O'Meara v FWV Stanke Holdings Pty Ltd - [2007] SASC 286

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
O'MEARA v FWV STANKE HOLDINGS PTY LTD
[2007] SASC 286
Reasons for Decision of The Honourable Justice Vanstone
1 August 2007
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER - STATUTORY DERIVATIVE ACTION
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PARTIES - JOINDER OF PARTIES
Application to be joined under Supreme Court Rule 74 or to be given permission to intervene under Supreme Court Rule 89 in a section 237 Corporations Act 2001 application to take over defence of a company - applicants neither shareholders nor directors of defendant company - whether applicants have a relevant interest in the subject matter of the application - whether justice of case requires joinder or intervention. Held: section 237 concerns issues internal to the company; rights of applicants not directly affected. Applications dismissed.
Corporations Act 2001 (Cth), Part 2F.1A, particularly s 236 and s 237; Supreme Court Civil Rules 2006 (SA), r 74, r 89; Supreme Court Rules 1970 (NSW), Part 8 Rule 8, referred to.
JN Taylor Holdings Limited (in Liquidation) & Anor v Bond & Ors; Australian Securities Commission (Intervener) (1994) 62 SASR 605; Acehill Investments Pty Ltd v Incitec Ltd (No 2) (2002) 85 SASR 452; Carpenter v Pioneer Park Pty Ltd (in liq) & Anor (2004) 186 FLR 104, applied.
Chawan v Euphoric Pty Ltd [2006] NSWSC 1002, distinguished.

O'MEARA v FWV STANKE HOLDINGS PTY LTD
[2007] SASC 286
Civil
Application for joinder or for non-party intervention

VANSTONE J: Action number 1565 of 2005 is an oppression action. The plaintiff, JHV Stanke Properties Pty Ltd (“JHV”), seeks relief including declaratory relief and an order for an account and enquiry of profits as against H Stanke & Sons Pty Ltd and Cape Banks Processing Company Pty Ltd (“the fishing companies”), FWV Stanke Holdings Pty Ltd (“FWV”), RCV Stanke Estates Pty Ltd (“RCV”), and Ian David Von Stanke, Frederick John Von Stanke (“John”), Christopher Robin Von Stanke, Robert Denis Von Stanke and Martin Hercules Von Stanke (“the directors of the fishing companies”). The family companies JHV, FWV and RCV are equal shareholders in the fishing companies. The plaintiff JHV alleges that the affairs of the fishing companies have been carried out in a manner oppressive to JHV by reason of decisions taken in the course of the business they run, use of company assets, their failure to pay dividends, and other matters.
Mrs O’Meara is a substantial shareholder in the third defendant, FWV. She has applied under s 237 Corporations Act 2001 “to intervene in action number 1565 of 2005 … for the purpose of taking responsibility on behalf of FWV for its defence of the proceedings”. Mrs O’Meara’s application is action number 879 of 2007. FWV is the only defendant in that action. Were Mrs O’Meara successful she would wish to amend FWV’s defence so as to generally support the allegations and the orders sought by the plaintiff, JHV. She also intends that FWV file a contribution notice in the proceedings directed to the other defendants. The contribution notice would seek determination of issues and questions raised on the proceedings as between FWV and the other defendants, and would seek orders against those defendants in similar terms as those sought by JHV.
The application before me is that of the fishing companies and their directors to intervene in Mrs O’Meara’s s 237 application. (There are further applications to intervene made on behalf of other shareholders of FWV, but I chose to hear those separately. Since hearing argument in this matter I have made orders allowing the other shareholders of FWV, who include John, Mrs O’Meara’s brother, to intervene in Mrs O'Meara’s action.)
The application was framed, at least in argument, in the alternative: first as an application to be joined as defendants in Mrs O’Meara’s application and, in the alternative, to be granted permission to intervene in that action.
The rule governing joinder is, relevantly, as follows:
74 Joinder and disjoinder of parties
(1)The Court may, on application or on its own initiative, order that a person who is not a party to the action be joined as a party if satisfied that—
(a)the person has an interest in the subject matter of the action or in a question of law or fact involved in the action; or
(b)the Court may require the person's cooperation in order to enforce a judgment; or
(c)the person has a right to joinder as a party under an Act or rule; or
(d)the person should be joined as a party to ensure that all matters in dispute in the action are determined; or
(e)the person should be joined as a party in order to enable determination of a related dispute and thus avoid multiplicity of proceedings.
…
The rule governing the application to intervene is as follows:
89 Non-party intervention
(1)The Court may, on application by a person who wants to intervene in an action, permit intervention on conditions determined by the Court.
(2)An application for permission to intervene must be supported by an affidavit stating—
(a)the nature of the applicant's interest in the action (which need not be a legal or equitable interest); and
(b)the applicant's object in seeking permission for intervention; and
(c)the extent of the proposed intervention.
(3)A copy of the application and the supporting affidavit must be served on all parties to the action.
(4)The Court may permit intervention on conditions it considers appropriate.
(5)The Court may, on application or on its own initiative, vary or revoke an order allowing non-party intervention under this rule.
I read r 74 as providing various criteria, fulfilment of any one of which can qualify an applicant for the making of an order. However, whether the court will make the order is a matter of discretion and will turn on the justice of the case. Much the same can be said of an application under r 89.
The applicants claim to have an interest in the subject matter of the action. That might be a commercial as opposed to a legal interest: JN Taylor Holdings Limited (in liquidation) & Anor v Bond & Ors; Australian Securities Commission (Intervener) (1994) 62 SASR 605, 609; Acehill Investments Pty Ltd v Incitec Ltd (No 2) (2002) 85 SASR 452, 458. First, the applicants assert that because there are parallel interests as between themselves and FWV in their respective defences to the minority oppression claim, privileged communications have passed between their solicitors. If Mrs O’Meara were to take over the defence of FWV she would have access to those privileged communications. The applicants also argue that if Mrs O’Meara succeeds they will be directly affected by issue of the contribution notice which she has foreshadowed. In that event the applicants say they would move to strike out the contribution notice as an abuse of process, alleging a collateral or improper purpose on the part of Mrs O’Meara. They submit that because a successful application under s 237 involves proof of good faith, if they were permitted to join in the s 237 application that would go some way in avoiding multiple proceedings and the potential for inconsistent findings of fact.
The applicants further argue that if Mrs O’Meara is to succeed in her application then there is a substantial risk that the trial of the 1565 oppression action which has been set for later this year may be delayed. They assert that the filing of a new defence on behalf of FWV and the issue of the proposed contribution notice will involve the filing of further pleadings by other parties, themselves included, and it is likely that there will be significant further procedural steps to be taken before the trial would be ready to proceed. It is said that notwithstanding Mrs O’Meara’s assertions to the contrary her position is quite different from that of the shareholders of JHV and the applicants will need to address factual assertions by her separately. The applicants claim an interest in the trial proceeding on the scheduled date.
In addition it is put that allegations made by Mrs O’Meara in her affidavit in support of her s 237 application contain inaccurate allegations of fact concerning the applicants which, having regard to the principles of natural justice, they should have opportunity to address.
Other litigation has preceded the two actions which I have outlined. The applicants and Mrs O’Meara have taken part in those actions. FWV is not a party to them. The applicants argue that because of their involvement in those actions and their knowledge of the role played by Mrs O’Meara in them, they are in a better position than is FWV to meet and, as appropriate, answer allegations made by her. Furthermore, the applicants claim that because of the nature of their defence to the oppression claim – being that the fishing companies and the family companies FWV, JHV and RCV have been run in accordance with conventional understandings established by the business founders and their children –consideration of what is in the best interests of FWV necessitates regard being had to those conventions, knowledge of which the applicants can provide.
Essentially the same matters are put in support of the application to intervene.
The sections by which Mrs O’Meara proceeds are found in Part 2F.1A Corporations Act 2001, which is entitled “Proceedings on behalf of a company by members and others”. Section 236 allows persons including members and officers of the company and persons acting with leave granted under s 237 to make an application. Section 237 provides as follows:
237. 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.
…
In Carpenter v Pioneer Park Pty Ltd(in liq) & Anor (2004) 186 FLR 104; [2004] NSWSC 973, Barrett J dealt with an application for joinder or intervention in a s 237 application under the NSW Supreme Court Rules 1970. The Australia and New Zealand Banking Group Ltd (“ANZ”) applied to be joined as a party or to be given leave to intervene in an application by Mr Carpenter for leave to commence a statutory derivative action on behalf of a company in liquidation against either or both ANZ and PricewaterhouseCoopers. In determining that application his Honour discussed the nature of Part 2F.1A.
He said at [16]:
Part 2F.1A is concerned with the domestic process by which a company makes decisions relevant to initiation and continuation of legal proceedings. The statutory provision is aimed to counter the effects of inaction on the part of those who would normally decide such matters internally. In most cases, those persons would be directors whose inaction may be a product of self-interest. Here, the inaction upon which Mr Carpenter seems likely to rely is the inaction of an unfunded liquidator. The provisions do not, in my opinion, have in view the welfare or interest of persons who are, from the company’s perspective, “outsiders”. They enable anyone with a particular form of “insider” status described in section 236(1)(a) to seek the court’s assistance in taking over the role of the normal decision makers in relation to a particular proceeding. The court’s function is essentially a screening function. It must assess against specified criteria the litigation proposal the applicant has in mind for the company. If that proposal is found by the court to meet the criteria, it must grant leave enabling the applicant to pursue it for the company.
His Honour found that the principles of natural justice did not avail the ANZ in its application. The question to be determined on the s 237 application would go to the general viability of the proposed action, the question of the company’s best interests and Mr Carpenter’s bona fides. His Honour held that ANZ had no sufficient interest in those matters. The application was not a matter of interfering with ANZ’s rights; rather a matter of decisions internal to the company in liquidation. Whilst in a general sense it could be said that ANZ had an interest in the question of the grant of s 237 leave, no legal consequence would accrue to ANZ as a result of such a grant. It could not be said that the ANZ’s involvement at the leave stage was “necessary” for an effectual and complete determination of the matters with which the application was concerned.
It was suggested by the applicants before me that in Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 Barrett J drew back from statements he had made in Carpenter. Mr Chahwan sued Euphoric Pty Ltd (“Euphoric”) and Bycoon Pty Ltd (“Bycoon”). He sought, among other things, a declaration that Euphoric held an interest in property upon a constructive trust for Bycoon. He sought leave to bring proceedings on behalf of Bycoon to make good the claim against Euphoric. Mr Chahwan’s application occurred in the context of proceedings already on foot and involving both Bycoon and Euphoric. He served Euphoric with his s 237 application. The judge allowed the matter to proceed on an inter partes basis. Ultimately counsel for Mr Chahwan objected to Euphoric being heard on the s 237 application. Barrett J found that in the particular circumstances of the case it was appropriate to hear Euphoric’s argument. He said at [14]:
It is, I think, going too far to say that the substantive defendant should never be heard on a section 237 application. Cases in which there is an established litigious context engendering a legitimate expectation on the part of the substantive defendant of an opportunity to argue the question of the grant of section 237 leave are distinguishable from those where a person with standing under section 236 makes an application in advance of initiation of any proceedings by the company or before the company has become involved in the defence of proceedings initiated against it.
If the decision of Barrett J in Chahwan involves any “stepping back” from the position he took in Carpenter, which I do not accept, I think the circumstances in Chahwan’s case – particularly the serving of Euphoric and its legitimate expectation of being heard – make the case so different from the application before me that it is immaterial.
It was also sought to distinguish Carpenter’s case on the basis of the difference in the rules which bore on Mr Carpenter’s application. The rule applicable there was Part 8 Rule 8, NSW Supreme Court Rules 1970. It relevantly provided as follows:
8      Addition of parties
(1)     Where a person who is not a party:
(a)     ought to have been joined as a party, or
(b)is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon,
the court, on application by him or any party of its own motion, may order that he be added as a party and make orders for the further conduct of the proceedings.
I do not agree with the submission. Giving the New South Wales rule the broad construction which Barrett J in Carpenter, at [13], afforded it, it seems to me there is really a difference of form only between it and the local provision. I take the view that the consideration of the statutory purpose and context of s 237 swamps any difference in the formulation of the relevant rule, which, in any event, as I have said, deals with a matter of discretion. I think the observations made by Barrett J in Carpenter are apposite.
I return to the merits of the application and first to the question of whether FWV is in a position to answer the various allegations made by Mrs O’Meara. In my view it plainly is. The directors of FWV are John and his children. John, Mrs O’Meara’s brother, is also a director of the fishing companies. To the extent that allegations are made against the fishing companies and that it is, for the purposes of the s 237 application, necessary to refute them, John is in a position to do so or, at the very least, to marshal evidence to meet them. The fishing companies and John (in various capacities) have been parties to all the relevant litigation. In addition, as I mentioned, John, as a shareholder of FWV, has been given permission to intervene in Mrs O’Meara’s application.
Then there is the risk of delay to the trial of action 1565 which a grant of leave to Mrs O’Meara might necessitate. I do not think that this can be a decisive factor. It has already been observed to me by several parties that the November trial date imposes a rigorous time frame on all sides. Further, I have been repeatedly assured that all parties wish to adhere to the timetable that has been set. It is true that Mrs O’Meara’s application could have been made at an earlier time. But if her application raises the need for fresh pleadings to be filed, then that will be dealt with as it arises. There is still time for those procedural steps to be taken.
As to the question of common interest privilege, in my view the raising of that matter is at best premature.
In respect of the foreshadowed application to strike out the proposed contribution notice as an abuse of process, it seems to me that the litigation must take its course. I am not in a position to say that even were the applicants joined in Mrs O’Meara’s action and even if I determined the issue of collateral purpose in her favour, that much the same issue would not be raised before the trial judge on an application to strike out her contribution notice. The issue might stand differently in that, different, context.
Conclusion
I am not persuaded that the applicants should be permitted to either be joined or to intervene in Mrs O’Meara’s application. In my view the issues raised by the s 237 application are internal to the running of FWV. My refusal to make either of the orders sought does not affect the rights of the applicants in any relevant sense.
The application in FDN 3 for permission to intervene and the oral application to be joined as a party are refused.