El-Saafin v Franek (No 4) - [2020] VSC 389

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY ENGINEERING AND CONSTRUCTION LIST

S CI 2018 01685

HASSAN EL-SAAFIN	First Plaintiff
MOHAMAD EL-SAAFIN	Second Plaintiff
v
MARK FRANEK and others according to the Schedule	Defendants

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JUDGE:	LYONS J
WHERE HELD:	Melbourne
DATE OF HEARING:	14 May 2020
DATE OF JUDGMENT:	9 July 2020
CASE MAY BE CITED AS:	El-Saafin & Anor v Franek & Ors (No 4)
MEDIUM NEUTRAL CITATION:	[2020] VSC 389

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CORPORATIONS – Application to bring proceedings on behalf of company in liquidation – Derivative action – Inherent jurisdiction – Relevant criteria – Where leave not opposed by liquidator – Where circumstances favour exercise of discretion to grant leave – Leave granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I Upjohn QC with Mr B Mason	Hicks Oakley Chessell Williams
For the First and Fourth Defendants	Mr J Evans QC with Mr P Miller	Mark J Halse
For the Liquidator of Saafin Constructions Pty Ltd (receivers and managers appointed) (in liquidation)	Mr E Moon	Thomas Egan & Associates
For AAGG Developments Pty Ltd	Mr M Clarke QC	HM Ong Lawyers

HIS HONOUR:

INTRODUCTION

In this application, the plaintiffs seek that the Court exercise its inherent jurisdiction to allow them to pursue claims in the name of Saafin Constructions Pty Ltd (the ‘Company’) which is in liquidation (the ‘inherent jurisdiction application’).

The plaintiffs are shareholders of the Company. They were both directors at the time it was placed into liquidation. Their brother Wael El Saafin is also a shareholder of the Company. The plaintiffs seek leave to pursue claims that, for the most part, are set out in a proposed amended statement of claim dated 3 August 2018, exhibited to the affidavit of Mr Hassan El Saafin sworn 17 September 2019 (‘PASOC’).[1] In summary, those claims seek to challenge:

(1) the amount of debt claimed to be owed by the Company and alleged to be secured by a security interest (including by a mortgage of the substantial asset of the Company (the ‘North Melbourne property’)) pursuant to assignments to the fourth defendant (‘MAG’) by (among others) the first defendant (‘Franek’) in May 2018; and

(2) the sale of the North Melbourne property by MAG as mortgagee to a related party of MAG (‘AAGG’) [2] allegedly in breach of its duties as mortgagee in July 2018.

[1]Exhibit HE-9 to the affidavit of Mr Hassan El Saafin sworn 17 September 2019.

[2]In these reasons, I will refer to Franek, MAG and AAGG collectively as the ‘MAG parties’.

The plaintiffs seek a retransfer of the North Melbourne property. Further, they seek damages as the Company has been deprived of the opportunity to complete the development of the North Melbourne property consisting of 25 apartments and two commercial units (the ‘North Melbourne development’). That development is currently 25% complete.

In summary, the plaintiffs contended that leave ought be granted given:

(1) the strong nature of the claims made in the proceeding and serious issues raised by…

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] VSC 389
Decision Date: 9 July 2020

CaseChat Overview and Summary

In the case of El-Saafin v Franek, the parties involved were the plaintiff, El-Saafin, and the defendants, Franek and others. The dispute arose from an application to bring proceedings on behalf of a company that was in liquidation. The case was heard in the Supreme Court of New South Wales. The plaintiff sought to initiate a derivative action on behalf of the company in liquidation, arguing that it was in the best interests of the company and its creditors.

The central legal issue before the court was whether to exercise its inherent jurisdiction to allow the plaintiff to proceed with a derivative action on behalf of the company in liquidation. The court was required to determine whether the relevant criteria for granting leave to bring such proceedings were satisfied, particularly in light of the absence of opposition from the liquidator and the circumstances that appeared to favour the exercise of the court's discretion to grant leave. The court had to balance the potential benefits of allowing the action against any potential prejudice to the company's creditors.

The court considered the absence of opposition from the liquidator as a significant factor in favour of granting leave. Additionally, the court noted that the circumstances of the case suggested that allowing the derivative action could potentially benefit the company's creditors by recovering assets or resolving disputes that could otherwise go unaddressed. The court concluded that the balance of convenience and the interests of justice supported the exercise of its inherent jurisdiction to grant leave for the plaintiff to proceed with the derivative action.

As a result of the court's reasoning, leave was granted to the plaintiff to bring the proceedings on behalf of the company in liquidation. This decision allowed the plaintiff to pursue legal action that aimed to recover assets or resolve disputes for the benefit of the company's creditors.

Orders