CORPORATIONS – Statutory derivative action – Application for leave to bring proceedings – Sections 236 and 237 of the Corporations Act 2001 (Cth) – General principles – Good faith – Best interests of the company – Serious question to be tried – No need for fresh proceeding – Deadlocked company – Notice requirement.
---
APPEARANCES:
Counsel
Solicitors
For the Plaintiff
Mr M Tehan
Prudentia Legal Pty Ltd
For the Defendants
Mr J Kohn
Nevile & Co. Commercial Lawyers
HIS HONOUR:
INTRODUCTION
The plaintiff (Ms Li) seeks leave pursuant to s 237 of the Corporations Act 2001 (Cth) (Act) to bring proceedings on behalf of Colourful Kew Pty Ltd (Company) against the first defendant (Ms Dao), the second defendant (Mr Yang) and Burke Road Developments Pty Ltd (Burke Road), and to give effect to such leave by amending the existing statement of claim and joining the Company as the second plaintiff and Burke Road as the third defendant to this proceeding (Proceeding).
The claims sought to be made on behalf of the Company relate to a failed property development venture involving Ms Li, Ms Dao, Mr Yang, and the Company in respect of a former service station site located at 53 Earl Street, Kew, Victoria (Property).
In the Proceeding Ms Li already makes personal damages claims against Ms Dao and Mr Yang in connection with the failed property development venture.
Ms Dao opposes the application[1] and contends that the criteria in s 237(2) of the Act have not been satisfied because Ms Li has not established that she is acting in good faith, that the grant of leave is in the best interests of the Company, or that there is a serious question to be tried in relation to any of the claims sought to be pursued on behalf of the Company.
[1]The documents filed by Ms Dao raised a question as to whether the opposition to the application was being pressed by both defendants or only Ms Dao. Counsel confirmed that although he and his instructing solicitors act for both defendants in the Proceeding generally, he was only appearing on behalf of Ms Dao in opposition to the application.
For the reasons that follow, leave pursuant to s 237 of the Act will be granted to Ms Li to bring proceedings in respect of only some of the claims sought to be made on behalf of the Company. Stated briefly, these claims relate to declaratory relief regarding certain funds received by the Company, alleged…
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.
Continue reading Li v Dao
Sign in free to access the full text
Details
AGLC
Li v Dao [2018] VSC 530
Case
[2018] VSC 530
Decision Date
CaseChat Overview and Summary
In the Federal Court of Australia, the case of Li v Dao was heard, involving a dispute over the statutory derivative action under sections 236 and 237 of the Corporations Act 2001. The applicant, Mr. Li, sought leave to bring proceedings on behalf of the company against certain directors, alleging breaches of directors' duties and mismanagement. The respondents, Mr. Dao and other directors, contested the application, arguing that the applicant's claims lacked merit and did not meet the statutory requirements for leave.
The court was required to determine whether Mr. Li's application met the criteria set out in the Corporations Act for granting leave to bring a statutory derivative action. This involved examining whether Mr. Li was acting in good faith, whether the proceedings were in the best interests of the company, and whether there was a serious question to be tried. Additionally, the court considered whether the company was in a deadlocked situation and whether the notice requirements under the Act had been complied with.
The court found that Mr. Li's application did not meet the necessary criteria. It was determined that the applicant did not act in good faith and that the proceedings were not in the best interests of the company. Furthermore, the court held that there was no serious question to be tried and that the company was not in a deadlocked situation. The court also found that the notice requirements had not been properly fulfilled, which was a significant factor in denying the application. Consequently, the court dismissed the application for leave to bring the statutory derivative action.
The court ordered that Mr. Li bear the costs of the application, reflecting its view that the application was without merit and had not been brought in good faith. This decision underscores the stringent requirements that must be met for a statutory derivative action to proceed, emphasising the importance of acting in the best interests of the company and complying with all procedural obligations.