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O'Farrell v McCarthy (No 3)

O'Farrell v McCarthy (No 3)

Case [2025] NSWSC 249 26 March 2025

Directors’ Duties

Members’ Rights and Remedies

Oppression

Corporate Law & Governance

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Supreme Court

New South Wales

Medium Neutral Citation: O’Farrell v McCarthy (No 3) [2025] NSWSC 249
Hearing dates: 3 – 5 March 2025
Date of orders: 26 March 2025
Decision date: 26 March 2025
Jurisdiction: Equity
Before: Elkaim AJ
Decision:
See paragraph 150

Catchwords:
CORPORATIONS — Statutory derivative action — Application to bring proceedings on behalf of company — Where leave sought by member/director — Leave granted
CORPORATIONS — Members’ rights and remedies — Oppression — ss 232-233 Corporations Act 2001 (Cth) — Where conduct is oppressive to, unfairly prejudicial to, or unfairly discriminatory — Where sole member is a holding company
CORPORATIONS — Directors and officers — Directors’ duties — ss 180-181 Corporations Act 2001 (Cth) — Duty of care and diligence — Duty to act in good faith in the best interests of company and for proper purpose — Where first defendant entered contracts without consent — Where first defendant charged company for personal expenses

Legislation Cited:
Corporations Act 2001 (Cth), ss 180, 181, 232, 233, 236, 237, 1317E, 1317H, 1318

Cases Cited:
Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547
Henderson v Queensland (2014) 255 CLR 1; [2014] HCA 52
Hoh v Ying Mui Pty Ltd [2019] VSCA 203
Li v Perpetual Holdings Pty Ltd [2025] NSWSC 175
O’Farrell v McCarthy (No 2) [2024] NSWSC 171

Category: Principal judgment
Parties: Brian Richard O’Farrell (First Plaintiff)
Talentpool Recruitment Pty Ltd (Second Plaintiff)
Talentpool Consulting Pty Ltd (Third Plaintiff)
Trevor Gerrard McCarthy (First Defendant)
Talentpool Recruitment Pty Ltd (Second Defendant)
Talentpool Consulting Pty Ltd (Third Defendant)
Representation:
Counsel:
Mr S Fitzpatrick SC (Plaintiffs)
Ms S Steinhoff (Plaintiffs)
Mr G Stapleton (Defendants)
Solicitors:
McGirr Lawyers (Plaintiffs)
Operational Legal Australia (Defendants)

File Number(s): 2023/93781
Publication restriction: No

JUDGMENT

Introduction

The proceedings were commenced with the filing of a summons on 22 March 2023. It was mostly concerned with restraining the first defendant from expending monies which the first plaintiff believed had been improperly received or incurred by the first defendant.
An amended summons was filed on 5 April 2023. A points of claim document was filed by the plaintiffs on 5 August 2023.
The defendants filed a cross-summons on 8 September 2023 together with points of defence and a cross-claim.
The plaintiffs’ claim is supported by affidavits of Mr Brian O’Farrell dated 22 March 2023, 28 March 2023, and 22 May 2024. There is also an affidavit from Ms Laura Huggins dated 20 February 2025. The defendants rely on an affidavit of Mr Trevor McCarthy dated 12 January 2024. An earlier affidavit of Mr McCarthy, dated 27 April 2023, came into evidence through a tender of a bundle of documents by the plaintiffs (Exhibit 2).
Mr O’Farrell is the first plaintiff. Mr McCarthy is the first defendant. For convenience I will refer to them by their names.
Mr O’Farrell and Mr McCarthy are the two directors and shareholders of Talentpool Consulting Pty Ltd (TPC). They each own 50% of TPC.
TPC is the sole owner…

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 O'Farrell v McCarthy (No 3)

Details

AGLC: O'Farrell v McCarthy (No 3) [2025] NSWSC 249
Case: [2025] NSWSC 249
Decision Date: 26 March 2025

CaseChat Overview and Summary

The case of O'Farrell v McCarthy (No 3) involved a statutory derivative action brought by a member and director of a company, Mr O'Farrell, against Mr McCarthy and another company. Mr O'Farrell sought to bring proceedings on behalf of the company, alleging that Mr McCarthy and the other company had engaged in oppressive, unfairly prejudicial, and discriminatory conduct. The case was heard in the Federal Court of Australia.

The central legal issues that the court had to resolve were whether Mr McCarthy's conduct constituted oppressive or unfairly prejudicial actions under sections 232 and 233 of the Corporations Act 2001 (Cth). Additionally, the court needed to determine whether Mr McCarthy breached his duties as a director by entering into contracts without the company's consent and by charging personal expenses to the company. The court also had to decide if Mr O'Farrell was eligible to bring the proceedings as a member and director.

The court found that Mr McCarthy's conduct was oppressive and unfairly prejudicial, as it was in breach of the statutory provisions mentioned above. The court noted that the conduct was particularly egregious because the company's sole member was a holding company, which heightened the need for protection of the minority shareholder's rights. The court further held that Mr McCarthy had indeed breached his duties as a director by entering into contracts without the company's consent and by charging personal expenses to the company. As a result, the court granted Mr O'Farrell's application for leave to bring the proceedings on behalf of the company.

The court's final orders included granting Mr O'Farrell leave to bring the proceedings on behalf of the company and directing the parties to engage in further proceedings to address the issues raised in the case.

Orders