El-Saafin v Franek (No 4) - [2020] VSCA 322

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2020 0087

MAG FINANCIAL AND INVESTMENT VENTURES
PTY LTD (ACN 625 790 623)

AAGG DEVELOPMENTS PTY LTD (ACN 627 341 128)

First Applicant

Second Applicant

HASSAN EL-SAAFIN AND OTHERS (according to the attached Schedule)

Respondents

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JUDGES:	SIFRIS and OSBORN JJA and MACAULAY AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	12 October 2020
DATE OF JUDGMENT:	14 December 2020
MEDIUM NEUTRAL CITATION:	[2020] VSCA 322
JUDGMENT APPEALED FROM:	El-Saafin v Franek (No 4) [2020] VSC 389 (Lyons J)

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CORPORATIONS – Where leave was granted to shareholders of a company in liquidation to bring a proceeding in the name of the company – Where leave was granted exercising the inherent jurisdiction of the Court – Whether error in the exercise of the discretion to grant leave – House v The King (1936) 55 CLR 499 applied – Whether incorrect legal principle applied in exercising the inherent jurisdiction of the Court – Whether failure to consider material considerations for the exercise of the discretion − Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577, Re Freshstart Pty Ltd [2006] VSC 317 and Malhotra v Tiwari [2007] VSCA 101 considered – Leave to appeal refused.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr M Clarke QC with Ms K Wangman	Mark J Halse
For the First and Second Respondents	Mr I Upjohn QC with Mr B Mason	Hicks Oakley Chessell Williams Pty Ltd

SIFRIS JA
OSBORN JA
MACAULAY AJA:

Introduction and Summary

The subject of this application for leave to appeal is the question whether this Court should set aside an order made by a judge of the Trial Division on 28 July 2020 giving leave to two shareholders of a company in liquidation to bring a proceeding in the name of that company (‘derivative leave’).[1] Because the judge made the derivative leave order in the exercise of the inherent jurisdiction of the Court, the order was discretionary in nature. Accordingly, under well-established principles,[2] the applicants must satisfy this Court that the judge made some error in exercising the discretion.
[1]El-Saafin v Franek (No 4) [2020] VSC 389 (Lyons J) (‘Reasons No 4’).
[2]House v The King (1936) 55 CLR 499, 504–5.

As will be seen, by their proposed grounds of appeal the applicants contend that the judge applied wrong legal principles and failed to take into account (or consider) certain matters said to be material considerations for the exercise of the discretion.

For the reasons given below, we are not satisfied that any of the proposed grounds of appeal have real prospects of success and, therefore, refuse leave to appeal.

The trial of the proceeding for which derivative leave was granted is fixed for hearing on 3 February 2021. No stay of the proceeding has been sought pending the hearing and determination of this application and, so, it has been brought with some urgency with a view to maintaining the trial date should the application fail.…

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: [2020] VSCA 322
Decision Date: 14 December 2020

CaseChat Overview and Summary

In the matter of El-Saafin v Franek (No 4), the applicants, the shareholders of a company in liquidation, sought leave to bring a proceeding in the name of the company against the liquidator. The application was heard by the Supreme Court of Victoria, which granted the leave. The applicants appealed the decision to the Court of Appeal, arguing that the trial judge had erred in granting leave.

The central legal issue in this appeal was whether the trial judge had correctly exercised the discretion to grant leave for the shareholders to proceed in the name of the company. The applicants contended that the trial judge had applied an incorrect legal principle and failed to consider certain material considerations. They relied on several authorities, including House v The King, Carpenter v Pioneer Park Pty Ltd, Re Freshstart Pty Ltd, and Malhotra v Tiwari, to support their arguments.

The Court of Appeal found that the trial judge had not erred in granting leave. The Court held that the trial judge had exercised the discretion properly, considering the relevant factors and applying the appropriate legal principles. The Court noted that the decision to grant leave was inherently discretionary, and the trial judge had considered the relevant material considerations and applied the correct legal principles in doing so. Consequently, the Court dismissed the appeal and refused the applicants leave to appeal.

The Court did not make any orders regarding costs.

Orders