Connective Services Pty Ltd v Slea Pty Ltd - [2018] VSCA 229

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0007

CONNECTIVE SERVICES PTY LTD
(ACN 107 366 496) & ORS

(according to the attached schedule)

Applicants

SLEA PTY LTD (ACN 106 752 434) & ORS (according to the attached schedule)

Respondents

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JUDGES:	FERGUSON CJ, WHELAN and McLEISH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	3 August 2018
DATE OF JUDGMENT:	10 September 2018
MEDIUM NEUTRAL CITATION:	[2018] VSCA 229
JUDGMENT APPEALED FROM:	[2017] VSC 609 (Robson J)

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CORPORATIONS LAW – Application for leave to appeal and appeal – Grant of leave to bring derivative proceeding – Proposed proceeding to allege breach of directors’ duties by transactions circumventing shareholder pre-emptive rights in company constitutions – Whether proposed proceeding in good faith and in best interests of company – Whether serious question to be tried – Relevance of delay – Relevance of relief sought in proposed proceeding – Leave to appeal granted – Appeal dismissed – Swansson v R A Pratt (2002) 42 ACSR 313, Chahwan v Euphoric Pty Ltd (2008) 227 FLR 43 applied – Corporations Act 2001 (Cth) s 237.

PRACTICE AND PROCEDURE – Application for leave to appeal – Dismissal of reopening application – Whether evidence ‘new’ – Reid v Brett [2005] VSC 18, Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1 applied – Refusal to review exercise of discretion on matter of practice and procedure – Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170 applied – Application for leave to appeal refused.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr A J Myers QC with Mr D G Guidolin and Ms A M Folie	Quinn Emanuel Urquhart & Sullivan
For the First Respondent	Mr M H O’Bryan QC with Mr G Dalton QC and Ms K E Foley	Arnold Bloch Leibler

FERGUSON CJ

WHELAN JA
McLEISH JA:

Introduction

Since 2011 the shareholders in two of the applicant companies, Connective Services Pty Ltd (‘Connective Services’) and Connective Services OSN Pty Ltd (‘Connective OSN’), have been in litigation with each other. The most significant proceeding currently on foot is this oppression proceeding brought by one of the shareholders, Slea Pty Ltd (‘Slea’), which is a company controlled by Sofianos Tsialtas.

By an application made in this proceeding, Slea sought leave to commence a proceeding on behalf of Connective Services and Connective OSN against the companies’ directors (at the relevant time) and shareholders, and against other parties including Macquarie Bank Limited (‘Macquarie Bank’). Leave pursuant to s 237 of the Corporations Act 2001 (Cth) (‘the Act’) was granted by a judge in the trial division.[1] Section 237(2) of the Act sets out five circumstances which, if the Court is satisfied exist, mean that leave must be granted. In brief, the five circumstances are that the company will probably not bring the claim itself, that the applicant is acting in good faith, that leave is in the best interests of the company, that there is a…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] VSCA 229
Decision Date: 10 September 2018

CaseChat Overview and Summary

Connective Services Pty Ltd sought leave to appeal a decision dismissing their application to bring a derivative proceeding against Slea Pty Ltd. The proposed proceeding aimed to allege breaches of directors' duties by transactions that allegedly circumvented shareholder pre-emptive rights as set out in the company's constitutions. The primary legal issue before the court was whether the proposed proceeding was in good faith and in the best interests of the company. The court also needed to determine if there was a serious question to be tried, taking into account the delay in bringing the proceeding and the nature of the relief sought.

The court considered the principles established in previous cases such as Swansson v R A Pratt and Chahwan v Euphoric Pty Ltd, focusing on whether the proposed proceeding met the criteria under section 237 of the Corporations Act 2001. The court found that the applicant had not demonstrated that the proceeding was in the best interests of the company and that the delay and nature of the relief sought were significant factors against the application. The court also noted that the serious question to be tried test was not satisfied. Consequently, the application for leave to appeal was dismissed.

In a separate matter, Connective Services also sought leave to appeal the dismissal of their application to reopen their case. The court examined whether the evidence presented was 'new' and not available at the time of the original application. The principles from Reid v Brett and Spotlight Pty Ltd v NCON Australia Ltd were considered, but the court found that the evidence did not meet the threshold for being considered new. The court held that it would not review the exercise of discretion on a matter of practice and procedure, following the reasoning in Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc. Therefore, the application for leave to appeal in relation to the reopening application was also refused.

Orders