FEDERAL COURT OF AUSTRALIA
Knorr v Radial Timber Australia Pty Ltd [2018] FCA 802
File number(s): VID 816 of 2017 Judge(s): DAVIES J Date of judgment: 1 June 2018 Catchwords: PRACTICE AND PROCEDURE – Application for an extension of time and leave to appeal an order dismissing the applicant’s application for leave under s 237 of the Corporations Act; grant of leave to commence a proceeding in the name of a company pursuant to section 237(2) of the CorporationsAct; leave to appeal interlocutory order; appeal without an oral hearing pursuant to r 35.18(1) of the Federal Court Rules Legislation: Corporations Act 2001 (Cth)
Federal Court Rules 2011 (Cth)
Cases cited: Bienstein v Bienstein [2003] HCA 7
Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655
Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442
Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640
McEvoy v Caplan [2010] NSWCA 115
Date of hearing: Heard on the Papers Date of last submissions: 12 February 2018 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 18 Counsel for the Applicant: The applicant was self-represented Counsel for the Respondents: Mr JLM Leung Solicitor for the Respondents: Ganci Huggett Lawyers ORDERS
VID 816 of 2017 BETWEEN: ANDREW KARL KNORR
Applicant
AND: RADIAL TIMBER AUSTRALIA PTY LTD
First Respondent
ELMMAN PTY LTD
Second Respondent
CHRISTOPHER NORMAN MCEVOY
Third Respondent
JUDGE:
DAVIES J
DATE OF ORDER:
1 JUNE 2018
THE COURT ORDERS THAT:
1.The application for an extension of time to seek leave to appeal the decision of Moshinsky J of 16 June 2016 in proceeding number VID1206 of 2016 be dismissed.
2.The applicant pay the costs of the respondents, such costs to be taxed in default of agreement.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DAVIES J:
The applicant has applied for an extension of time and leave to appeal from the order of Moshinsky J dismissing his application for leave under s 237 of the Corporations Act 2001 (Cth) (“the CorporationsAct”), (“the s 237 application”) to bring proceedings on behalf of Radial Corporation Limited (“the company”). By orders made on 8 December 2017, the application for an extension of time and leave to appeal is dealt with without an oral hearing pursuant to r 35.18(1) of the Federal Court Rules 2011 (Cth) (“the Rules”). Both parties have filed written submissions.
Section 237(2) of the CorporationsAct contains the criteria for the grant of leave to commence a proceeding in the name of a company and provides as follows:
(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…
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- Case
- [2018] FCA 802
- Decision Date
CaseChat Overview and Summary
The legal issues before the court were whether Mr Knorr had satisfied the criteria set out in section 237(2) of the Corporations Act for the grant of leave to commence a proceeding in the name of the company. Specifically, the court had to determine if it was probable that the company would not itself bring the proceedings, if Mr Knorr was acting in good faith, if it was in the best interests of the company that he be granted leave, if there was a serious question to be tried, and if the company had been given notice of the application for leave. The court also considered whether Mr Knorr would comply with the requirement that a corporation must not proceed in the court other than by a lawyer.
The court found that Mr Knorr had not satisfied the criteria for the grant of leave. It held that it was not in the best interests of the company for Mr Knorr to be granted leave because he did not have a plan to engage a lawyer to represent either himself or the company if leave were granted. The court also found that it was not probable that the company would not itself bring the proceedings, as the sole director plainly wanted to bring the proceedings and, if the board of the company were properly constituted, it may well decide to bring the proceedings. The court further found that Mr Knorr's failure to propose to engage a lawyer to act on behalf of the company would result in the company not complying with the requirement that a corporation must not proceed in the court other than by a lawyer.
Accordingly, the court dismissed the application for an extension of time and leave to appeal. The applicant was ordered to pay the costs of the respondents, such costs to be taxed in default of agreement. The orders were made without an oral hearing pursuant to rule 35.18(1) of the Federal Court Rules 2011 (Cth).
Orders
Orders of the court
1. The application for an extension of time to seek leave to appeal the decision of Moshinsky J of 16 June 2016 in proceeding number VID1206 of 2016 be dismissed.
2. The applicant pay the costs of the respondents, such costs to be taxed in default of agreement.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
The applicant has applied for an extension of time and leave to appeal from the order of Moshinsky J dismissing his application for leave under s 237 of the Corporations Act 2001 (Cth) (“the CorporationsAct”), (“the s 237 application”) to bring proceedings on behalf of Radial Corporation Limited (“the company”). By orders made on 8 December 2017, the application for an extension of time and leave to appeal is dealt with without an oral hearing pursuant to r 35.18(1) of the Federal Court Rules 2011 (Cth) (“the Rules”). Both parties have filed written submissions. Section 237(2) of the CorporationsAct contains the criteria for the grant of leave to commence a proceeding in the name of a company and provides as follows:(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. If all five criteria in s 237 have been met, the Court is bound to grant the application: Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640 at [27]. Correlatively, the failure to satisfy any one of those criteria means that leave must be refused: Goozee at [27]; South Johnstone Mills Ltd v Dennis [2007] FCA 1448 at [60]. The onus is on the applicant for leave to satisfy the Court on the balance of probabilities that each of the criteria has been satisfied: Swansson v Pratt [2002] NSWSC 583 at [24]; South Johnstone at [61]. The applicant is the sole director of the company and, subject to leave being granted under s 237, has standing to bring proceedings on behalf of the company. Moshinsky J dismissed the applicant’s s 237 application, holding that the applicant was unable to satisfy the Court that it was in the best interests of the company that the applicant be granted leave (s 237(2)(c) of the Corporations Act) or that it was probable that the company would not itself bring the proceedings (s 237(2)(a) of the Corporations Act). Moshinsky J reasoned as follows:In circumstances where Mr Knorr is acting for himself, and does not have any present plan to engage a lawyer to represent either himself or the company if leave were granted, I am not satisfied that it would be in the best interests of the company for Mr Knorr to be granted leave.The proposed amended statement of claim, although shorter than the original statement of claim, is a complex document which, in many places, is difficult to follow. It would not be in the interests of the company for any claims it may have to be pursued in this way. Further, the proposed amended statement of claim seeks to rely on a number of complex causes of action, such as cartel conduct. This underlines the desirability, in the interests of the company, of there being legal representation if such claims are to be pursued.I note that r 4.01(2) of the Federal Court Rules 2011 states that a corporation must not proceed in the Court other than by a lawyer. Mr Knorr does not presently propose to engage a lawyer to act on behalf of the company and, therefore, would not comply with this requirement. While leave can be granted for an individual to appeal on behalf of a company, this is not readily granted and the rule reflects the normal position, namely, that a corporation must not proceed other than by a lawyer.In addition, in circumstances where the company is not merely the alter ego of Mr Knorr – as there are other shareholders apart from Mr Knorr – there is a real risk that the company may incur a liability for costs if the litigation proves unsuccessful. Mr Knorr has not offered an indemnity for any costs that may be awarded against the company, and even if he had offered such an indemnity, it is not clear whether he would be able to satisfy it. Thus, a grant of leave would expose the company to the risk of an adverse costs order being made against it.Secondly I am not satisfied that it is probable that the company will not itself bring the proceedings as required by s 237(2)(a). Mr Knorr, the sole director, plainly wants to bring the proceedings. If the board of the company were properly constituted, it may well decide to bring the proceedings. The fact that the board is not properly constituted and, for that reason, has not been able to make a decision does not demonstrate that, if properly constituted, the company would be unwilling to do so.