In the matter of ACN 091 518 302 Pty Ltd (In Liquidation) (formerly Pinnacle Investments Pty Ltd)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2018 02277

IN THE MATTER OF ACN 091 518 302 PTY LTD (IN LIQUIDATION) (ACN 091 518 302)

DAVID DJORDJEVICH	Plaintiff
and
WESTPAC BANKING CORPORATION (ACN 007 457 141) and MICHAEL ROBERT GAYLARD	Interveners

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JUDGE:	Connock J
WHERE HELD:	Melbourne
DATE OF HEARING:	19–20 February, 20 March, 11 April, 17 May, 25 June, 18 July, 23 August 2019. Supplementary material filed by the plaintiff pursuant to leave granted on 23 August 2019.
DATE OF JUDGMENT:	23 October 2019
CASE MAY BE CITED AS:	In the matter of ACN 091 518 302 Pty Ltd (In Liquidation) (formerly Pinnacle Investments Pty Ltd)
MEDIUM NEUTRAL CITATION:	[2019] VSC 699

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CORPORATIONS – Derivative action – Section 237 of the Corporations Act 2001 (Cth) – Company in liquidation – Impact of liquidation of a company on availability of statutory derivative action – Inherent jurisdiction – Inherent jurisdiction and judicial discretion.

CORPORATIONS – Directions – Section 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) – Insolvency Practice Schedule – Company in liquidation – Liquidator’s power to assign claims in related proceeding – Assignment of claims and causes of action.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Levine	Maciel Pizzorno & Co
For Westpac Banking Corporation	Mr N de Young	Thomson Geer
For Mr M Gaylard	Mr D Snyder	Colin Biggers & Paisley

TABLE OF CONTENTS

INTRODUCTION AND SUMMARY............................................................................................ 1

SOME PROCEDURAL HISTORY................................................................................................. 5

BACKGROUND................................................................................................................................. 7

SECTION 236 / 237 APPLICATION............................................................................................. 23

INHERENT JURISDICTION LEAVE APPLICATION............................................................ 42

DIRECTIONS APPLICATION..................................................................................................... 63

CONCLUSION AND PROPOSED ORDERS............................................................................ 67

HIS HONOUR:

INTRODUCTION AND SUMMARY

By his amended originating process filed on 6 December 2018, the plaintiff sought orders to the following effect:

(a) Leave pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth) (Act), and alternatively, the inherent jurisdiction of the Court, to ‘initiate and continue’ the claims the subject of the generally indorsed writ (Writ) filed by ACN 091 518 302 Pty Ltd (in liquidation) (Pinnacle)[1] through its liquidator, Mr Rohrt (Liquidator), in another proceeding in this Court (Pinnacle Proceeding), in the name of Pinnacle.

(b) A ‘direction’ under ss 90-15 and 90-20 of Schedule 2 to the Act that the liquidator has the power to assign the claims the subject of the Writ.

[1]Formerly named Pinnacle Investments Pty Ltd.

The Writ was filed by Pinnacle on 17 August 2017, but is yet to be served.[2]
[2]The Writ was filed in what were said to be urgent circumstances and under limited authority from the Liquidator as a result of limitation of actions considerations raised with the Liquidator by counsel for the plaintiff. The period of validity for service of the Writ was extended by order of Sifris J made on 3 August 2018 and further extension orders were made to enable the applications the subject of this proceeding to be made, heard and determined.

Briefly, the Pinnacle Proceeding concerns events of many years past and, in particular, the circumstances surrounding a loan of $1,880,000 made to Pinnacle by St. George Bank Limited (St. George) in November 2001 for a period of 12 months (November Loan) in connection with the establishment and operation of a landfill venture, and related matters and transactions. The defendants to the Pinnacle Proceeding are Westpac Banking Corporation (Westpac) as the successor at law of St. George, Mr Michael Gaylard, and Mr Richard Flory (collectively, Pinnacle Proceeding Defendants). Mr Gaylard and Mr Flory are alleged to have been legal practitioners with the firm Rogers and Gaylard at the relevant time and to have represented that they were acting for Pinnacle in connection with the November Loan, and related transactions.

In the Pinnacle Proceeding it is alleged that the November Loan and related transactions were authorised by only one of two directors of Pinnacle, being Mr Irani; were not for the benefit of Pinnacle; were entered into by Mr Irani in breach of fiduciary duties owed to Pinnacle; and were part of a dishonest and fraudulent design of Mr Irani. Among other things, the Writ stated that each of the Pinnacle Proceeding Defendants engaged in what was described as ‘fraudulent conduct’ in connection with the November Loan and related matters.

The claims made and causes of action sought to be relied upon were not clear from the terms of the Writ, and the Court and the Pinnacle Proceeding Defendants were left to speculate somewhat as to what particular causes of action were being pursued. Consequently, it was ordered that the plaintiff file and serve a document specifying and separately identifying each cause of action said or sought to be pleaded on behalf of Pinnacle against each of the Pinnacle Proceeding Defendants.[3] The plaintiff filed and served that document during the course of the hearing of this proceeding on 25 February 2019 (Pinnacle Claims Document).
[3]And the relief claimed against each of them.

The Pinnacle Claims Document recorded that the ‘causes of action against’ each of the Pinnacle Proceeding Defendants were said to be for the tort of deceit and ‘Barnes v Addy’ causes of action (collectively, Causes of Action).[4]
[4]Pinnacle Claims Document at [1]–[4]. The Barnes v Addy claims were in respect of what has become known as the ‘second limb’ of Barnes v Addy.

The deceit claims were described as: ‘acting in concert to implement a dishonest and fraudulent design intended to covertly misappropriate the assets of the company’, and ‘participating in an underhand scheme designed to cheat the company of its assets’.

The Barnes v Addy claims common to all of the Pinnacle Proceeding Defendants were described as: ‘knowingly participating in a dishonest and fraudulent breach of fiduciary duty’; and ‘knowingly participating in assisting a fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in conduct that is in breach of fiduciary duty’. The claims against Mr Gaylard and Mr Flory included what was said to be a further Barnes v Addy claim that was described as: ‘fraudulently misrepresenting that they were acting on behalf of Pinnacle’.

The relief sought against Westpac in the Pinnacle Proceeding was said to include damages, equitable compensation, orders setting aside documents relating to the November Loan, related declarations, payment to Pinnacle of amounts equal to loan repayments and other amounts paid to St. George, interest and costs. The relief sought against Mr Gaylard and Mr Flory was said to be damages, equitable compensation, interest and costs.

The Pinnacle Proceeding Defendants were, understandably, not named as defendants in this proceeding, although each of Westpac and Mr Gaylard sought and were granted leave to intervene. Mr Flory did not seek such leave and did not appear or take part in the hearing.

The Liquidator did not formally seek leave to intervene in the proceeding but, without opposition from the plaintiff, Westpac, or Mr Gaylard (collectively, Parties), was represented by counsel at a number of the directions hearings. By earlier directions made by Sifris J,[5] the Liquidator was provided with an opportunity to serve an affidavit and outline of submissions. On the first day of the hearing counsel for the Liquidator also briefly appeared and made some observations directed at assisting the Court and the Parties regarding the Liquidator’s position.
[5]On 15 June 2018.

In summary, it has been concluded that:

(a) The plaintiff’s application for leave pursuant to ss 236 and 237 of the Act to bring the Pinnacle Proceeding, or to intervene in it for the purpose of taking responsibility for it in the name of Pinnacle, should be refused. Part 2F.1A of the Act, including ss 236 and 237, does not apply to a company in liquidation and the Court does not have power under ss 236 and 237 of the Act to grant the leave sought by the plaintiff. Further, even if it had been necessary to consider the statutory criteria specified in s 237,[6] the criterion in s 237(2)(c) of the Act was not satisfied because the plaintiff did not establish on the evidence that it was in the best interests of Pinnacle that the plaintiff be granted the leave sought.

(b) In the circumstances, the plaintiff’s application for leave pursuant to the Court’s inherent jurisdiction to bring or continue the Pinnacle Proceeding in the name of Pinnacle should be refused even if it were to be assumed that the Causes of Action have a solid foundation or reasonable prospects of success. Further, on the material currently before the Court, it has not been established that the Causes of Action have a solid foundation or reasonable prospects of success.

(c) The plaintiff’s application for a direction pursuant to s 90-15 of Schedule 2 to the Act to the effect that the Liquidator has the power to assign the claims referred to in the Writ should be refused. At the time of the hearing an assignment to the plaintiff of the Causes of Action said to be the subject of the Writ was no longer contemplated or likely, and might never arise. There was also no agreement regarding the terms or likely terms of any assignment or a proposed form of assignment for the Court to consider.

[6]And even assuming for the moment that each of the causes of action sought to be pressed against each of the Pinnacle Proceeding Defendants raised a serious question to be tried.

The balance of these reasons is divided as follows:

(a) Some Procedural History.

(b) Background.

(c) Section 236/237 Application.

(d) Inherent Jurisdiction Leave Application.

(e) Directions Application.

(f) Conclusion and Proposed Orders.

SOME PROCEDURAL HISTORY

As with some of the other proceedings in this Court over past years connected with the affairs and activities of Pinnacle, this proceeding and its hearing has had an extended procedural history that, on occasion, has not been without complexity.

This has seen, among other things, amendments to the originating process by the plaintiff to include an application for derivative leave pursuant to the inherent jurisdiction of the Court, and the hearing of the proceeding taking place over an extended period so as to facilitate numerous adjournments for matters such as: the preparation and filing of the Pinnacle Claims Document;[7] the filing of response documents by Westpac and Mr Gaylard;[8] the hearing and determination of an application by the plaintiff to adduce further evidence from a former director of Pinnacle;[9] the plaintiff preparing and filing during the course of the hearing additional evidence from a former Pinnacle director and others; the preparation and filing of further evidence by Westpac and Mr Gaylard; the hearing and determination of an application by the plaintiff to inspect legal advice obtained by St. George in 2001 regarding the November Loan that involved privilege waiver issues;[10] Westpac producing the legal advice for inspection by the plaintiff pursuant to Court orders; Westpac producing for inspection additional documents relating to the legal advice; the filing of additional written submissions by the Parties; consideration by the plaintiff of the documents produced by Westpac; and the filing of further evidence by the plaintiff.
[7]Pursuant to the orders of Connock J made on 20 February 2019.
[8]Ibid.
[9]See ruling dated 20 February 2019 and the orders of Connock J made on 20 February 2019.
[10]See ruling dated 25 June 2019, and the orders of Connock J made on 25 June and 18 July 2019.

This extended procedural history also resulted in a number of applications being made in the Pinnacle Proceeding for orders further extending the period of validity of the Writ for service pending the hearing and determination of the plaintiff’s applications in this proceeding.[11]
[11]Orders of Connock J made on 12 October, 30 November 2018, 20 February, 20 March, 11 April, 17 May, 25 June and 23 August 2019. From the time this proceeding first came before Sifris J for directions, this proceeding and the Pinnacle Proceeding have been managed in parallel. All extension orders have been made on the basis that they were made without prejudice to the rights of the Pinnacle Proceeding Defendants to take such action as they may be advised in relation to the Pinnacle Proceeding if the Writ is served on one or more of them following the hearing and determination of the plaintiff’s applications in this proceeding.

In the lead up to the hearing, and during its course, the Parties filed and served numerous affidavits and supplementary affidavits that were relied on at the hearing,[12] as detailed below.
[12]There was extensive documentary evidence which, together with the affidavits and other documents, was included in a Court Book.

The plaintiff filed the following affidavits:[13]
[13]Some of which exhibited affidavits filed in earlier proceedings.

(a) Six affidavits of the plaintiff, who is a shareholder and claimed creditor of Pinnacle, sworn 14 June, 27 August, 29 November 2018, 18 February (two affidavits) and 10 April 2019.

(b) Two affidavits of Mr Chellicovski, the plaintiff’s brother, who has been assisting the plaintiff with matters associated with Pinnacle, sworn 27 July and 8 October 2019.

(c) Three affidavits of the plaintiff’s solicitor, Mr Angelatos, sworn 10 October 2018, 8 March and 5 August 2019.

(d) An affidavit of Ms Ruiz, a process server, sworn 18 February 2019.[14]

(e) An affidavit of Mr Gracias, a former director of Pinnacle, sworn 28 February 2019.

[14]Relating to the service of materials upon Mr Flory.

Westpac filed the following affidavits:

(a) Two affidavits of Mr Norton, a solicitor acting for Westpac, sworn 11 October 2018 and 12 March 2019.

(b) An affidavit of Ms Gehrig, solicitor, and the partner responsible for acting for Westpac in this proceeding, sworn 25 June 2019.

Mr Gaylard filed an affidavit of his solicitor, Ms Thompson, sworn 15 March 2019.

The Liquidator filed an affidavit sworn 31 July 2018.

Many written submissions and further written submissions were filed and relied on by the Parties. The plaintiff filed written submissions dated 12 July, 27 September and 29 November 2018 (two), and 25 February, 26 April, 31 May and 5 August 2019.[15] Westpac filed written submissions dated 11 October 2018, and 15 February, 12 March, 16 May and 16 August 2019. Mr Gaylard filed written submissions dated 5 October and 28 November 2018, and 18 February and 12 March 2019.
[15]Plus an email regarding three recent cases, which were addressed orally by the plaintiff during the final day of the hearing on 23 August 2019.

The Liquidator filed short written submissions regarding his position on 18 February 2019.[16]
[16]The day before the first day of the hearing.

No witnesses were cross-examined[17] and the written submissions were supplemented by oral submissions made during the extended hearing.
[17]And no objections to the affidavit evidence were pressed by any party.

BACKGROUND

The background to the proceeding was addressed in the voluminous material and submissions. As the plaintiff observed, aspects of the background to, and history of, Pinnacle, its failed landfill venture, the November Loan, the Westpac bank guarantee in favour of St. George that formed part of the security for the November Loan (Bank Guarantee), and related matters and transactions, were also apparent from previous reasons delivered in various proceedings in this Court over years past, some of which were included in the evidence or referred to in submissions by the plaintiff.[18]
[18]See, for example, Kermani v Gaylard [2011] VSC 46, [4]–[71] (Sifris J); and Homai Kermani v Westpac Banking Corporation [2010] VSC 556, [4]–[29] (Davies J).

Although it is neither necessary nor desirable for present purposes to recite all of the detailed background addressed in the evidence, given the submissions made and the matters that fall to be considered by the Court when addressing applications of the kind now before it, it is helpful and convenient to provide below some insight into the background as revealed by the evidence, before turning to consider each of the applications.

In February 2000, Pinnacle was incorporated. A little later Pinnacle entered into an agreement to purchase a property located at 600 Sunbury Road, Bulla, Victoria (Property). The Property was to be used as the site for a landfill venture and operation.

In early June 2000, heads of agreement were entered into between Mr Irani (who was expressed to be the then holder of all the shares in Pinnacle), the plaintiff, Mr Luke Gracias, and others in relation to the purchase of a total of 25 per cent of the shares in Pinnacle, and related arrangements. Among other things it was contemplated that the plaintiff and four others (collectively, Minority Shareholders) would each purchase 5 per cent of the shares in Pinnacle, which subsequently occurred. It was also recorded that certain loans would be made to Pinnacle, including a loan of $200,000 from the plaintiff.

On 6 June 2000, the plaintiff paid $200,000 to Pinnacle.

On 15 June 2000, St. George and Mr Irani signed a letter of offer pursuant to which St. George advanced the sum of $3,575,000 to Pinnacle to assist with the purchase price of the Property. The security given to St. George included a fixed and floating charge over various companies, including Pinnacle (Pinnacle Charge).

Settlement of the purchase of the Property occurred on 15 June 2000.

On or about 25 June 2000, a document expressed to be between Pinnacle and Civil Construction Corporation and described as an ‘[i]n principle agreement proposal for Bulla Landfill Site’ in relation to construction works at the Property, was signed. The document was also described in its terms as an ‘in principle estimate’ and referred to the work cost to obtain EPA licence approval being ‘approximately $350,000 plus the cost of a weigh bridge and amenities block of an original estimate of total works of $650,000’. It also contemplated the development of a scope of works and cost analysis prior to work commencing.

On 1 September 2000, the plaintiff and others entered into a loan agreement with Pinnacle and Mr Irani in relation to, among other things, loans previously made to Pinnacle, including the loan made by the plaintiff referred to above.

Mr Gracias is recorded on the ASIC company register as being appointed as a director of Pinnacle on 1 September 2000.

In a statement dated 5 October 2000, Ms Turfrey, a former articled clerk, stated, among other things, that: she was previously acting for a party connected with the landfill property and operation, being LLCS Pty Ltd and its directors, including Mr Gracias; Pinnacle was intended to be ‘a two director company’, with Mr Irani being one, Luke Gracias … being the other’; decisions, resolutions and agreements of Pinnacle ‘… required the consent and signatures of both directors who were conferred with equal voting rights’; in October 2000 it came to Ms Turfrey’s attention that St. George had approved additional lending to Pinnacle that Mr Gracias was not aware of; and that Mr Gracias had been unsuccessful obtaining financial and other information regarding Pinnacle from Mr Irani and, consequently, she had been instructed to contact the manager at St. George, Mr Paul Phillips, and request copies of all financial information relevant to Pinnacle.

Ms Turfrey also stated that on 13 October 2000 she spoke with Mr Phillips and explained that Mr Gracias was a director of Pinnacle and was seeking to obtain the relevant financial information. She said that Mr Phillips said that he would have to get the manager holding the file to call her back. Ms Turfrey said that St. George’s Mr Lutwyche telephoned her that day and said he was the manager for Pinnacle, that she informed him that she was seeking information on behalf of Pinnacle’s second director, Mr Gracias, and that a meeting was arranged for 17 October 2000 with Mr Gracias and Mr Lutwyche, but that he called the day before and cancelled it. She said that this resulted in her contacting Mr Lutwyche and advising him that ‘… certain matters were in dispute in respect of Pinnacle’s affairs …’ and:

[f]urther, as Pinnacle was a two director company that all decisions made by the company required the signature and consent of both directors (including financial decisions). Additionally, that no further advances of monies or debentures or mortgages were to be given by the Bank over the company assets until they received further notice from our client…[19]

[19]CB 854.

Ms Turfrey referred to various file notes and correspondence that were said to be consistent with her statement, some of which were exhibited to the plaintiff’s affidavit sworn on 29 November 2018.[20]
[20]Including the letter referred to in the following paragraph.

On 19 October 2000, Deacons (acting for Mr Gracias) sent a letter to Mr Irani’s then solicitors, Cyngler & Co, copied to Mr Irani, referring to disputes between Mr Irani and Mr Gracias, requesting access to information regarding Pinnacle, and advising that no further debentures or mortgages were to be registered against Pinnacle until outstanding issues ‘… between the two directors have been resolved …’. The letter has a handwritten notation on its face as follows: ‘COPY OF THIS LETTER GIVEN TO ST. GEORGE BANK FOR PINNACLE FILE BY HAND – ATTENTION MR. PAUL PHILLIPS ON/ABOUT 12/1/2001’.[21]
[21]The evidence did not directly disclose who made this notation or when it was made. In her statement Ms Turfrey said that Mr Houareau informed her that ‘… on or about 12 January 2001 that he had personally handed Phillips a copy of the letter addressed to Cyngler dated 19 October 2000 …’.

Mr Gracias said that in late October 2000 he attended two separate meetings with St. George (with, respectively, Mr Lutwyche and Mr Phillips) and informed St. George that he was Pinnacle’s second director, that the shareholders’ agreement required the appointment of a second director to represent the minority shareholders, and that no further loans or debentures were to be placed on Pinnacle without his consent. He also said that he gave a copy of the shareholders’ agreement dated 1 September 2000 to Mr Phillips.

On 25 October 2000, an agreement expressed to be between Pinnacle and Soiltech Australia Pty Ltd (Soiltech) was executed by Mr Irani and records the appointment of Soiltech as the operator of the landfill facility on the Property.

By letter dated 30 November 2000, Deacons (acting for Mr Gracias) wrote to Mr Flory of Rogers & Gaylard, copied to Mr Irani and St. George’s Mr Paul Shoppee and others, referring to Mr Gracias being a director of Pinnacle and requesting financial and other information regarding its affairs. Among other things, the letter stated that it was ‘… essential that Luke Gracias have full access to company records to ensure that he can comply with his duties as a director of Pinnacle …’. The letter also stated that an application would be made to this Court to compel production of documents if they were not received.

Pursuant to a site management agreement dated 30 November 2000, Soiltech appointed Civil Construction as site manager of the Property.

Ms Turfrey said a meeting was held at St. George between Mr Gracias, Mr Phillips and others on 13 December 2000 in relation to inspection of St. George’s file but that Mr Phillips would not produce the file and required Mr Gracias to write to St. George listing the material to which access was sought. Mr Gracias’ evidence was to similar effect. Mr Gracias sent such a letter to St. George on about 18 December 2000.

By letter dated 12 January 2001, St. George’s Mr Phillips responded to Mr Gracias’ letter of 18 December 2018 and enclosed various documents, including bank statements, a copy of the operating agreements between Soiltech and Pinnacle, and bank correspondence. It also advised that St. George was completing a review of the exposure to Pinnacle and that a meeting had been scheduled for 16 January 2001 with Mr Irani at which it was proposed to discuss the status of the landfill, the commencement date, and the relationship between Soiltech and Civil Construction. Mr Gracias was invited to contact Mr Phillips further should he wish to discuss anything.

On 15 June 2001, St. George provided a further letter of offer in which an overdraft facility of $60,000 and a bank guarantee of $500,000 was provided to Pinnacle. The letter recorded that the facility was provided on the basis that specified ‘… existing securities continue to be provided to St. George …’.[22]
[22]These included guarantees from Mr Irani, the Pinnacle Charge and a bank guarantee in favour of St. George issue by Commonwealth Bank Limited on behalf of Civil Construction.

On 18 August 2001, St. George provided a further letter of offer to Pinnacle temporarily increasing the overdraft facility to $80,000 and again based upon specified existing securities continuing to be provided to St. George. The letter was expressed to be executed by Mr Irani on behalf of Pinnacle.

On 26 September 2001, an agreement by deed expressed to be between Shalridge Pty Ltd (Shalridge), Tranteret Pty Limited (Tranteret), Pinnacle and Soiltech, was executed (Option Deed). An ASIC company extract of Shalridge recorded both shares in Shalridge as being owned by Mr Irani’s wife, Homai Irani, also known as Homai Kermani, who was its sole director since November 2000.

The Option Deed:

(a) Recited that: Shalridge was a 75 per cent shareholder in Pinnacle; Soiltech was the operator of the Property pursuant to a management agreement with Pinnacle which it operated through its agent, Civil Construction; Tranteret wished to enter into a joint venture with Soiltech, with Pinnacle’s consent, as to the establishment and operation of a soil treatment facility at the Property, and an agreement for the mining of soil, sand and gravel at the Property; the Option Deed was being entered into in order for Shalridge to grant to Tranteret an option to purchase 25 per cent of the share capital of Pinnacle on the terms of the Option Deed; and that Tranteret would procure a bank guarantee of $2 million for the benefit of Soiltech and Shalridge as referred to in the Option Deed.

(b) Was expressed to be executed by Mr Irani on behalf of Pinnacle.

(c) Recorded the share sale price to be $2 million, subject to the terms of the Option Deed. Payment was to be made by way of bank cheque or by authorising Shalridge or Soiltech to draw upon the bank guarantee referred to in sub-paragraph (a) above.

(d) Made provision for the entry into a shareholders’ agreement upon the exercise of the option by Tranteret.

Sometime in September or October 2001, an undated agreement expressed to be between Tranteret, Soiltech, Shalridge, Pinnacle and High Quality Quarry Products Pty Ltd (Quarry Products) was executed, which included terms changing the recipient of the bank guarantee referred to in the Option Deed to a third party or bank to be notified in writing, and providing for Pinnacle to grant a mining lease to Quarry Products.

Westpac and Mr Gaylard contended that as at November 2001 Pinnacle was in urgent need of funds in order to enable the quarry operations to continue in circumstances where Soiltech had consistently defaulted in making monthly payments of $45,000 to Pinnacle, and Pinnacle did not otherwise have income, but had obligations to pay $45,000 per month to St. George under the pre-existing finance arrangements.

On 21 November 2001, St. George provided a further letter of offer to Pinnacle (21 November Letter) in respect of a loan of $1,880,000, being the November Loan. That letter recorded that it was signed by Mr Irani on behalf of Pinnacle. Among other things, the letter:

(a) recorded that the terms and conditions for existing facilities remained unchanged and that the letter was to be read in conjunction with previous letters of offer;

(b) stated that it was a condition of the facility that new security be provided to St. George comprising a bank guarantee of $2 million in favour of St. George, to be issued by Westpac on behalf of Tranteret;

(c) recorded the term of the loan to be one year from drawing;

(d) stated that the loan was to be drawn down in one advance of $1,750,000 with the balance of $130,000 being available to capitalise interest for 12 months;

(e) recorded the purpose of the loan to be: reimbursement to Civil Construction of $1,100,000 for infrastructure works already completed at the landfill; clearance of a temporary overdraft $100,000; construction of a soil remediation plant for $300,000; the capitalisation of interest; and for any other purpose approved by St. George in its discretion at any time;

(f) stated that repayment would occur at completion of the 12-month interest capitalisation period, with the full debt to be cleared by way of St. George calling on the bank guarantee of $2,000,000 provided by Westpac;[23]

(g) contained a condition requiring written confirmation from Hallinans Pty Ltd (Hallinans) that it was aware and acknowledged that the bank guarantee would be called on by St. George in 12 months to clear the advance provided to Pinnacle.

[23]Being, the Bank Guarantee referred to in paragraph 25 above.

By letter dated 22 November 2001 from St. George to Mr P Hallinan (the Managing Director of Tranteret, trading as Hallinan’s Haulage), St. George confirmed that the facilities extended to Pinnacle by St. George were not currently in default, gave qualified assurances regarding St. George’s consent to the proposed sand and gravel extraction lease proposed to be entered into, and expressly stated that:

[a]s you are aware, the Bank is providing a fully drawn advance to Pinnacle investments Pty Ltd and will be holding the Bank Guarantee provided by Westpac Banking Corporation on your behalf as security. The Bank is providing a 12 month facility of which interest has been pre-paid. Would you please sign and return the following to acknowledge that the Bank is offering this facility.[24]

The letter recorded what appeared to be Mr Hallinan’s signature and acknowledgement, dated 22 November 2001.

[24]CB 700.

Pinnacle’s St. George bank statement for the period ending 30 November 2001 recorded $1,735,816.50 having been advanced to Pinnacle and deposited into its account on 23 November 2001.

There was some evidence that, sometime in late November 2001, Pinnacle, seemingly through Mr Irani, who Mr Gracias said controlled the account, withdrew or applied the following amounts from the St. George bank account:

(a) $130,000 by way of a cheque to Shalridge Pty Ltd;

(b) $1,100,000 by way of a cheque to Soiltech Australia Pty Ltd;

(c) a payment of $345,388.60 to St. George to pay down pre-existing overdraft debt of Pinnacle;

(d) $200,000 by way of a cheque to Mr Abe Goldberg (said to be an accountant for Mr Irani); and

(e) $25,000 by way of a cheque to a Mrs Sue McDonnell.

On about 28 November 2001, the company register maintained by ASIC for Pinnacle was changed so as to record Mr Gracias as ceasing to be a director. Mr Gracias said that this was done unilaterally by Mr Irani without his knowledge or consent by the lodging of a change of officeholder form 304 with ASIC in November 2001. The form was dated 31 July 2001 and recorded Mr Gracias as ceasing to be a director of Pinnacle on 25 March 2001.

Mr Gracias said that at that time he had not resigned or ceased to be a director of Pinnacle and that further forms correcting the position were lodged with ASIC in March and May 2002.[25]
[25]ASIC company extracts in evidence did record that Mr Gracias later ceased to become a director of Pinnacle on 29 August 2002, when Mr Houareau was appointed.

Mr Gracias said that he did not consent or authorise Pinnacle to enter into the transactions relating to the November Loan, the temporary overdraft facility, the agreement dated 26 September 2001 and expressed to be between Tranteret, Soiltech, and Pinnacle, or the agreement with Quarry Products. He also said that he did not authorise Rogers & Gaylard or others to negotiate or enter into any of the relevant transactions.

On 26 August 2002, Pinnacle served notice of termination of the operating agreement with Soiltech, and alleged breaches by Soiltech.

The date of 29 August 2002 is recorded in an ASIC company search of Pinnacle as being the date Mr Gracias ceased to be a director of Pinnacle and Mr Houareau was appointed as a director of Pinnacle.

On 18 September 2002, St. George, through its solicitors, served a notice of demand upon Pinnacle for the payment of the sum of $5,300,000.

On 20 September 2002, Quarry Products issued proceedings in this Court alleging that Pinnacle and Quarry Products had agreed on 21 November 2001 that Pinnacle would grant Quarry Products the right to mine all quarry products upon the Property in consideration for Tranteret providing a bank guarantee in the sum of $2,000,000 to Pinnacle. Pinnacle denied the allegations and alleged, among other things, that a concluded agreement had not been reached and that certain conditions precedent had not been fulfilled.

On 8 October 2002, St. George served Pinnacle with a notice to pay pursuant to s 76(1) of the Transfer of Land Act 1958 (Vic).

On 12 November 2002, Mr Paul Vartelas of BK Taylor & Co was appointed as administrator of Pinnacle.

On 18 November 2002, Tranteret issued a Supreme Court proceeding against St. George and alleged that St. George had engaged in misleading and deceptive conduct in order to procure the provision of an unconditional bank guarantee from it as security for the November Loan (Tranteret Proceeding).

On 18 November 2002, an affidavit of Mr P Hallinan was filed in the Tranteret Proceeding. Mr Hallinan deposed to, among other things, the circumstances in which the Bank Guarantee came to be in favour of St. George as security for the November Loan, and the letter received from St. George dated 22 November 2001.

On 26 November 2002, St. George appointed Messrs Martin and Carson as receivers and managers of Pinnacle.

On 31 January 2003, the affidavit of St. George’s Mr Phillips was filed in the Tranteret Proceeding, in which he deposed to, among other things, the circumstances in which: the November Loan was made; the Bank Guarantee was obtained as security; the letter of 22 November 2001 was sent to, and signed by, Mr Hallinan; he did not consider Pinnacle to be in default when the 22 November 2001 letter was sent to Mr Hallinan; and the purposes of the November Loan.

On 19 February 2003, St. George entered into possession of the Property under its first registered mortgage and appointed Messrs Martin and Carson as agents for St. George as mortgagee in possession.

On 3 March 2003, Ashley J determined that Tranteret should be granted an interlocutory injunction restraining St. George from calling upon the Bank Guarantee.[26]
[26]See Tranteret Pty Ltd v St. George Bank Limited [2003] VSC 46 – CB 703.

The plaintiff contended that on about 7 March 2003 Soiltech ceased making any payments pursuant to the landfill operations agreement.

On 23 May 2003, St. George as mortgagee in possession entered into a contract of sale to sell the Property to Quarry Products for the sum of $6,500,000.

On 11 June 2003, Soiltech was evicted from the Property and Quarry Products began to operate from the Property pursuant to a short-term licence.

On 25 July 2003, the then solicitors for the plaintiff, Mr Gracias, Mr Houareau and other Minority Shareholders wrote to Messrs Carson and Martin and asked that they bring to the attention of St. George that their clients proposed bringing proceedings against St. George for loss and damage:

… suffered as a result of St. George granting a $1,880,000 loan facility to Pinnacle without authorisation by the Board of Directors of Pinnacle, in or about November, 2001. At all times since 1 September, 2000 Pinnacle has had two directors …[27]

The letter also referred to the communications between Deacons, Mr Gracias and St. George in late 2000 and early 2001 regarding the two director issue. It stated that Mr Gracias had no knowledge of the proposal to make a further advance to Pinnacle and that the monies were ‘applied and expended’ without any knowledge of Mr Gracias and others.

[27]CB 1140.

The transaction the subject of the contract of sale to Quarry Products settled on 29 July 2003, and the Bank Guarantee was returned to Tranteret. The Mining Proceeding and the Tranteret Proceeding were resolved by agreement.

The proceeds from the sale of the Property were applied by St. George against amounts owed to it by Pinnacle.

On 30 July 2003, Mr Paul Vartelas was appointed as the first liquidator of Pinnacle.

On 7 April 2005, Lewis Allen Janover solicitors, acting on behalf of the plaintiff, Mr Gracias, Mr Houareau and other Minority Shareholders, wrote to St. George asserting the existence of a claim against St. George in respect of the November Loan and related matters, again emphasising, among other things, the two director issue. That letter stated that the solicitors had ‘been instructed to make that claim and that Queen’s Counsel has been briefed’. It stated further that St. George ‘… knew that it should not provide financial accommodation to Pinnacle without the consent and written authority of the Minority Shareholders; yet the Bank did so wrongfully, deliberately, recklessly, negligently and with contumelious disregard of the Minority Shareholders’ rights and interests’. The letter invited St. George to consider its position and said that a meeting was occurring on 19 April 2005 with senior and junior counsel ‘to finalise drafting of the Originating Process …’.

On 1 December 2005, Messrs Carson and Martin ceased to act as controllers of Pinnacle.

The plaintiff said that he attended a meeting of Pinnacle’s B Group shareholders that included Mr Houareau on 5 October 2009 and that during that meeting Mr Houareau expressed frustration and said that he resigned as a director of Pinnacle. At that meeting Mr Houareau is also said to have signed an authority for Mr Chellicovski to act on his behalf and provided all the files to Mr Chellicovski. No formal minutes of the meeting were taken, but the plaintiff said it was ’… clear that [Mr Houareau] had resigned as a director.’ That resignation was not reflected in the ASIC register.

On 15 November 2009, Mr Chellicovski wrote to St. George on behalf of the plaintiff and others ‘requesting compensation’ ‘IN REGARDS TO PINNACLE INVESTMENTS PTY LTD’. The signatories to the letter included the plaintiff, Mr Gracias, Mr Houareau, and Mr Chellicovski. Among other things, the letter again emphasised the two director issue, the various proceedings and judgments involving Pinnacle, and referred to 15 sets of reasons in different proceedings regarding Pinnacle delivered over the period from March 2003 to May 2009.

On 16 November 2009, the first liquidator retired.

On 15 March 2010, St. George’s solicitors, Allens Arthur Robinson, responded to Mr Chellicovski’s letter of 15 November 2009 denying any breaches or liability. Further correspondence was sent by Mr Chellicovski in reply dated 8 and 18 April 2010 in which numerous assertions were made regarding the conduct of St. George, including assertions that St. George had ‘… defrauded and deceived …’ the Minority Shareholders. The two director issue was again emphasised in this context.

On 17 February 2010, Pinnacle was deregistered.

Based on ASIC records, the Liquidator’s solicitors stated that ‘… at the date of deregistration (that is, after the former liquidation and receivership of [Pinnacle] were finalised), Westpac was still owed around $900,000 and unsecured creditors were still owed around $1.6 million … and now that the registration of [Pinnacle] has been reinstated, those creditors are creditors of [Pinnacle] for the same amounts …’.[28]
[28]Letter from Mills Oakley dated 24 January 2018 – CB 402–406.

On about 19 March 2010, Messrs Martin and Carson retired as receivers and managers of Pinnacle.

Prior to the registration of Pinnacle being reinstated upon the application of the plaintiff, the Liquidator was approached directly by the plaintiff’s counsel for his consent to act as Pinnacle’s liquidator upon reinstatement. The Liquidator’s understanding from his discussions with the plaintiff’s counsel at that time was that the plaintiff claimed that Pinnacle had a potential cause of action against Westpac that he wanted to pursue and that if the Liquidator was appointed as Pinnacle’s liquidator then he could either be funded by the plaintiff to run the claim in the name of Pinnacle or assign the claim to the plaintiff.

The Liquidator says that the plaintiff’s counsel made statements to him giving him comfort regarding the plaintiff’s financial position and the absence of any ‘… difficulty getting paid by the plaintiff’. Subsequently, the Liquidator consented to being appointed if Pinnacle was reinstated.[29]
[29]The Liquidator’s evidence and position is referred to in more detail later in these reasons.

Pinnacle was reinstated pursuant to the order of Efthim AsJ made on 14 October 2016 on the application of the plaintiff, and the Liquidator was appointed.

During the period up to August 2017 there were various communications between the plaintiff’s solicitors and the solicitors for the Liquidator in relation to the possible conduct of or assignment of potential claims of Pinnacle (which became the subject of the Writ), the need for the Liquidator to satisfy himself regarding, among other things, the merits of the claims, and related matters.

In August 2017, and taking into account advice received from counsel for the plaintiff regarding limitation issues, the Liquidator provided limited authority for the Writ in the Pinnacle Proceeding to be filed but not served.

On 17 August 2017, the Writ in the Pinnacle Proceeding was filed.

From late 2017, further communications passed between the solicitors for the plaintiff and the solicitors for the Liquidator, including in relation to a possible assignment, the duties of the Liquidator, the claims, the possibility of seeking leave to bring a derivative action, and other matters. This correspondence also referred to, among other things, Westpac still being owed in the order of $900,000 and unsecured creditors being owed about $1,600,000, and stated that even if the liquidator was ‘… funded by the plaintiff to run the Claim … or permitted to assign the Claim … any proceeds of the Claim would then be payable to Westpac, as the first ranking secured creditor of [Pinnacle] …’.[30] The correspondence also revealed increasing tension or differences in the relationship between the plaintiff and the Liquidator.
[30]Mills Oakley letter dated 24 June 2018 – CB 402–407.

On 15 June 2018, the originating process was filed in this proceeding.

On 3 August 2018, Sifris J granted leave for Westpac to intervene in this proceeding, and made further orders for Westpac, Mr Gaylard, Mr Flory and the Liquidator to file any affidavits and outline of submissions on which they intended to rely.

On 24 October 2018, the decision in Pentridge Village Pty Ltd v Capital Finance Australia Ltd [2018] VSC 633 (Pentridge Village) was handed down in this Court which concluded, among other things, that, consistent with the New South Wales Court of Appeal’s decision in Chahwan v Euphoric Pty Ltd (Chahwan),[31] Part 2F.1A (including ss 236 and 237) of the Act does not apply to a company in liquidation.
[31](2008) 65 ACSR 661 (Tobias JA, Beazley and Bell JJA agreeing).

On 30 November 2018, and in the light of the decision in Pentridge Village, the plaintiff sought and obtained leave to amend the originating process so as to include an application for leave, pursuant to the inherent jurisdiction of the Court, to initiate and continue with the conduct of the Pinnacle Proceeding in the name of Pinnacle.

Having previously appeared and been heard at a number of directions hearings, on 28 November 2018, Mr Gaylard filed an application formally seeking leave to intervene in the proceeding, which was opposed by the plaintiff. On 30 November 2018, Mr Gaylard was granted leave to intervene.

The amended originating process was filed on 6 December 2018.

At the directions hearing on 8 February 2019, counsel for the Liquidator informed the Court[32] that, in substance, the Liquidator’s position was that if it was put in funds it would be prepared further to explore on Pinnacle’s behalf the merits and legal position in relation to the claims the subject of the Pinnacle Proceeding and work out whether the matter should or should not be pressed. It was confirmed that, subject to receiving appropriate advice and costs protection, the Liquidator was willing to proceed as considered appropriate. In this context, the Liquidator was informed that the Court would be interested to hear about the Liquidator’s position at the time of the hearing of the plaintiff’s application given that the Liquidator’s position was relevant to the application pursuant to the inherent jurisdiction of the Court.
[32]Transcript 7:11–9:10.

By letter dated 13 February 2019, the Liquidator’s solicitors wrote to the Parties, referred to the hearing in this proceeding that was about to commence, and stated, among other things, that: one of the main issues that the Liquidator had identified regarding the issue of any assignment of the claims was that the claims were captured by the Westpac security interest (being the Pinnacle Charge) and therefore any assignment would require Westpac’s consent; there was no agreement between the Liquidator and the plaintiff as to the taking of any assignment or the terms upon which it might be made; given the Liquidator’s statutory duty to act in the best interests of creditors, he was required to obtain the best possible price for any assignment and that because the claims were the only ‘asset’ of Pinnacle, the Liquidator did not consider that it was in the best interests of the creditors of Pinnacle to dispose of the claims for any amount less than his total remuneration fees and expenses because this would result in no return to creditors; and the Liquidator invited any interested party to make an offer to take an assignment of the claims for consideration by the Liquidator on terms that involved, inter alia, a purchase price in excess of $126,500 (being the Liquidator’s remuneration, costs and expenses), in order to ensure that any assignment would result in a return to creditors.

By letter dated 15 February 2019, the plaintiff’s solicitors responded to the letter of 13 February 2019 and, in substance, alleged that the Liquidator was acting improperly in sending it.

In an affidavit filed on the morning of the hearing on 18 February 2019, the plaintiff deposed that he had ‘… applied for an order that the Supreme Court conduct an investigation into the liquidation [of Pinnacle] … [and] that the court remove the liquidator from Pinnacle as [he had] become concerned about his conduct …’. In fact, no such application had been made.

No agreement has been reached between the Liquidator and the plaintiff or any other party regarding the possible assignment of the Causes of Action, or the possible or likely terms of any such assignment. Further, and as the plaintiff acknowledged, there was not any likelihood of an assignment to the plaintiff.[33]
[33]See Transcript 126:1–7.

Also on the morning of the first day of the hearing on 18 February 2019, counsel for the Liquidator again informed the Court that,[34] in substance, the Liquidator’s position remained as previously indicated to the Court on 8 February 2019.[35] The plaintiff properly recognised and acknowledged that this was the position of the Liquidator.[36]
[34]Ibid 7:6–31.
[35]See paragraph 99 above.
[36]See, for example, Transcript at 383:30–387:24.

SECTION 236 / 237 APPLICATION
Introduction

The plaintiff seeks leave pursuant to ss 236 and 237 of the Act to ‘initiate and continue’ the Pinnacle Proceeding in the name of Pinnacle.

Sections 236 and 237 of the Act

Sections 236 and 237 are in Part 2F.1A of the Act, which is headed ‘Proceedings on behalf of a company by members and others’. Section 236 of the Act provides as follows:[37]
[37]Notes omitted.

(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a) the person is:
(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii)an officer or former officer of the company; and

(b) the person is acting with leave granted under section 237.
(2)Proceedings brought on behalf of a company must be brought in the company’s name.
(3)The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.

Sections 237(1) and (2) of the Act are in the following terms:[38]
[38]Sections 237(3) and (4) relate to specified circumstances where a rebuttable presumption arises that the grant of leave is not in the best interests of the company, which is not relevant for present purposes.

(1)A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
(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.

Submissions
Plaintiff’s submissions

The plaintiff submitted that ss 236 and 237 of the Act apply to a company in liquidation,[39] that he has established on the evidence that the relevant criteria in s 237 of the Act have been satisfied, and that leave to ‘continue’ the Pinnacle Proceeding ought to be granted.
[39]With respect to the submission that Part 2F.1A applies to a company in liquidation, the plaintiff placed some reliance on the Court of Appeal’s decision in Malhotra v Tiwari (2007) 25 ACLC 917, [2007] VSC 101.

As to the s 237 criteria, the plaintiff submitted that they had been satisfied because it had been established on the evidence that:

(a) the plaintiff has standing because he is a Pinnacle shareholder;

(b) it is probable that Pinnacle would not properly take responsibility for the Pinnacle Proceeding, or the steps required to be taken in it;

(c) the plaintiff is acting in good faith;

(d) it is in the best interests of Pinnacle for the plaintiff to be granted leave;

(e) there is a serious question to be tried in relation to each of the Causes of Action;

(f) at least 14 days before making the application the plaintiff had given written notice to Pinnacle of his intention to apply for leave, and the reasons for doing so.

In connection with the plaintiff’s contention that he had established that the statutory criteria had been satisfied, the plaintiff submitted that:

(a) Pinnacle is in liquidation and that the Liquidator had refused to continue to prosecute the action. However, as noted above, during the course of the hearing counsel for the plaintiff properly acknowledged that the Liquidator’s positon was in fact different and that, subject to being put in funds and receiving appropriate advice, the Court had been informed that the Liquidator was willing to explore proceeding with the claim and take appropriate steps.[40]
[40]See paragraphs 99 and 104 of the ‘Background’ section above and the related exchanges with counsel for the plaintiff at Transcript 385:13–387:5.

(b) The plaintiff had shown that it was acting bona fide because it had successfully applied to re-register Pinnacle to enable the Pinnacle Proceeding to be brought and had funded part of the Liquidator’s costs and disbursements.

(c) The plaintiff was willing to pay the reasonable value of the proceedings to Pinnacle and insulate Pinnacle from any potential costs orders by providing security for Pinnacle’s costs ‘… upon a clear title on a property that is worth $380,000 …’ and that further security will be provided as and when required ’… as it was appropriate for security for costs to be given be in tranches’.[41]

(d) The Liquidator would not consent or oppose the application for leave if their costs and expenses are met, and they are protected from liability for the costs of the Pinnacle Proceeding and adequate security for costs is provided.

[41]Citing Challis v Hoffman & Ors [2017] 121 ACSR 585, [137] (Gleeson JA).

For completeness, and in fairness to the plaintiff, it ought to be noted that at the time the originating process was filed in this proceeding, and initial written submissions were filed, neither the decision in Pentridge Village nor El-Saafin & Anor v Franek & Ors (El-Saafin)[42] had been handed down. After they were, the plaintiff amended the originating process to include an application in the alternative for the grant of leave pursuant to the Court’s inherent jurisdiction.[43]
[42][2018] VSC 683 (Lyons J).
[43]Which is addressed in the next section of these reasons.

Having regard to the further written submissions filed by the plaintiff after the decisions in Pentridge Village and El-Saafin had been delivered, it was not clear whether the application under ss 236 and 237 of the Act was being pressed. In part, this resulted from the plaintiff’s written submission that ‘… the balance of authority is that the court can grant leave to prosecute a proceeding on behalf of a company which is in liquidation pursuant to its inherent powers to supervise the conduct of a liquidator, but not pursuant to s 236 and s 237 of the Corporations Law 2001 …’.[44] The position was clarified with the plaintiff at the commencement of the hearing and the Court was informed that the application was being pressed, that the plaintiff was reserving its position on the point, but that it was not proposed to make further submissions about the issue,[45] which is how the matter proceeded.

Westpac and Mr Gaylard’s submissions

[44]Plaintiff’s written reply submission filed 29 November 2018, [11], citing various decisions, including Chahwan, Pentridge Village and El-Saafin.

[45]Transcript 11:22–12:25.

Westpac and Mr Gaylard opposed the application. Their submissions overlapped extensively and they also adopted each other’s submissions in material respects. Relevantly, and in substance, it was submitted that:

(a) Part 2F.1A of the Act has no application to a company in liquidation and therefore there is no power to make an order granting leave pursuant to s 237 of the Act.

(b) Even if it was to be assumed that the sections could apply to a company in liquidation, the plaintiff had failed to establish on the evidence that the relevant statutory criteria had been satisfied because:

(i) It had not been established that it was probable that Pinnacle will not take responsibility for the Proceeding, or the steps to be taken in it. In this context reference was made to the observations of the New South Wales Court of Appeal in Chahwan v Euphoric Pty Ltd (Chahwan)[46] that it was ‘… not unusual for a liquidator to bring proceedings on behalf of the company where he is put in funds to do so with appropriate indemnities by shareholders or creditors who have requested him or her to proceed with particular litigation …’. It was submitted that in the present case the plaintiff has asserted that he is willing to fund the prosecution of the claims and provide security for costs, and that there was no ‘special impediment’ preventing the plaintiff funding the Liquidator to prosecute the claims. Reliance was placed on the position of the Liquidator as referred to in paragraphs 99 and 104 above.
[46](2008) 65 ACSR 661 [124(h)] (Tobias JA, Beazley and Bell JJA agreeing).

(ii) Having regard to the circumstances, including the matters referred to above, the position of the Liquidator, and the limited and uncertain indemnity and costs protection available, the plaintiff had not established that the grant of leave was in the best interests of Pinnacle, and, further, the Court should not depart ‘… from the ordinary rule that derivative proceedings are not appropriate when a company is in liquidation.’[47]

(iii) The plaintiff had not established that there was a serious question to be tried in respect of the Causes of Action, and they were statute barred, and barred in equity by analogy, in any event.[48]

[47]Citing Malhotra v Tiwari (Malhotra) [2007] 25 ACLC 917 [77] (Chernov, Nettle and Redlich JJA), in turn citing the observations of Gummow J in Scarel Pty Ltd v City Loan & Credit Pty Ltd (Scarel) (1988) 17 FCR 344 at 350 as follows: ‘The ordinary rule is that the liquidator, in the ordinary case, is the appropriate person in whom is vested the authority to decide whether the company should take or continue action to recover damages or secure other relief for an injury done to the company’.

[48]At the hearing, Mr Gaylard indicated that he no longer pressed the limitation point for the purposes of this application. See Transcript 360:12–361:8 and 366:7–13.

Sections 236 and 237 of the Act – Some Brief Observations

Before turning to the issue of liquidation and the satisfaction or otherwise of the substantive criteria in s 237(2) of the Act, it is convenient to refer briefly to some of the general observations that have been made in other cases regarding aspects of the operation of ss 236 and 237 of the Act. It must also be kept in mind that each case depends on its own facts.[49]
[49]These observations have largely been extracted from Li v Dao [2018] VSC 530 (Li v Dao), [41]–[52] (Connock J). Reference is also made to the observations extracted in Li v Dao regarding the requirements of the statutory criteria, [60]–[66], [82]–[92], [176], [180]–[182], [184].

The applicant bears the onus of establishing the requirements of s 237(2) of the Act on the balance of probabilities.[50]
[50]Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313 [24] (Palmer J); Huang v Wang (2016) 114 ACSR 586 [56], [58] (Bathurst CJ, McColl JA and Barrett AJA agreeing).

If the criteria provided for in s 237(2) of the Act are made out there is no discretion and the Court is required to grant leave. If any one of the criteria is not made out the Court should refuse leave.[51]
[51]Huang v Wang (2016) 114 ACSR 586 [57] (Bathurst CJ, McColl JA and Barrett AJA agreeing). But see Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732 [16] (Austin J). Note also the qualification in s 237(2)(e)(ii) of the Act.

Before considering each of the criteria it is necessary to consider the causes of action sought to be brought on behalf of the relevant company and the evidence that is relied on to support it.[52]
[52]Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609, [52] (Robson J).

Whilst a concession can be taken into account when a court is undertaking the exercise required by s 237(2) of the Act, because that section requires the Court to be satisfied of each of the criteria a concession does not entirely relieve the Court from examination of the matter, although it may reduce the extent of the Court’s inquiry.[53]
[53]Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 [20] (Brereton J) c.f. Harris v Caladine (1991) 172 CLR 84, 96 (Mason and Deane JJ), 103 (Brennan J), 133 (Toohey J).

Different views have been expressed as to whether an application under s 237 of the Act is interlocutory or final in nature. In McEvoy v Caplan,[54] the New South Wales Court of Appeal concluded that an order refusing the grant of leave under s 237 of the Act was interlocutory and this was referred to with apparent approval by Bathurst CJ and McColl JA in Huang v Wang.[55] In the same case, Barrett AJA explored the issue further and concluded that whether an order under s 237 of the Act is final or interlocutory may depend upon the manner in which the application is brought, including whether it is brought by way of application in an existing proceeding.[56]
[54](2010) 78 ACSR 167 (Macfarlan JA, Allsop P and Beazley JA agreeing).
[55](2016) 114 ACSR 586 [58] (Bathurst CJ, McColl JA and Barrett AJA agreeing) citing McEvoy v Caplan (2010) 78 ACSR 167 [4] (Macfarlan JA, Allsop P and Beazley JA agreeing). See also D’Ortenzio v Charles Parletta Real Estate Pty Ltd [2018] SASC 37 [7]–[23]; Knorr v Radial Timber Australia Pty Ltd [2018] FCA 802 [8]–[11]; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1070 [73]–[74] and Drew v Lunch, in the matter of Mirage 3.4D Pty Limited [2019] FCA 632 [122] (Gleeson J).
[56]Ibid [82]–[87].

As to observations that have been made in the authorities regarding the requirements and operation of each of the statutory criteria, I refer to, without repeating here, the observations recently set out in Li v Dao[57] and Pentridge Village.[58]
[57][2018] VSC 530.
[58][2018] VSC 633.

Consideration and Disposition – ss 236/237 Application

The plaintiff’s application for the grant of leave pursuant to ss 236 and 237 of the Act must be refused. Part 2F.1A of the Act, including ss 236 and 237, does not apply to a company in liquidation and therefore the Court does not have power under ss 236 and 237 of the Act to grant the leave sought by the plaintiff, even if it were to be assumed that the statutory criteria were capable of being satisfied.

Part 2F.1A and companies in liquidation

I addressed this issue in Pentridge Village, which has since been followed by Lyons J in this Court in El-Saafin.[59] Although of some length, it is convenient and sufficient to repeat and set out the reasoning and observations made in Pentridge Village on the topic, which apply equally here:[60]
[59][2018] VSC 683 [146]–[148].
[60]Footnotes included.

Consideration — Part 2F.1A of the Act and companies in liquidation
297In Chahwan,[61] Tobias JA observed that the question of whether Part 2F.1A applies to a company in liquidation had been the subject of ‘conflicting authorities’ and that ‘the issue is one of general importance and should be resolved by this court’.[62] In detailed and considered reasons his Honour explored the issue in depth, including the reasoning in the conflicting first instance decisions and the detailed competing submissions of the parties. Tobias JA then concluded that Part 2F.1A has no application to a company in liquidation, whether that be a voluntary liquidation (shareholders or creditors) or a court-ordered liquidation and that, accordingly, the single instance judgments that hold to the contrary should not be followed.
[61]Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 (Tobias JA, Beazley and Bell JJA agreeing).
[62]Ibid 801 [95].
298In my respectful opinion, for the reasons given by Tobias JA, the conclusion reached by the New South Wales Court of Appeal is correct and, unless I am bound to decide otherwise, should be followed. Indeed, even if I had been of a different view to that expressed by Tobias JA, it could not be said that the conclusion reached in Chahwan[63] is ‘plainly wrong’ and therefore unless I am otherwise bound it should be followed in any event.
[63]Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 (Tobias JA, Beazley and Bell JJA agreeing).
299Having reviewed and considered the decisions in Re Fresh Start;[64] Re S & D International Pty Limited (in liq); Malhotra v Tiwari,[65] and the appeal from that decision in Malhotra v Tiwari,[66] I have concluded that, contrary to the submissions of the plaintiffs, the decision by the Court of Appeal in Malhotra does not compel me to decide the issue in a manner different to the New South Wales Court of Appeal in Chahwan.
[64]Re Fresh Start Australia Pty Ltd; Scuteri v Lofthouse (2006) 59 ACSR 327 (Whelan J).
[65][2005] VSC 496 (Mandie J).
[66](2007) 25 ACLC 917 (Chernov, Nettle and Redlich JJA).
300The decision before the trial judge in Malhotra involved ‘primarily’[67] an application by Dinesh Malhotra for an order that the liquidation of S & D International Pty Limited (S&D) be terminated. A review of the trial judge’s reasons reveals that the plaintiff’s application for leave to commence a derivative action against S&D (in liquidation) was one of about 23 various forms of relief sought by the plaintiff. The reasons expose that this application for leave to commence a proceeding was far from central to the issues determined before Mandie J, a point well reinforced by the fact that the topic was addressed in only one short paragraph of the 284 paragraphs of Mandie J’s reasons for decision.[68] That paragraph reads as follows:
[67]Malhotra v Tiwari (2007) 25 ACLC 917 [1] (Chernov, Nettle and Redlich JJA).
[68]Re S & D International Pty Limited (in liq); Malhotra v Tiwari [2005] VSC 496 [268] (Mandie J).
As to para I of the originating process, leave to the plaintiff to commence a derivative proceeding against the directors of the Company is refused. There is no good reason why this matter should not be left to the liquidators at this stage. There are clearly a considerable number of potential claims against the directors that need to be evaluated, many of which the liquidators have already assessed as of some validity and strength.

301It is apparent that the trial judge was addressing crisply one of the many forms of alternative or cumulative relief sought and that the question being addressed was whether leave should be given to commence a proceeding. There is no suggestion in any aspect of the reasons for decision that the question of whether Part 2F.1A applies to a company in liquidation was raised, addressed or considered by the parties or the court. The reasons show that this matter was not relevantly in issue.
302The issues considered and addressed on appeal were similarly focused on other matters, although it is evident that the grounds of appeal include grounds that ‘… challenge the correctness of his Honour’s decision to refuse [the appellant] leave to bring derivative proceedings against the respondents …’.[69] This topic was addressed ‘for completeness’[70] and occupied only the final four paragraphs of the Court of Appeal’s 78 paragraph judgment. Those paragraphs read as follows:
[69]Malhotra v Tiwari (2007) 25 ACLC 917 [75] (Chernov, Nettle and Redlich JJA).
[70]Ibid.
75In his submission to us the appellant did not put forward any argument in support of the grounds of appeal (grounds 6, 7 and 12) that challenge the correctness of his Honour’s decision to refuse him leave to bring derivative proceedings against the respondents. For completeness, however, in light of our conclusion that his Honour’s decision is not vitiated by any of the errors contended for by the appellant and that it would be appropriate that new liquidators be appointed in place of the second respondents, we consider that there is no basis for disturbing his Honour’s refusal to grant leave to the appellant to commence the proposed proceedings that resulted in the matter being left to the liquidators. As his Honour correctly observed, there are a considerable number of potential claims against the first respondents at least that need to be evaluated and many of them have already been assessed by the present liquidators as having some validity or strength. We consider that there is no reason to think that the new liquidators will not adopt a like attitude.
76We apprehend that the appellant’s primary reason for seeking such relief in the first place was his concern that the second respondents would not bring appropriate proceedings, given the quality of the administration of the company as was alleged by him. On an objective basis, however, we think that such concern can no longer be present given our decision as to his Honour’s findings relating to the second respondent’s administration of the company and, importantly, the impending appointment of new liquidators.
77In any event, ordinarily, it is inappropriate to allow derivative proceedings to be brought when a company is in liquidation because it would require the court to permit another to supplant the liquidator as the personification of the company for that purpose.⁹ And as Gummow J said in Scarel Pty Ltd v City Loan & Credit Pty Ltd¹⁰:
“The ordinary rule is that the liquidator, in the ordinary case, is the appropriate person in whom is vested the authority to decide whether the company should take or continue action to recover damages or secure other relief for an injury done to the company. In my view, this follows from the operation of the provisions of the Code to which I have referred. ... [T]he general proposition is that with the liquidation, both the directors and shareholders in general meeting cease to have authority to institute or continue litigation by the company”.

78We are not satisfied that it is probable that the liquidators will not bring such proceedings against the relevant respondents as may be warranted, assuming sufficient funds are available to adopt that course. Overall, we consider that it is in the best interests of the company that, as his Honour concluded, the matter be left with the liquidators. In the circumstances, we would not uphold grounds 6, 7 and 12.
__________________________________________________________
⁹See, for example, Freshstart Australia Pty Ltd v Lofthouse [2006] VSC 317 at [15], per Whelan J.

¹⁰ (1988) 17 FCR 344 at 350.

303Observations that may be made regarding the above include the following:
(a)The issue now under consideration was not raised, considered or addressed in the decision at first instance in Malhotra.[71]
[71]Re S & D International Pty Limited (in liq); Malhotra v Tiwari [2005] VSC 496 (Mandie J).
(b)The basis of the decision for refusing to grant the plaintiff leave to commence a derivative action was, in substance, that there was ‘… no good reason why this matter should not be left to the liquidators at this stage …’.[72]
[72]Ibid [268].
(c)The appeal grounds were in respect of that refusal, not the issue now under consideration, and there is no suggestion in the reasons of the Court of Appeal that the issue was the subject of any notice of contention, discussion, argument or consideration.
(d)As observed by the Court of Appeal, the appellant in Malhotra ‘… did not put forward any argument in support of the grounds of appeal (grounds 6, 7 and 12) that challenge the correctness of his Honour’s decision to refuse him leave to bring derivative proceedings against the respondents …’[73] and the Court of Appeal concluded that the trial judge’s decision to refuse the grant of leave should not be disturbed.
[73]Malhotra v Tiwari (2007) 25 ACLC 917 [75] (Chernov, Nettle and Redlich JJA).
(e)It was only in this context that the Court of Appeal made brief additional observations and, after referring to a passage from Gummow J’s reasons in Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (No 2)[74] and concluding that overall it was considered to be ‘in the best interests of the company that, as his Honour concluded, the matter be left with the liquidators …’ the court held that the appeal grounds would not be upheld.
(f)The only reference to the decision in Re Fresh Start[75] is in footnote 9, where reference is made to paragraph 15 of that decision in the context of Scarel[76] and considering the statutory criterion of the best interests of the company and whether a court should ‘… permit another to supplant the liquidator as the personification of the company …’ for the purpose of bringing a proceeding.[77]

304It is clear that the issue now under consideration was not considered, addressed or determined by the Court of Appeal in Malhotra.[78] Consequently, I do not accept the plaintiffs’ submission that this decision compels me to decide the issue differently to the manner in which it was decided by the New South Wales Court of Appeal in Chahwan[79] and the numerous decisions that have followed Chahwan. I add that even if it was to be concluded that because of the way the case below or on appeal was conducted by the parties it was assumed that Part 2F.1A applied to a company in liquidation, that would not alter my conclusion. This is because of the operation of the principles regarding assumptions made in court decisions, discussed in cases such as Markisic v Commonwealth of Australia,[80] Coleman v Power,[81] CSR Limited v Eddy.[82]
305I make two further observations. First, the observations of Crennan J in the special leave application are of no precedential value given that they relate to an application for special leave to appeal to the High Court, noting also that they were comments made during the course of exchanges with counsel during the hearing of the application.
306Second,[83] the brief observation made in Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liquidation)[84] on the topic does not alter the position. That case was an appeal from the decision of Davies J in VFS Group Pty Ltd v BM2008 Pty Ltd (No 2)[85] in connection with applications to set aside statutory demands in which one party asserted that there was a ‘conflict’ between the decision in Malhotra and Chahwan and sought to rely upon this asserted conflict in a context associated with a statutory demand, the detail of which need not be canvassed for present purposes. On appeal, a number of matters fell away and it was noted that it was not necessary to discuss any difference between Chahwan and Malhotra. Again, the matter before me was not addressed, considered or determined. In any event, had the matter been in issue and necessary to explore on appeal it would have revealed only that which I have discussed above regarding what was and was not considered and determined in Malhotra.
307Having regard to the above, I have concluded that the New South Wales Court of Appeal’s conclusion in Chahwan should be followed and that Part 2F.1A of the Act does not apply to Pentridge Village because it is a company in liquidation.

[74](1988) 17 FCR 344, 350.

[75]Re Fresh Start Australia Pty Ltd; Scuteri v Lofthouse (2006) 59 ACSR 327 (Whelan J).

[76]Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (No 2) (1988) 17 FCR 344 (Gummow J).

[77]Malhotra v Tiwari (2007) 25 ACLC 917 [77] (Chernov, Nettle and Redlich JJA).

[78]Ibid.

[79]Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 (Tobias JA, Beazley and Bell JJA agreeing).

[80](2007) 69 NSWLR 737, 56 (Campbell JA, Handley AJA and Bell J), where it was observed at [56] that ‘a decision is not authority for a matter that has been assumed, rather than actually decided, in the course of making the decision …’.

[81](2004) 220 CLR 1, 44–45 [79] (McHugh).

[82](2005) 226 CLR 1, 11 [13]–[14] (Gleeson CJ, Gummow and Heydon JJ), where it was observed that ‘… where a proposition of law is incorporated into the reasoning of the particular court, that proposition, even if it forms part of the ratio decidendi, is not binding on later courts if the particular court merely assumed its correctness without argument’. ‘[T]he precedents … sub silentio without argument, are of no moment’.

[83]Although not a decision relied upon by the plaintiffs, or addressed by the parties.

[84][2011] VSCA 62 (Maxwell P and Kyrou AJA).

[85][2010] 246 FLR 235.

The New South Wales Court of Appeal decision in Chahwan has also recently been followed by Fraser JA in BDO Corporate Finance (Qld) Ltd v Russell;[86] the Court of Appeal of the Australian Capital Territory in Li v Wu,[87] which stated that the ‘settled view’ was that ‘… s 237 has no application to a company in liquidation …’, and the Supreme Court of the Australian Capital Territory in Manny v David Lardner & Associates.[88]

Section 237 criteria not satisfied in any event

[86][2019] QCA 39 [21].

[87][2019] ACTCA 14 [62] (Elkaim, Loukas-Karlsson and Rangiah JJ.)

[88][2019] ACTSC 86 [22] (McWilliam AsJ).

Because Part 2F.1A of the Act does not apply to a company in liquidation it is not necessary to proceed to consider whether, if it had, the plaintiff had established on the evidence that the statutory criteria had been satisfied. However, had it been necessary to consider these issues, and even assuming for the moment that each of the Causes of Action raise a serious question to be tried,[89] I would have concluded that the statutory criteria in s 237(2)(c) of the Act would not have been satisfied. This is because the plaintiff did not establish on the evidence that it was in the best interests of Pinnacle that the plaintiff be granted the leave sought.[90] Given my primary conclusion regarding the operation of Part 2F.1A of the Act I shall only comment relatively briefly regarding this conclusion, and it is sufficient to note the following.
[89]Which is not necessary to decide, although see the observations below in this regard in connection with the application pursuant to the inherent jurisdiction of the Court. It may also be noted that although the plaintiff proceeded on the basis that s 237(2)(d) was engaged and that it was necessary for the plaintiff to establish that there was a serious question to be tried, the somewhat unusual circumstances of this case gave rise to a question as to whether that was so. This was because the Pinnacle Proceeding had been commenced already. Consequently, it would have been necessary to consider whether s 237(2)(d) was in fact engaged, which in turn would have required analysis of whether that which the plaintiff was applying for was ‘leave to bring proceedings’, or only to ‘intervene … for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings …’. See ss 236(1) and 237(2)(d) of the Act. In the circumstances it is not necessary to decide this issue.
[90]Section 237(2)(c) criterion.

I refer to the observations made regarding the ‘best interests of the company’ requirement in Li v Dao[91] and Pentridge Village,[92] including the following from Pentridge Village:
[91][2018] VSC 530, [82]–[92].
[92][2018] VSC 633, [253]–[262].

253Section 237(2)(c) of the Act requires the court to be satisfied that the proposed derivative action is in the best interests of the Company, not that it may be, appears to be, or is likely to be.[93] Instructive observations that have been made regarding the operation of the ‘best interests’ requirement follow.

Although the evidence did disclose that, at least at some points, the Liquidator’s position had been that he would neither consent to nor oppose the plaintiff being granted leave if the plaintiff agreed to pay Pinnacle’s costs and the Liquidator’s remuneration and costs, and appropriate indemnities, security, and undertakings were given, at the time of the hearing it was clear that no agreement had been reached or was likely. On the contrary, by the time the hearing concluded it was apparent that the plaintiff considered that the Liquidator should be removed and amounts previously advanced should be repaid, which the Liquidator disputed. As earlier referred to, counsel for the Liquidator clarified the Liquidator’s position on 8 February 2019, and again at the outset of the hearing, as the plaintiff accepted. In this regard I refer again to paragraphs 99, 104, and 129 to 134 above.[154]
[154]See also Transcript 380:30–381:23.

In substance, and noting the above, the Liquidator’s position was essentially as follows:

(a) The Liquidator had initially been approached by the plaintiff’s counsel about the matter, and said that he had been given certain comfort by the plaintiff’s counsel regarding the plaintiff’s financial position, and the costs and expenses that the Liquidator may incur.

(b) One of the two ways of proceeding that was initially put to the Liquidator and contemplated by the plaintiff was the plaintiff funding the Liquidator to take advice in relation to the claims said to exist and to take such other steps as considered appropriate in relation to the pursuit of the claims on behalf of Pinnacle.

(c) Although possible assignment was contemplated at various points by the plaintiff and the Liquidator, as things transpired no assignment had occurred or was likely, as was acknowledged.[155]
[155]See paragraph 103 above and Transcript 126:1–7.

(d) The Liquidator is experienced, independent of the plaintiff, an officer of the Court, and has been assisted by legal representatives.

(e) Having reviewed various documents and obtained some limited advice the Liquidator was not currently prepared to pursue the Pinnacle Proceeding because he was not yet satisfied that it was in the creditors’ best interests to do so. This was said by the Liquidator to be ‘principally’ because he was without funds and Pinnacle has no assets[156] to protect Pinnacle or the Liquidator against adverse costs exposure. Further, the Liquidator has incurred costs and expenses to date and if his costs and remuneration were not met by the plaintiff they would remain unpaid, resulting in the liquidation having to be finalised at a cost to him and no benefit to creditors.

(f) In order to address a potential limitations issue the Pinnacle Proceeding has been filed but not yet served.[157]

(g) As earlier referred to,[158] subject to being put in funds and obtaining appropriate indemnity, the Liquidator remains willing and able to further explore the position, take advice, and take such steps as are considered appropriate regarding the Pinnacle Proceeding.

[156]Putting the claims the subject of the Writ to one side.

[157]Orders extending the period of validity of the Writ for service have been made. See footnote 11 above.

[158]And accepted by the plaintiff.

As touched upon above in the context of the application pursuant to ss 236 and 237 of the Act, the position remains that the merits of the Pinnacle Proceeding, and any steps to be taken in relation to it, can properly be further explored and acted upon, by the plaintiff putting the Liquidator in funds, which as the evidence revealed, was one of the two options raised with the Liquidator when he was first approached by the plaintiff’s counsel about the matter. Further, given the Liquidator’s position, leaving the Pinnacle Proceeding and the issues associated with it in the hands of the Liquidator to determine, after taking appropriate advice, how best to proceed, also sits comfortably with the observations that have been made in other cases regarding the appropriateness or desirability of leaving litigation in the hands of liquidators including, for example, the observations made in Scarel, Cadima Express, Partnership Pacific, Chahwan, Fresh Start, and Malhotra.[159] The Liquidator is also well equipped and best placed to consider the interests of all the creditors - which remains the position even if Westpac’s position is put to one side.
[159]See paragraph 126 and footnote 111 above.

The position of the Liquidator weighs against rather than in favour of the relief sought.[160]
[160]Even assuming for the moment that the Causes of Action have a solid foundation, or reasonable prospects of success or raise a serious question to be tried.

Even if it were to be accepted that the Liquidator’s position reflected something of a change of a position, this does not assist the plaintiff in any material way. As a review of the evidence, correspondence and submissions reveals, the position is far from as stark as the plaintiff submitted. It also has to be seen in the context of the whole of the circumstances and communications. Further, such a consideration does not weigh heavily against the desirability of decisions in connection with the Pinnacle Proceeding remaining in the hands of the Liquidator.[161]
[161]See also the observations in paragraph 126 and footnote 111 above.

In any event, I would not characterise the Liquidator’s position in the same way as the plaintiff. Counsel for the Liquidator responsibly assisted the Court by clarifying the position of the Liquidator in the lead up to and at the time of the hearing in the then prevailing circumstances, as was appropriate.

Some additional matters and considerations

I turn now to some additional matters and considerations, following which I address the topic of ‘solid foundation’ and ‘reasonable prospects’.

First, and for the avoidance of doubt, I have proceeded on the assumption that the application is bona fide and made in good faith.[162]
[162]It is therefore not necessary to make any formal finding in this regard.

Second, having regard to the nature, scale, and likely factual and other complexity of the Pinnacle Proceeding if it is to proceed, the evidence regarding the likely costs, duration and expenses associated with the proceeding was limited and it cannot at this stage be concluded with sufficient confidence that the plaintiff’s financial position is or will be sufficient to address the costs and expense risks associated with the litigation for Pinnacle, even if it is assumed that the equity in the property referred to by the plaintiff is able to be provided by way of security in the way the plaintiff described.[163] To some extent, this point is also underscored by the time, cost and expense connected with this application alone.
[163]Referred to in paragraph 135 above.

Third, in any event, even if it was to be assumed that the plaintiff’s financial position, assisted by the security from the property referred to, will be sufficient to address costs and expense risks associated with the Pinnacle Proceeding, when considered with the other circumstances this does not, either alone or with other circumstances, weigh sufficiently in the balance to favour the grant of the relief sought. In addition, if the position is as the plaintiff says, and he is in a position to fund the proceeding and provide adequate indemnity and security, then, as Westpac submitted, he will be in a position to place the Liquidator in funds and provide indemnity and security to the Liquidator and Pinnacle so as to enable the matter further to be explored and advised upon, and steps to be taken as appropriate.

Fourth, although numerous assertions have been made by the plaintiff through his solicitors regarding the conduct of the Liquidator and his advisers in connection with the Pinnacle Proceeding, ultimately leading to the assertion that the Liquidator should be removed and money advanced be repaid, in the context of this application this does not weigh materially in favour of the relief sought. I also refer to the observations made in this context in paragraph 134 above. As these matters may ultimately be raised or agitated in a different forum, it is desirable to say little more. However, it may be observed that: the application before the Court is of a limited nature; the Liquidator is the person who was approached or selected on behalf of the plaintiff; the correspondence reveals that the assertions regarding inappropriate conduct are contested; the Liquidator is not a party to this proceeding; Mills Oakley is not a party to this proceeding; and this proceeding is not an inquiry into the conduct of either of them. Further, there are other mechanisms and processes available to the parties if expressed concerns are to be further explored.

I add that I do not consider that the limited evidence regarding the steps taken by the Liquidator to date, or the costs incurred or remuneration charged, to be matters militating in any material way in favour of the plaintiff’s application when considered in the context of the other circumstances referred to in these reasons.

In this context it is also necessary to add a clarifying observation. The day before the first day of the hearing the plaintiff swore and filed a further affidavit dated that day in which he stated that he had ‘… applied for an order that the Supreme Court conduct an investigation of the liquidation of [Pinnacle] … [and] that the court remove the liquidator from Pinnacle as [he had] become concerned about his conduct …’.[164] As became apparent during exchanges with counsel for the plaintiff at the hearing, no such application had been made.[165]
[164]Plaintiff’s affidavit filed 18 February 2019 at [3].
[165]Counsel for the Liquidator also understandably expressed concern that such a statement had been made in the affidavit when it did not accurately reflect the position. Much later, in August 2019, and shortly before the last day of the hearing of this proceeding, the plaintiff sought to file a summons in this proceeding seeking, among other things, an order that an inquiry into the conduct of the Liquidator be commenced and other relief. The plaintiff was informed that if it was proposed to commence a proceeding of that character against the Liquidator then it would require a fresh proceeding to be commenced naming the Liquidator as a party. There was no evidence before the Court that any such proceeding had been commenced.

Fifth, although the conclusion reached in relation to this application would have remained the same if the evidence revealed an ongoing relationship between the Liquidator and the plaintiff that was without tension or strain, in my opinion the evident tension or strain in the relationship is a further factor weighing against the relief sought, albeit not materially. In this context, I refer again to observations such as those made by Gummow J in Scarel and subsequent cases regarding the role of liquidators in the context of decision making regarding litigation.[166]
[166]But recognising the factual differences in that case and that each case depends on its own facts.

Sixth, to the extent that it was submitted that the Liquidator has acted unreasonably by carrying out a limited merits assessment to date, I do not accept that submission. To the extent that it occurred, it was appropriate to do so and remains appropriate for the Liquidator to be satisfied that it is in the interests of creditors if litigation is to be pursued.

Seventh, although it is correct that, when considering an application pursuant to the inherent jurisdiction of the Court, the terms of the statutory criteria in s 237 of the Act do not fall to be considered, the factual matters addressed in paragraphs 128 to 135 above in the context of the s 237 application form part of the relevant circumstances, and weigh against, rather than in favour of, the grant of the relief sought.

Eighth, I do not accept Westpac and Mr Gaylard’s submission that the general prejudice regarding memory, documents and related matters that is said to flow by reason of the effluxion of time since the events in question weighs materially, if at all, against the plaintiff on this application. The Pinnacle Proceeding has been filed and, ultimately, may or may not be served. If it is, the Pinnacle Proceeding Defendants will have an opportunity to take such action as they may be advised to take in order to protect such rights as they have. This would not be materially affected, if at all, by allowing a third party to have the conduct of the Pinnacle Proceeding rather than Pinnacle through its Liquidator. In any event, there was little evidence regarding delay related prejudice, as appeared to be at least implicitly acknowledged by counsel for Westpac.[167]

Solid foundation and reasonable prospects of success

[167]This observation is not directed to the limitation of actions contentions, which are discussed further below.

Because it has been concluded that the plaintiff’s application should be refused even if it were to be assumed that the Causes of Action have a solid foundation or a reasonable prospect of success, it is not strictly necessary for this aspect to be addressed. However, given the focus placed upon it in the evidence and the time taken by the parties to address it, it is convenient and may be of assistance to make the following further observations.

Had it been necessary to decide, I would not have been satisfied on the material before the Court that the plaintiff had established that the Causes of Action had a solid foundation or a reasonable prospect of success — or that they raised a serious question to be tried. Self-evidently, this would have been an additional matter weighing against the grant of the relief sought by the plaintiff.

As there will likely remain matters for the Liquidator and his advisers to consider in connection with the Pinnacle Proceeding, it is desirable to emphasise that this conclusion is based on the evidence before the Court in the context of this application. That being so, and given the conclusion reached even if the Causes of Action were assumed to have a solid foundation or reasonable prospect of success, it is preferable at this point to say less rather than more on the topic. It is sufficient to make the following brief observations.

With respect to each of the Barnes v Addy claims,[168] even if it is assumed there were one or more of the dishonest and fraudulent designs of the kind broadly[169] described by the plaintiff being carried out by Mr Irani, it was not established on the evidence that there was a solid foundation for alleging, or that there was a reasonable prospect of successfully establishing,[170] that any of Westpac, Mr Flory or Mr Gaylard had the requisite knowledge[171] of the relevant alleged dishonest and fraudulent designs.[172]
[168]As to the nature of which see, generally, Farah Constructions Pty Ltd v Say-Dee Pty Ltd (Farah) [2007] 230 CLR 89 and the decision of the Court of Appeal in Harstedt Pty Ltd v J Omanek (Harstedt) (2018) 55 VR 158 [61]–[123] regarding the accessorial liability for knowing assistance under the ‘second limb’ of Barnes v Addy.
[169]But somewhat elusively.
[170]Or a serious question to be tried.
[171]Being knowledge in any of Baden categories 1 to 4. See, paragraph 172.
[172]That is not to ignore the proper concession made by Westpac and Mr Gaylard that, for the purposes of the present application, the Court could proceed on the basis that there was a solid foundation for alleging that the Pinnacle Proceeding Defendants knew that Pinnacle had two directors, and that there was a dispute between Mr Irani and the second director at the time, Mr Gracias.

As the Court of Appeal observed in Harstedt:[173]
[173]At [85] (Santamaria, McLeish and Niall JJA).

… it has been customary, though not without some controversy, to analyse the requirement of knowledge for accessorial liability for breach of fiduciary duty by reference to … the five categories [of knowledge] set out by Peter Gibson J, acting on an agreement between counsel, in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA:
(a)actual knowledge;
(b)wilfully shutting one’s eyes to the obvious;
(c)wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;
(d)knowledge of circumstances which would indicate the facts to an honest and reasonable person;
(e)knowledge of circumstances which would put an honest and reasonable person on inquiry.

In Farah, the High Court endorsed the ‘Baden scale’ and, relevantly held that in respect of claims under what has been described as the ‘second limb’ of Barnes v Addy, knowledge falling within any of the first four categories, but not the fifth, represents the law in Australia.[174]
[174]See Farah (2007) 230 CLR 89, 163–4 [177]–[178] and Harstedt (2018) 55 VR 158 [87].

Whilst, as was conceded, the evidence gave rise to a solid foundation for alleging that the Pinnacle Proceeding Defendants had knowledge that Pinnacle had two directors that had been and were in dispute, that is not sufficient. The evidence did not go so far as to establish that there was a solid foundation for alleging, or reasonable prospect of establishing, that any of Westpac, Mr Gaylard or Mr Flory had knowledge of the kind referred to in Baden categories one, two, three or four in respect of the relevant alleged dishonest and fraudulent designs on the part of Mr Irani.

With respect to the ‘additional’ ‘Barnes v Addy’ claim against Mr Gaylard and Mr Flory,[175] it was not easy to discern quite how this was put, further reinforcing that it had not been established that the claim had a solid foundation or a reasonable prospect of success. In any event, insofar as it rested upon the alleged knowledge that Pinnacle was a two-director company with the directors being in dispute, this did not on the evidence before the Court establish that there was a solid foundation for alleging, or a reasonable prospect of establishing, that Mr Gaylard or Mr Flory, had knowledge of the kind referred to in any of Baden categories one to four in respect of the alleged dishonest and fraudulent design of Mr Irani.
[175]See paragraph 8 above.

As to the alleged deceit claims, and consistent with the submissions of Mr Gaylard, it is sufficient to mention briefly the following:

(a) The elements of a claim for the tort of deceit are well known. In Magill v Magill (Magill)[176] they were stated as follows:
[176](2006) 226 CLR 551, [114] (Gummow, Kirby and Crennan JJ).

The modern tort of deceit will be established where a plaintiff can show five elements: first, that the defendant made a false representation;[177] secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not;[178] thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff;[179] fourthly, that the plaintiff acted in reliance on the false representation;[180] and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation.[181] Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation.
[177]Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483 (Bowen LJ).
[178]Derry v Peek (1889) 14 App Cas 337 at 374 (Lord Herschell).

[179]Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 211 (Viscount Maugham).
[180]Redgrave v Hurd (1881) 20 Ch D 1 at 21 (Jessel MR); Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483 (Bowen LJ); Arnison v Smith (1889) 41 Ch D 348 at 369 (Lord Halsbury LC).
[181]Pasley v Freeman [1789] EngR 1703; (1789) 3 TR 51 at 56 [100 ER 450 at 453] (Buller J), 64 [457] (Lord Kenyon CJ); Smith v Chadwick (1884) 9 App Cas 187 at 196 (Lord Blackburn); Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 211 (Viscount Maugham). That ‘damage’ is the gist of the action reflects the development of deceit as an action on the case.

(b) Whether, and if so how, deceit claims were sought to be made in the Writ was not clear. This resulted in the Causes of Action relied on being set out in the Pinnacle Claims Document, including what were said to be the deceit claims against each of the Pinnacle Proceeding Defendants.

(c) In the Pinnacle Claims Document the Causes of Action in deceit against the Pinnacle Proceeding Defendants were as described in paragraph 7 above, namely, acting in concert to implement a dishonest and fraudulent design intended to covertly misappropriate the assets of the company, and participating in an underhand scheme designed to cheat the company of its assets.[182]

(d) Having regard to the terms of the Writ and the manner in which the deceit claims were expressed, and the evidence, the plaintiff did not establish that there was a solid foundation for alleging, or a reasonable prospect of establishing, that the following elements of the deceit claims could be made out against any of the Pinnacle Proceeding Defendants: the existence or making of false representations to Pinnacle; the making of false representations with knowledge of, or recklessness or carelessness as to, falsity; the required intent that Pinnacle rely on the relevant false representations; reliance by Pinnacle on false representations; or the suffering of loss caused by such reliance.

(e) Further, and to use the language employed by the plaintiff in the Pinnacle Claims Document in the context of the deceit causes of action, to the extent that it may be said to be relevant, it was not established on the evidence that there was a solid foundation for alleging, or a reasonable prospect of establishing, that any of the Pinnacle Proceeding Defendants, with each other (or others), acted ‘in concert to implement a dishonest and fraudulent design intended to covertly misappropriate the assets of the company’.[183]

[182]See Pinnacle Claims Document at [1] and [3].

[183]Ibid.

Given the conclusions reached it is neither necessary nor desirable to consider the limitation of actions issues raised at this point, noting also that factual matters arise, allegations of concealment and absence of knowledge have been raised by the plaintiff, and that counsel for Mr Gaylard ultimately did not press the point for the purposes of this application. I am also mindful of observations such as those made by the High Court in Wardley Australia Ltd v The State of Western Australia.[184]
[184](1992) 175 CLR 514 at 533 (Mason CJ and Dawson, Gaudron and McHugh JJ).

That said, it is appropriate to make two additional observations in this context.

First, although each of the parties appeared in their submissions to proceed on the basis that limitation periods in respect of the equitable Barnes v Addy claims would apply by analogy, the position may be more complex than the Parties’ brief observations on the point suggest. So much is well illustrated when regard is had to the observations of the New South Wales Court of Appeal in Lewis Securities Ltd v Carter.[185]
[185][2018] NSWCA 118 [29]–[51], [60]–[78] (Leeming JA, Sackville JA agreeing) and [193]–[218] (Emmett AJA).

Second, if further consideration is to be given to the limitation issues by the Liquidator, his advisers or others, it seems that the evidence that will fall to be considered in the context of the alleged concealment and related limitation issues will include the evidence in this proceeding regarding the knowledge of Pinnacle’s other director. For example, in this proceeding the evidence included evidence to the effect that: Mr Gracias was said to be the second director of Pinnacle until 29 August 2002; on 29 August 2002 Mr Houareau was appointed as the second director of Pinnacle in place of Mr Gracias, and appears to have remained a director until at least 5 October 2009; in July 2003 the then solicitors for, among others, Mr Houareau wrote complaining of, among other things, the conduct of St. George in relation to the same transactions and related matters addressed in this proceeding and the Pinnacle Proceeding;[186] and in April 2005 new solicitors for, among others, Mr Houareau also wrote complaining of, among other things, the conduct of St. George in relation to the transactions and related matters.[187]
[186]As referred to in paragraph 73 above.
[187]Referred to in paragraph 77. Among other things, that correspondence stated that St. George had acted ‘wrongfully, deliberately, recklessly, negligently and with contumelious disregard …’ and that proceedings were to be issued. See also the correspondence from Mr Chellicovski on behalf of, inter alia, Mr Houareau referred to in paragraph 80 above, although observing that notwithstanding Mr Houareau remained recorded as a director of Pinnacle at the time, the plaintiff said that he attended a meeting on 5 October 2009 where Mr Houareau said he resigned. See paragraph 79 above.

Conclusion – Inherent Jurisdiction Leave Application

Having regard to the circumstances, the plaintiff’s application for an order pursuant to the inherent jurisdiction of the Court granting him leave to bring and continue the Pinnacle Proceeding in the name of Pinnacle should be refused.

DIRECTIONS APPLICATION
Introduction

The plaintiff seeks a direction under ss 90-15 and 90-20 of Schedule 2 to the Act that the Liquidator has the power to assign the claims the subject of the Writ. It was common ground that the plaintiff had standing to bring the application.[188]
[188]See s 90-20 of Schedule 2 to the Act.

Section 90-15 of Schedule 2 to the Act provides in part as follows:

90‑15 Court may make orders in relation to external administration
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application
(2)The Court may exercise the power under subsection (1):
(a)on its own initiative, during proceedings before the Court; or
(b)on application under section 90‑20.

Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
…

A company is taken to be under ‘external administration’ if, among others, a liquidator has been appointed in relation to the company.[189]
[189]See s 5-15(c) of Schedule 2 to the Act.

In Re Hawden Property Group Pty Ltd (In Liq),[190] it was observed by Gleeson JA that ‘the ambit of s 90-15 has not yet been fully considered in the authorities’.[191] Gleeson JA further observed that it may be accepted insofar as an external administrator seeks the directions of the Court, that the power in s 90-15 was to be answered by reference to the principles applied to the exercise of the discretions previously contained in ss 479(3) and 511 of the Act, but that the power under s 90-15 is wider and may, in certain instances, accommodate the determination of substantive rights.[192]
[190](2018) 125 ACSR 355.
[191](2018) 125 ACSR 355, [7].
[192](2018) 125 ACSR 355, [8]. See also Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20 [166] (Gordon J); Smith, in the matter of Buddy Management Pty Ltd (in liq) v Buddy Management Pty Ltd (in liq) [2019] FCA 566 [39]-[41] (Gleeson J); Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex Parte Woodhouse [2019] WASC 167 [17]-[23] (Vaughan J); El-Saafin [110]; Re Walley [2017] FCA 486 [41]; see also GDK Projects Pty v Umberto Pty Ltd (in liq) [2018] FCA 541 [33]; Re Krejci [2018] FCA 425 [46]; Re Community Work Pty Ltd (in liq) [2018] FCA 425 [46] and cases cited therein.

It has been held that an applicant for directions under s 90-15 of Schedule 2 to the Act bears the onus of proof in relation to the matters said to justify the making of the direction sought.[193]
[193]See Re ACN 096 281 542 Ltd (In Liq) [2018] VSC 425 [6], in the context of a challenge to a liquidator’s rejection of a proof of debt brought under s 90-15.

Consideration and Disposition – Directions Application

At the time the originating process was filed it was contemplated that, subject to agreement being reached and a direction of the kind sought being made, there would be, or would likely be, an assignment to the plaintiff of the causes of action said to be the subject of the Writ.

At the time of the hearing circumstances had changed. An assignment to the plaintiff was no longer contemplated or likely, as the plaintiff’s counsel responsibly acknowledged, and was apparent from the evidence in any event. Further, no agreement had been reached regarding the likely or possible terms of an assignment and no proposed form of assignment was before the Court.

In these circumstances, and noting that the issue of an assignment might never arise, and that there are no agreed terms of, or a proposed form of, an assignment for the Court to consider, these matters are sufficient of themselves for declining to make the order sought — even assuming that it would otherwise have been appropriate to make such an order, which is not necessary to decide.

For the same reasons, as things stand the order sought cannot at this stage be said to be in respect of a ‘question arising in the external administration’[194] of Pinnacle.
[194]As referred to in s 90-15 (3)(a), emphasis added.

Further, even if the prospect of an assignment or likely assignment had remained, and was a matter ‘arising’ in the external administration of Pinnacle, in the circumstances of this case I would have declined to make an order of the kind sought in the absence of having the opportunity to consider the issue in the context of an agreed or proposed form of assignment. This is because it is at least possible, if not probable, that the proposed terms of any particular assignment would be relevant or material to consider in the context of the substantive nature of the relief sought.

If the circumstances change then the Liquidator[195] will be able to reconsider the position in the light of the then prevailing circumstances and the terms of any proposed assignment, and take such steps as are considered appropriate.
[195]Or others.

I add that adopting this course is also consistent with the approach that has been taken in cases involving the directions power under sections such as s 479(3) of the Act, where it has been held that directions ought not to be made in relation to what might be regarded as matters that cannot be seen to be of a ‘concrete character’ that identify the particular matter in a particular factual context that has arisen, or in respect of matters that are of essentially a hypothetical character.[196]
[196]See, for example, HIH Casualty & General Insurance Ltd (in liq) v Building Insurer’s Guarantee Corporation (2004) 51 ACSR 21, [18]–[25] (Barrett J); Golden Heritage Golf Pty Ltd (in liq) v Sun [2016] VSC 248, [37] (Sifris J). But noting also the differences in the statutory language to that which appears in s 90-15 of Schedule 2.

Having reached this conclusion it is not necessary to address the range of matters raised by the parties in this context. However, in case it is of assistance, and noting that it is possible that the question of assignment could arise at some point in the future, I make the following brief observations:

(a) Section 477(2)(c) of the Act provides a liquidator with the power to ‘sell or otherwise dispose of, in any manner, all or any part of the property of the company’.[197] It is well established that this power includes the power to assign causes of action of the company.[198]
[197]Note the extended definition of ‘property’ in s 9 of the Act. See also s 465 of the Act.
[198]As to causes of action personal to an external administrator, as opposed to the company, see s 100-5 of Schedule 2.

(b) Section 477(2)(c) of the Act does not permit the assignment of statutory causes of action that are not otherwise assignable,[199] or allow a liquidator to override a valid and enforceable non-assignability clause in a contract.[200]

(c) After a careful review of the authorities, it was observed by Elliott J in EWC Payments Pty Ltd v Commonwealth Bank of Australia,[201] that ’… the exception identified in Trendtex Trading Corporation v Credit Suisse now must be treated as good law in Australia …’.[202]

(d) In any event, an assignment of a cause of action by a liquidator pursuant to s 477(2)(c) of the Act is valid even if such an assignment might otherwise have been held to be void for maintenance or champerty, or because it purports to assign a bare right of action.[203] This includes equitable causes of action.[204]

[199]See the discussion in Pentridge at [52]–[103] and the conclusions at [104]–[116] (Connock J).

[200]Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168.

[201][2014] VSC 207, [62] (Elliott J). But see also the discussion in a different context in Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199, [50]–[51], [55], [62]–[67] (Bell P, Macfarlan and White JJA agreeing).

[202]Ibid.

[203]See UTSA Pty Ltd (In liq) v Ultra Tune Australia Pty Ltd (No 2) [1997] 1 VR 667, 681–682, 685 (Hansen J) and UTSA Pty Ltd (In liq) v Ultra Tune Australia Pty Ltd (No 2) 21 ACSR 457, 463–464 (Brooking, Phillips and Hayne JJA).

[204]See, for example, EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183 at [885]–[916] (Beech J).

In the circumstances it is not necessary to consider and address the submissions made by the parties regarding the construction and operation of the Pinnacle Charge, and in particular, the extent to which the Causes of Action — and particularly those relating to Westpac — are subject to the Pinnacle Charge, including Westpac’s rights and powers under it.[205] That said, in this context I refer generally to the observations of Ferguson J (as her Honour then was) in Australian Property Custodian Holdings Ltd v Capital Finance Australia Ltd.[206] I also note Westpac’s concession[207] regarding the absurdity that it accepted would arise if the Pinnacle Charge operated in a way where Westpac could exercise its litigation and related other rights and powers under the Pinnacle Charge in respect of asserted causes of action against Westpac of the kind the subject of these applications.[208]
[205]Including, for example, the rights under the Pinnacle Charge to take over the conduct of, or settle, claims of the Pinnacle. See clauses 8.1.1 and 13.2 of the Pinnacle Charge.
[206][2012] VSC 124, [39]–[52].
[207]Responsibly made.
[208]See Transcript 362:25–366:5.

Conclusion – Directions Application

The plaintiff’s application for a direction that the Liquidator has the power to assign the claims the subject of the Writ should be refused.

CONCLUSION AND PROPOSED ORDERS

Each of the plaintiff’s applications should be dismissed and it is proposed to make orders to this effect.

I will hear from the parties on the question of costs.

[2019] VSC 699

23 October 2019