SUPREME COURT OF QUEENSLAND
CITATION:
Jensen & Ors v RQYS Marina Ltd & Ors [2015] QCA 153
PARTIES:
LAWRENCE JOHN JENSEN
CAROLYN HUNTER ROSS
(first appellants)
NAIAD AUSTRALIA PTY LTD
ACN 010 463 779
(second appellant)
PETER ROBERT FREDERICK LEWIS
VIRGINIA ELIZABETH LEWIS
(third appellants)
v
RQYS MARINA LIMITED
ACN 010 217 991
(first respondent)
ROYAL QUEENSLAND YACHT SQUADRON LIMITED
ACN 053 989 272
(second respondent)
RQYS NOMINEES PTY LTD
ACN 130 840 523
(third respondent)
KEVIN ANTHONY MILLER
(fourth respondent)
IAN ROBERT THRELFALL
(fifth respondent)
MARK GALLAGHER
(sixth respondent)
GEOFFREY JOHN STANHOPE
(seventh respondent)
COLIN FRANCIS GIBBONS
(eighth respondent)
WILLIAM GEORGE KIRBY
(ninth respondent)
GREGORY CLARKE
(tenth respondent)
CHARLES RUSSELL McCART
(eleventh respondent)
PETER JOHN CONDE
(twelfth respondent)
PAUL CRANSTON HUGHES
(thirteenth respondent)
DAVID GILMOUR VIRGO
(fourteenth respondent)FILE NO/S:
Appeal No 10177 of 2014
SC No 6086 of 2014DIVISION:
Court of Appeal
PROCEEDING:
General Civil Appeal
ORIGINATING COURT:
Supreme Court at Brisbane - [2014] QSC 243DELIVERED ON:
21 August 2015
DELIVERED AT:
Brisbane
HEARING DATE:
7 May 2015
JUDGES:
Gotterson JA and Boddice and Flanagan JJ
Separate reasons for judgment of each member of the Court, each concurring as to the orders madeORDERS:
1. Appeal dismissed.
2. Appellants to pay the respondents’ costs of the appeal on the standard basis.
CATCHWORDS:
APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – RIGHT OF APPEAL – WHEN APPEAL LIES – ERROR OF LAW – WHAT IS – GENERALLY – where each appellant was a member of the first respondent – where the appellants failed to satisfy the learned primary judge that they be granted leave to bring a proposed proceeding in the Supreme Court of Queensland on behalf of the Marina Company – where the appellants contend by way of appeal that they were denied procedural fairness at the hearing before the learned primary judge – where in oral submissions, senior counsel for the appellants attributed the error to a denial of the opportunity to cross-examine the respondent’s witnesses – where a perusal of the transcript of the hearing before the learned primary judge reveals that there was no occasion on which counsel made a request to cross-examine which was refused – where the decision not to cross-examine was voluntarily made – whether there has been a denial of procedural fairness
CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS’ REMEDIES AND INTERNAL DISPUTES – PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER – STATUTORY DERIVATIVE ACTION – where in oral submissions, senior counsel for the appellants proposed that it was “a necessary condition” to success on the appeal that the learned primary judge’s view as to the meaning of the Marina Company’s Memorandum of Association be overturned – where the appellants’ written submissions identify the “central error” committed by the learned primary judge as one demonstrated in the observation in paragraph [1] of the reasons that the Marina Company “exists to support the members of the Royal Queensland Yachting (sic) Squadron” – where in further elaboration, the…
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Details
- Case
- [2015] QCA 153
- Decision Date
CaseChat Overview and Summary
Jensen and another v RQYS Marina Ltd involved an appeal against the refusal of the primary judge to grant leave to bring a derivative action on behalf of the Marina Company. The appellants, who were members of the Marina Company, sought to bring the action to address various alleged breaches by the directors of the company, including failures to take advantage of certain opportunities and financial irregularities. The primary judge denied leave, concluding that the proposed claims lacked reasonable prospects of success and that granting leave would not be in the best interests of the company due to the high costs and risks involved. The appellants argued that they were denied procedural fairness and that the primary judge misinterpreted the company's Memorandum of Association. The Court of Appeal dismissed the appeal, finding no basis for the claims of procedural unfairness or misinterpretation. The Court upheld the primary judge's reasons and concluded that the appellants had not demonstrated that the proposed action was in the best interests of the Marina Company. The appeal was dismissed, and the appellants were ordered to pay the respondents' costs of the appeal.
Orders
Orders of the court
1. Appeal dismissed.
2. Appellants to pay the respondents’ costs of the appeal on the standard basis.
Background
Background to the litigation
On 27 October 2014, the appellants filed a notice of appeal against the judgment.[5] There are 13 grounds of appeal.[5]AB1942-1962.Factual background The learned primary judge summarised the factual background to the proposed proceeding as follows:“[2] Before 1991 the Royal Queensland Yachting Squadron was an unincorporated association, and trustees held property for its benefit. In the late 1970s and early 1980s the Squadron obtained approval to construct a marina. By late 1980 the trustees of the Squadron decided that the marina project would be developed by a separate entity. This was done in order to protect the Squadron’s assets and remove the trustees from the possibility of personal liability. Mr Kirby, who has been involved with the Squadron since the early l970s and has held various flag office positions in it, was the Honorary Solicitor of the Squadron between 1972 and 2002. He drafted the Memorandum of Association of RQYS Marina Ltd (“the Marina Company”). Its first object is:‘To establish and support or to aid in the establishing or support of associations, institutions, trust funds or conveniences calculated to benefit the members of the Royal Queensland Yachting Squadron.’[3]To ensure that the marina project was managed in a way that could not be adverse to the Squadron in the future, its Articles of Association provided that the Flag Officers of the Squadron would comprise the majority of the directors of the Marina Company.[4]Development of what later came to be known as “Marina 1” was commenced before the incorporation of the Marina Company on 23 March 1981. The Squadron continued to hold the lease over parts of the Marina 1 areas. A lease was subsequently granted to the Marina Company in 1983 and the Squadron relinquished its leasehold interests. The purpose of arranging to have a head lease granted to the Marina Company in 1983 was to enable it to then grant interests to berth holders.[5]Marina 1 is operated by the Marina Company in a seabed lease in the Manly boat harbour. It is surrounded by freehold land owned by the Squadron, which is utilised for access and car parking. The Marina Company’s water, sewerage services and electricity is supplied from the Squadron’s infrastructure. The Marina Company shares administration and management with the Squadron, and has done so since its inception.[6]The Marina Company required each berth holder to be a member of the Marina Company. All members of the Marina Company are required to be financial members of the Squadron. This requirement was introduced to enable the Marina Company to obtain the benefit of ‘mutuality’ principles that apply for taxation purposes to income received from berth holders. In addition, the Port of Brisbane Corporation required as a term of its sub-lease with the Marina Company that berth holders be financial members of the Squadron.[7]Membership of the Marina Company does not confer any rights, or create any obligations in relation to berths. Berth holders enter into separate, fixed-term lease agreements with the Marina Company, which establish each berth holder’s rights and obligations in relation to berths.[8]On 14 October 1991 the Royal Queensland Yacht Squadron Ltd (“the Squadron”) was incorporated as a company limited by guarantee, and effectively took over the activities, operations and affairs of the Squadron.[9]The marina proved to be a success. Between 1984 and 1993 it was expanded to include what was known as “Stage 2”. It now has 464 berths.[10]From about 2002 onwards, discussions occurred among the directors and members of the Marina Company and the Squadron about the possibility of expanding the existing marina with the development of what is now known as Marina 2. The directors of the Marina Company wished to ensure that potential tax issues were addressed. They sought and obtained from the Australian Tax Office (ATO) a Private Ruling in 2007. Following this ruling the directors of the Squadron and of the Marina Company agreed to proceed with the development of Marina 2, by establishing a corporate trustee holding assets on trust for the Squadron, which is a tax exempt entity. As a result, RQYS Nominees Pty Ltd (“Nominees”) was incorporated on 29 April 2008 and the New Marina Trust was established at about the same time under which Nominees held the relevant lease for Marina 2 on trust for the Squadron.”[6][6]AB1913-1914.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
His Honour expanded upon these observations by noting:“[24] Because of the way in which the proposed statement of claim is pleaded, and because different proposed defendants acted as directors at different times it is invidious to address the proposed proceeding at some abstract level on the basis that all of the defendants could be said to have breached all of their duties in respect of various matters and transactions which occurred over a number of years. It is appropriate to assess the applicant’s proposed case that the relevant directors subordinated the best interests of the Marina Company and breached their duties as directors in respect of particular transactions. The transactions and the alleged failure to take advantage of various opportunities which are said to have been available to the Marina Company, which broadly correspond to different chapters of the draft statement of claim, may be described as follows:(a)An alleged failure to take advantage of an opportunity for the Marina Company to become the owner of the second marina;(b)An alleged failure to obtain a future head lease over the Marina 1 seabed area and adjacent areas from 2029 to 2051;(c)Transactions in relation to a business known as the Yard Business and related facilities;(d)Alleged financial irregularities in relation to loans made to the Squadron which are said to have been on uncommercial terms and to have benefited the Squadron and Nominees;(e)The alleged misappropriation of monies known as the dredging fund in relation to the purchase of a dredge.”[8][8]AB1917.The judgment at first instance The learned primary judge examined each of the impugned transactions and alleged failures to take advantage of various opportunities. He concluded that the Marina Company appears to have poor prospects of establishing claims in respect of them. He was of the opinion that the respondents had advanced persuasive reasons as to why the claims are misconceived or have poor prospects of success at trial.[9][9]At [109]. Section 237(2) of the Corporations Act lists five criteria. It provides that if the Court is satisfied that each of them exists, then it must grant an application made under s 237(1). His Honour identified those matters which were in contest before him. They were:“(b)the applicant is acting in good faith; and(c)it is 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;”.[10][10]At [110]. The applicants, now appellants, failed to satisfy the learned primary judge that it was in the best interests of the Marina Company that they be granted leave to bring the proposed proceeding.[11] His Honour gave detailed reasons for so concluding. It is appropriate that those reasons be set out in full. They are these:[11]At [141].“[117] Leave to bring a derivative action must not be given lightly.[12] The Court must be satisfied by the applicant for leave that the proposed action is in the best interests of the company. Obviously, it is in the best interests of a company to have its property returned to it. If there are no other ways of obtaining that outcome, then it may be necessary for the company to bring the required proceeding to achieve that result. Likewise, it generally follows that pursuit of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by the officer’s breach of duty is in “the best interests of the company”.[13] However, as Mullins J observed, this general proposition is a starting point for the consideration of the issue and the circumstances in a particular case can displace the application of the proposition.[14] The general proposition that it is in the best interests of a company to have its property returned to it is also a starting point. The Court then considers whether in the particular case there are reasonable grounds to conclude that the company’s property has been taken from it, the prospects of success of an action to recover it, the likely costs and the likely recovery if the action is successful and the likely consequences if it is not.[12]Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583 at 318 [24].[13]MG Corrosion Consultants Pty Ltd v Vinciguerra (2011) 82 ACSR 367 at 379 [60].[14]Re The Presidents Club Ltd; Coeur De Lion Investments Pty Ltd v Kelly [2012] QSC 364 at [59].[118]The applicants submit that without the proposed proceedings being brought, the only future for the Marina Company is that it will continue ‘to be stripped of its assets until being wound up’. For the reasons given by me in considering the separate transactions and matters of substance raised by the applicants in their submissions, I am not satisfied that the Marina Company has been stripped of its assets or that the past and present directors of it intend that it should be stripped of its assets until it is a shell. The applicants point to a statement in the 2010 annual report in which Mr Kirby stated that mention had been made of the fact that the rights of berth owners cease as at 30 December 2028 and ‘it is not currently thought there will be any reason for the [Marina] Company to operate beyond that time ...’. This statement about the Marina Company’s long-term future and what business it might have to conduct after 30 December 2028 is an insufficient basis to conclude that Mr Kirby or anyone else is intent of stripping the Marina Company of its assets until it is wound up.[119]Rather than address generalities and broad assertions to the effect that the directors of the Marina Company, past and present, have engaged in a dishonest course of conduct involving stripping the Marina Company of its assets, I have addressed some of the more substantial proposed claims. In doing so, I have not been satisfied that if the proposed action was brought by or on behalf of the Company that the claims would have a reasonable prospect of success based on the evidence before me. Consistent with the authorities in determining whether it is in the best interests of the Company for the proposed claims to be brought, it is necessary to consider the prospects of success of each claim and the risks posed to the Marina Company in bringing it.[120]The applicants have not satisfied me that any of the proposed claims have reasonable prospects of success. The uncontested evidence of an independent costs assessor is that, on the basis of a three week trial, the proposed defendants’ assessable costs would be in the order of $885,000. The Marina Company would presumably incur very substantial costs in litigating the proposed proceeding. The applicants have not offered any personal indemnity or undertakings to protect the Marina Company against adverse costs orders in the event that all or part of the proposed proceeding was unsuccessful.[121]A relevant consideration is whether the company would be prejudiced by being exposed to the costs and expenses of litigation and risk of an adverse costs order. As Davies J stated in Cooper v Myrtrace Consulting Pty Ltd,[15] the grant of leave has often been made conditional upon the applicant for leave indemnifying the Company for its costs of the proceeding and any adverse costs order against it.[16] Her Honour cited authorities which emphasised the importance of such an indemnity as a means of addressing the risk of prejudice to the company from the commencement of proceedings. I respectfully adopt these observations.[15][2014] FCA 480 at [29].[16]Ibid.[122]In the absence of a personal indemnity or undertaking of substantial value, the Marina Company is exposed to the substantial prejudice of incurring very substantial costs in litigating the proposed proceeding and a very substantial adverse costs order if the proceeding is unsuccessful. In the absence of such a protection, the proposed litigation, with its substantial costs, is likely to have an adverse effect on the proper conduct of the Marina Company’s business. This alone is a reason why I am not satisfied that granting leave is in the best interests of the company.[123]In addition, much of the declaratory relief that is sought by the applicants in the proceeding is of no practical benefit to the Marina Company. The proposed proceeding seeks other relief in the form of constructive trusts over property held by Nominees and alternatively orders for equitable compensation or compensation pursuant to causes of action under the Corporations Act 2001. As to the claims which seek relief by way of constructive trusts over the property held by Nominees on trust for the Squadron, the applicants have not shown that the Marina Company has good prospects of having a constructive trust declared over the property. As to the alleged diversion of what are said to have been opportunities which should have been made available to the Marina Company, the respondents have advanced a substantial case that these were not opportunities which it was in the best interests of the Marina Company or in the interests of members of the Squadron for the Marina Company to pursue.[124]In addition, there is a very substantial argument based upon the High Court’s decision in Farah v Say-Dee[17] that the first limb of the rule in Barnes v [Addy] does not extend to a lost opportunity, rather than a transfer of the Marina Company’s property. On this argument, the success of the proposed claim depends upon whether or not a dishonest or fraudulent design can be proved. I am not satisfied that the Marina Company has reasonable prospects of doing so.[17](2007) 230 CLR 89 at 144 [120].[125]As to claims for compensation, no attempt has been made to particularise, even approximately, the loss which is alleged to have been sustained by the Marina Company, let alone to quantify it. The fact that the Marina 2 venture may turn out to be a profitable venture does not prove the value of the opportunity at the relevant time, with its associated risks. Similar observations apply to the Yard Business and the Dredging Company.[126]As to the Marina 1 lease, proof of dishonesty would appear to require the Marina Company to establish that its former directors’ interpretations of the Company’s constitution and of the 2007 ATO ruling were not simply wrong, but not genuinely held, or that it was a belief that no director could reasonably hold. The Marina Company has poor prospects of establishing those matters.[127] The applicants submit that the Squadron and Nominees are able to satisfy any judgment which will be made against them. They point to recent financial statements which disclose that both have significant assets and cash-flow. However, this begs the question of the likely judgment, a matter not adequately addressed in the proposed statement of claim in its pleading of loss or damage or in the applicants’ submissions.[128]Any eventual monetary judgment may be small and it would not be in the best interests of the Marina Company to bring hazardous litigation when the benefit it would derive from such a monetary judgment would be outweighed by the costs and the risks associated with bringing the proceeding.[129]The draft pleading sets out extensive allegations of oppressive conduct, but there is no apparent reason why the applicants could not pursue such relief by separate proceedings under Part 2F.1 of the Corporations Act if they had a proper basis.[130]Any real dispute about the proper interpretation of the Marina Company’s constitution might be sought in simpler and less costly litigation.[131]The proposed statement of claim raises many allegations which have only marginal relevance to the claims of substance. For the reasons given earlier and for the reasons developed in the respondents’ submissions, many of the allegations do not give rise to claims for loss and damage or at least any loss and damage which the applicants have properly particularised.[132]The proposed statement of claim is not simply lengthy and one to which it would be very expensive to plead. It rolls up allegations against numerous directors in respect of various transactions, and does not adequately distinguish between alleged breaches by different respondents, and the loss and damage which each breach is alleged to have caused.[133]Reference was made in the course or oral submissions to the fact that the applicants, taking account of the criticisms made by the respondents to the proposed proceeding, might revise the pleading and that the applicants were ‘in no sense wedded to or locked into the draft statement of claim in its current form’. The applicants said that they were prepared to review it based upon what the respondents had said in their outline of submissions and that the applicants would be unable to resist the imposition of conditions on leave, requiring the applicants to confine their case as the Court thought fit. One difficulty with that suggestion is that I am left to guess about which parts of the draft statement of claim, including which prayers for relief against which proposed defendants, the applicants have any real affection for, let alone are wedded to. I do not consider that it is appropriate, in the circumstances, given the form in which the draft statement of claim appears, to select, as it were, a few chapters and to confine the applicants to this abridged version.[134]To the extent that it is possible to separate the various claims for relief and the causes of action which are alleged to support them, I am not satisfied that it is in the best interests of the Marina Company for any of the claims to be brought. None of them appear to have sufficient prospects of success, or to be likely to result in the recovery of substantial property or a substantial award of compensation if successful, so as to justify the likely costs of the litigation and the risks to the Marina Company of paying the proposed defendants’ costs if the claims are unsuccessful.[135]In conclusion, the applicants have not discharged the onus of satisfying me that it is in the best interests of the Company that they be granted leave to bring the proposed proceeding or proceedings.”[18][18]AB1937-1940.
Ratio Decidendi
Legal Principle Established
Full text does not contain this section.