Cleanfin Pty Ltd v Forest Carbon Methodology Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Cleanfin Pty Ltd v Forest Carbon Methodology Pty Ltd [2024] FCA 489

File number(s): SAD 11 of 2022
SAD 87 of 2022
Judgment of: O'SULLIVAN J
Date of judgment: 10 May 2024
Catchwords:

CORPORATIONS — application by plaintiff for leave to bring derivative proceedings on behalf of company under s 237 of Corporations Act 2001 (Cth) — whether company will bring proceedings — whether the company is acting in good faith — whether in the best interests of company that plaintiff be granted leave — whether proposed proceedings involve serious questions to be tried — leave to bring derivative proceedings granted

PRACTICE AND PROCEDURE — application to amend originating process and statement of claim — whether proposed amendments would be liable to be struck out — whether new legal foundation for claim arises out of facts already pleaded — whether proposed amendment is likely to cause prejudice and delay in proceedings — consideration of ss 37M and 37N of the Federal Court Act 1979 (Cth) and r 16.21(1)(d) of the Federal Court Rules 2011 (Cth) — further particulars required — leave to amend originating process granted — leave to file an amended statement of claim to be granted subject to the provision of further particulars
Legislation:

Corporations Act2001 (Cth), s 237

Federal Court of Australia Act1976 (Cth), ss 37M, 37N

Federal Court Rules 2011 (Cth), rr 16.21(1)(c)-(e)
Cases cited:

Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd & Ors [2020] SASC 161

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175

Barnes v Addy (1874) LR 9 Ch App 244

Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373

KTC v David [2022] FCAFC 60

Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a Firm) [2015] FCA 1098

Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a Firm) [2016] FCAFC 2; (2016) 332 ALR 199
Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 88
Date of hearing: 1 May 2024
In SAD 11 of 2022:
Counsel for the Plaintiff: Mr B Roberts KC with Mr T Kentish
Solicitor for the Plaintiff: LK Law
Counsel for the Defendant: Mr M Watson
Solicitor for the Defendant: Henry William Lawyers
In SAD 87 of 2022:
Counsel for the Plaintiff: Mr B Roberts KC with Mr T Kentish
Solicitor for the Plaintiff: LK Law
Counsel for the First and Second Defendants: Mr M Bonnell with Ms S Cirillo
Solicitor for the First and Second Defendants: Henry William Lawyers
Counsel for the Third Defendant: Mr D McLure SC
Solicitor for the Third Defendant: Herbert Smith Freehills

ORDERS

SAD 11 of 2022
BETWEEN:

CLEANFIN PTY LTD ACN 061 987 442

Plaintiff
AND:

FOREST CARBON METHODOLOGY PTY LTD ACN 145 048 246

Defendant

ORDER MADE BY:

O'SULLIVAN J

DATE OF ORDER:

10 MAY 2024

THE COURT ORDERS THAT:

1.The…

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Details
Case
[2024] FCA 489
Decision Date

CaseChat Overview and Summary

In the case of Cleanfin Pty Ltd v Forest Carbon Methodology Pty Ltd, the primary dispute centred on the plaintiff's application for leave to bring derivative proceedings on behalf of the company under section 237 of the Corporations Act 2001 (Cth). Cleanfin sought permission to initiate legal action on behalf of Forest Carbon Methodology (FCM) against Geo Carbon and Shirley Tyndall, the executor of the estate of Lewis Reginald Devere Tyndall, as part of the derivative proceedings. The court was tasked with determining whether FCM would bring the proposed proceedings, whether the company was acting in good faith, and whether it was in FCM's best interests for Cleanfin to be granted leave. Additionally, the court had to decide if the proposed proceedings involved serious questions to be tried.

The court granted Cleanfin leave to bring the derivative proceedings on behalf of FCM, considering the company's willingness to proceed with the litigation, Cleanfin's good faith, and the alignment of the proposed proceedings with FCM's best interests. The court also found that the proposed proceedings involved significant questions warranting judicial determination. Furthermore, the court addressed an application to amend the originating process and statement of claim, assessing whether the proposed amendments would be liable to be struck out, whether they introduced a new legal foundation for the claim, and if they would cause prejudice or delay in the proceedings. The court concluded that the amendments were necessary and should be permitted, subject to the provision of further particulars to address the respondents' concerns.

The court ordered that Cleanfin be granted leave to bring the derivative proceedings on behalf of FCM against Geo Carbon and Shirley Tyndall, provided that a minute of order reflecting these reasons was submitted within seven days. Additionally, FCM was required to pay 35% of the respondents' costs associated with the application to file an amended originating application and an amended statement of claim. Any party seeking a different costs order was to file and serve such an application within seven days. This decision underscored the importance of detailed pleadings and the need for careful consideration of amendments to ensure the integrity and progression of the legal process.

Orders

Orders of the court

1. Within seven (7) days the parties are to provide an agreed minute of proposed orders to give effect to the Court’s reasons.

2. Forest Carbon Methodology Pty Ltd is to pay 35% of the first to third respondents’ costs of and incidental to the application to file an amended originating application and an amended statement of claim.

3. Any application by any party for a different costs order, is to be filed and served by on or before close of business on 17 May 2024.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

As to the other matters identified by Gleeson J in Tamaya at [127], there is no suggestion of any detriment to other litigants in the Court and I do not consider there to be any. So too, I do not consider there is any potential loss of public confidence in the legal system arising out of the amendments.Conclusion In action SAD 11/2022, there will be an order granting leave to CleanFin to bring proceedings in the name of FCM against Geo Carbon by adding it as a party to the derivative proceedings and adding Shirley Tyndall in her capacity as Executor of the Estate of Lewis Reginald Devere Tyndall by substituting her as a party for Tyndall. In action SAD 87/2022, I am prepared to grant leave to file an amended originating application and amended statement of claim substantially in the form comprised in annexure ANT-15 to the affidavit of Andrew Nathan Tarnowskyj sworn 30 April 2024 subject to FCM providing further particulars of the allegations in [55B.3] and [55F]. To the extent there are any other minor amendments that require attention, those matters can also be addressed. The parties are to provide a proposed minute of order within seven days reflecting these reasons. On the question of costs, the respondents have enjoyed some limited success. In the circumstances, FCM is to pay 35% of the first to third respondents’ costs of and incidental to the application to file an amended originating application and an amended statement of claim. Any application by any party for different costs order is to be filed and served within seven days.

Ratio Decidendi

Legal Principle Established

The amendments are important to FCM and constitute a more detailed basis for an account of profits which had been sought in the existing statement of claim.Terra Carbon’s submissions and consideration Terra Carbon submits that FCM has not provided a sufficient basis to persuade the Court that leave should be given for its proposed amended statement of claim on four grounds.The proposed amendment is futile First, Terra Carbon submits the proposed amendment is futile since:(a)It is dependent upon CleanFin being granted leave pursuant to s 237 of the Act to bring proceedings in the name of FCM against Geo Carbon and Ms Tyndall; and(b)FCM has not agreed to provide security for costs. As to the first basis, whereas I accept that absent leave being granted the proposed amendments are futile, in circumstances where I am prepared to grant leave this basis falls away. As to the second basis, the question of security for costs may be relevant but in this case security for costs has already been provided in these proceedings by those standing behind CleanFin. The respondents are able to apply for further security, if so advised. I do not consider the proposed amendment is futile.The proposed amendment is liable to be struck out on various grounds Second, Terra Carbon submits the proposed pleading is liable to be struck out on the ground that the proposed pleading fails to disclose a reasonable cause of action contrary to r 16.21(1)(e) of the Federal Court Rules2011 (Cth) (FCR) and is evasive or ambiguous contrary to FCR 16.21(1)(c). Since the respondents filed their written submissions, FCM filed a revised proposed amended statement of claim (ANT-15 to the third Tarnowskyj affidavit) which it says addresses the respondents’ concerns. I have considered the parties’ written submissions, however as I understand the submissions, some of the matters about which the respondents complain in those submissions have been addressed in that revised version. In any event, I also heard oral submissions on this application.No factual or legal basis for the amendments/evasive or ambiguous Terra Carbon submits as part of this ground that there is no legal or factual basis for the contentions in the proposed amendments. Terra Carbon points to the allegations in [55A] which it submits is in effect, an allegation that Terra Carbon and Geo Carbon were incorporated as a business in competition with that conducted by FCM and the First Growth Forests Joint Venture (FGFJV): see [20] of the existing statement of claim. Terra Carbon then refers to the pleading in [55B] that “as a result of the commercial exploitation of the Determination pleaded in paragraphs 45 to 53, Schultz, Tyndall, Terra Carbon and Geo Carbon” a number of matters occurred. Terra Carbon points to the pleading [55B.2] that Schultz, Tyndall, Terra Carbon and Geo Carbon “were able to market the business of Terra Carbon and Geo Carbon as having expertise generally in relation to the commercial exploitation of methodology determinations issued pursuant to the CFI Act [Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth)], particularly in areas of avoided deforestation or reforestation”. [brackets provided]