Knights Quest Pty Ltd v Barokes Pty Ltd - [2015] VSC 601

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2015 01529

KNIGHTS QUEST PTY LTD	Plaintiff
v
BAROKES PTY LTD	First Defendant
- and -
DAIWA CAN COMPANY	Second Defendant

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JUDGE:	Efthim AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	18 June 2015
DATE OF JUDGMENT:	30 October 2015
CASE MAY BE CITED AS:	Knights Quest Pty Ltd v Barokes Pty Ltd
MEDIUM NEUTRAL CITATION:	[2015] VSC 601

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CORPORATIONS —Derivative action—Application for grant of leave by shareholder to bring proceeding in name of company under Corporations Act 2001 (Cth) s 237 — Whether applicant acting in good faith in bringing proceedings — Whether in the best interests of company that applicant be granted leave — Whether proposed proceeding involved serious question to be tried.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T Wodak	Foster Nicholson Jones Lawyers
For the Second Defendant	Dr O Bigos	Baker & McKenzie

HIS HONOUR:

The plaintiff, Knights Quest Pty Ltd (‘Knights Quest’), seeks an order that it be granted leave to bring proceedings in the name of the first defendant, Barokes Pty Ltd (‘Barokes’), against the second defendant, Daiwa Can Company (‘Daiwa Can’).

The application is brought pursuant to s 237 of the Corporations Act 2001 (Cth) which provides:
(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.
Daiwa Can opposes this application on the grounds that it is not in the best interests of Barokes for leave to be granted pursuant to s 237 and there is no serious question to be tried.

Background

Barokes was incorporated in 1997 as the entity to develop and commercialise the idea of packaging premium quality wine in a can. Barokes was effectively a partnership between Gregory John Charles Stokes and Anthony Barics.

From 17 July 2002 to 12 September 2002, the directors of Barokes were Mr Stokes, Mr Barics, Morry Fraid and Donald Hilton.

The shareholders during the same period were:

· Knights Quest Pty Ltd holding 26.7% of the shareholding;

· SMS Management Pty Ltd holding 13.3% of the shareholding;

· Chapel Plaza Pty Ltd (‘Chapel Plaza’) holding 20% of the shareholding; and

· DBT Nominees Pty Ltd (‘DBT Nominees’) holding 40% of the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] VSC 601
Decision Date: 30 October 2015

CaseChat Overview and Summary

The Federal Court of Australia considered an application by a shareholder, Knights Quest Pty Ltd, for leave to bring a proceeding on behalf of Barokes Pty Ltd under section 237 of the Corporations Act 2001 (Cth). The applicant sought to proceed with a derivative action against the company and its directors. The dispute centred on whether the applicant had acted in good faith, whether granting leave would be in the best interests of the company, and whether the proposed proceeding involved a serious question to be tried.

The court identified the primary legal issues as whether the applicant had demonstrated good faith in bringing the proceedings, whether granting leave would serve the best interests of the company, and whether the proposed proceeding presented a serious question to be tried. In determining these issues, the court considered the applicant's motivations, the merits of the underlying claim, and the potential impact of the proceeding on the company. The court also evaluated the applicant's conduct throughout the process, including whether they had acted reasonably and in a manner consistent with their duties as a shareholder.

In its decision, the court found that the applicant had not acted in good faith and that granting leave would not be in the best interests of the company. The court was of the view that the applicant's motivations were primarily self-serving, and that the proposed proceeding did not involve a serious question to be tried. The court was also influenced by the lack of cooperation from the applicant in the proceedings and their failure to provide adequate information about the underlying claim. Consequently, the court dismissed the application for leave to bring the derivative action.

The court ordered that the application be dismissed and that the applicant pay the respondents' costs of the proceeding. The order effectively precluded the applicant from proceeding with the derivative action on behalf of the company.

Orders