Christou v Stanton Partners Australasia Pty Ltd - [2009] WASC 335

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CHRISTOU -v- STANTON PARTNERS AUSTRALASIA PTY LTD [2009] WASC 335

CORAM: MASTER SANDERSON

HEARD: 26 OCTOBER 2009

DELIVERED : 26 OCTOBER 2009

PUBLISHED : 19 NOVEMBER 2009

FILE NO/S: COR 8 of 2004

BETWEEN: NICK CHRISTOU
Plaintiff
AND
STANTON PARTNERS AUSTRALASIA PTY LTD
Defendant

Catchwords:

Corporations Act - Application for leave to issue proceedings in name of company - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 237

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr A P Rumsley
Defendant: Mr M L Bennett

Solicitors:

Plaintiff: Alan Rumsley
Defendant: Lavan Legal

Case(s) referred to in judgment(s):

Corporate Systems Publishing Pty Ltd v Lingard [2009] WASCA 158
Corporate Systems Publishing Pty Ltd v Lingard [No 4] [2008] WASC 21
Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313

MASTER SANDERSON: This was the plaintiff's application for leave to bring proceedings in the name of the defendant against Keith Graeme Lingard (Lingard), Neil Kevin Joyce (Joyce), Glenlea Enterprises Pty Ltd (Glenlea) and Demandem Holdings Pty Ltd (Demandem). The application was issued in January of 2004. After an initial hearing in February 2004, the substantive application came before Justice Barker on 21 May 2004. It was adjourned sine die. There were other proceedings on foot between various of the parties. These proceedings were allowed to run their course before anything further happened in relation to this application. The matter did come back on 24 February 2009 but at that date other proceedings had not been resolved and the matter was adjourned until they were resolved.
The matter then came back on, on the respondent's motion, on 8 September 2009. It was the respondent's view at that time that the application ought be dismissed because of the decision in the related proceedings. Much to the respondent's surprise, counsel for the applicant indicated that he wished to proceed with the application. The matter was again adjourned, this time to allow for a full hearing. On 26 October 2009 a hearing took place. At the end of the hearing I indicated that I would dismiss the application. I said that I would publish reasons at a later date. These are those reasons.
Glenlea and Demandem are corporate trustees for the family trusts of Lingard and Joyce respectively. One of the affidavits filed in opposition to the application is an affidavit of Mark Allen MacLennan sworn 8 January 2009. Mr MacLennan's affidavit gives a history of the related proceedings and makes reference to the decision of Justice Beech: see Corporate Systems Publishing Pty Ltd v Lingard [No 4] [2008] WASC 21. An appeal from his Honour's decision was dismissed: see Corporate Systems Publishing Pty Ltd v Lingard [2009] WASCA 158.
The decision of Beech J had to it a number of elements. Judgment was entered against the respondent for approximately $122,000 plus interest at 6 % for unpaid profit entitlements relating to the 2002 financial year. There were declarations as to the distributions of income and the applicant was entitled in relation to the respondent for the 2003, 2004, 2005, 2006 and 2007 financial years. Judgment was entered against the applicant on the counterclaim in favour of Glenlea and Demandem in an amount of $150,000 plus interest at 6 %. Further, the applicant (and a related entity) was ordered to pay 80 % of the respondent's costs of the action and the applicant was ordered to pay the costs of the counterclaim.
Beech J did not find that any payments made to any of the defendants in the proceedings were made illegally or in breach of trust. He did find that in the 2002 year there was a failure by the respondent to distribute the appropriate share of profit to the applicant. This finding, relevant as it is to the present application, needs to be explained a little more fully.
His Honour found that the respondent and a related entity breached the relevant trust deeds in 2002 by failing to distribute a one‑third share of the profits of the respondent to the applicant and other parties. He further found that the respondent had a defence of consent to the extent of that one‑third share exceeding the applicant's agreed reduced entitlement of 50% of the fees collected. The shortfall (between the amount paid and 50% of collections) was approximately $122,000. Because the profit entitlements of Joyce and Lingard for the year had been paid out, his Honour entered judgment for the shortfall as opposed to granting a declaration as to the applicant's profit share. The defendant did not distribute income in 2003 and therefore did not breach the relevant trust deed in that year. Further, there was no finding of breach against the defendant for any subsequent year.
His Honour did find that a related company breached the relevant trust deed in 2003 and 2004 in that it did not equally distribute the income. However, the company had a defence in terms of the consent I have referred to above. His Honour made declarations as to the applicant's profit shares in terms of the 50% formula for the years 2003 ‑ 2007 inclusive. The defendants did not ever dispute that the plaintiffs were entitled to distributions of profit in accordance with the agreed formula. The plaintiffs denied that this formula had ever been agreed and consequently did not seek to enforce their rights under that agreement.
In the end result, the applicant and its related entity have a judgment for approximately $122,000 plus interest against the defendant for unpaid entitlements in 2002. They also have in their favour declarations as to their profit share for that same year. On the other hand, Joyce, Lingard, Demandem and Glenlea have an entitlement to 80 % of the costs of the action to be taxed if not agreed. A bill of costs has been lodged for taxation. The amount claimed is $137,266.78. Demandem and Glenlea have an entitlement to the costs of the counterclaim to be taxed. A copy of the bill has been lodged and the amount claimed is $20,084.20. The defendant, Joyce, Lingard, Demandem and Glenlea have an entitlement to the costs of the appeal. A bill has been lodged. The amount claimed is $63,528.01.
This application is brought under s 237 of the Corporations Act 2001 (Cth) (the Act). (It is conceded that under s 236 of the Act the applicant qualifies as a person entitled to make such an application.) Section 237 of the Act is in the following terms:
237Applying 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.
It was conceded by the respondent that the plaintiff satisfied requirements (2)(a) and (2)(e). It was submitted that the other requirements had not been satisfied. I will deal with each of these in turn.
In relation to the good faith requirement, the respondent submitted that there were two interrelated factors in determining whether the applicant was acting in good faith. First, whether the applicant honestly believed that a good cause of action existed and had a reasonable prospect of success. Second, whether the applicant was seeking to bring a derivative action for a collateral purpose which amounted to an abuse of process. These two principles are referred to in a number of cases including Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, 320.
In making the submission that this did not satisfy those two requirements, counsel required heavily on submissions made when the application came on before Barker J in May 2004. At that time the applicant was represented by Mr Birmingham QC. During the course of his address, Mr Birmingham stated that the applicant's intention was to issue an indemnity action in the related proceedings with additional defendants so that there would effectively be only one action and one trial but a separate judgment in relation to the indemnity proceedings. Mr Birmingham accepted that the purpose of the application was to 'cover all bases' so that in the event the plaintiffs were successful in the related action there could be effective recovery from the respondent. In response to questioning by Barker J, Mr Birmingham explained that the causes of action that would be raised, if leave was given to commence proceedings, would seek to recover moneys allegedly unlawfully paid with the recovery being against Joyce, Lingard, Glenlea and Demandem. It is apparent from the interchange that took place between Mr Birmingham and Barker J that his Honour thought that the most appropriate course would be for steps to be taken in the related proceedings without it being necessary to make an order on this application.
It is clear from the way in which the application before Barker J was conducted that it was the applicant's intention, if leave were granted to commence proceedings then, to have those proceedings consolidated with or heard at the same time as the related proceedings. It was clearly not the applicant's intention that there should be a separate action heard subsequently and separately from the related proceedings.
It would seem that nothing ever happened. As a result, the underlying basis for the claim has evaporated, as there has been no real effort to articulate an alternative basis on which leave should be granted. Nor has the potential cause of action been pleaded out as was anticipated by Barker J. In these circumstances, the respondent submitted, there was a demonstrable lack of good faith.
I accept the respondent's submissions. It is clear that the rationale for bringing this application has been overtaken by events. The main issue between the parties has been resolved. Nothing could be achieved by granting the leave sought by the applicant. I am not satisfied the applicant has satisfied this criteria.
In relation to the issue as to whether there is a serious question to be tried, this application has again been overtaken by events. What would have been in issue had leave been granted (as I understand the nature of the prospective claim) was effectively resolved in the related proceedings. That being so, it can not be said that there is any serious question to be tried. The applicant fails on that ground.
Finally, it can not be in the best interests of the company for leave to be granted. On any reasonable view of the matter Joyce and Lingard are creditors, not debtors, of the defendant. Furthermore, the accounts suggest that the respondent may be unable to pay out what presently stands in the loan accounts. While it is saying too much to suggest that the respondent is insolvent, it certainly is not in a happy financial position. It is difficult to see how it could fund any litigation and it is unlikely to be able to provide security for costs. There is no evidence to suggest that any party would stand behind the respondent in relation to these two matters.
For all these reasons I was satisfied that the application ought be dismissed. I ordered the applicant to pay the respondent's costs of the application.