Michalakas v POWELL - [2014] SASCFC 132

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
MICHALAKAS v POWELL
[2014] SASCFC 132
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Vanstone and The Honourable Justice Parker)
28 November 2014
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER
Appeal against decision of a master refusing application for leave to institute proceedings in the name of a company pursuant to s 237 of the Corporations Act 2001 (Cth) - whether appellant satisfied criteria under s 237(2) of the Corporations Act - whether serious question to be tried - whether in best interests of the company.
Held: appeal dismissed - evidentiary deficits undermine the appellant's contention that the proposed case is viable - the appellant failed to satisfy the Court that the proceedings would be in the best interest of the company - not demonstrated that master erred.
Corporations Act 2001 (Cth) Part 2F, 1A, s 236, s 237; Retirement Villages Act 1987 (SA), referred to.
Charlton v Baber (2003) 47 ACSR 31, applied.
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, considered.

MICHALAKAS v POWELL
[2014] SASCFC 132
Full Court: Kourakis CJ, Vanstone and Parker JJ

KOURAKIS CJ: I would dismiss the appeal for the reasons given by Vanstone J.
VANSTONE J: This appeal is against the decision of a Master of this Court refusing an application for leave to institute proceedings in the name of a company.
The appellant’s application proceeded pursuant to Part 2F.1A Corporations Act 2001. Section 236 relevantly provides that a person acting with leave granted under s 237 may bring proceedings on behalf of a company. Section 237 sets out the criteria to be applied where a person seeks such leave. The applicant must persuade the court that each criterion is satisfied.
The Master found that it was “reasonable to infer” that the receiver and manager appointed to the company would not bring the contemplated action: s 237(2)(a). However, he was not satisfied that the applicant was acting in good faith: s 237(2)(b); not satisfied that it was in the best interests of the company for leave to be granted: s 237(2)(c); and not satisfied that the appellant had demonstrated that there was a serious question to be tried: s 237(2)(d). The Master noted at [26] that there appeared to be “no quarrel” that notice to the receiver of the intention to seek the court’s leave had been given (s 237(2)(e)), but at the same time observed that there was a question about the appellant’s standing to bring the application in the first place: [21]. The Master did not find it necessary to reach a view on that issue: [23]. This appeal focuses on the failure to find there was a serious question to be tried (grounds 1 and 3) and the failure to find that it was in the best interests of the company that leave be granted having regard…

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 Michalakas v POWELL

Details

AGLC: Michalakas v Powell [2014] SASCFC 132
Case: [2014] SASCFC 132
Decision Date: 28 November 2014

CaseChat Overview and Summary

The appeal concerned an application for leave to institute proceedings in the name of Garden Estate Hackham Pty Ltd (Garden E) against Angas Securities Limited, pursuant to section 237 of the Corporations Act 2001 (Cth). The appellant, Mrs Michalakas, sought to bring the action on behalf of Garden E, alleging that Angas Securities had breached a loan agreement with Garden E. The primary judge, a Master, had refused to grant leave, and this appeal was brought against that refusal.

The legal issues before the Full Court of the Supreme Court of South Australia were whether the appellant had satisfied the criteria under section 237(2) of the Corporations Act 2001 (Cth). Specifically, the appeal focused on the Master's findings that the appellant had failed to demonstrate that there was a serious question to be tried and that granting leave would be in the best interests of the company, particularly having regard to the risk of costs.

The Court dismissed the appeal, finding that the evidentiary deficits in the appellant's material undermined the contention that the proposed case was viable. The Court held that the appellant had failed to satisfy the Court that the proceedings would be in the best interests of the company, noting that the Court could not reach that state of satisfaction on the material before it. The Court concluded that the Master had not erred in refusing leave and that the appeal should be dismissed.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The Master found that it was “reasonable to infer” that the receiver and manager appointed to the company would not bring the contemplated action: s 237(2)(a). However, he was not satisfied that the applicant was acting in good faith: s 237(2)(b); not satisfied that it was in the best interests of the company for leave to be granted: s 237(2)(c); and not satisfied that the appellant had demonstrated that there was a serious question to be tried: s 237(2)(d). The Master noted at [26] that there appeared to be “no quarrel” that notice to the receiver of the intention to seek the court’s leave had been given (s 237(2)(e)), but at the same time observed that there was a question about the appellant’s standing to bring the application in the first place: [21]. The Master did not find it necessary to reach a view on that issue: [23]. This appeal focuses on the failure to find there was a serious question to be tried (grounds 1 and 3) and the failure to find that it was in the best interests of the company that leave be granted having regard to the costs risk (ground 2).Background On 22 January 2010 Garden Estate Hackham Pty Ltd (Garden E) entered a loan agreement with Angas Securities Limited pursuant to which Angas Securities would advance $2.6m to Garden E for 12 months. The agreement contained an “entire agreement” clause. The primary security given was a mortgage over two land titles, being Volume 5956 Folios 704 and 705 (the land titles). Settlement on the agreement took place later in that month, or early in February 2010. The loan coincided with the purchase by Garden E, a company then controlled by James Michalakas, of land on which stood an independent living facility at Hackham (the facility). That facility was on those land titles. At that time the facility was being operated on a rental model, as opposed to a residence contract model as described in the Retirement Villages Act 1987 (SA) (the Act). Garden E did not comply with the repayment schedule and, on 22 May 2012, at the instance of Angas Securities, receivers were appointed to manage Garden E. On 21 December 2012 James Michalakas was declared bankrupt. On 15 December 2013 James Michalakas purported to convene a meeting of Garden E and to appoint his wife, the plaintiff and appellant in these proceedings, as a director. (The validity of that appointment is a matter of dispute.) The proceedings which Mrs Michalakas sought leave to institute were against Angas Securities, alleging that it was in breach of the loan agreement with Garden E. Materials filed in support of the application allege that it was known by Angas Securities all along that James Michalakas planned to sell the retirement units by way of residence contracts to the prospective occupiers on a deferred management model, and that it was from the proceeds of the sales that the loan would be repaid. Further, it is alleged that Angas Securities knew that for this purpose the land titles would need to be produced to the Registrar-General for endorsement pursuant to the Act. Importantly, it is alleged that these matters were not only known to Angas Securities, but were express terms of the loan agreement, or, at least to be implied, or, at very least were oral terms of the loan agreement. Alternatively the claim is put as one of misleading and deceptive conduct.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In my view that position is unsatisfactory. In the first place, it is clear that this issue was a matter of keen debate before the Master. If some sort of indemnity with security were to be offered, it should have occurred there. Second, s 237(2)(c) requires the appellant to satisfy the Court that the grant of leave is in the best interests of the company. The Court cannot reach that state of satisfaction as things stand and so cannot find that the best interests requirement is met. Conclusion From the above it appears clear that not only did the Master not fall into error in refusing leave, he was clearly correct so to do. In those circumstances it is unnecessary to address the remaining criterion in s 237, the question of good faith; upon which the appellant also failed before the Master, but which was not the subject of a ground of appeal. The appeal should be dismissed. PARKER J: I agree with the reasons of Vanstone J and would dismiss the appeal.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.