Road Sailsbury Queensland that Lisa Christina Crampton sale of 20% of her Share Holdings in Betta Products being 200 Ordinary Fully Paid Shares to Athelbrook Pty Ltd ATF: Clark Super Fund for AUD$180,000.00 that these funds will be paid into Betta Products Suncorp Bank Account and treated as a Loan from Lisa Christina Crampton in Betta Products Books of Accounts.
It is further agreed that List Christina Crampton may at her request better secure these loan funds to Betta Products by Registering a Fixed & Floating Mortgage over Betta Products and Betta Products hereby agrees to have such Mortgage Registered by Lisa Christina Crampton until such Loan Funds have been Fully repaid by Betta Products (Australia) Pty Ltd.
Signed this 21st day of February 2005.
(2) BETWEEN
MISS LISA CHRISTINA CRAMPTON, MR LESLIE CRAMPTON & BETTA PRODUCTS (AUSTRALIA) PTY LTD ABN 42 102 333 200
Dated this the 22nd February 2005.
It is agreed between Lisa Christina Crampton (The Lender) of 133 Hansworth Street Mulgrave Victoria 3170, Mr Leslie Crampton of unit 36/7 Redondo Ave, Miami QLD 4220 and Betta Products (Australia) Pty Ltd (The Borrower) of 171 Evans Road Sailsbury Queensland that Lisa Christina Crampton hereby authorises Mr Leslie Crampton to withdraw funds against her loan account with Betta Products (Australia) Pty Ltd. This also relates where such funds are Debited against her loan account with Betta Products (Australia) Pty Ltd until further notice.
Signed this The Twenty Second day of February 2005.
Neither Mr Hocking nor Mr Clark had seen either of these agreements prior to this application being made. Nor, as was conceded by counsel for Mr Crampton, was it submitted that these agreements were proffered to either Mr Hocking or Mr Clark.
I address both these issues in further detail below.
Before leaving Betta Products, there is another transaction that is the subject of complaint – a transfer of 100 shares in Betta Products from Ms Crampton to Mr Crampton on 22 October 2008. Mr Hocking says that as both a director and shareholder of Betta Products he was unaware of the transfer or the reasons for it.
Finally, although this application concerns Betta Products, further evidence of the dispute between the two warring camps is that Mr Crampton had Mr Hocking removed as a director of Betta Products in 2008 and then, in 2009, Mr Hocking allegedly had Mr Crampton removed as a director of Coolshield. Each complain that the removal was wrong, in contravention of some agreement or otherwise not effective.
APPLICATION FOR LEAVE
As set out above, the application is made by Markwood Court under ss 236 and 237 of the Act.
STANDING TO BRING THE APPLICATION FOR LEAVE
Section 236 provides, inter alia, that a person may bring proceedings on behalf of a company if the person is a member of the company. Markwood Court, being a member of Betta Products, therefore has standing to bring the application for leave to issue proceedings on behalf of or in the name of Betta Products.
CRITERIA
The criteria for the grant of leave are set out in s 237(2) of the Act. The Court must grant leave if the criteria in s 237(2) of the Act are satisfied. Markwood Court bears the onus of satisfying the Court that the criteria have been met: South Johnstone 163 FCR 343 at [60] – [61].
First Criterion - Probable that Betta Products will not bring proceedings: s 237(2)(a) of the Act
It is not in dispute this criterion is established. The sole director, Mr Crampton, filed two affidavits in opposition to the application (“the Crampton Affidavits”) which, in general terms, dispute the issues raised by Markwood Court. Having regard to the contents of the Crampton Affidavits, it is probable that Betta Products will not itself bring proceedings or take responsibility for them. This criterion is satisfied.
Second Criterion - Good faith: s 237(2)(b) of the Act
The principles are now well established: South Johnstone 163 FCR 343 at [64]-[69].
Mr Crampton asserts that Markwood is acting otherwise than in good faith. On the other hand, Mr Hocking has deposed that he honestly believes that he is acting in good faith and in the best interests of Betta Products. Markwood Court and its principal, Mr Hocking are willing, as a condition of leave to issue the proceedings (defined as “the Derivative Proceeding”), to indemnify Betta Products in respect of both the legal costs incurred by Betta Products in prosecuting the Derivative Proceeding and any legal costs which Betta Products is ordered to pay to other parties in the Derivative Proceeding. Markwood Court (a 38% shareholder in Betta Products) seeks, inter alia, recovery of Betta Products’ property for Betta Products. The Derivative Proceeding is supported by another shareholder, Athelbrook. The other relief concerns rectification of the share register – which at least depends upon the existence and if they exist, the terms and implementation of the 2005 Agreement and the 2006 Agreement.
Mr Crampton’s contention that Mr Hocking seeks leave to issue the Derivative Proceeding for a collateral or private purpose appears to be based on the fact that one group of issues concern Betta Products’ share register and that, at best, the relief may be no more than rectification of the register. The difficulty with that contention is it ignores the other issues in dispute including, by way of example, Mr Crampton’s use of company funds for gambling, the existence and terms of the 2005 agreements between Mr Crampton and Ms Crampton and the affect of these transactions on Betta Products.
In my view, these matters are sufficient to demonstrate good faith.
Third Criterion - Best interests of Betta Products: s 237(2)(c) of the Act
In applying the principles to be applied (summarised by Middleton J in South Johnstone 163 FCR 343 at [70] to [73]), I consider that the Derivative Proceeding is in the best interests of Betta Products. The Derivative Proceeding seeks recovery of Betta Products’ property for Betta Products (see also paras [47] – [49] below) and, further, Markwood Court and its principal have accepted they will bear the costs of the proceeding if it is unsuccessful.
Fourth Criterion - Serious Question to be Tried: s 237(2)(d) of the Act
Again, the principles to be applied are summarised by Middleton J in South Johnstone 163 FCR 343 at [77] to [80]. There are two stages. First, consideration of the evidence in support of the application. Secondly, that evidence must attain a certain threshold. In South Johnstone at [79], Middleton J adopted the threshold or test referred to by the High Court in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65] when seeking a grant of an interlocutory injunction - that the applicant must demonstrate a prima facie case, which “did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”: cf the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 where the test for “serious question” was actually described as an ‘alternative’ to having the applicant demonstrate a prima facie case and that all that was required was that “the applicant … simply … show that proceedings should be commenced”.
Regardless of the test, the Court does not make factual determinations: South Johnstone 163 FCR 343 at [80]. Moreover, it would be inappropriate on an application for leave to reach any conclusion about the strength of the arguments each side would seek in relation to each of the issues identified above. As the summary of facts demonstrates (see [9] to [37] above), the issues in dispute concern the structure and management of Betta Products. For present purposes, it is sufficient to identify at least three issues that raise serious questions to be tried: (a) the circumstances under which the various transfers/issues of shares described in [12]-[29] occurred; (b) the ability of a director to charge private expenses to the account of Betta Products in the absence of any evidence that each transaction was specifically and properly authorised by Betta Products (cf e.g. Shum Yip Properties Development Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619 at [172] and (c) the existence and operation of any loan agreement that may have existed between Mr Crampton and his daughter Ms Crampton and how this agreement impacts upon the legal implications of the conduct in (b) (described at [33]-[34] above).
Resolution of each of those disputes involves conflicting accounts of transactions and what was in fact agreed. It is not a simple matter of evaluating uncontested evidence. On any view, each of the issues identified is a serious question to be tried.
Fifth Criterion - Notice: s 237(2)(e) of the Act
It was not in dispute that this criterion is satisfied.
Conclusion
For the reasons set out above, it is appropriate that, in VID 338 of 2009, Markwood Court be granted leave pursuant to s 236 of the Act to issue proceedings VID 176 of 2009 in the name of Betta Products (Australia) Pty Ltd (ACN 102 333 200) nunc pro tunc. Proceedings VID 176 of 2009 will be listed for directions after service has been effected and at a time convenient to the parties. At that time, any issue of which Registry of the Federal Court manages the interlocutory steps and / or ultimately hears the substantive proceeding can be raised.
Accordingly, I direct proceedings VID 176 of 2009 be listed for further directions at 9:30am on 18 June 2009.
I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate:
Dated: 20 May 2009
Counsel for the Plaintiff: Mr Bigos Counsel for the First Defendant: Mr M Clarke
Date of Hearing: 29 April 2009 Date of Further Written Material: 4 and 5 May 2009 Date of Judgment: 20 May 2009
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