Carpenter v Pioneer Park Pty Ltd

[2008] NSWSC 551

Reported Decision: 66 ACSR 564

New South Wales

Supreme Court

CITATION:	Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551
HEARING DATE(S):	13/03/08, 16/04/08 Written submissions: 13/03/08, 23/04/08, 05/05/08
JUDGMENT DATE :	5 June 2008
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Interlocutory process dismissed with costs
CATCHWORDS:	CORPORATIONS - winding up - company in liquidation - leave previously granted to member under Part 2F.1A of Corporations Act and court's inherent jurisdiction to bring proceedings on behalf of company - those proceedings prosecuted to conclusion - judgment against company - member wishes to pursue appeal on behalf of company - whether existing leave extends to appeal - whether new grant of leave should be made - supervening Court of Appeal decision that Part 2F.1A not available where company in liquidation - application for new grant of leave pursued on basis of inherent jurisdiction only - relevant criteria discussed - assessment of case against those criteria - criteria not met - leave refused
LEGISLATION CITED:	Corporations Act 2001 (Cth). Part 2F.1A, ss 236, 237, 447(6), 511(1) 1321 Uniform Civil Procedure Rules 2005, Part 51
CATEGORY:	Principal judgment
CASES CITED:	Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250 Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 Australia and New Zealand Banking Group Ltd v Carpenter [2007] FMCA 1589 Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 Cape Breton Company v Fenn (1881) 17 ChD 198 Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007; (2004) 51 ACSR 299 Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661 Gahahan Pty Ltd v Advance Bank of Australia Ltd [2001] ACTSC 118 Hayim v Citibank NA [1987] AC 730 Hilliard v Eiffe (1874) LR 7 HL 39 Lloyd-Owen v Bull [1936] 4 DLR 273 Partnership Pacific Ltd v Aliprandi (1990) 4 ACSR 51 Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2006] NSWSC 883 Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2006] NSWSC 1176 Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344 (30 November 2007); (2007) 65 ACSR 383 Ragless v IPA Holdings Pty Ltd (2008) SASC 90; (2008) 65 ACSR 700 Ramage v Waclaw (1988) 12 NSWLR 84 Re Bank of Gibraltar and Malta (1865) LR 1 Ch App 69 Re Imperial Bank of China India and Japan (1866) LR 1 Ch App 339 Russell v Westpac Banking Corporation (1994) 13 ACSR 5 Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (unreported, NSWSC, 10 December 1987) Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 17 FCR 344 Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 Vouris as liquidator of Cadima Express Pty Ltd v Deputy Commissioner of Taxation [1999] NSWSC 1143; (1999) 33 ACSR 527
PARTIES:	Clifford John Carpenter - Plaintiff Pioneer Park Pty Limited - Defendant
FILE NUMBER(S):	SC 5190/04
COUNSEL:	Mr J J Garnsey QC/Mr B A M Connell - Plaintiff Mr S Mullette, Solicitor - Liquidator
SOLICITORS:	Somerset Ryckmans - Plaintiff Bartier Perry - Liquidator

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 5 JUNE 2008

5190/04 CLIFFORD JOHN CARPENTER v PIONEER PARK PTY LIMITED

JUDGMENT

The orders of 1 November 2004

1 These proceedings 5190/04 were commenced on 22 September 2004 when Mr Carpenter filed an originating process seeking, as principal relief, leave under s 237 of the Corporations Act 2001 (Cth) (a provision appearing in Part 2F.1A of the Act) to enable him to bring proceedings on behalf of Pioneer Park Pty Ltd, a company in liquidation of which he is a member.

2 On 1 November 2004, the court made orders as follows:

“1. Order nunc pro tunc that the Plaintiff have leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) to commence these proceedings the subject of the amended originating process filed 25 October 2004.
2. Order under Part 2F.1A of the Corporations Act 2001 (Cth) and in exercise of the Court’s inherent power that the plaintiff have leave to bring proceedings on behalf of the defendant against the Australia and New Zealand Banking Group Limited in relation to the claims that the defendant has against it relating to matters concerning the termination of the defendant’s accounts with the Australia and New Zealand Banking Group Limited in late 1998 up to June 1999 and the subsequent appointment by the Australia and New Zealand Banking Group Limited of administrators, appointment of liquidators, sale of the defendant’s property and conduct in relation to the terms and maintenance of the defendant’s accounts and related thereto and consequent thereon, including those claims reflected in the draft summons annexed hereto.
3. Order that the plaintiff pay and bear (and indemnify the defendant against) all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings brought by him on behalf of the defendant except to such extent, if any, as the court may in future otherwise direct or allow.
4. Order that, insofar as it may not apply of its own force, section 240 of the Corporations Act 2001 (Cth) shall apply to and be observed in relation to the proceedings brought by the plaintiff on behalf of the defendant.
5. Order that the plaintiff and the defendant have liberty to apply.
6. Order the plaintiff to pay the defendant’s costs of these proceedings.”

3 Order 2 thus granted leave to proceed on two bases: first, “under Part 2F.1A” of the Act; and, second, “in exercise of the Court’s inherent power”. The order referred to “the draft summons annexed hereto”. That draft summons and its content were the subject of the following observations in my reasons for judgment of 29 October 2004 upon Mr Carpenter’s application for the orders that were ultimately made on 1 November 2004 (Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007; (2004) 51 ACSR 299):

“[11] The proposed claim is pleaded in a draft summons in the Commercial List form included in the exhibits to Mr Carpenter’s first affidavit. It runs to 26 pages. The relief sought is, first, a declaration that ANZ was not entitled to enforce its charge or appoint administrators of the Company and that the purported appointment of administrators was ineffective and void; second, a declaration that the Company did not enter into voluntary winding up; third, a declaration that ANZ was not entitled to exercise any power of sale as mortgagee in respect of property of the Company at Tuggerah; fourth, damages for breach of contract; fifth, damages for contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987; sixth, interest under the Supreme Court Act ; seventh, orders under s 87 of the Trade Practices Act and s 72 of the Fair Trading Act to compensate for loss and damage including orders declaring void or varying the agreement between ANZ and the Company and the related guarantee.

[12] In the section of the draft summons describing the nature of the dispute, there appears the following:
‘The plaintiff (“Pioneer”) claims it was wrongfully placed in liquidation by the actions of the defendant (“ANZ”), its banker, which were in breach of the terms and conditions of the agreement between Pioneer and ANZ, that ANZ was not entitled to enforce and charge and appoint administrators under section 436C of the Corporations Law , that the administrators were not validly appointed liquidators by section 446A of the Corporations Law , and that the defendant [sic], and that Pioneer has suffered damage from the misleading and deceptive conduct of the defendant in contravention of section 52 of the Trade Practices Act , 1974 and section 42 of the Fair Trading Act , 1987.”
[13] The contentions advanced on behalf of the putative plaintiff in the draft summons are detailed but may be summarised. It is contended that ANZ offered to make finance facilities available to the Company in 1996 and represented the facilities as having a five year term, that the Company accepted the offer in reliance on the representations and provided security to ANZ over its assets, as well as a guarantee and security of Mr Carpenter and his wife, that it was a term of the agreement that the facilities would be available for five years and that ANZ would act in good faith in exercising its powers, do all things reasonably necessary to enable performance of the agreement and not frustrate or prevent performance by the Company or the guarantors, that there were several subsequent variations of the agreement which imported the same terms as the five year duration and performance, that in 1998 ANZ unilaterally required the Company and certain other companies associated with Mr Carpenter to refinance their facilities with another bank or financier failing which ANZ would terminate the facilities, that ANZ later terminated the facilities and in doing so was in breach of contract, that ANZ was not entitled to call up all indebtedness or to appoint administrators or exercise a power of sale (as it subsequently did) and that ANZ committed breaches of contract and made statements that were misleading or deceptive whereby the Company suffered loss and damage.”

The proceedings prosecuted by Mr Carpenter

4 Having obtained the orders of 1 November 2004, Mr Carpenter proceeded, on behalf of Pioneer Park, to prosecute to finality proceedings of the kind thus described. Those proceedings, together with three other related proceedings to which Pioneer Park was not a party, were heard by Einstein J over some 26 days in July and August 2006. His Honour delivered judgment on 20 September 2006: see Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2006] NSWSC 883. There was a supplementary judgment on 20 October 2006. Orders were made on 10 November 2006. Pioneer Park and the other plaintiffs (who included Mr Carpenter himself) were unsuccessful and their claims were dismissed in their entirety. Costs orders were later made against Pioneer Park and its associates: Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2006] NSWSC 1176 (10 November 2006).

5 Mr Carpenter subsequently purported to initiate an appeal on behalf of Pioneer Park. The other plaintiffs who were unsuccessful at first instance (including Mr Carpenter) also appealed. The notice of appeal is dated 2 March 2007.

The present application

6 A little over a year later, on 13 March 2008, Mr Carpenter, by his counsel, came before me in the Corporations List and filed in court an interlocutory process in these proceedings 5190/04 seeking, in the alternative, an order confirming that the leave granted on 1 November 2004 extends to permit him to pursue the appeal on behalf of Pioneer Park; or an order granting leave for him to prosecute the appeal on behalf of Pioneer Park. In taking this course, Mr Carpenter exercised the liberty to apply reserved by Order 5 of the orders of 1 November 2004. I heard Mr Carpenter’s application on that day and reserved judgment.

7 On 8 April 2008, while judgment was reserved, the Court of Appeal published its decision in Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661. The Court of Appeal held that leave under s 237 cannot be granted so as to enable a person within s 236(1)(a) to bring proceedings on behalf of a company which is in the course of being wound up. In such a case, it was held, the decision whether the company should bring proceedings is to be made by the liquidator – subject to the possibility that the court might, in the exercise of its inherent jurisdiction, see fit to authorise the bringing of the proceedings by a contributory or creditor in the name of the company despite the liquidator’s unwillingness to do so.

8 Pioneer Park has been, at all times presently relevant, in liquidation. I therefore directed that Mr Carpenter’s application filed and heard on 13 March 2008 be listed for further argument. I heard further submissions on 16 April 2008. They were supplemented by written submissions filed on 23 April 2008 and 5 May 2008.

Reliance on the inherent jurisdiction only

9 In the light of the Court of Appeal’s decision in Chahwan v Euphoric Pty Ltd (above), Mr Carpenter accepts that the prior grant of leave may be relied upon only to the extent that it entailed leave granted in exercise of the court’s inherent jurisdiction; also that any new grant of leave could only entail leave granted in exercise of the inherent jurisdiction. Reliance is no longer placed on s 237, either as a basis for the leave granted on 1 November 2004 or as the source of jurisdiction to make any further grant of leave. Mr Carpenter now relies, as to both the past and the future, on the inherent jurisdiction, noting that the leave granted on 1 November 2004 was expressed to rest upon both foundations: see the form of Order 2 at paragraph [2] above: “… and in exercise of the Court’s inherent power”.

Whether the existing leave extends to the appeal

10 The first submission pressed by Mr Garnsey QC on behalf of Mr Carpenter is that initiation and pursuit of the appeal the subject of the notice of appeal dated 2 March 2007 are within the scope of the leave granted on 1 November 2004 in exercise of the court’s inherent jurisdiction and that the court should confirm this. The appeal instituted by the notice of appeal dated 2 March 2007 is, it is said, “proceedings” of the description in Order 2 which, although contemplating that the proceedings to be brought would “include” those outlined in the form of summons attached to the orders, referred in terms to “proceedings … in relation to the claims that the defendant [Pioneer Park] has against it [ANZ] related to matters concerning” certain specified events and transactions. It is the contention of Mr Carpenter that, since the appeal is concerned with the same subject matter as the original proceedings, it is (or is part of) a proceeding “in relation to the claims” described in Order 2.

11 The court’s task, on this part of Mr Carpenter’s application, is to construe the orders previously made. As Santow JA pointed out in Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 at [134], two possibly conflicting strands of authority on the correct approach to that task are consistent to the extent of allowing resort to accompanying reasons for judgment. It is not necessary to find ambiguity before resorting to the reasons for judgment. In Kirkpatrick v Kotis [2004] NSWSC 1265; (2004) 62 NSWLR 567 at [39], Campbell J observed that a court order is not to be looked at “as a freestanding piece of prose, unaffected by any surrounding circumstances”. Regard must be had to surrounding circumstances, as well as the terms of the order itself. The reasons for judgment are the most intimately connected of the surrounding circumstances.

12 I have already set out part of the reasons for judgment relating to the orders of 29 October 2004: see paragraph [3] above. Order 2 itself referred to the attached form of summons, which was the form described and discussed in the part of the judgment I have quoted. The reasons for judgment show clearly that the assessment was made by the court wholly by reference to the content of the form of summons and proceeded on the basis that that document delineated the relevant proceedings in material respects.

13 It is true that Order 2 described the proceedings by reference to the “claims” of Pioneer Park “in relation to the matters concerning” the events and transactions briefly described and that those claims were said to include those in the attached form of summons. The word “including”, in the reference to the attached form of summons, served the purpose of ensuring that the particular document did not operate as a straightjacket, so that, for example, a claim contained in it could not be re-cast or supplemented. The reasons for judgment leave no real doubt, in my view, that Order 2 related to proceedings at first instance advancing, in relation to the particular matters, claims as generally outlined in the form of summons. The proceedings prosecuted before and tried by Einstein J were clearly within the scope of the leave granted.

14 In my judgment, however, the appeal purportedly commenced by Pioneer Park’s notice of appeal dated 2 March 2007 is not within the scope of the leave granted to Mr Carpenter on 1 November 2004.

15 An appeal is a proceeding distinct from that in which the judgment or order challenged on appeal was given or made. The judgment or order at first instance is “the foundation of an appeal”: Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 at 511 per Kirby P. And as was there observed, the person who initiates an appeal may not have been a party at first instance, and a person who was a party at first instance will not necessarily be a party to the appeal.

16 In any event and as Mr Garnsey pointed out, the Uniform Civil Procedure Rules 2005 themselves recognise the separateness of an appeal. Part 51 of the rules, headed “Court of Appeal”, contains in rule 51.2 a definition of “appeal proceedings” as follows:

“ appeal proceedings means proceedings in the Court that are commenced by filing and serving a summons seeking leave to appeal or a notice of appeal.”

There is here a clear concept of a separate and new proceeding.

17 As a matter of policy and common sense, an appeal must, for present purposes, be regarded as a new and separate proceeding in the particular context before me. The task of the court in addressing an application for leave to bring a proceeding on behalf of a company in liquidation is to evaluate the proposed proceeding and to come to a decision whether certain criteria are satisfied in relation to it. The criteria can be addressed only in a concrete context. The court must come to certain views about the viability of the case. That can be assessed only in the light of the facts concerning a particular piece of proposed litigation and the circumstances in which it arises. The assessment process in relation to an appeal will, of necessity, address matters quite different from those that are addressed in the case of proceedings at first instance. In the case of an appeal, the assessment will take account of a matter of overwhelming significance that is not available when first instance proceeding are addressed. I refer, of course, to the decision at first instance and the findings made by the court at first instance.

18 The leave granted to Mr Carpenter on 1 November 2004 does not extend to allow him to initiate and prosecute on behalf of Pioneer Park the appeal initiated by the notice of appeal dated 2 March 2007.

Mr Carpenter’s application for fresh exercise of the inherent jurisdiction

19 This makes it necessary to address Mr Carpenter’s claim for a new grant of leave enabling him to bring those appeal proceedings on behalf of Pioneer Park. Because he purported to initiate the appeal for Pioneer Park just over a year ago, there is a question whether the relevant leave may be granted retrospectively. I put that to one side for the moment and proceed to the substance of the case.

20 The liquidator does not oppose the grant of leave as sought by Mr Carpenter, provided that certain conditions are imposed. I shall return to these.

21 It is irrelevant, for the purposes of the new application for leave, that Mr Carpenter was successful in obtaining leave to bring the first instance proceedings on behalf of the company. The decision to grant that leave on that occasion was made by reference to the particular proposed proceeding and the particular circumstances emerging from the evidence adduced when the original application was made. It is necessary for the same process of evaluation to be undertaken afresh in relation to the appeal proceedings and the circumstances in which Mr Carpenter wishes to pursue them on the company’s behalf.

22 Before turning to the evidence placed before the court by Mr Carpenter on this application, I should refer to the aspect of the court’s inherent jurisdiction to which Mr Carpenter now acknowledges himself to be confined.

The case law

23 Early cases in which the court allowed a creditor or member to sue in the name of a company in liquidation are Re Bank of Gibraltar and Malta (1865) LR 1 Ch App 69 and Re Imperial Bank of China India and Japan (1866) LR 1 Ch App 339. The grant of such leave represents an aspect of general equitable jurisdiction recognised by Jessel MR in Cape Breton Company v Fenn (1881) 17 ChD 198 at 207:

“Then on what principle is it that a creditor or contributory has been allowed to sue in the name of the company? On the same principle on which a man could always have filed a bill in the old Court of Chancery against his trustee to be allowed to use his name to recover the trust property.”

24 The principle applicable to trustees, thus mentioned, was stated by James LJ in Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-610:

“[A] person interested in an estate or a trust fund could not sue a debtor to that trust fund, or sue for that trust fund, merely on the allegation that the trustee would not sue; but that if there was any difficulty of that kind, if the trustee would not take the proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realization of the trust fund, and then to obtain the proper order for using the trustee’s name, or for obtaining a receiver to use the trustee’s name, who would, on behalf of the whole estate, institute the proper action, or the proper suit in this Court.”

25 It is well-established that a beneficiary will be allowed to sue in the name of the trustee only in “special circumstances”. It was said in Hayim v Citibank NA [1987] AC 730 at 748 that these “embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust property or to protect the interests of the beneficiary in the trust estate”. In Ramage v Waclaw (1988) 12 NSWLR 84 at 93, Powell J quoted with approval an explanation of “special circumstances” for these purposes, in Hilliard v Eiffe (1874) LR 7 HL 39 at 44:

“... The rule now appears to be, subject to the exceptions of cases of collusion, of insolvency of the personal representatives, of refusal by them to sue, whether collusively or bona fide , or of the existence of what has been rather vaguely termed 'special circumstances'. The last exception seems to comprehend, and to be confined to, cases in which, from the nature of the assets or the position of the personal representa­tive, it would be either impossible, or, at least, seriously inconvenient, for the representatives to take proceedings. In the present case, I am of
opinion that, after what has occurred, there would be very great
difficulty in the way of the executor with respect to, at least, that portion of the bill which seeks repayment of the moneys already paid, and that his conduct, though not amounting to an actual refusal, affords evidence of an unwillingness to embark in so serious a litigation, sufficiently to justify the Plaintiff in filing his bill against him and the other Defendants.”

26 The principles applying to action by a beneficiary where the trustee does not act have been held to be applicable in a winding up. It was said by the Privy Council in Lloyd-Owen v Bull [1936] 4 DLR 273 at 276 that “the judicial attitude towards such an application is well understood”:

“A judge in winding-up is the custodian of the interests of every class affected by the liquidation. It is his duty even if it be in a voluntary liquidation that opportunity offers to see to it that all assets of the company are brought into the winding-up. In authorizing proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where, as in the present case, they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company’s name under his authority is not vexatious or merely oppressive.”

27 The part of this passage requiring the court to see that any action is “not vexatious or merely oppressive” was quoted with approval by McLelland J in Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250. His Honour then proceeded on the basis that the court “should satisfy itself that any action to be taken in the company’s name by Mr Aliprandi is not vexatious or merely oppressive, or in other words that it has some arguable foundation”.

28 The Privy Council’s observations were also quoted by the Full Court of the Supreme Court of South Australia in Russell v Westpac Banking Corporation (1994) 13 ACSR 5 at 9. The court there said:

“The learned Master, after examining the statement of claim, an opinion of counsel, and the affidavits, concluded that the action was not vexatious or oppressive for want of merit. I have considered the arguments advanced by counsel on the appeal, but I see no reason to disagree with the Master. As the merits of the action will have to be canvassed at trial in due course, I think that it is undesirable to discuss them further .”

29 After referring to both these last-mentioned cases, Austin J, in Vouris as liquidator of Cadima Express Pty Ltd v Deputy Commissioner of Taxation [1999] NSWSC 1143; (1999) 33 ACSR 527 at [44] rejected a submission that the court should make its decision solely on the basis of the draft pleading (a like submission was rejected by Miles CJ in Gahahan Pty Ltd v Advance Bank of Australia Ltd [2001] ACTSC 118 at [26]). His Honour continued at [45]:

“The better view is that the court should consider whether the cause of action asserted in the pleading, together with such evidence as is relied on in the application, demonstrates an arguable case for the relief which the proposed litigation would seek. Thus in Aliprandi , McLelland J (at 253) inquired as to whether there was an arguable case in support of the claims which the applicant wished to make, concluding that there was no arguable case except in one instance. He made his inquiry by reference to the material which was placed before the court by the parties to the application, not by reference to a draft pleading. In Magarditch v Australia and New Zealand Banking Group Ltd (1999) 32 ACSR 367 at 377, 383–4, the Full Federal Court approved McLelland J's formulation and also referred to Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556-7; 113 ALR 128 at 134 ; 10 ACSR 373 at 380 where it was said that an applicant for leave to proceed against a company in liquidation was required to satisfy the court that the claim had a solid foundation and would give rise to a serious dispute, although it was not necessary for the applicant to establish a prima facie case in the accepted sense. Although the test formulated in Vagrand is not quite the same as McLelland J's test in Aliprandi , the Full Federal Court's view was that in practice it may be that there is very little to distinguish the two approaches. I respectfully agree.”

30 The criterion originally expressed by the words “not vexatious or merely oppressive” should today be regarded as involving more than a barely arguable case. The Privy Council, in Lloyd-Owen v Bull (above), said that the court assessing the proposed proceedings should satisfy itself “as to their probable success”. The concept is, I think, one of “solid foundation”, as Austin J called it, indicating, as a practical matter, that there are reasonable prospects of success and some tangible benefit is genuinely in prospect.

31 A second and distinct factor of importance was referred to by Austin J at paragraphs [46] and [47], namely, the attitude of the liquidator. His Honour referred with approval to the judgment of Gummow J in Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 17 FCR 344 and that of Cole J in Partnership Pacific Ltd v Aliprandi (1990) 4 ACSR 51. In both those cases, it was emphasised that, in the ordinary course, the liquidator is the proper decision maker on questions about initiation of proceedings by the company. The Corporations Act allows decisions of liquidators to be reviewed by the court: see s 1321. The view of the liquidtor on the question whether a particular proceeding should be initiated by the company will therefore be an important consideration where, as here, the court is asked to sanction a course under which a creditor or contributory is given carriage of the proceeding on behalf of the company. As Cole J said in Partnership Pacific Ltd v Aliprandi (above):

“If the liquidator were of the view that the action was soundly based but that because of absence of funds he was unable to prosecute it, one can understand a court exercising a discretion to grant a contributory the right to sue in the company's name (whether pursuant to the statute, or under some inherent jurisdiction).”

32 I turn now to a third consideration emerging from the case law. It was referred to in these terms by Austin J in Vouris as liquidator of Cadima Express Pty Ltd v Deputy Commissioner of Taxation (above) at [49]:

“In addition to inquiring whether there is an arguable case or solid foundation for the proceedings, the court needs to be satisfied that practical considerations support the initiation of the proceedings. The cases to which I have referred indicate that typically the applicant offers to indemnify the company in liquidation and the liquidator in respect of the proceedings, and to conduct the proceedings in such a fashion that liability to pay costs is undertaken by the applicant rather than the company to the extent that it is possible to do so. The court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected. To these ends, the court may require that the person who conducts the litigation gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to the litigation. It may also be possible, as contended by counsel for the liquidator in the present case, for the court to make an order permitting the liquidator to be excused from the proposed proceedings, in order to protect the liquidator from personal liability with respect to the proposed proceedings. But I doubt whether it would be appropriate to require the proposed receiver to provide a personal indemnity to the liquidator or the company in circumstances such as the present, notwithstanding Brownie J's observations in somewhat different circumstances in Kelaw Pty Ltd v Catco Developments Pty Ltd (1989) 15 NSWLR 587 at 593.”

33 Some practical aspects of this third matter were the subject of comment by Bryson J in Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (unreported, NSWSC, 10 December 1987):

“ However, there is no proposal whatever before me for any security for an indemnity protecting either the liquidator or the company against costs to be supported in any concrete way such as by the deposit of moneys or a guarantee furnished by a bank, by security over real estate or otherwise. Any such proposals brought forward would have to be examined carefully for their susceptibility to be set aside in an unfortunate event such as Mr Yates' bankruptcy; but there are no such proposals. Mr Yates is prepared to give an indemnity himself but the value of any indemnity which he gives depends on his not being made bankrupt and further (with intermediate stages) on a significant success being obtained by Yates Property Corporation Pty Ltd (In Liquidation) in proceedings pending in the Land and Environment Court on a claim for compensation for resumption of land of that company at Darling Harbour. The affairs of that company are very complex. It will not be known for many months, perhaps a year or longer, what compensation the Land and Environment Court will find that that company is entitled to on the resumption of its land, and unless that company achieves a signal success, offers by Mr Yates of an indemnity, in so far as they depend on his expectations that his interest in that company is of positive value, cannot really be evaluated.”

The criteria to be applied

34 The decided cases thus cause attention to be focused on three main matters when the court is invited to exercise its discretion upon an application such as the present:

1. The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success.
2. The attitude of the liquidator to the question whether the proceedings should be pursued.
3. The question whether “practical considerations support the initiation of the proceedings”, with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.

35 In both Chahwan v Euphoric Pty Ltd (above) and Ragless v IPA Holdings Pty Ltd (2008) SASC 90; (2008) 65 ACSR 700, Australian intermediate appellate courts have recently held that the availability of the jurisdiction to allow a member or creditor to sue in the name of a company in liquidation is unaffected by the existence of the statutory derivative procedure under ss 236 and 237 of the Corporations Act. In the latter case, Debelle J (with whom Sulan J and Vanstone J agreed) observed that that jurisdiction is “entirely consistent with” s 447(6) and s 511(1) of the Corporations Act.

36 Another point of significance must be mentioned. It is accepted that if, in a case under s 237, all the specified criteria are satisfied, the court must grant leave. In a case such as the present, however, the court is called upon to exercise general equitable jurisdiction which is discretionary.

37 Against this background and bearing in mind the three particular considerations just mentioned (and the discretionary nature of the jurisdiction), I proceed to consider the evidence.

The evidence on this application

38 The evidence Mr Carpenter has adduced on the present application is not extensive. It consists of an affidavit sworn by his solicitor, Mr Marc Ryckmans, and its several annexures, being a copy of my reasons for judgment of 29 October 2004, a copy of the orders of 1 November 2004, what appears to be part only of a synopsis of Einstein J’s judgment of 20 September 2006 issued by his Honour at the time of delivering the judgment itself (the annexed copy of the synopsis ends at a point which appears to be part way through a section headed “The central issues”), a copy of the notice of appeal dated 2 March 2007, a copy of the judgments of members of the Court of Appeal on a matter concerning security for the costs of the appeal (Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344 (30 November 2007); (2007) 65 ACSR 383) a copy of a letter of 29 January 2007 from Mr Carpenter’s solicitors to the solicitors for the liquidator of Pioneer Park, a copy of a letter of 30 March 2007 from the solicitors for the ANZ Bank to the solicitors for Mr Carpenter and a copy of a letter of 17 April 2007 from the solicitors for the liquidator to the solicitors for Mr Carpenter. The body of Mr Ryckmans’ affidavit does little more than describe briefly the various procedural steps taken in the litigation and identify the annexures. The liquidator tendered a copy of an affidavit sworn by him and filed in bankruptcy proceedings brought against Mr Carpenter by the ANZ Bank.

39 Mr Ryckmans did not annex to his affidavit Einstein J’s reasons for judgment of 20 September 2006. He said he had omitted this because “it is lengthy and complex and comprises some 629 paragraphs (or 279 pages)”. Nor did he annex (or mention) Einstein J’s reasons for judgment of 20 October 2006 and 10 November 2006. I have, however, accessed all three judgments in the court’s records for the purposes of this application.

40 I have also accessed a decision of the Federal Magistrates Court referred to in the supplementary submissions made on behalf of Mr Carpenter: Australia and New Zealand Banking Group Ltd v Carpenter [2007] FMCA 1589.

Whether reasonable prospects of success shown

41 There is no equivalent in the evidence now before me of a component of the evidence that played a central part in the determination of Mr Carpenter’s 2004 application. I quote again from my judgment of 1 November 2004 (at [14] and [16]):

“[14] In formulating the claims thus pleaded, Mr Carpenter has had regard to legal advice. He has put into evidence, but with a claim to maintain legal professional privilege, a joint opinion of 7 October 2004 signed by Mr J J J Garnsey QC and Mr B A M Connell of counsel running to no less than 83 pages. Mr Carpenter has also put into evidence a letter of the same date (7 October 2004) from Minter Ellison, solicitors for ANZ, to the solicitors for the Company’s liquidator which describes its purpose as twofold: first, to respond to “various allegations and causes of action which have been asserted against [ANZ] by or on behalf of Mr Carpenter in various forums and documents”; and, second, “to demonstrate that the various allegations and proposed causes of action are baseless and have no reasonable prospects of success”. …

[16] It would be inappropriate for me to refer to the content of the two opinions of counsel in any detail. It is sufficient, I think, to observe that the opinions are detailed and meticulous, that they are by no means based, as to factual matters, on unsubstantiated instructions of Mr Carpenter but canvass in considerable detail both available documentary evidence and statements made at the Corporations Act examinations conducted by Mr Carpenter. The factual discussion is very comprehensive, with the result that the opinions cannot by any means be regarded as merely hypothetical or unsupported. They address the several claims and their bases in a methodical and critical way and, in the case of the second opinion, show that issue can sensibly and responsibly be joined on the matters raised in the Minter Ellison letter.”

42 On the present application, I have nothing before me upon which I could base any independent finding about the prospects of success or the strength of Pioneer Park’s case on appeal. The notice of appeal merely sets out the grounds of appeal in summary form. Beyond that I have a mere snippet gathered from the judgment of Basten JA in the Court of Appeal in the security for costs matter. His Honour said (at [61]):

“Thirdly, the Bank places some weight upon the contention that the appeal has ‘very limited prospects’ of success. However, in circumstances where it has not been demonstrated that the appeal is unlikely to proceed in the event that security is ordered, an assessment of its likely prospects, given the complexity of the issues involved, need not be undertaken. It is sufficient to assume for present purposes that it is brought bona fide (there being no suggestion to the contrary) and that it is reasonably arguable.”

43 It thus appears that the ANZ Bank is of the opinion that the appeal has “very limited prospects” of success; also that, as assessed by the Court of Appeal itself, the issues involved are “complex”. Given the complexity thus indicated and the apparent view of the ANZ Bank, how can the court be satisfied that the appeal exhibits such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success?

44 There has already been a judicial determination adverse to the proposition that the claims pursued by Mr Carpenter for Pioneer Park have merit. Einstein J was firm in his findings central to the failure of the case that Pioneer Park and its associated plaintiffs advanced at first instance. It is not as if his Honour found matters finely balanced. The lack of success on the plaintiffs’ part was resounding. Among Einstein J’s findings were findings highly adverse to Mr Carpenter’s credibility.

45 In some contexts (such as an application for a stay pending appeal), the court may be inclined almost to assume the viability of the appeal. Such an assumption (it is no more) is reflected in the extract from Basten JA’s judgment quoted at paragraph [42] above. Here, an assumption is inappropriate. The court has a positive duty to make an assessment.

46 I have referred to the judgment of the Federal Magistrates Court in Australia and New Zealand Banking Group Ltd v Carpenter [2007] FMCA 1589. That judgment (delivered on 19 September 2007) concerned an application by Mr Carpenter himself for adjournment of the hearing of a creditor’s petition in bankruptcy brought against him by the ANZ Bank. The learned magistrate identified as relevant to the issue before him the question whether the appeal against the decision of Einstein J “is based on genuine and arguable grounds”, that being a form of words used by Davies J, Lockhart J and Neaves J in Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 at [39]. After reviewing submissions made to him about the pending appeal, the magistrate defined the task of immediate relevance as “limited to only being able to form a general impression of whether at least some grounds in the appeal would be successful if fully argued”. His conclusion (at [45]) was:

“On the material before me and the submissions for both the supporting and counter claims I have formed the view that a genuine and arguable ground of appeal exists.”

47 That observation was made, of course, in the context of litigation between the ANZ Bank and Mr Carpenter personally. Some of the discussion in the judgment is about the basis on which Mr Carpenter was held by Einstein J to be indebted because of a guarantee given by him to the ANZ Bank. Other aspects were concerned with the state of indebtedness between Pioneer Park and the ANZ Bank. The judgment does not make it clear whether the “genuine and arguable ground of appeal” found by the magistrate (he spoke in the singular) concerned Pioneer Park’s alleged liability for which Mr Carpenter is said to be responsible as guarantor or was confined to the direct rights and obligations as between Mr Carpenter and the ANZ Bank, they being the only parties with which the decision was directly concerned.

48 I do not regard the expression of finding by the Federal Magistrate’s Court as providing any indication about the prospects of success on Pioneer Park’s part. That, coupled with the very limited material put into evidence on this application (see paragraph [38] above) means that Mr Carpenter has not made it possible for the court to make, on that question, a decision favourable to him.

The attitude of the liquidator

49 I consider next the second relevant matter referred to at paragraph [34] above, that is, the attitude of the liquidator to the question whether Mr Carpenter should be permitted to prosecute the appeal for Pioneer Park.

50 The liquidator’s solicitor, Mr Mullette, made it clear that the liquidator cannot himself continue with the appeal. He has no funds and no prospect of obtaining financial assistance. While the liquidator does not oppose the grant of the relief Mr Carpenter seeks, he is concerned about the financial exposure of the company’s estate.

51 The liquidator refers to a matter that emerged from the evidence he has placed before the court. That matter is relevant to the measures the court put in place on 1 March 2004 with a view to ensuring that Pioneer Park was protected against liability for costs in the derivative action – both costs that Pioneer Park chose to incur and any costs it was ordered to pay. That measure was the subject of Order 3 of the orders of 1 November 2004 (see paragraph [2] above). The rationale for the making of that order was described as follows in the judgment of 29 October 2004 (at [39] to [40]:

“[39] … In bringing the present application, Mr Carpenter obviously intends that he should finance the litigation in which he wishes the Company to engage. With the Company’s financial position as it is, he can have no other expectation. As a corollary, Mr Carpenter should be required to indemnify the Company against not only costs and expenses he causes to be incurred through suing on the Company’s behalf but also any liability for costs incurred by the Company otherwise than at his behest by reason of the derivative action, but with the proviso that if the Company succeeds in recovering damages or other moneys through the derivative action (including by compromise or settlement), he may apply to the court for reimbursement of expenses he has borne.

[40] There arises, in this connection, a question about the substance of any indemnity given by Mr Carpenter. I have no direct evidence about his financial strength but I do know that he has expended considerable resources in pursuing the claims he considers the Company to have against ANZ. It was said from the bar table that he has spent $1 million so far. The position is therefore as described by Einstein J in BL & GL International Co Ltd v Hypec Electronics Pty Ltd (above) at [93]:
‘Insofar as the question of the costs of Hypec Electronics in relation to the Common Law proceedings are concerned the fact is that the indemnity offered by Mr Mead ought not necessarily be regarded as worthless. On the evidence, Mr Mead’s personal financial position is so tied up with the prospects of success by the company in the Common Law litigation and/or by the net result in the Family Court proceedings that the Court ought not infer that the indemnity is writ in water or worthless.’”

52 The evidence adduced by the liquidator on the present application refers to a judgment in the first instance proceedings in the sum of $62,036.22 ordered on 15 December 2006 in favour of the ANZ Bank and against Pioneer Park. The judgment resulted from the filing of a certificate of determination of costs relating to assessment of costs awarded against Pioneer Park on an application for security for costs. Mr Carpenter was bound by Order 3 of the orders made in these proceedings on 1 November 2004 to pay and bear (and indemnify Pioneer Park against) these costs except to such extent, if any, as the court might otherwise allow. The costs have not been paid by Mr Carpenter. It was not suggested that the court had “otherwise allowed” in terms of Order 3. Nor did Mr Carpenter seek to advance any justification for his failure to comply with that order. It was merely said by his counsel that he is without assets and cannot pay.

53 The liquidator is concerned that the debt of $62,036.22 remains unpaid and, it appears, is unlikely to be paid. Mr Carpenter is the subject of an application for sequestration under the bankruptcy legislation and, as I have said, those proceedings were the subject of a successful adjournment application in September 2007. It is the apprehension of the liquidator that financial burdens upon the company’s estate are likely to increase if the leave sought is granted; and that, in light of non-payment of the $62,036.22, an indemnity by Mr Carpenter represents no real protection.

“Practical considerations”

54 This leads to a consideration of the third question relevant to the present application as set out at paragraph [34] above, that is, whether “practical considerations support the initiation of the proceedings”, with particular reference to financial protection of the liquidator and the estate of the company.

55 It is said on behalf of Mr Carpenter that his impecuniosity makes no difference in this particular case and that there will be no prejudice to the company or its creditors if the $62,032.22 he is required by order of the court to pay is left unpaid. The argument seems to be that, because Pioneer Park has no assets and creditors will receive nothing, it makes no difference that further liabilities are added to those already existing; whereas, if and when the appeal is won, there will be substantial recourses recovered from the ANZ Bank for the benefit of all.

56 Mr Carpenter has already shown an unwillingness or inability to obey orders designed to afford financial protection to Pioneer Park in respect of adverse costs orders. Whether it is a case of unwillingness or of inability, I cannot say. Whereas Mr Carpenter concedes a lack of personal financial resources, he has apparently been able to garner support to allow him to reach the present point, including by having Pioneer Park furnish substantial security for costs of the proceedings tried by Einsten J, actually prosecuting those proceedings to judgment, defending the application for security for costs in the Court of Appeal, making the contested adjournment application in the Federal Magistrate’s Court and pursuing the application with which I am now dealing. Perhaps it is a matter of arranging for funds to be made available where some advantage is in prospect but not doing so when it is a matter of compliance with a court order that does not advance Mr Carpenter’s cause.

57 It is proper to look to the capacity of an applicant to provide the company with financial protection when considering whether it is in the interests of the company for the applicant to be allowed to bring proceedings on its behalf. Orders to secure such financial protection (including as to the outstanding $62,036.22) would be appropriate in this case but it has been made clear that Mr Carpenter could not comply with them. Unless supported by security, the orders would be of no utility in achieving the purpose for which they were intended. Mr Carpenter has not offered any form of security that would give them utility.

58 It is important to emphasise that the financial protection in question is distinct from that involved in the order for security for costs already made by the Court of Appeal. That security will enure to the benefit of the ANZ Bank, in that, if the appellants (including Pioneer Park) are unsuccessful and are ordered to pay the ANZ Bank’s costs of the appeal, there will be a fund available to be applied in or towards satisfaction of those costs. But, as things stand, it will be someone other than Pioneer Park that actually provides the security and the likelihood is that, if the appeal fails, the costs will be awarded against all appellants jointly and severally, so that rights of contribution might be expected to arise among them. Pioneer Park would potentially be exposed in that way, even if security for the costs of the appeal had been provided in full. And it is that exposure, like the existing exposure of $62,036.22, that Mr Carpenter has no financial capacity to guard against, whether or not the court makes an order requiring him to do so.

59 The interests of Pioneer Park would not be served by a grant of leave to Mr Carpenter, even if financial protection orders were made – unless suitable and adequate security for Mr Carpenter’s compliance with such orders were provided. In saying this I expressly reject the argument that, because Pioneer Park has no assets, it suffers nothing if more liabilities are heaped upon it. As Mr Mullette made clear on behalf of the liquidator, the administration would have been completed long ago had it not been for the litigation in which Mr Carpenter caused Pioneer Park to engage. The liquidation has had to continue. That of itself has a financial cost. The liquidator has incurred expenses in preparing for this application and being represented in court. He is unable to recover these. It is, in my view, an unacceptably cynical approach to say, in effect, that if there is no blood to be had from a stone, it is a matter of indifference that one increases the demands upon the stone for blood.

60 There are distinct parallels between the present situation and that considered by Bryson J in Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (see paragraph [33] above). Mr Carpenter is the object of bankruptcy proceedings. While he is prepared to become bound by the same kind of indemnity for costs as applied initially, that might be susceptible to being defeated by any supervening bankruptcy. Particularly significant, however, is the fact that he has not seen fit to give financial substance to the prior undertaking by arranging payment of the $62,036.22 for which liability is acknowledged or to offer to support any new undertaking by cash or other tangible security.

Conclusion

61 In the result, therefore, Mr Carpenter has failed to show a basis on what a positive answer can and should be given to Questions 1 and 3 at paragraph [34] above; and the conditional attitude of the liquidator (Question 2) has not been shown to be relevantly positive.

62 There will accordingly be no new grant of leave, in exercise of the inherent jurisdiction, enabling Mr Carpenter to proceed with the appeal. Nor, for reasons given earlier, will the court accept that the leave granted on 1 November 2004 extends to the appeal.

63 It will therefore be ordered that Mr Carpenter’s interlocutory process be dismissed and that Mr Carpenter pay the costs of Pioneer Park and its liquidator of and incidental to the interlocutory process.

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