Marina Boulevard Medical Services Pty Ltd v Henson
[2022] WADC 88
•30 SEPTEMBER 2022
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: MARINA BOULEVARD MEDICAL SERVICES PTY LTD -v- HENSON [2022] WADC 88
CORAM: PRINCIPAL REGISTRAR MCGIVERN
HEARD: 19 AUGUST 2022
DELIVERED : 30 SEPTEMBER 2022
FILE NO/S: CIV 434 of 2022
BETWEEN: MARINA BOULEVARD MEDICAL SERVICES PTY LTD
Plaintiff
AND
WILLIAM LEONARD HENSON
Defendant
Catchwords:
Practice and procedure - Application to strike out alternatively stay the action - Inherent power to prevent abuse of process - Proceeding commenced in name of company other than with leave under s 237 of the Corporations Act 2001 (Cth) - Leave necessary - Purported ratification and adoption of action unable to cure defect - Action stayed - Determination of other grounds of application inappropriate given threshold nature of improper proceeding
Legislation:
Corporations Act 2001 (Cth), s 127(1), s 236, s 237, s 239
District Court of Western Australia Act 1969 (WA), s 6(1)
Rules of the Supreme Court 1971 (WA), O 16 r 1, O 20 r 19
Result:
Application allowed
Representation:
Counsel:
| Plaintiff | : | Mr T M Retallack |
| Defendant | : | Mr P G McGowan |
Solicitors:
| Plaintiff | : | Lawfield Legal Practice |
| Defendant | : | Lawmax Legal |
Case(s) referred to in decision(s):
Belcher v Austal Ships Pty Ltd [2002] WADC 259
Berg v Hamersley Iron Pty Ltd [No 4] [2005] WADC 3
Jones v Harvey Industries Group Pty Ltd [2019] WADC 14
Mondo Di Carne Pty Ltd v David Partridge Pty Ltd [2006] WADC 161
Murcia & Associates (a firm) v Grey [2001] WASCA 240; (2001) 25 WAR 209
Pollard v Endale Pty Ltd [No 2] [2009] WADC 97
Rowe v Stoltze [2013] WASCA 92
Smith v National Scaffolding Pty Ltd [2005] WADC 47
PRINCIPAL REGISTRAR MCGIVERN:
This is an application by the defendant in the action, William Leonard Henson, to 'strike out alternatively stay the matter' (sic).[1]
[1] Based on the substance of the application and the defendant's supporting submissions it is clear that the application is to strike out or alternatively stay the action itself (rather than a matter, which is a proceeding commenced other than by writ): District Court of Western Australia Act 1969 (WA) (District Court Act), s 6(1).
That application is made in the context of the substantive action, which concerns allegations against the defendant of breach of contract. The named plaintiff in the action, Marina Boulevard Medical Services Pty Ltd (MBMS), is a company.[2] The contract sued upon (GP Contract) is alleged to have been executed in December 2020, upon being signed by the defendant and Dr Vishnu Gopalan.[3]
[2] For ease of reference, in these reasons I will refer to the applicant as the defendant and the respondent as the plaintiff, being their respective positions in the substantive action.
[3] Amended statement of claim filed 29 June 2022, par 7.
In essence, the defendant objects that Dr Gopalan did not execute the GP Contract by or on behalf of the named plaintiff, and further that the action was improperly commenced by Dr Gopalan in the plaintiff's name, and as a result the proceeding constitutes an abuse of the court's processes.
For the reasons that follow, the application is allowed.
Background
The following summary of the background to the dispute is drawn from the pleadings and the material provided to the court on the present application. It is not intended, and should not be taken, to include any findings as to disputed factual issues.
At its heart, the substantive dispute arises out of contractual arrangements resulting from negotiations in late 2020 between the defendant and Dr Gopalan. Those negotiations were broadly connected with the sale and acquisition of shares in entities that owned and operated four medical centres (Centres) in the northern coastal suburbs of Perth. Relevantly (and it is largely uncontentious that):
(a)Dr Gopalan is or at the relevant time was the principal director and shareholder of a body corporate (Radiant);
(b)a colleague of Dr Gopalan, Dr Jagadish Krishnan, is or at the relevant time was the principal director and shareholder of another body corporate (Shrishana);
(c)Dr Gopalan and Dr Krishnan, at some time during the relevant period, became directors and shareholders of a third corporate entity (Spectrum);
(d)each of Radiant, Shrishana and Spectrum own and operate various medical practices in the Perth metropolitan region;
(e)the defendant is a joint trustee (with his wife) of a family trust (Henson Trust) which, in 2020, owned 30 shares (being a 25% shareholding) an entity, West Coast Medical Centres Pty Ltd (WCMC) and 1 share (being a 50% shareholding) in MBMS;
(f)the named plaintiff, MBMS:
(i)is a wholly owned subsidiary of WCMC; and
(ii)in its capacity as trustee of a unit trust, owns and operates the Centres;
(g)in or about 2020, Dr Gopalan and Dr Krishnan entered into negotiations with the defendant for the acquisition by Radiant and Shrishana of the Henson Trust's interests in WCMC and MBMS, culminating in written agreements (Sale Agreements) executed in November 2020;
(h)in or about late 2020, Dr Gopalan also entered into parallel negotiations with the defendant in relation to the latter's engagement to work as a general medical practitioner at one of the Centres. Those negotiations culminated in the GP Agreement, which document: [4]
[4] Being annexure 'LH09' of the affidavit of Leonard William Henson filed 25 May 2022.
(i)bears the heading 'LETTER OF ENGAGEMENT: West Coast Medical Group';
(ii)was signed on 11 December 2020 by the defendant and on 14 December 2020 by Dr Gopalan; and
(iii)above the signature execution panel signed by Dr Gopalan, bears the words:
EXECUTED by West Coast Medical Group in accordance with the Corporations Act 2001[;]
(i)finally, at all relevant times until 8 March 2021:
(i)the defendant was and remained a director of WCMC and MBMS; and
(ii)Dr Gopalan was not a director of WCMC or MBMS (rather, pursuant to the Sale Agreements, he was appointed as a director of those companies on 8 March 2021, essentially in the defendant's stead).
The action was commenced in the name of MBMS by writ of summons filed on 4 February 2022.
The application
The grounds set out in the defendant's chamber summons, filed 22 May 2022, are in the following terms:
2.Dr V Gopalan does not have authority of the plaintiff Trustee company Marina Boulevard Medical Services Pty Ltd ACN 126 461 970 to commence or conduct the proceedings without leave being sought under s.237 Corporations Act (Cth) and as such constitutes a derivative action commenced in contravention of that section.
3.Dr V Gopalan does not have the authority of the plaintiff Trustee company Marina Boulevard Medical Services Pty Ltd ACN 126 461 970 and or alternatively the Trustee company West Coast Medical Centres Pty Ltd ACN 607 934 001 to sign any contract ('GP Contract') on behalf of any of the companies; and
4.As a result the plaintiff does not have a reasonable or sustainable cause of action in the matter and it is an abuse of process to have commenced and to be allowed to maintain these proceedings.
The first two stated grounds are the contended premises for the defendant's conclusory contention in the third paragraph.
The application was heard at a special appointment on 19 August 2022. In support of their respective positions in relation to the application, each of the parties:
(a)filed written submissions;[5]
(b)filed affidavit evidence[6] (to which neither objected); and
(c)made oral submissions in the course of the hearing.
[5] Defendant's written submissions filed 22 June 2022 (Defendant's Submissions); plaintiff's written submissions filed 29 June 2022 (Plaintiff's Submissions).
[6] The defendant filed two affidavits of Leonard William Henson, on 25 May 2022 and 22 June 2022 respectively. The plaintiff filed two affidavits of Dr Vishnu Gopalan, on 8 June 2022 (First Gopalan Affidavit) and 16 August 2022 (Second Gopalan Affidavit) respectively.
Parties' positions
In the course of the hearing, counsel for the defendant clarified that the juridical basis for the application is neither O 20 r 19 of the Rules of the Supreme Court 1971 (WA) (RSC) (striking out a pleading), nor O 16 r 1 RSC (summary judgement) - rather, the defendant relies on an exercise of the court's inherent power to prevent abuse of its processes.[7]
GP Agreement
[7] ts 5, 19 August 2022. As to that power, see [27] below.
As noted earlier in these reasons, the substantive action concerns the alleged breach of the GP Agreement (rather than the Sale Agreements). Central to the dispute between the parties, and to the present application, is the capacity in which Dr Gopalan executed or purported to execute the GP Agreement. Most of the parties' submissions address this ground.
Although the execution of the GP Agreement is the subject of the second ground for the application, given that:
(a)the relevant events occurred first in time; and
(b)the vast bulk of the parties' written and oral submissions were directed to this issue,
it is convenient to deal with the parties' contentions in that regard first.
In summary, the defendant contends as follows:
(a)Dr Gopalan was not, at the time he signed the GP Agreement, a director of, or authorised to execute the GP Agreement for or on behalf of, the plaintiff or WCMC;
(b)by reason of non-compliance with s 127(1)[8] of the Corporations Act 2001 (Cth) (CA), the GP Agreement was not validly executed by or on behalf of the plaintiff;
[8] Which provides that a company may execute a document without using a common seal if the document is signed by: (a) 2 directors of the company; or (b) a director and a company secretary of the company; or (c) for a proprietary company that has a sole director - that director, if the director is also the sole company secretary or if the company does not have a company secretary.
(c)any purported ratification of the GP Agreement by the plaintiff and/or WCMC is invalid because the pre-requisites for valid ratification are not satisfied. That is because, at the time Dr Gopalan signed the GP Agreement:
(i)he did not purport to act on behalf of the plaintiff;
(ii)the plaintiff was not ascertainable as principal from the references in the GP Agreement to the 'West Coast Medical Group';
(iii)Dr Gopalan did not have actual or ostensible authority to bind the plaintiff; and
(iv)the plaintiff could not have approved Dr Gopalan's conduct at the relevant time because:
(1)there was no authority by the shareholders (as was required by the relevant shareholder's agreement) to give such approval; and
(2)the directors would have been bound by the 'no conflict principle' not to confer such authority on Dr Gopalan as a purchaser of shares in the company;
(d)in the circumstances:
(i)there was and is no agreement between the plaintiff (or WCMC) and the defendant capable of being sued upon; and
(ii)the action should be stayed.[9]
[9] The initial application and submissions of the defendant included that, in the alternative, the statement of claim should be struck out. However, at the hearing counsel for the defendant submitted that, in light of the plaintiff's stated intention to apply to join WCMC to the proceeding, the 'proper order is that the proceedings be stayed pending further order': ts 21, 19 August 2022.
The plaintiff:
(a)concedes that, at the time Dr Gopalan signed the GP Agreement, he:
(i)was not a director of the plaintiff;[10] and
(ii)was not in fact authorised to execute the GP Agreement by WCMC or MBMS (by their respective directors);[11]
(b)contends that the current directors (other than Dr Gopalan) of the plaintiff and WCMC[12] have, on behalf of each of those companies, since ratified and adopted the GP Agreement;[13]
(c)notes that the plaintiff is a wholly owned subsidiary of WCMC;
(d)contends that, on the pleaded facts, it would be open for a trial judge to find that Dr Gopalan purported to sign the GP Agreement on behalf of the plaintiff (and WCMC), and that the GP Agreement has been validly ratified and adopted by the plaintiff; and
(e)says that the plaintiff intends to join WCMC as a second plaintiff to the action, and that WCMC consents to being so joined,[14] but submits that that joinder is not necessary to establish that the plaintiff has a reasonable cause of action.
Derivative action
[10]Plaintiff's Submissions, par 22.
[11] First Gopalan affidavit, pars 40 - 42 and 44; Plaintiff's Submissions, par 34.
[12] Being Dr Kathi Sauzier and Dr Chinniah Prabhakar.
[13] Plaintiff's Submissions, par 18, relying on Annexures VG-1 and VG-2 of the First Gopalan Affidavit, and VG-3 of the Second Gopalan Affidavit.
[14] Plaintiff's Submissions, par 18, relying on Annexure VG-2 of the First Gopalan Affidavit and VG-3 of the Second Gopalan Affidavit; ts 17 - ts 18, 19 August 2022.
Surprisingly little of the parties' submissions (either orally or in writing) were directed to the first-stated ground of the application, being that the proceeding constitutes a derivative action, commenced improperly.
On that issue, the defendant contends that:
(a)Dr Gopalan commenced the proceeding in the name of the plaintiff without obtaining leave to do so under s 237 CA; and
(b)as such, the action constitutes an abuse of process the continuation of which the court should not permit.[15]
[15] ts 5 - ts 6, ts 13 and ts 21, 19 August 2022.
For its part, the plaintiff does not assert that the proceeding was commenced at the instance of the plaintiff's board, but rather:
(a)contends that Dr Gopalan was a director of the plaintiff at the time that he instructed lawyers to commence the action, and that the remaining directors of the plaintiff have since ratified that conduct and wish to continue with the action;[16]
(b)contends that in those circumstances 'there is no basis for the defendant to assert that the action is pursued by Dr Gopalan as a derivative action in breach of s 237 [CA]' and that that ground for the application 'falls away'.[17]
[16] Plaintiff's Submissions, par 2 - 3, relying on VG-1 of the First Gopalan Affidavit.
[17] Plaintiff's Submissions, par 4.
Consideration
Threshold issue: improper commencement of proceeding
Although it attracted relatively little attention in the parties' submissions, the issue of whether the proceeding was properly or improperly commenced is foundational.
Questions of whether, in substance, there is a sustainable cause of action, whether the named plaintiff is the proper plaintiff, or whether joinder of a second plaintiff is necessary, assume that there is otherwise a proceeding that is properly before the court. If that latter assumption proves false, the subsidiary questions become otiose.
As noted above, it is common cause that the decision to commence the action in the name of the plaintiff was not taken by the plaintiff's board, but by Dr Gopalan (who at the relevant time was a director of the plaintiff).
Relevant to that circumstance, s 236 CA provides:
Bringing, or intervening in, proceedings on behalf of a company
(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a)the person is:
(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii)an officer or former officer of the company; and
(b)the person is acting with leave granted under section 237.
(2)Proceedings brought on behalf of a company must be brought in the company's name.
(3)The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.
Section 237 CA relevantly provides:
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.
Reading those provisions together, it is clear that a director of a company, acting alone:
(a)is eligible to apply for leave, and must obtain leave, under s 237 CA before commencing proceedings in the name of the company (for convenience, I will refer such proceedings as derivative actions); and
(b)in the absence of such leave having been granted, cannot validly bring a derivative action.
The plaintiff does not assert that Dr Gopalan sought or obtained leave under s 237 CA to commence the present proceeding in the name of the plaintiff. Rather, it relies on the purported ratification and adoption by the company of his conduct in doing so.
Contrary to the plaintiff's contention at [17(b)] above, even if the company's current board does ratify and adopt the action, that cannot cure the defect arising from Dr Gopalan's failure to obtain leave under s 237 CA before commencing it. That is because:
(a)s 236(3) CA expressly abolishes the general law in relation to commencing or intervening in proceedings on behalf of a company, which is fatal to any reliance by the plaintiff on the operation of the general law of agency;
(b)to the extent that the CA deals with ratification in this context, it is in s 239 CA, which provision is limited to dealing with the effect of ratification of a person's conduct:
(i)on the ability of a person to apply for leave, and to commence and intervene in proceedings with leave having been granted, under s 237 CA; and
(ii)on the determination of, and making orders in, proceedings commenced with leave or in an application for leave under s 237 CA; and
(c)it is apparent on the face of s 239 CA that that provision does not undermine, but is entirely consistent with, the need of a person to apply for leave to commence a derivative action under s 237 CA.
I am satisfied and I find that the proceeding is a derivative action, improperly commenced.
Inherent power
As noted earlier in these reasons, the defendant seeks to have the action stayed, and relies on the inherent power of the court to make that order. In that regard, I observe that:
(a)although the terms 'inherent jurisdiction' and 'inherent power' are sometimes used interchangeably in the context of applications of this kind,[18] the District Court does not have an inherent jurisdiction equivalent to that of a superior court. Rather, it exercises a more limited inherent power as a necessary incident of the exercise of its statutory jurisdiction,[19] which has been described as being akin to that part of a superior court's inherent jurisdiction as 'to supervise the conduct of its litigation';[20] and
(b)although the precise scope of the court's inherent power is not defined, it has relevantly been recognised as including the power to:
(i)correct irregularities in its own procedures and rules;[21]
(ii)prevent abuses of its process;[22] and
(iii)stay proceedings to prevent its processes from being abused or to ensure that the court can operate effectively.[23]
[18] See, for example, Mondo Di Carne Pty Ltd v David Partridge Pty Ltd [2006] WADC 161 [31] ‑ [32] and Pollard v Endale Pty Ltd [No 2] [2009] WADC 97 (Pollard) [10].
[19] District Court Act, s 6(1); Murcia & Associates (a firm) v Grey [2001] WASCA 240; (2001) 25 WAR 209 (Murcia) [9], [16]; Rowe v Stoltze [2013] WASCA 92 [28].
[20] Pollard [10].
[21] Murcia [16].
[22] Murcia [16]; Jones v Harvey Industries Group Pty Ltd [2019] WADC 14 [20] - [23].
[23] Smith v National Scaffolding Pty Ltd [2005] WADC 47 [17] - [19]; Berg v Hamersley Iron Pty Ltd [No 4] [2005] WADC 3 [19]; Belcher v Austal Ships Pty Ltd [2002] WADC 259 [24] - [26].
I am satisfied that the present action, having been improperly commenced without leave under s 237 CA, constitutes an abuse of the court's processes and, as such, should in the exercise of the court's inherent power be stayed pending further order.
Remaining grounds and issues
Because the first ground is a threshold question and for the reasons identified at [19] above, it is in my view inappropriate to seek to determine and to make orders concerning the remaining grounds of the application.
If and only when there is a proper proceeding before the court, the remaining grounds and issues can be determined.
It follows that the only orders that are in my view appropriate are those staying the action and dealing with the costs of the application.
I will hear the parties as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MB
Associate to Registrar
30 SEPTEMBER 2022
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