Glenn Andrew Lees and ORS (according to the Schedule) v Connective Services Pty Ltd (ACN 107 366 496) and ORS (according to the Schedule)

Case •

[2019] VSCA 143

•

21 June 2019

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0052

GLENN ANDREW LEES & ORS (according to the Schedule) Applicants
v
CONNECTIVE SERVICES PTY LTD (ACN 107 366 496) & ORS (according to the Schedule) Respondents

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JUDGES: WHELAN and McLEISH JJA
WHERE HELD: MELBOURNE
DATE OF HEARING: 29 May 2019
DATE OF JUDGMENT: 21 June 2019
MEDIUM NEUTRAL CITATION: [2019] VSCA 143
JUDGMENTS APPEALED FROM: [2019] VSC 201 (Kennedy J)

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PRACTICE AND PROCEDURE – Application for leave to appeal order granting leave to amend – Relevant issue to be determined in any event in separate proceeding to be tried at same time – No substantial injustice – Leave refused.

CORPORATIONS – Derivative proceeding – Application for leave to appeal from order granting leave under Corporations Act 2001 (Cth) s 241 to amend pleading to add closely related claim – Whether s 237 leave required to introduce new cause of action – Whether applicant must satisfy s 237 criteria – Limitation not to be implied in legislative grant of power on court – Application to amend under s 241 must be considered in context of pt 2F.1A – No error by primary judge in relation to s 241 – No failure to have regard to relevant matter – The Owners of The Ship ‘Shin Kobe Maru’ v Empire Shipping Co Inc (1994) 181 CLR 404 applied – Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157 distinguished – Corporations Act 2001 (Cth) ss 236, 237, 241 – Supreme Court (General Civil Procedure) Rules 2015 r 36.01.

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APPEARANCES: Counsel Solicitors
For the Applicants Mr M I Borsky QC with
Mr C Tran 		Gilbert + Tobin
For the First, Second and Tenth  Respondents Dr C G Button QC with
Mr G Kozminsky and
Ms C Mintz 		Arnold Bloch Leibler

WHELAN JA
McLEISH JA:[1]

[1]By a determination dated 20 May 2019 the President of the Court of Appeal determined pursuant to s 11(1A) of the Supreme Court Act 1986 that two judges of appeal constitute and may exercise all the jurisdiction and powers of the Court of Appeal in relation to this case.

  1. Since 2011 the shareholders in two companies, the first named respondent, Connective Services Pty Ltd, and the second named respondent, Connective Services OSN Pty Ltd, have been in litigation with each other.  We will refer to the two companies together as the ‘Connective companies’.

  1. The Connective companies were incorporated in 2003 to conduct a mortgage aggregation business established by Sofianos Tsialtas, the sole shareholder of the tenth respondent, Slea Pty Ltd (‘Slea’);  the first applicant, Glenn Andrew Lees;  and Mr Lees’s brother.

  1. Initially, Slea (Mr Tsialtas’s company) held one-third of the shares in the Connective companies and Mr Lees or a company controlled by Mr Lees, the eleventh respondent, Millsave Holdings Pty Ltd (‘Millsave’), held two-thirds of the shares.[2]  Mr Tsialtas was initially a director of the Connective companies but he ceased to be a director in 2008.  Mark Seamus Haron, the second applicant, and Graham Edward Maloney, the third applicant, became directors of the Connective companies in 2011.  In circumstances that are not presently relevant, Mr Haron acquired shares in the Connective companies. 

    [2]Glenn Lees first held the shares and transferred them to Millsave in 2006: Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229 [5].

  1. In August 2011 Slea commenced a proceeding (‘the oppression proceeding’) alleging oppressive conduct of the Connective companies’ affairs pursuant to s 232 of the Corporations Act 2001 (Cth) (‘the Act’). There was also other litigation between the parties at that time.

  1. In 2012 and 2013 the three directors of the Connective companies (Mr Lees, Mr Haron and Mr Maloney) effected a corporate restructure (‘the restructure’).  A number of subsidiary companies were established, being the fourth respondent, Connective Group Pty Ltd (‘Connective Group’), and the fifth, sixth, seventh, eighth, and nine respondents.  After the restructure, the Connective companies held all of the shares in Connective Group.  Connective Group in turn held all of the shares in the other companies established in the restructure.  The business then operated by the Connective companies was transferred to Connective Group.  Later in 2013, 25 per cent of the shares in Connective Group were sold to the third respondent, Macquarie Bank Limited (‘the sale’). 

  1. After Mr Tsialtas became aware of the restructure and the sale, Slea applied to amend its statement of claim in the oppression proceeding. Amongst other things, it sought to join the three directors alleging breach of their duties as directors of the Connective companies in relation to the restructure and the sale. Initially, that aspect of the application was refused on the basis that leave under s 237 of the Act was required before the allegations of breach of duty could be made against the three directors. After some delay, Slea applied for leave under s 237 of the Act to bring a proceeding on behalf of the Connective companies against the three directors and against Macquarie Bank and others. Robson J granted that leave under s 237 of the Act,[3] and an appeal against that decision was dismissed by this Court.[4]

    [3]Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609 (‘Robson J Reasons’).

    [4]Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229.

  1. The proceeding the subject of Robson J’s leave was commenced on 27 March 2018 (‘the derivative proceeding’).  The Connective companies alleged that a substantial purpose of the restructure and sale was to circumvent certain pre-emptive rights that Slea had under the constitutions of the Connective companies and to reduce Slea’s interest in the Connective business.  The relief sought included rescission and ‘unwinding’ of the restructure and the sale. 

  1. In the second half of 2018 a process referred to as the ‘sale process’ was undertaken.[5]  This prompted an application by Slea in the oppression proceeding and by the Connective companies in the derivative proceeding to amend their respective claims.  The amendments allege that the sale process was undertaken by the three directors for the improper purpose of preventing the Court from ordering the ‘unwinding’ of the restructure and the sale and limiting the relief Slea might obtain to monetary compensation.  On 3 April 2019 a judge in the trial division ordered that leave be granted to amend the respective statements of claim so as to introduce these allegations concerning the sale process into the derivative proceeding and the oppression proceeding.[6]

    [5]The relevant matters are referred to as the ‘sale process’ in the Agreed Summary. 

    [6][2019] VSC 201 (‘Reasons’).

  1. The three directors now apply for leave to appeal the trial judge’s order granting leave to amend the claim made in the derivative proceeding. There is no application for leave to appeal the decision to grant leave to introduce the same claim in the oppression proceeding. The applicant directors seek to contend that the order granting leave to amend could not be made unless there was either a fresh grant of leave to proceed under s 237 of the Act or unless the criteria for leave provided for under s 237 had been met. In the course of oral argument senior counsel advanced a further modified contention as to the relevance of the s 237 criteria on the application to amend to which we will refer below.

  1. The derivative proceeding and the oppression proceeding are set down for trial on 19 August 2019.  Orders have been made that the two proceedings be heard together with evidence in each proceeding to be evidence in the other.

  1. When the matter was before her, the primary judge had to determine a number of issues, including a contention that leave to amend should be refused because the new claims had no real prospect of success and a claim for interlocutory injunctive relief. However, the only issue now in contention is what the primary judge characterised as a ‘preliminary issue’, being whether leave was required under s 237 of the Act before leave to make the amendment in the derivative proceeding could be granted, or, alternatively, whether the requirements of s 237 had to be met before leave to make the amendment could be granted. The applicants’ modified contention, to which we have referred, was not put to the primary judge.

The relevant application

  1. The relevant application before the primary judge was an application in the derivative proceeding for leave to file an amended statement of claim in the form of an exhibit to an affidavit of Slea’s solicitor. Leave was sought pursuant to Order 36 of the Supreme Court (General Civil Procedure) Rules 2015 and s 241 of the Act.

  1. Order 36 relevantly provides:

36.01   General

(1)       For the purpose of—

(a)determining the real question in controversy between the parties to any proceeding;  or

…

(c)avoiding multiplicity of proceedings—

the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.

(2)       In this Order document includes—

…

(c)a pleading

(3)An indorsement of claim or pleading may be amended under paragraph (1) notwithstanding that the effect is to add or substitute a cause of action arising after the commencement of the proceeding.

  1. Section 241 of the Act is headed ‘General Powers of the Court’ and relevantly provides:

(1)The Court may make any orders, and give any directions, that it considers appropriate in relation to proceedings brought or intervened in with leave … .

Other provisions of the Act

  1. Other provisions of Part 2F.1A of the Act, within which s 241 appears, are also relevant and were referred to in the course of submissions before us.

  1. Section 236 specifies the persons who might bring proceedings on behalf of a company if leave is granted under s 237.

  1. Section 237 provides that a person referred to in s 236 may apply to the Court for leave to bring proceedings. It provides further that the Court must grant the application if satisfied of a number of specified circumstances, and makes provision for a number of rebuttable presumptions in the consideration of whether the granting of leave is in the best interests of the company, as follows:

(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. 

  1. Section 238 provides for the substitution of another person for a person who has been granted leave.

  1. Section 239 addresses the effect of ratification by a company’s members in the context of an application for leave.

  1. Section 240 provides that proceedings instituted with leave must not be discontinued, compromised or settled without leave of the Court.

  1. The relevant part of s 241(1) has already been set out. The section goes on to provide that the Court may order or direct a number of specific things including the appointment of an independent investigator.

  1. Section 242 addresses the Court’s power to make costs orders.

Robson J’s order granting leave to bring the derivative proceeding

  1. The application seeking leave to bring the derivative proceeding was heard by Robson J over four hearing days in August 2017.  He reserved his decision.  When he notified the parties that he intended to hand down his decision those resisting the application made a number of attempts to reopen the application.  Those attempts were unsuccessful and judgment was eventually delivered on 29 November 2017.

  1. The order granting leave was stayed pending a foreshadowed appeal and that appeal was heard on 3 August 2018.  Judgment of the Court of Appeal upholding the primary judge’s grant of leave to bring the proceeding was delivered on 10 September 2018.  Amongst the many matters relied upon in resisting the application for leave to bring the proceeding were contentions that the institution of the proposed proceeding was not in the companies’ best interests, that the claims foreshadowed did not give rise to any serious question to be tried, and that Slea was not acting in good faith.

  1. The period of over a year during which the leave application was contested delayed the institution of that proceeding and also delayed the progress of the oppression proceeding.

  1. One alleged effect of the restructure and the sale was the reduction of Slea’s commercial interest in the Connective business from 33.33 per cent to 25 per cent.  When granting leave to bring the proceeding Robson J accepted that Slea had a ‘bona fide’ reason for bringing the proceeding which he expressed to be:

[T]o cause the Connective companies to uphold the constitution and undo the damage caused by the directors’ breach by misusing their powers, which led to Slea’s interest in the business being diminished to 25 per cent.[7]

[7]Robson J Reasons [260].

  1. The order made by Robson J granting leave was expressed in the following terms:

Pursuant to section 237 of the [Act], [Slea] be granted leave to bring a proceeding on behalf of, and in the name of, [the Connective companies], substantially in the form set out in the draft statement of claim exhibited to the affidavit of [Slea’s solicitor] against the parties identified in the schedule of parties in the proposed statement of claim.

  1. The three applicant directors were among the defendants to the proposed statement of claim.  The proposed statement of claim alleged that the restructure and sale had been undertaken by them for an improper purpose.  The improper purpose was alleged to be selling a 25 per cent interest in the Connective business in a manner which would circumvent Slea’s pre-emptive rights under the constitutions of the respective companies while maintaining Millsave and Mr Haron’s effective control, and reducing Slea’s interest in the Connective business.  The relief claimed sought rescission of the sale and either the replication in the constitution of Connective Group of the pre-emptive rights provisions contained in the constitutions of the Connective companies or the rescission of the restructure.  In addition to the relief referred to, damages were sought against the three directors.

The amendments sought

  1. The plaintiff in the oppression proceeding (Slea) and the plaintiffs in the derivative proceeding (the Connective companies — Slea having leave to pursue claims on their behalf) issued a single summons seeking to amend the statement of claim in each of those proceedings.  The summons also sought interlocutory injunctive relief.  That aspect of the matter is not presently relevant. 

  1. The amendments sought in both the derivative proceeding and the oppression proceeding made allegations of fact in relation to the sale process which were substantially identical.  In each proceeding it was to be alleged that the three applicant directors undertook the sale process for the following purpose:

(a)To prevent the Court being able to make an order in [each of the respective proceedings] to rescind [the restructure] and return the direct ownership of the Connective Business to Connective Services and Connective OSN, being relief sought by Connective Services in [the derivative proceeding] and by Slea in [the oppression proceeding]; 

(b)To limit the relief able to be obtained by Connective Services in [the derivative proceeding] and by Slea in [the oppression proceeding] to monetary compensation.

  1. In each of the proceedings the proposed amendments sought to introduce a claim for final injunctive relief in relation to the sale process. 

  1. In the derivative proceeding the three applicant directors were already defendants.  The injunction sought to be introduced by the amendments concerning the sale process in that proceeding was an injunction restraining them in their capacity as directors from approving or authorising the sale process.  As indicated, there was already a damages claim against the three directors in that proceeding.  The proposed amendment in the relief claimed sought to add a paragraph seeking damages referable to the new allegations concerning the sale process.

Contentions before the primary judge on the amendments in the derivative proceeding

  1. Senior counsel for the Connective companies (Slea having leave to pursue claims on their behalf in the derivative proceeding) sought the order granting leave to amend in the derivative proceeding relying upon s 241 of the Act, and highlighting the wide terms in which that provision is cast. Senior counsel expressly disavowed a further application for leave under s 237 of the Act as a ‘fall back’. It was submitted that the new claims were ‘directly referable’ to the relief sought in the existing proceeding and that further leave was unnecessary.

  1. In opposition to the application the defendants in the derivative proceeding (including the three applicant directors) submitted that the case sought to be introduced was beyond the scope of the leave granted by Robson J, and that what was sought to be introduced involved entirely different claims about different facts occurring after the grant of leave. It was submitted that the amendments could not be permitted without a fresh grant of leave under s 237 of the Act. In the alternative, it was submitted that, even if further leave was not required, the criteria in s 237 would have to be met. Reliance was placed upon a number of authorities where, it was submitted, leave to amend had been sought and granted on the basis that the amendments were within the terms of the leave originally granted. Those authorities were said to be MG Corrosion Consultants Pty Ltd v Gilmour,[8] Cassegrain v Gerard Cassegrain & Co Pty Ltd[9] and Gerard Cassegrain & Co Pty Ltd v Cassegrain.[10]  Reliance was also placed more generally upon Hannon v Doyle[11] and Ehsman v Nutectime International Pty Ltd.[12] It was submitted that if fresh leave under s 237 were not required, or if the criteria in s 237 were not met, the limitations contained in Part 2F.1A would be ‘subverted’.[13]

    [8][2012] FCA 461 (‘MG Corrosion’).

    [9](2013) 305 ALR 648; [2013] NSWCA 454 (‘Cassegrain (CoA)’).

    [10][2010] NSWSC 91 (‘Cassegrain (Austin J)’).

    [11](2011) 82 ACSR 259; [2011] NSWSC 10 (‘Hannon’).

    [12](2006) 58 ACSR 705; [2006] NSWSC 887 (‘Ehsman’).

    [13]Reasons [100]–[105].

The new contention

  1. It is convenient at this point to explain the matter foreshadowed earlier concerning the new contention put by counsel for the applicant directors in the hearing before us. 

  1. Before the primary judge the amendments and the injunction were opposed by counsel representing the three applicant directors and by separate counsel representing other defendants to the oppression proceeding and the derivative proceeding. Written submissions by counsel representing the applicant directors did not advance any submission concerning s 236 and s 237 of the Act. The written submission on behalf of the other defendants contended that the proposed amendments were outside the ambit of Robson J’s order, and in relation to s 241 advanced the following submission:

Nor can s 241 of the Act be deployed to authorise the amendments. Although the power in that section is broadly and generally phrased, it could not be exercised in a manner contrary to the operation of s 237. The latter prescribes the criteria which must be met before leave can be granted, and a derivative proceeding is only possible in accordance with such leave. In the result, if Slea is to make its proposed amendments in the Derivative Proceeding, it will need to make a fresh application under s 237 of the Act.

  1. In the course of oral submissions before the primary judge senior counsel for the defendants other than the three applicant directors put a submission not made or foreshadowed in the written submission. This submission was that, if there was power under s 241 to order the amendments in the absence of a fresh grant of leave, the discretion under s 241 ‘must necessarily be evaluated and applied by reference to the considerations that section 237 erects and mandates … in substance, you must confront the same hurdles and the same considerations as a section 237 application would have [attracted]’. A little later, counsel submitted that the judge could only order the amendments under s 241 if the ‘requirements’ which s 237 ‘mandates — were satisfied’. A little later again, counsel submitted that if s 241 were being used, the criteria in s 237 would have to be ‘addressed and established’.

  1. In oral submissions before us a further modified position was put by counsel for the applicant directors, which, it was acknowledged, had not been put to the primary judge. This further modified position was that the criteria in s 237 were matters relevant to a consideration of whether amendments ought to be ordered under s 241. It was then contended that the primary judge had made an error by failing to have regard to those relevant considerations.

The primary judge’s decision

  1. The primary judge rejected the position contended for by those resisting the amendment in the derivative proceeding.  She concluded that the ‘substantive characterisation’ of the proceeding for which leave had been granted was a proceeding seeking to ‘challenge and unwind the Restructure and Sale’.[14]  In her view the substance of the new claims was essentially ‘defensive in responding to actions which would subvert the relief already sought’.[15]  She concluded that the leave already granted extended to challenging actions allegedly undertaken to prevent or limit the relief originally sought.[16]

    [14]Reasons [114].

    [15]Reasons [117].

    [16]Reasons [116].

  1. The primary judge went on to address the position if her analysis of the extent of the leave which had already been granted was not correct. She concluded that, in that event, the power contained in s 241 permitted the Court to grant leave to amend in the instant case.[17]  She reached this conclusion for the following reasons:[18]

·The ordinary words of s 241 are wide and contain no restriction or limitation. It is inappropriate to read provisions conferring jurisdiction or granting powers by imposing limitations not found in the express words.

·This construction would not operate to ‘subvert’ the provisions of s 237. The two provisions concerned different matters; s 237 is concerned with whether a proceeding ought to be instituted, while s 241 is concerned with management of a proceeding already brought with leave.

·Observations of Austin J in Ehsman supported a conclusion that requiring amendments to be subject to a fresh application for leave would place an unnecessary burden on case management.

·The cases cited by those opposing leave to amend did not stand against her construction.

[17]Reasons [118].

[18]Reasons [119]–[124].

  1. The judge concluded her consideration of the ambit of s 241 as follows:

Overall, then, I consider that (if necessary) I have power to grant leave to amend on the merits under s 241.

I further consider that I ought to exercise that power given the nature of the amendments sought (which seek to challenge conduct allegedly taken to limit relief already sought) subject to a consideration of the usual principles, below.[19]

[19]Reasons [125]–[126].

  1. The judge then went on to consider submissions made concerning improper purpose.  In the course of that consideration the primary judge concluded:

I consider that the effect of any sale would make it more difficult to unwind the relevant transactions so as to limit the relief able to be sought in the proceeding.[20]

[20]Reasons [145].

  1. Her Honour also said:

Notwithstanding the seriousness of the allegations, which I have taken into account, I consider that there is a real prospect that the matters raised above, when considered together, in the context of bitterly fought litigation, could give rise to an inference of improper purpose as alleged, on the balance of probabilities.[21]

[21]Reasons [154].

Proposed grounds

  1. The proposed grounds of appeal are:

1.The primary judge erred in finding at [116]-[117] that the leave granted by Robson J on 29 November 2017 extended to the new cause of action proposed to be brought by the amendment application made by summons dated 13 February 2019.

2.The primary judge erred in holding at [118] that, even if her Honour’s conclusion about the scope of the leave granted by Robson J were incorrect, then s 241 permitted the Court to grant the leave to bring the new claim, without applying s 237 or the criteria provided therein.

  1. It will be noted that neither of the proposed grounds encompass the modified contention concerning s 237 advanced before us for the first time. The proposed grounds are premised on the proposition that either fresh leave under s 237 is necessary, or that the criteria in s 237 must be ‘applied’ as opposed to considered.

Submissions

  1. Senior counsel for the applicant directors focussed his submissions on proposed ground 2. 

  1. On behalf of the applicant directors it was submitted that the trial judge had acted upon a wrong principle in rejecting the contentions put by those opposing leave to amend that either fresh leave under s 237 of the Act was required, or that the amendments could only be ordered under s 241 if the criteria in s 237 had been met. In argument before us senior counsel added the modified contention that the criteria in s 237 were relevant considerations which the primary judge had failed to take into account. Senior counsel for the applicant said that it was not contended that there was any other error in the exercise of the primary judge’s discretion to order the amendment.

  1. It was submitted on behalf of the applicants that the term ‘proceedings’ in s 241 must be read as meaning the causes of action upon which leave under s 237 had been granted. It was submitted that the criteria in s 237, particularly those requiring satisfaction that the company itself would probably not bring the proceedings and that there was a serious question to be tried, supported this construction. Reliance was also placed on s 241(1)(d)(ii) which provides that a court may order an independent person to investigate ‘the facts or circumstances which gave rise to the cause of action the subject of the proceedings’, and upon s 300(15) which provides that a company’s annual report must include details of any derivative proceeding with sufficient information to enable members to understand ‘the cause of action’.

  1. Senior counsel then addressed the line of High Court authority to the effect that provisions conferring jurisdiction on, or granting powers to, a court should not be read as subject to implications, or as imposing limitations, not found in the express words.  He began with the High Court decision in The Owners of The Ship ‘Shin Kobe Maru’ v Empire Shipping Co Inc.[22]  He submitted that the existence of the general principle was accepted, but that it was not a ‘blanket rule’ and was subject to the legislative context.  Reference was made to subsequent High Court authorities, being PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service,[23] Emanuele v ASIC[24] and CDJ v VAJ,[25] which were said to establish that limitations would be read into statutory provisions of this kind where that course was required by the context.  Particular reliance was placed on Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union.[26]  It was submitted that ABCC v CFMEU stood for the proposition that a general empowering provision must be limited where there exists a specific provision governing the particular order made. The applicant submitted that s 241 of the Act was such a general empowering provision which could not be relied upon to circumvent the specific provisions in ss 236 and 237.

    [22](1994) 181 CLR 404 (‘Shin Kobe Maru’).

    [23](1995) 184 CLR 301 (‘PMT’).

    [24](1997) 188 CLR 114 (‘Emanuele’).

    [25](1998) 197 CLR 172 (‘CDJ’).

    [26](2018) 262 CLR 157 (‘ABCC v CFMEU’).

  1. Senior counsel for the applicant directors relied upon the Australian authorities which had been relied upon before the primary judge and submitted that those authorities supported the approach for which the applicants contended. It was acknowledged that there was no Australian decision which concerned the specific issue raised here, namely, whether a new cause of action could be introduced in a derivative proceeding by amendment relying upon s 241. It was submitted, however, that Australian authorities concerning the initial grant of leave to proceed recognised that if a new cause of action were to be introduced in future, a further application for leave would be necessary. The applicants also relied upon decisions in British Columbia, Canada, in relation to legislation which it was submitted was relevantly similar, where it has been held that a fresh application for leave is necessary if a new cause of action is sought to be introduced in a derivative proceeding by an amendment.

  1. In relation to proposed ground 1, concerning the ambit of Robson J’s order for leave to bring the proceeding, it was submitted on behalf of the applicants that the new cause of action was clearly outside the ambit of that order which was expressly confined to the draft statement of claim then put before the judge.  The applicants submitted that that leave could not extend to a cause of action arising after the order granting leave.

  1. Senior counsel for the applicants addressed the issue of substantial injustice in the context of whether leave to appeal should be granted.  It was submitted that, if the primary judge had made an error, the applicant directors were now facing a claim which should not have been brought against them.  It was acknowledged that all of the factual matters which are the subject of the amendment would be the subject of the oppression proceeding in any event.  The amendment was ordered in that proceeding and there is no application for leave to appeal that order.  However, it was submitted that the amendment to the derivative proceeding exposed the applicant directors to a new damages claim, and to costs on the new claim, which they ought not have to face.

  1. Senior counsel for the respondents began by outlining what she described as ‘slippage’ in the manner in which the applicant directors had advanced their contentions concerning s 237. It was submitted that the written submissions filed before the primary judge had only contended that a fresh application under s 237 was required before the amendment could be made. Then, in the course of argument, an alternative contention had been advanced by senior counsel for the defendants opposing the amendment other than the applicant directors that, if there was power to order the amendment under s 241 without fresh leave under s 237, then the criteria in s 237 would still have to be established. The submission that the criteria in s 237 were relevant considerations was not put until the submissions before us.

  1. Senior counsel for the respondents submitted that the submissions advanced on behalf of the applicant directors failed to properly recognise the fact that the plaintiffs were the Connective companies, not Slea. Only Slea could apply under s 236, and Slea was not the party seeking to amend.

  1. It was submitted that the judge had in any event determined that she ‘ought to exercise’ the power under s 241 and that in the course of her judgment she had made findings that the effect of the sale process would make it more difficult to unwind the relevant transactions,[27] and that there was a real prospect that the matters alleged could give rise to an inference of improper purpose.[28]  It was submitted that when the judgment is read as a whole the judge had implicitly addressed issues such as whether there is a serious question to be tried, and whether it is in the interests of the Connective companies to pursue the amended cause of action.  It was said that no suggestion had been made that there was an absence of good faith.

    [27]Reasons [145].

    [28]Reasons [154].

  1. Turning to the issues of construction in relation to proposed ground 2, senior counsel submitted that the effect of the applicants’ construction was to add words to s 241, and to s 236 and s 237. It was submitted that the applicants sought to add a proviso to s 241 precluding an order to amend if it introduced a new cause of action, to modify s 236 so as to extend its scope beyond the ‘bringing’ of a proceeding, and to adapt the criteria in s 237 to address the fact that the applicant (Slea) would not be the party seeking the amendment (the Connective companies). It was submitted that it becomes almost impossible to read s 237(2) in a coherent manner when it is the company itself which is already bringing the proceeding and seeking the amendment. Alternatively, it was submitted that the applicants were seeking to insert into the relevant provisions a definition of ‘proceeding’ which confined its meaning to causes of action which were the subject of the original grant of leave.

  1. The respondents relied upon Lord Diplock’s articulation, in Wentworth Securities Ltd v Jones,[29] of the three conditions which must be fulfilled in order to justify adopting a purposive construction of legislation where the literal meaning of the language used would lead to results which clearly defeat the purposes of the legislation, which was quoted and adopted by the New South Wales Court of Criminal Appeal in R v Young.[30]  The three conditions are, first, that it must be possible to determine precisely what mischief the legislation is to remedy;  secondly, it must be apparent that parliament had omitted to deal with an eventuality required to be dealt with;  and, thirdly, it must be possible to state with certainty what were the additional words that would have been inserted had parliament’s attention been drawn to the omission.  The respondents submitted none of those conditions were relevantly applicable here.

    [29][1980] AC 74, 105–7.

    [30](1999) 46 NSWLR 681, 686–7.

  1. The respondents placed significant reliance upon the line of High Court authority of which Shin Kobe Maru, PMT, and CDJ form a part.  In addition to those cases, they relied upon Knight v FP Special Assets Ltd.[31]  The submission was that these authorities establish that, unless there is something in the legislation to indicate the contrary, it is wholly inappropriate to construe legislative provisions granting power to a court as subject to limitations not present in the text of the legislation.  The respondents submitted that these authorities also establish that the existence of the potential for unjust orders to be made under a wide power does not justify the imposition of limitations upon the jurisdiction conferred, but that, rather, such a potential is addressed by the fact that courts will act judicially and develop principles ensuring the jurisdiction is not exercised in such a way as to give rise to abuse.

    [31](1992) 174 CLR 178 (‘Knight’).

  1. The respondents distinguished ABCC v CFMEU on the basis that that decision addressed a position where a general power was relied upon to make a penal order in circumstances where the legislation contained a specific provision dealing with that particular kind of order. It was submitted that the position here is not relevantly analogous. Sections 236 and 237 address the requirements which must be satisfied before a party ‘may bring proceedings’ in the name of a company, and s 241 deals with the management of such proceedings once ‘brought’.

  1. Senior counsel for the respondents submitted that many of the applicants’ submissions were premised on what she characterised as the ‘in terrorem’ assertion that the construction of s 241 adopted by the primary judge would mean that ‘any claim’ could be introduced after leave had been granted. It was submitted that that was an untenable contention and that the Court would not countenance granting an application to amend under s 241 which was properly characterised as an attempt to avoid or subvert the requirements of s 236 and s 237. It was submitted that this is certainly not such a case. The close connection between the claim originally advanced, for which leave was granted by Robson J, and that which is the subject of the amendment, was apparent. The alleged improper purpose which is the subject of the amendment is an attempt to preclude the relief sought by the Connective companies in the original claim.

  1. It was submitted that s 241(1)(d)(ii), relied upon by the applicants, does not support the applicants’ construction of s 241 as it expressly distinguishes between ‘the cause of action’ and ‘the proceedings’. It was submitted that s 238(2) indicates that the requirements in s 237 are not to be incorporated into s 241 because where such requirements are to be incorporated the legislature has expressly so provided, as it has in s 238(2)(a) where a requirement of good faith (also found in s 237) is specified.

  1. The respondents relied upon the explanatory memorandum to the Corporate Law Economic Reform Program Bill 1988 which relevantly stated:

In addition to the usual orders which a Court may make pursuant to relevant Court rules, the Court will be able to make an order directing the company or an officer of the company to do or refrain from doing any act (proposed paragraph 241(1)(c)). 

  1. Dealing with the Australian authorities relied upon by the applicants, and some additional authorities, it was submitted that none of the cases addressed the specific issue which arose here and none of them addressed the application of s 241. There were obiter observations which went both ways. It was submitted that the decisions from British Columbia were of little or no assistance as the legislation there was significantly different.

  1. Junior counsel for the respondents addressed proposed ground 1.  He submitted that Robson J’s order had to be read in the context of his reasons.  In that respect he relied upon the judgment of the New South Wales Court of Appeal in Athens v Randwick City Council[32] and upon this Court’s judgment in Slea Pty Ltd v Connective Services Pty Ltd,[33] a separate proceeding between some of the same parties.  The claim for which leave had been granted was a claim directed at ‘unwinding’ the restructure and the sale.  As the primary judge had found, the amended claim was closely related to that subject matter.  It was submitted that the primary judge had been correct, notwithstanding the formulation of Robson J’s order, to conclude that the amended claim was within the ambit of the leave already granted.  It was submitted that a close analysis of the decisions in the Cassegrain litigation (to which some reference is made below) supported this position.

    [32](2005) 64 NSWLR 58 (‘Athens’).

    [33](2018) 359 ALR 159; [2018] VSCA 180 (‘Slea v Connective’).

  1. Finally senior counsel for the respondents addressed the question of leave to appeal, submitting that there was no practical injustice to the applicant directors in the order which had been made as the very same allegations were made in the oppression proceeding where Mr Horan was a party, as was Millsave (Mr Lees’s company), and where the three directors would be very likely to give evidence.

  1. In the course of his reply, senior counsel for the applicant directors was asked what course ought to be taken if it were concluded that the primary judge was in error by reason of a failure to take into account relevant considerations, and he submitted that the appropriate course would be to set the order aside and remit the matter.

Should leave to appeal be granted?

  1. Leave to appeal must be obtained before an appeal can be brought against the primary judge’s order permitting the amendment in the derivative proceeding.  The Court can only grant leave where it is satisfied that the appeal has a real prospect of success.  But even where there is a real prospect of success, the Court may refuse leave to appeal.  This course may be taken where no substantial injustice will be done if the decision stands.  The question of leave may be approached by considering whether discretionary considerations justify a refusal of leave, regardless of an applicant’s prospects of success.[34]

    [34]Supreme Court Act 1986 s 14C. Kennedy v Shire of Campaspe [2015] VSCA 47 [14]; Molonglo Group v Cahill [2018] VSCA 147 [96]–[97].

  1. In our opinion leave to appeal should be refused in this matter, regardless of the applicants’ prospects of success, for the following reasons:

(1)The primary judge’s conclusion that the new claim has a ‘real prospect’ of success is unchallenged.

(2)The introduction of the new claim into the oppression proceeding is unchallenged.

(3)The derivative proceeding and the oppression proceeding are fixed for trial together with evidence in one being evidence in the other.  The new claim will be fully litigated in that joint trial regardless of the outcome of this proposed appeal. 

(4)The joint trial is fixed for hearing on 19 August 2019.

(5)Mr Horan is a party to the oppression proceeding, as is Mr Lees’s company, Millsave.  All three directors are already parties to the derivative proceeding.  It is very likely all three directors will give evidence in the joint trial.

(6)The existing order permitting the amendment in the derivative proceeding is valid unless and until it is set aside.  The absence of leave will not render any judgment a nullity, even if subsequently it might be held that leave should have been obtained.[35]

(7)If it were to become clear in the course of the joint trial that there is substance in the new claim, and assuming fresh leave under s 237 were necessary, it is close to inevitable that leave under s 237 would be ordered retrospectively (‘nunc pro tunc’).[36]

(8)The only likely practical effect of requiring Slea to now seek leave under s 237, is substantial additional costs and delay, as occurred in the earlier application under s 237, and the possibility the trial date may be lost.

[35]Cameron v Cole (1944) 68 CLR 571; Posner v Collector of Interstate Destitute Persons (Vic) (1946) 74 CLR 461; and New South Wales v Kable (2013) 252 CLR 118. In Cassegrain (CoA) (2013) 305 ALR 648; [2013] NSWCA 454 the New South Wales Court of Appeal was unconcerned that an alternative case had been conducted at trial not only without fresh leave but without an amendment to the statement of claim.

[36]As is commonly done:  see South Johnstone Mill Ltd v Dennis (2007) 163 FCR 343.

  1. It is true that the amendment complained of introduces a new claim against the three applicant directors exposing them potentially to damages and costs. But they are already facing closely related claims exposing them potentially to damages and costs, the evidence on the new claim will be led in a joint trial where they are already represented parties, and, if there is substance in the new claim, it is close to inconceivable that the full ambit of all the claims, including the derivative claims of the Connective companies, would not be the subject of a single judgment, even if that required retrospective leave (‘nunc pro tunc’) under s 237 of the Act.

  1. Notwithstanding our conclusion as to leave to appeal, we will address the arguments advanced on the substantive aspects of the proposed grounds because there is the possibility that the applicants might seek to take the matter further, and because the proposed grounds raise matters which are presently unresolved by authority and may have importance in other cases.  This is particularly so in relation to proposed ground two and the operation of the Shin Kobe Maru principle.

The Australian authorities

  1. The Australian authorities upon which the applicants rely, whilst they do not address s 241,[37] do lend some support to the applicants’ position.  However, they do not determine the matter because they do not address the question to be decided.  It is therefore convenient to mention them briefly before turning to the issue of construction.

    [37]Austin J in Ehsman (2006) 58 ACSR 705; [2006] NSWSC 887 referred to s 241 at 719 [61] but in a different context.

  1. When considering applications under s 237 the courts do address the proposed causes of action individually and assess them against the requirements in s 237.[38] This practice supports the applicants’ contention that, as the individual causes of action are separately assessed under s 237, if a new cause of action is to be introduced it should be assessed by the same criteria.

    [38]See, eg Ehsman (2006) 58 ACSR 705 714 [40]–[41], 715–16 [44], 716 [47], 717 [48]; [2006] NSWSC 887 and Power v Ekstein (2010) 77 ACSR 302, 327 [94]; [2010] NSWSC 137.

  1. Of perhaps greater significance are the observations made by Austin J in Ehsman and by Barrett J in Hannon to the effect that the terms in which an order granting leave to bring a derivative proceeding is expressed ought not to be too confined because that would create a position where a subsequent amendment would require a grant of further leave.[39] These observations assume that amendments outside the ambit of the original order would not be permitted unless fresh leave under s 237 were obtained.

    [39]See Ehsman (2006) 58 ACSR 705, 715–16 [43]–[44], 720 [64]; [2006] NSWSC 887 and Hannon (2011) 82 ACSR 259, 278–9 [112]–[114], 279–­80 [119]; [2011] NSWSC 10.

  1. On the other hand, the Australian authorities to which we were referred also reveal that leave has been granted without a proposed pleading and where subsequent amendment is specifically envisaged.[40]  They reveal one instance where an alternative case to that pleaded (which was the subject of the order granting leave) was in fact run at trial without amendment and without consequence, notwithstanding that that issue was raised before the New South Wales Court of Appeal.[41]  Amongst the cases is an instance of a member being permitted to defend a cross claim in the name of the company without seeking leave, because the defence was characterised as being within the ambit of the claim for which leave to bring the derivative proceeding had been granted.[42]

    [40]See Hannon (2011) 82 ACSR 259, 279 [116]; [2011] NSWSC 10, South Johnstone Mill Ltd v Dennis (2007) 163 FCR 343, 367 [127] and Cassegrain (Austin) [2010] NSWSC 91 [15], [18].

    [41]Cassegrain (CoA) (2013) 305 ALR 648, 102–5; [2013] NSWCA 454.

    [42]MG Corrosion [2012] FCA 461 [23]–[36].

  1. In short, these cases reveal differing underlying assumptions arguably relevant to the potential scope of s 241, but they neither discuss nor determine the issue that now arises.

The Canadian materials

  1. We also do not consider that the Canadian decisions relied upon by the applicants are of assistance.  The cases relied upon come from British Columbia.  The relevantly equivalent legislative provisions there are significantly different.  Material relied upon by the respondents indicates that British Columbia is not of any particular significance in relation to the Australian provisions.  Palmer J observed in Swansson v R A Pratt Properties Pty Ltd[43] that the ‘inspiration’ for Part 2F.1A of the Act was the equivalent legislation in New Zealand. Palmer J then said:

[T]he terms of Pt 2F.1A are so different from the provisions of the New Zealand and Canadian legislation that the case law in those jurisdictions is of little assistance.[44]

[43](2002) 42 ACSR 313; [2002] NSWSC 583.

[44]Ibid [20].

We agree.

Analysis — proposed ground 2

  1. In our opinion the judge was correct in her conclusion that the power contained in s 241 permitted the Court to grant leave to amend without requiring a fresh application for leave under s 237, or requiring that the matters specified in s 237(2) be established, substantially for the reasons which she gave.

  1. Addressing first, as one must, the text of the legislation, s 241 gives the Court power to:

    ·‘make any orders’

    ·‘that it considers appropriate’

    ·‘in relation to proceedings brought … with leave’.

  2. Section 241 concerns proceedings already ‘brought’ with leave. Sections 236 and 237 concern who may ‘bring proceedings’, who may ‘apply to the Court for leave to bring … proceedings’, and the matters which an applicant must establish before it can ‘bring the proceedings’. As the primary judge observed, ss 236 and 237 concern the bringing of proceedings, whereas s 241 concerns the management of proceedings once brought.

  1. The construction of s 241 contended for by the respondents and adopted by the primary judge is consistent with, and reflects, the wide general powers which courts have in relation to amendment, contained, in the instant case, in Order 36. We have earlier set out the relevant terms of Rule 36.01. Of particular note is Rule 36.01(3) which provides that an amendment may be ordered notwithstanding that the effect is to add a cause of action arising after the commencement of the proceeding. The explanatory memorandum, upon which the respondents relied, confirms the legislature’s intention to confer power on the Court by s 241 in ‘addition to the usual orders which a Court may make pursuant to relevant Court rules’.

  1. The respondents’ contention that imposing the requirements of ss 236 and 237 on an application to amend under s 241 requires a ‘re-writing’ of the respective provisions is also well-founded. Most obviously, ss 236 and 237 concern the bringing of proceedings. A substantial re-writing of those provisions would be required to render them directly applicable to an application to amend in a proceeding already brought. The applicants seek to address this impediment by contending that ‘proceedings’ in ss 236 and 237 is to be read as ‘causes of action’. This construction finds no support in the text of the legislation, in our opinion. Indeed, s 241(1)(d)(ii) expressly differentiates the ‘cause of action’ from the ‘proceedings’.

  1. Further, the applicant under s 241 is the company, whereas the applicant under ss 236 and 237 is the member. A re-writing to accommodate this disconformity would also be required by the applicants’ construction.

  1. The requirements in ss 236 and 237 might, of course, be adapted to accommodate these obstacles, but the need for such adaptation supports, in our view, a conclusion that s 241 is not to be read as being limited or constrained by ss 236 and 237.

  1. The judge’s interpretation is also supported by the principle in Shin Kobe Maru.  Because the applicants sought to displace that principle, it is necessary to say more about it.

The ‘Shin Kobe Maru’ principle

  1. The High Court’s modern treatment of the issue of implied limitations in legislation granting power to a court relevantly begins with the decision in FAI General Insurance Co Ltd v Southern Cross Exploration NL.[45]  In that case, Gaudron J adopted a statement of principle from Earl Loreburn LC in Hyman v Rose,[46] where he said:

It is one thing to decide what is the true meaning of the language contained in an Act of Parliament.  It is quite a different thing to place conditions upon a free discretion entrusted by statute to the Court where the conditions are not based upon statutory enactment at all.

[45](1987) 165 CLR 268 (‘FAI’).

[46](1912) AC 623, 631.

  1. In FAI the other members of the Court addressed the issue, which concerned a provision in the New South Wales Supreme Court Rules empowering the Court to extend time, more specifically.

  1. Gaudron J returned to the relevant issue in Knight.  That case concerned a provision in the Queensland Supreme Court Rules conferring a discretion on the Court in relation to costs.  Gaudron J, after agreeing with the judgment of Mason CJ and Deane J, added the following observation:

It is contrary to long established principle and wholly inappropriate that the grant of power to a court (including the conferral of jurisdiction) should be construed as subject to a limitation not appearing in the words of that grant.[47]

She cited Hyman v Rose and her own earlier judgment in FAI.  She went on to say that the words used in the statute should be given ‘their full meaning unless there is something to indicate to the contrary’.[48]  She observed that powers conferred on the Court must be exercised judicially, and then said:

The necessity for the power to be exercised judicially tends in favour of the most liberal construction, for it denies the validity of considerations which might limit a grant of power to some different body, including, for example, that the power might be exercised arbitrarily or capriciously or to work oppression or abuse.[49]

[47](1992) 174 CLR 178, 205.

[48]Ibid.

[49]Ibid.

  1. To similar effect, Mason CJ and Deane J said:

The inevitable answer to arguments directed to limiting curial jurisdiction based on the supposition that the jurisdiction might lend itself to abuse is that the court will and should develop principles governing the exercise of the discretion which will ensure that the jurisdiction is not exercised in such a way as to give rise to abuse.  And that is the answer to the appellants’ case to the extent to which it seeks to confine the scope of the jurisdiction by reference to arguments in terrorem.[50]

[50]Ibid 185.

  1. Shin Kobe Maru concerned the ambit of a ‘maritime claim’ within the meaning of the Admiralty Act 1988 (Cth). In a judgment of the entire Court (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ) the relevant principle was expressed as follows (citing FAI and Knight):

It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a Court by making implications or imposing limitations which are not found in the express words.[51]

[51](1994) 181 CLR 404, 421.

  1. The High Court restated that principle shortly afterwards in Emanuele,[52] Oschlack v Richmond River Council,[53] and CDJ.[54]

    [52](1996) 188 CLR 114, 136–7 (Gaudron J).

    [53](1998) 193 CLR 72, 81 (Gaudron and Gummow JJ).

    [54](1998) 197 CLR 172, 185–6 (Gaudron J).

  1. The applicants sought to avoid this principle by reliance on the High Court’s decision in ABCC v CFMEU.  That case concerned provisions of the Fair Work Act 2009 (Cth). Section 546(1) of the Fair Work Act provided that specified courts could ‘order a person to pay a pecuniary penalty that the court considers is appropriate’ if the Court was satisfied that the person had contravened certain provisions of the legislation. Section 545(1) provided that the Court could make ‘any order the court considers appropriate’ if the Court was satisfied that a person had contravened the specified provisions. Section 545(2) provided that, without limiting subsection (1), the orders that could be made included various specified orders dealing with prevention, remediation and compensation.

  1. The primary judge in ABCC v CFMEU had imposed a pecuniary penalty on a union and on an individual and had then ordered, relying upon s 545(1), that the union must not indemnify the individual. One of the issues before the High Court was whether that order could properly be made under the general power conferred on the Court by s 545(1) of the Fair Work Act.  The High Court held that it could not.

  1. Kiefel CJ said that s 546(1) was clearly the sole source of power for the imposition of a pecuniary penalty. She held that s 545(1) by its terms had a circumscribed operation. The ABCC had relied upon the principle in Shin Kobe Maru, but Kiefel CJ held that in the circumstances of this legislation that reliance was ‘misplaced’.[55]  Instead, the principle in Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia[56] applied, so that the specific grant of power to make penal orders in s 546(1) involved a denial of power to do the same thing under a different provision free from the conditions prescribed by s 546.

    [55](2018) 262 CLR 157, 168–19 [22]–[23]. See also 171 [32]-[33].

    [56](1932) 47 CLR 1, 7-8 (Gavan Duffy CJ and Dixon J) (‘Anthony Hordern’).

  1. In a separate judgment Keane, Nettle and Gordon JJ reached the same conclusion.  They set out seven relevant considerations.  The first was the principle in Shin Kobe Maru. The wide power in s 545(1) should be constrained only by limitations strictly required by the language and purpose of the section. The other six considerations, however, including the Anthony Hordern principle, revealed that in that particular case the broad power was to be constrained. Reading the relevant provisions as a whole, they concluded that the general power in s 545(1) was limited to preventative, remedial and compensatory orders, and did not include a power to make penal orders.[57]

    [57](2018) 262 CLR 157, 190–3 [103]–[110] (see esp 192 [106]), 194 [114]; see also 189 [98].

  1. On this issue Gageler J agreed with both Kiefel CJ and Keane, Nettle and Gordon JJ.[58]

    [58]Ibid 174 [51].

  1. In our opinion, the position here is not relevantly analogous to that in ABCC v CFMEU. This is not a case where a general power is sought to be relied upon in circumstances where there is a specific provision dealing with that subject matter. Again, ss 236 and 237 regulate the institution of the proceeding; s 241 regulates its management once instituted. Sections 236 and 237 enable a member of the company to seek leave; s 241 empowers the Court to make orders at the instigation of the company itself, in the conduct of the proceeding brought in its name by the member pursuant to the leave already granted. Resort to s 241 to permit an amendment having the effect of allowing a new cause of action to proceed is therefore not to ‘do the same thing’ as s 237 allows but ‘under a different provision’.

  1. Legislative provisions conferring power on a court, of which s 241 of the Act is one, are not to be construed as subject to limitations not appearing in the text (which includes all the relevant provisions). The submissions put on behalf of the applicants to the effect that a liberal construction of s 241 will lead to abuse, in that the requirements of s 236 and s 237 will be subverted, should be rejected. For the reasons we have given, the language and subject matter of s 241 provide no support for implying limitations in its scope. The principle in Shin Kobe Maru requires the opposite conclusion.  As explained by Gaudron J, and by Mason CJ and Deane J in Knight, the fact that the power is to be exercised judicially provides the necessary safeguard against abuse of s 241 which would seek to circumvent the operation of s 237.

Criteria in s 237 as ‘relevant considerations’ under s 241

  1. In relation to the contention concerning the relevance of the criteria in s 237 which was advanced for the first time before us, we are not prepared to find that the judge made any relevant error in that connection.

  1. Importantly, the argument was not put to the primary judge.  She addressed the contentions of those opposing the application for leave to amend as they were advanced.  The attempt to introduce the new contention shifted the focus of the alleged error from the application of a wrong principle to a failure to take into account relevant considerations, separate aspects of the relevant principles set out in House v The King.[59]  The introduction of such a new argument on appeal for the first time will not normally be permitted, and we would not permit it in this case. 

    [59](1936) 55 CLR 499, 505.

  1. We also note that the new contention does not fall within the proposed grounds of appeal in the application for leave to appeal. 

  1. More fundamentally, we do not accept that the matters set out in s 237 must, in every application under s 241 seeking leave to amend, be taken into account as relevant considerations in the exercise of the discretion whether to grant that leave. The legislation provides no textual support for such a strict view; as we have said, the different language of the provisions suggests quite the contrary. Of course, it would be a relevant matter to consider any argument that leave should be refused because the effect of granting leave would be to sidestep the operation of s 237 in some material respect. But even then, accepting such an argument would, for the reasons we have given, not necessarily deprive the Court of power to grant leave to amend. The matter would be one to weigh in the balance.

  1. In considering an application under s 241 to amend so as to introduce a new cause of action, we accept that the application must be considered and addressed in the context of Part 2F.1A, including the requirement that leave be obtained by reference to specified criteria before a proceeding can be brought. That is a relevant consideration. In a particular case, where some entirely new and unrelated cause of action was sought to be introduced, the Court would have to consider whether the amendment should be refused unless the criteria in s 237 were met or until the member made a fresh application under s 237.

  1. We are in any event unpersuaded that the judge did fail to consider any relevant matter. The primary judge addressed the close connection between the existing claim and the new claim. She was clearly conscious of the significance of the fact that the proceeding had been brought under Part 2F.1A. In our view, it has not been demonstrated that she failed to have regard to a relevant matter.

  1. Leave to appeal in relation to proposed ground 2 will be refused:  for the reasons concerning substantial injustice previously referred to, and because we consider that the proposed ground is not made out. 

Analysis — proposed ground 1

  1. Given our other conclusions, it is unnecessary to reach a considered conclusion on proposed ground 1 concerning the ambit of Robson J’s order.  However, some brief observations may be made.  We accept the submission made concerning the need to interpret the order and the reasons together.  In Slea v Connective this Court adopted statements to that effect from the Full Court of the Federal Court and the Court of Appeal in New South Wales as follows:

In Yates Drummond J, with whom Sundberg and Finkelstein JJ agreed, said it was both ‘impermissible’ and ‘quite unrealistic’ to attempt to read and understand an order in isolation from the context of the reasons for it being made.  In Athens Santow JA expressed a relevantly similar view, observing that treating the originating judgment is merely providing context for resolving ambiguity in an order understated ‘the primacy of that judgment as a source of interpreting the order’.[60]

[60]Slea v Connective (2018) 359 ALR 159, 165 [30]; [2018] VSCA 180 — citations omitted.

  1. However, it does seem to us that there are substantial obstacles to a conclusion that a cause of action arising after the grant of leave relevantly fell within the terms of Robson J’s order.  We do not, however, express any concluded view on that issue.

Conclusion

  1. Leave to appeal will be refused.

- - -

SCHEDULE OF PARTIES

GLENN ANDREW LEES

First Applicant

MARK SEAMUS HARON

Second Applicant

GRAHAM EDWARD MALONEY

Third Applicant

CONNECTIVE SERVICES PTY LTD (ACN 107 366 496)

First Respondent

CONNECTIVE OSN PTY LTD (ACN 106 761 326)

Second Respondent

MACQUARIE BANK LIMITED

Third Respondent

CONNECTIVE GROUP PTY LTD (ACN 162 397 060)

Fourth Respondent

CONNECTIVE BROKER SERVICES PTY LTD
(ACN 161 731 111)

Fifth Respondent

CONNECTIVE LENDER SERVICES PTY LTD
(ACN 161 731 460)

Sixth Respondent

CONNECTIVE FUNDER SERVICES PTY LTD
(ACN 161 732 645)

Seventh Respondent

CONNECTIVE GROUP IP HOLDINGS (NO 1) PTY LTD
(ACN 165 282 084)

Eighth Respondent

CONNECTIVE GROUP IP HOLDINGS (NO 2) PTY LTD
(ACN 165 281 925)

Ninth Respondent

SLEA PTY LTD (ABN 16 081 276 811)

Tenth Respondent

MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097)

Eleventh Respondent


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Cases Cited

25

Statutory Material Cited

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Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229
Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609
Slea Pty Ltd v Connective Services Pty Ltd [2019] VSC 201