Jeans v Deangrove Pty Ltd

[2001] NSWSC 84

CITATION:	Jeans v Deangrove P/L [2001] NSWSC 84 revised - 26/02/2001
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 1483/01
HEARING DATE(S):	23/02/01
JUDGMENT DATE:	23 February 2001
PARTIES :	Deangrove Pty Limited (Receivers and Managers appointed) (ACN 077 503 532) and the Corporations Law JOHN ANTHONY JEANS (Plaintiff) DEANGROVE PTY LIMITED (ACN 077 503 532) (Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	J T Johnson (Plaintiff) M R Speakman (Defendant) A Bell (Commonwealth Bank of Australia Limited)
SOLICITORS:	Jennifer E Darin (Plaintiff) Cornwall Stodart incorporating Marshall Marks Kennedy as agents for Clarke and Kann (Brisbane) (Defendant) L E Taylor (Commonwealth Bank of Australia Limited)
CATCHWORDS:	CORPORATIONS — Statutory derivative action — Essential element under s237(2)(a) not fulfilled — Defendant in proceedings allowed to be heard — Indemnity costs — Just, quick and cheap.
LEGISLATION CITED:	Corporations Law s237; s242 Corporations Law Rules 2.1.3
DECISION:	Application fails with indemnity costs.

JUDGMENT — ex tempore

INTRODUCTION

1    These proceedings are brought by the Plaintiff who is the plaintiff in Federal Court proceedings sub nom Deangrove Pty Limited (Receivers and Managers appointed) and John Anthony Jeans v Commonwealth Bank of Australia No. N1142 of 2000. They are brought as a matter of extreme urgency on the basis that the matter is to come before Sackville J in the Federal Court in circumstances where the retainer of the solicitors on the record of the Plaintiff has been challenged. Indeed that challenge crystallised in a Notice of Motion over two months ago on 1 December 2000.

2 The Plaintiff makes application pursuant to the new statutory derivative action under Pt 2F.1A of the Corporations Law and in particular s237. That application to succeed requires that the conditions in s237(2) be satisfied including in particular that in paragraph (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; ….”. As to the first element, that “the company will not itself bring the proceedings”, that is negated if those proceedings are in fact brought by persons in office in the company competent to cause the company to do so.

3    A chronology is retained in the file initialled by me for identification which sets out the salient events in largely uncontroversial form, prepared by the Plaintiff.

4    There was an application made by the defendant to the Federal Court proceedings being the Commonwealth Bank of Australia Limited (“CBA”), either for leave to be joined as a party to the present application or for the right to be heard pursuant to the Corporations Law Rules 2.1.3 incorporated in the Supreme Court Rules. The purpose of seeking to be joined was in relation to the cross-examination of a witness for the Plaintiff, but this was obviated by an admission made by the Plaintiff. I was then satisfied that the interests of justice were best served by permitting CBA merely to be heard but not joined as a party.

5    The Defendant company is in a position where it has one director in office Ms Rupe, but is under receivers and managers. These were appointed pursuant to security earlier created in favour of the CBA. The receivers and managers, whilst filing an affidavit in this present application have taken the position that they neither consent to nor oppose it. That left CBA as the only effective contradictor, and justified its right to be heard.

6    After some temporary aberration on the part of Counsel in seeking to clarify his instructions earlier this afternoon, Counsel for the receivers and managers resiled from any present intention to take no action in relation to the Federal Court proceedings. It expressed its position instead as “keeping all options open”.

RESOLUTION OF PRESENT APPLICATION

7    A peculiar feature of the way in which the Plaintiff put its case led finally to the abandonment of it. As is clear from paragraphs 19 and 20 of the Plaintiff’s comprehensive written submissions of 23 February 2001, and as was again affirmed by Counsel for the Plaintiff, the Plaintiff submitted that the present proceedings in the Federal Court were validly brought; that is to say the Plaintiff expressly disavowed fulfilment of the first element of s237(2)(a).

8 The Plaintiff then attempted to have the matter adjourned for that question to be determined finally in the Federal Court. I declined that application on the basis that no indemnity costs were proffered and in any event that that matter was an essential integer of any successful application under s237. That assumed, without deciding, that the section were otherwise capable of application in the present circumstances of a company under external administration in respect of proceedings already commenced.

9 The Plaintiff’s difficulty became apparent when in addition to that submission, the Plaintiff made clear that his proffered indemnity (Annexure D to affidavit of Mr Butler dated 23 February 2001) meant that the company could “properly take responsibility for [the proceedings],” and “for the steps in them”. That meant the Plaintiff was conceding non-fulfilment of an essential element, that in s237(2)(a), for the court to allow a derivative action in the first place.

10 The end result is that the Plaintiff’s submissions were in direct contradiction to the state of affairs which would satisfy the threshold condition in s237(2)(a). That CBA put a submission to the contrary of the Plaintiff’s submissions is nothing to the point. It is the Plaintiff that has the onus of making his case for leave to be granted, if capable of being granted at all under s237.

11    In those circumstances I have concluded that the Plaintiff’s application must be dismissed and so order.

COSTS

12 Although an application for indemnity costs on the part both of the receivers and managers and CBA was resisted, I am satisfied that this is a proper case for such an order. Though CBA has not been joined as a party to the application, it is a party to the relevant Federal Court proceedings. In those circumstances, there is power under s242(c) of the Corporations Law to make an order in favour of CBA. So far as the receivers and managers are concerned there is no reason why they should not have such an order also.

13 The circumstances justifying that order are that the Federal Court proceedings were mistakenly commenced without prior application under s237, assuming for the moment that they were validly commenced, about which I express no view. Furthermore, the issue of lack of authority has been made crystal clear in correspondence as the chronology and affidavit evidence indicate. The present application which has occupied several days of Court time, on an urgent basis, should never have been brought so belatedly. The overriding requirement that enjoins the just, quick and cheap resolution of disputes in this Court reinforces the need for trial judges to recognise, by the emphatic sanction of indemnity cost orders, when proceedings have been misconceived and belated, as here. In saying that I make absolutely no criticism of Counsel for the Plaintiff, but simply note that the circumstances in which he was faced should not have been allowed to arise.

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Last Modified: 02/26/2001