John Herbert McLachlan & 4 Ors v Christopher Stephen de Vere & 3 Ors

[2006] NSWSC 959

CITATION:	John Herbert McLachlan & 4 Ors v Christopher Stephen de Vere & 3 Ors [2006] NSWSC 959
HEARING DATE(S):	14/09/06
JUDGMENT DATE :	26 September 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	09/26/2006
DECISION:	See para 62 of judgment.
CATCHWORDS:	CORPORATIONS – Practice and procedure – Proceedings on behalf of company by members – Second plaintiff seeks leave pursuant to s 237 Corporations Act 2001 (Cth) to bring proceedings on behalf of fifth plaintiff, a company – Second plaintiff alleges first and second defendants breached fiduciary and statutory duties owed to fifth plaintiff – Whether probable that fifth plaintiff will bring proceedings itself – Whether second plaintiff acting in good faith by seeking to commence proceedings – Best interests of fifth plaintiff – Whether leave should be granted – Leave granted on terms - PRACTICE & PROCEDURE – Discontinuance by co-plaintiffs – Three co-plaintiffs seek leave to discontinue – Where co-plaintiffs do not sue on causes of action held jointly – Leave to discontinue granted.
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Peter Taylor et al, Ritchie’s Uniform Civil Procedure (NSW) Vol 1, ‘Discontinuance by Co-Plaintiffs’, Lexis Nexis Butterworths, Sydney, 2005 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; (2001) 37 ACSR 672 Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 Chapman v E-Sports Club Worldwide Ltd (2000) 35 ACSR 462 Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007
PARTIES:	John Herbert McLachlan & 4 Ors v Christopher Stephen de Vere & 3 Ors
FILE NUMBER(S):	SC 6447/05
COUNSEL:	Plaintiffs: D Allen Defendants: P Singleton
SOLICITORS:	Plaintiff: Leonard Legal Defendants: Austen Brown Boog

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Tuesday, 26 September 2006

6447/05 John Herbert McLachlan & 4 Ors v Christopher Stephen de Vere & 3 Ors

JUDGMENT

1 HIS HONOUR: I made orders in these proceedings on 15 September 2006, but circumstances then prevented my giving reasons for the orders made. The following are my reasons.

2 The principal, but not the only, issue on this application is whether leave should be given to the second plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) to bring the current proceedings on behalf of the fifth plaintiff.

3 The relief sought in the plaintiffs’ notice of motion is as follows:

“ 1. Leave be given to the first, third and fourth plaintiff (sic) to discontinue.
2. Leave be granted pursuant to s 237 of the Corporations Act 2001 to the second plaintiff to bring the current proceedings on behalf of the fifth plaintiff.
3. Leave be granted to file an amended statement of claim in the form annexed.
4. An order that the first and second defendants permit John McLachlan, a director of the fifth plaintiff to have full and free access to the books and records of the fifth plaintiff.
5. Alternatively, an order that all the books and records of the plaintiff including all bank statements, contracts and agreements between the plaintiff and third parties be delivered to the offices of Leonard Legal at Level 4, 167 Phillip Street, Sydney NSW 200 or at a place nominated by Mr John McLachlan.
6. The first and second defendants must advise Mr John McLachlan and two executive members of the fifth plaintiff of any director meeting and board meetings.
7. The first and second defendants be prevented from entering into any negotiations and arrangements on behalf of the fifth plaintiff without written approval of Mr John McLachlan and/or two executive members of the fifth plaintiff.
8. Mr John McLachlan and the first defendant are made signatories of the Station Headquarters Limited Business Management account with BSB number 082-515 and account number 57-166-4070, being the fifth plaintiff’s bank account.
9. Directions for the conduct of the substantive matter including a date for hearing. ”

4 The proceeding is an oppression suit. Having regard to s 233(1)(g) of the Corporations Act, the reasoning of Young J (as his Honour then was) in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 737-738, and of the Court of Appeal in the same case (at (2001) 37 ACSR 672 at 695-696, 734 and 795), nothing much would seem to turn on whether or not leave is given pursuant to s 237. Nonetheless, that issue has been fully argued and will be dealt with on its merits.

The Parties

5 There are currently five plaintiffs. Station Headquarters Ltd (“SHQ”) is the fifth plaintiff. The first plaintiff is one of three directors of SHQ. It is common ground that there has been no resolution of directors of SHQ authorising it to institute these proceedings. On the other hand, no objection has been taken to date about the authority of the first plaintiff, or the plaintiffs’ solicitors, to institute proceedings on its behalf.

6 The second plaintiff, JMACC Pty Ltd, is a shareholder of SHQ. The third plaintiff, Ms Salisbury, is another shareholder of SHQ. The fourth plaintiff, Mr Burge, is the executive operations manager of SHQ.

7 The first and second defendants are the other directors of SHQ. The third defendant, Anzram Corporation Australasia Pty Ltd (“Anzram”) is registered as the holder of approximately two-thirds of the issued shares in SHQ. According to the records of the Australian Securities and Investments Commission, the second defendant, Ms Page, is the only director and shareholder of Anzram. The plaintiffs contend that the first defendant, Mr De Vere, is a shadow director of Anzram.

8 The proceedings were commenced by summons filed on 21 December 2005. The statement of claim was filed on 26 May 2006. The plaintiffs now seek leave to file an amended statement of claim. The first, third and fourth plaintiffs seek leave to discontinue the proceedings.

9 The defendants submitted that the second plaintiff should not have leave to bring proceedings on behalf of SHQ. Objection was also taken to the individual co-plaintiffs from discontinuing their claims.

Leave to Discontinue

10 Counsel for the defendants referred to the commentary in Peter Taylor et al, Ritchie’s Uniform Civil Procedure (NSW) Vol 1, ‘Discontinuance by Co-Plaintiffs’, Lexis Nexis Butterworths, Sydney, 2005 at [12.1.35] where the learned authors say:

“ [12.1.35] Discontinuance by co-plaintiffs Individual co-plaintiffs may discontinue where they rely upon separate, or alternative, causes of action: King v Sunday Pictorial Newspapers Ltd (1924) 41 TLR 229. Individual co-plaintiffs who sue on a joint cause of action cannot discontinue. A co-plaintiff who does not wish to prosecute the proceedings may be added as a defendant: Re Matthews [1905] 2 Ch 460. ”

11 I do not accept that the first, third and fourth plaintiffs cannot discontinue their claims. There may be objections to one co-plaintiff discontinuing her claim if she is entitled jointly to a cause of action with another co-plaintiff. However, in the present case, the plaintiffs do not sue on causes of action held by them jointly. They sue in their different capacities as shareholders, director or employee of the fifth plaintiff. They claim that the first and second defendants have breached statutory and fiduciary duties owed by them to SHQ. Insofar as claims are brought for statutory relief against oppressive conduct, both the second and third plaintiffs sue as shareholders. However, they are not suing on a joint cause of action.

12 The defendants also submitted that any leave to discontinue and any leave to amend should be on terms that all of the defendants’ costs to date be paid on an indemnity basis. The defendants submitted that this was just as substantially all of the costs incurred to date have been wasted because the amendments are so extensive that they amount to the plaintiffs starting again with a new case.

13 I do not accept this characterisation of the amendments. Although the amendments are extensive, they deal with the same factual substratum as is alleged in the original pleading and as is set out in the affidavits sworn in support of the summons. The amendments plead the facts giving rise to the present claims in a different order. Some new or different facts are pleaded. The legal basis of the claim is also recast. However, I do not accept that all, or nearly all, of the costs incurred to date by the defendants will have been wasted.

14 In any event, the defendants will be entitled to their costs thrown away by reason of the amendments and by reason of the discontinuance of the claims of three of the plaintiffs. If the defendants’ submission that all of their costs to date will have been wasted is correct, they will be entitled to recover those costs on a party/party basis pursuant to the costs order I will make.

15 There has not been such a delinquency in the conduct of the proceedings as would warrant an order for the costs to be paid on an indemnity basis.

The Nature of the Proceedings

16 Evidence was adduced by the plaintiffs on the present application to show that there is a serious question to be tried in relation to the allegations in the proposed amended statement of claim. The defendants did not read any evidence on this application. The second plaintiff claims that the defendants promoted the issue of shares in SHQ to investors, including the second plaintiff, who were interested in an enterprise for the breeding, trading, growing and selling of goats for their meat.

17 SHQ was incorporated on 21 April 2004 as a public company. Initially, it was a wholly owned subsidiary of the third defendant, Anzram.

18 On 22 May 2004, SHQ and Anzram entered into a management agreement. At this time, SHQ was wholly owned by Anzram, but it was proposed that shares in SHQ be offered to the public. Under the management agreement, Anzram agreed to manage SHQ’s affairs for a period of five years. The management fee was $108,000 plus GST and was to increase by 10% annually. Anzram agreed to undertake SHQ’s “operational and financial administration and cash management and disbursal”, including bookkeeping and preparation of management accounts.

19 The goats were to be run from a property known as Coronga Downs. On 6 July 2001, Anzram had taken a lease of Coronga Downs from Hipano Pty Ltd. The lease was for a term of three years expiring on 5 July 2004, with an option to renew for two years. The annual rent under the lease was $30,000 per year. The rent would increase to $35,000 per year if the option to renew were exercised.

20 Anzram also had an option to purchase the land (and a bulldozer) for $420,000.

21 On 13 May 2004, Anzram entered into a contract with Hipano to buy Coronga Downs for $420,000. The completion date was 30 June 2006. I was told by counsel for the plaintiffs that the plaintiffs understood that the purchase has not yet been completed.

22 On 1 June 2004, SHQ entered into an agreement with Anzram to lease Coronga Downs for a term of five years from 1 July 2004 at a rent of $44,000 per annum plus outgoings. SHQ also assumed responsibility to carry out maintenance of, and improvements to, Coronga Downs, such as repairing the water system, providing a loading chute, and providing fencing and yards. Anzram gave SHQ an option, during the first four years of the lease, to purchase the property for $880,000.

23 Because the second defendant, Ms Page, was the director and shareholder of Anzram, and because SHQ was a public company when the management agreement and the lease agreement were entered into, she had a material personal interest in SHQ’s entry into those transactions. Mr De Vere may also have had such an interest, as he declared such an interest in minutes of purported directors’ meetings which purportedly approved the transactions.

24 The third director of SHQ was the first plaintiff, Mr McLachlan. He denies having attended any meeting to approve the transactions. He has annexed to his affidavit minutes of resolutions of the directors of SHQ approving of SHQ’s entering into the management agreement, and the lease agreement. The minutes are described as “circular resolutions” and suggest that no meeting of directors took place. The minutes have not been signed by Mr McLachlan.

25 On the present materials, it seems that Ms Page, and possibly Mr De Vere, were precluded by s 195 of the Corporations Act from voting on the resolutions to approve SHQ’s entering into these transactions. The proposed amended statement of claim does not plead a contravention of s 195, but this may be an oversight. Any such contravention would not affect the validity of the resolutions, but it is relevant to the plaintiffs’ claims.

26 By another circular resolution dated 1 June 2004, signed by the first and second defendants, those directors resolved that SHQ’s issued capital of 1,000 ordinary shares of $1 each be converted into 127,908,802 ordinary shares. By another circular resolution of the same date, signed by the first and second defendants, it was resolved that the share certificate held by Anzram be cancelled and be replaced with a new share certificate for 127,908,802 shares and that appropriate entries be made in the company share register. Prima facie, at least the second defendant was precluded by s 195 from voting in relation to that resolution.

27 It appears that offer information memoranda were provided to prospective investors. Subscriptions for shares were received from at least 5 July 2004. Documents were produced before that time to attract investments. The plaintiffs alleged that it was represented to subscribers that shares would be retained in SHQ by the existing shareholders who had invested $3,675,000 of capital. An offer information statement dated August 2004 states that the company proposed to raise $750,000 through the issue of shares in two stages. The statement contains the following:

“ The present owners have invested considerable money, time and effort in establishing the contracts, processes and systems of the business to this stage of the Company’s development. For this contribution (associated intellectual property, contracts, systems, etc.) they will retain approximately 80% (or its equivalent in the event of a capital restructuring) of the Company from the outset.
“ Capitalisation & Proposed Shareholding of the Company:
The capitalisation of the Company, after all the Ordinary Shares are taken up, would be:
Issued Ordinary Shares:
Present Shareholders 140,000,000 ($3,675,000)
New Investor(s) 34,285,714 ($900,000)
Total Shareholders’ Equity 174,285,714
Total Capitalisation @ $0.02625 cents per share $4,575,000 ”

28 The source of the figure of $900,000, rather than $750,000, is not immediately apparent. Be that as it may, it is arguable that the defendants represented that the existing shareholders (i.e., Anzram) would contribute, or had contributed, $3,675,000 in the form of contracts, processes, systems and intellectual property.

29 It is also arguable that that statement was false. On the plaintiffs’ evidence, no such contribution was made.

30 There was no disclosure in the offer information statement of the profits to be derived by Anzram under the management agreement, or the leasing arrangements, or under the exercise of option if SHQ exercised its option to purchase. Nor was there any such disclosure in a later offer information statement dated September 2005 by which SHQ sought to raise further capital in two further rounds.

31 The September 2005 offer information statement described SHQ’s then existing business as follows:

“ The company is an export driven goat and livestock supply company focused on satisfying the under-supplied world-wide demand for goat as a meat and protein source. It provides the live goats that are required by its customers, either within the vertically integrated organisation to which it belongs or to unrelated business groups, nationally and internationally.
The supply of livestock goats is provided by the company through an autonomous integrated breeding, conditioning and market distribution program, with a focus on ‘quality’ at all times. To achieve this, the company holds the operating lease of a Western NSW Station that has been identified as an ideal goat property. ”

32 The plaintiffs produced management accounts for SHQ for the year ended 30 June 2005. Pursuant to the management agreement, it can be inferred that these were produced by Anzram. Those accounts disclosed that SHQ made a loss in that year of $714,760. No income was recorded as having been received from the sale of goats. There was a figure for ‘costs of sales’, although no sales were recorded. The figure for costs of sales was only $4,220, being the cost of freight. No cost for the purchase of goats was recorded, although the company’s asset register disclosed such a purchase. Other expenses, totalling $714,799, included $62,914 for maintenance, $412,157 for fencing, $43,909 for ‘operating license fees’, $108,000 for management fees, and $2,237 for feed and other agricultural supplies.

33 These documents, which may not be final documents, give rise to the inference that moneys raised from investors have been substantially applied towards the maintenance and improvement of the Coronga Downs Station which Anzram has contracted to purchase. It is disturbing that the management accounts do not disclose any expense for the purchase of goats or any receipts from their sale. An invoice addressed to SHQ was included amongst the documents tendered. The invoice was in the amount of $63,394 for the purchase of goats in November 2004. These goats were recorded in the asset register of SHQ. They do not appear as an asset on the draft balance sheet.

34 The management accounts are consistent with the purchase and sale of goats having been conducted through some entity other than SHQ. They are consistent with SHQ having borne the cost of maintaining the property, and at least some of the expenses, such as feed and freight, of the goat farming. There is a serious question whether other entities in what was described as a ‘vertically integrated organisation’ are deriving any profits from the sale of goats or goatmeat, with the moneys raised from the public through the issue of shares in SHQ simply meeting many of the costs of that operation.

Claims in the Proposed Amended Statement of Claim

35 The second plaintiff alleges that the first and second defendants committed various breaches of fiduciary and statutory duties which they owed to SHQ. The second plaintiff pleads that the first and second defendants withheld from SHQ the opportunity to obtain the lease of Coronga Downs or to purchase Coronga Downs. It pleads that Anzram holds any interest it has acquired in Coronga Downs pursuant to the option to purchase on a constructive trust for SHQ. Presumably, the second plaintiff intends to claim that Anzram holds its interest as purchaser under the contract for sale with Hipano on constructive trust for SHQ, whether or not that contract was entered into pursuant to the exercise of the option to purchase.

36 The second plaintiff pleads that the first and second defendants breached their fiduciary duty to SHQ by causing SHQ to enter into the lease agreement at a greater rent than was payable under Anzram’s lease, and to take an option to purchase at a higher price than the option for purchase under the Anzram lease. It claims that damages or equitable compensation are payable to SHQ:

“ 36. Further, Page, de Vere and Anzram are liable to pay equitable compensation and damages pursuant to s 1317H of the Corporations Act for the loss suffered by Headquarters by reason of the breaches of duties, being:

(a) The difference between the rent paid on the sublease and the rent paid pursuant to the head lease.

(b) The opportunity lost to develop Headquarters’ business during the time Headquarters has ceased to operate its business.

(c) To the extent Headquarters is unable to obtain the benefit of the constructive trust by reason of not being able to complete the purchase of Coronga Downs, the loss of opportunity to grow the business, being the profits which would have been generated.

(d) In addition or alternatively in that circumstance the cost of building improvements on Coronga Downs. ”

37 The second plaintiff also pleads that Anzram has breached the management agreement, and that the first and second defendants breached their fiduciary and statutory duties by causing SHQ to enter into the management agreement.

38 The second plaintiff also pleads that SHQ has ceased to carry on its business. It claims that the first defendant has converted to his own use the goats that were on the Coronga Downs property. It is not clear from the evidence adduced on the application whether SHQ has paid for those goats.

39 I presume that the plaintiffs are awaiting receipt of further documents to ascertain whether some entity other than SHQ has been buying, growing or selling goats using the Coronga Downs farm.

40 Subject to the question whether the second plaintiff should have leave to bring proceedings on behalf of SHQ, there is no objection to leave being given to amend the statement of claim as sought in the amended notice of motion.

Leave to Commence Proceedings on Behalf of the Fifth Plaintiff

41 The application for leave is brought pursuant to s 237 of the Corporations Act. Subsections 237(1) and (2) provide:

“ 237 Applying for and granting leave
(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. ”

Probability that the Company will not Bring the Proceedings Itself

42 In relation to the criterion in s 237(2)(a), the defendants submitted that to date no objection has been taken to the plaintiffs’ solicitors, on instructions from Mr McLachlan, bringing proceedings on behalf of SHQ. It was submitted that I should therefore not be satisfied that it was probable that the company would not itself bring proceedings, or properly take responsibility for them.

43 The present situation is an odd one, as it is common ground that no board resolution has been passed for the fifth plaintiff to bring the proceedings. On the other hand, no application has been made by the defendants about that.

44 In May and July 2006, the defendants’ solicitors pressed the plaintiffs’ solicitors for answers as to the basis upon which the plaintiffs’ solicitors contended that the proceedings had been properly commenced on behalf of SHQ.

45 The defendants’ counsel resisted the proposition that if the application for leave under s 237 were defeated on this ground, the defendants would be estopped from disputing that Mr McLachlan had authority to instruct the plaintiffs’ solicitors to bring the proceedings on behalf of SHQ. Counsel also resisted the proposition that the defendants, by making this submission, had elected not to maintain in the future any such claim of lack of authority. Counsel referred to the observations of Brereton J in Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 at [26] as support for the defendants’ position.

46 Accordingly, the question whether it is probable that the company will bring the proceedings, and properly take responsibility for them if leave is not given, is to be approached on the basis that no commitment is proffered by the defendants that they will not in the future challenge the authority of Mr McLachlan and the plaintiffs’ solicitors to bring the proceedings on behalf of the fifth plaintiff. It is clear that Mr McLachlan and the plaintiffs’ solicitors have no such authority, in the absence of an order under s 237.

47 In Maher v Honeysett & Maher Electrical Contractors, Brereton J (at [23]) noted Palmer J’s observations in Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 at [28] that:

“in most cases it will be readily apparent whether this requirement is satisfied, since usually the defendant in the proposed derivative action will be in control of the company or will enjoy the support of the majority of shareholders or of the board. ”

48 The defendants have a majority shareholding and majority board representation.

49 I do not conclude from the fact that no challenge has yet been made to the institution of proceedings by SHQ that a challenge will not be made in the future. Rather, I think it probable that such a challenge would be made if no order is made under s 237. I think it probable that the company will not itself bring the proceedings and take responsibility for them. I draw that conclusion from:

(a) the inquiries in May and July 2006 from the defendants’ solicitors as to the basis upon which the proceedings have been brought;

(b) the absence of a commitment from the defendants not to challenge Mr McLachlan’s authority to instruct solicitors to bring the proceedings on behalf of SHQ;

(c) the fact that claims are made that the first and second defendants committed serious breaches of their statutory and fiduciary duties to SHQ, and that Anzram has profited from those breaches; and

(d) the fact that the first and second defendants at board level are in control of the management of SHQ, and that Anzram is in a position to control the majority of votes at a meeting of shareholders.

Good Faith

50 Mr McLachlan is the director and one of the shareholders of the second plaintiff. The defendants submitted that I should not be satisfied that the second plaintiff is acting in good faith, as Mr McLachlan has not sworn an affidavit in which he deposes that he believes that SHQ has a good cause of action, and has not deposed that he seeks to bring the proceedings in good faith to advance the second plaintiff’s interests as a shareholder.

51 The second plaintiff holds 800,000 shares in SHQ, which is a small shareholding, but not a token shareholding. Mr McLachlan is one of the three directors of SHQ. No application was made to cross-examine him to suggest that he was bringing the proceedings for some ulterior purpose. I conclude that as the only director independent of Anzram, Mr McLachlan is causing the proceedings to be brought through his own company in what he considers to be the interests of all of the other minority shareholders.

52 In Swansson (at [38]), Palmer J said:

“[38] Where the application is made by a current shareholder of a company who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the court's satisfaction. So also where the applicant is a current director or officer: it will generally be easy to show that such an applicant has a legitimate interest in the welfare and good management of the company itself, warranting action to recover property or to ensure that the majority of the shareholders or of the board do not act unlawfully to the detriment of the company as a whole.”

53 The question of good faith should be considered objectively. The fact that there is a serious question to be tried that the directors have committed breaches of their statutory and fiduciary duties is a major step in demonstrating objectively that the second plaintiff is proceeding in good faith (Maher v Honeysett at [36]). The fact that Mr McLachlan has not deposed in express terms to his purpose in seeking to bring the proceedings on behalf of SHQ does not mean he has not established that he is acting in good faith.

54 Unlike the position in Chapman v E-Sports Club Worldwide Ltd (2000) 35 ACSR 462, Mr McLachlan has gone on affidavit, and there is no evidence from the defendants contradicting the claims advanced by him.

55 I conclude that the criterion in s 237(2)(b) is satisfied.

Best Interests of the Company

56 The defendants submitted that the second plaintiff had not shown that it was in the best interests of the company that leave be granted. Two contentions were advanced. It was submitted that the materials did not demonstrate that SHQ had suffered damage. It was also submitted that the plaintiffs had not demonstrated that any damages or equitable compensation which might be ordered in favour of SHQ would be recoverable.

57 I do not agree with the first contention. There is an available inference that the company has suffered damage, at least through the expenditure of about $718,000 up to 30 June 2005 for no apparent return.

58 Moreover, there is an arguable case that the defendants are liable to account for profits derived by them from the alleged breaches of fiduciary duty of the first and second defendants. No claim for an account of profits is included in the relief sought in the amended statement of claim. However, I was informed by counsel for the plaintiffs that it was intended that such a claim be made. A claim is made for a constructive trust over all moneys received by the defendants from SHQ and over Anzram’s interest in Coronga Downs.

59 There is no evidence that any judgment or order in favour of SHQ may not be satisfied.

60 In my view, it is in the best interests of SHQ for it to pursue such claims. I conclude that the criterion in s 237(2)(c) is satisfied.

Remaining Criteria

61 The defendants did not dispute that the criteria in s 237(1)(d) and (e)(ii) were satisfied.

Terms of Grant of Leave

62 Therefore, I will grant leave to the second plaintiff to bring the proceedings on behalf of the fifth plaintiff. Such leave will be on terms that:

(a) the second plaintiff meet costs and expenses incurred in the proceedings by the fifth plaintiff; and

(b) the second plaintiff indemnify the fifth plaintiff against any costs or expenses incurred by the fifth plaintiff in connection with the proceedings and against any liability for costs incurred by the fifth plaintiff in the proceedings, provided that if the fifth plaintiff succeeds in recovering damages or equitable compensation or other moneys or property through the proceedings (including by compromise or settlement), the second plaintiff may apply to the Court for reimbursement of expenses it has borne ( Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007 at [39]).

Amendment

63 There will be leave to the second plaintiff to amend the statement of claim. That leave will not be confined to the amendments contained in the draft amended statement of claim, annexed to the amended notice of motion. That pleading will need to be amended to reflect the discontinuance by the first, third and fourth plaintiffs. Counsel has also foreshadowed amendments to claim an account of profits. This is clearly an appropriate amendment. There may well be other respects in which it may appear to counsel, upon further reflection, that the pleading could be improved.

64 I will order that the second plaintiff pay the defendants’ costs thrown away by reason of the amendments to the statement of claim.

Remaining Claims for Relief in the Notice of Motion

65 There is no opposition to the relief sought in paragraph 4 of the notice of motion. I will make the order sought

66 Paragraph 5 of the notice of motion is accordingly not pressed.

67 There is no opposition to an order that the first and second defendants give reasonable notice to Mr McLachlan of any proposed board meeting of the fifth plaintiff. No other relief of that kind is pressed.

68 Paragraph 7 of the notice of motion is not pressed.

69 In respect of paragraph 8 of the notice of motion, the defendants do not oppose an order that:

(a) Mr McLachlan and the first defendant be added as signatories to SHQ’s bank accounts;

(b) that no moneys be withdrawn from any accounts of SHQ, except on the signatures of at least two of the directors; and

(c) the first and second defendants give notice by facsimile or email to Mr McLachlan of any withdrawals made by them from any account of SHQ within 72 hours of such withdrawals being made.

70 The plaintiffs are content with these orders.

Directions

71 I will order that the second plaintiff for itself, and on behalf of the fifth plaintiff, have leave to file an amended statement of claim, and that such amended statement of claim and any further affidavits be filed and served by 26 September 2006.

72 I will direct that the defendants file and serve their defence, any cross-claim, and any affidavits, by 5.00 pm on 26 October 2006.

73 The parties have leave to issue subpoenas or notices to produce by 29 September 2006, to be returnable before the Registrar on 17 October 2006.

74 The matter is to be listed for further directions before the Corporations Judge at 10.00 am on 30 October 2006.

75 I will hear the parties on costs.

******