Preston v Diaspora Holdings Pty Ltd; Diaspora Holdings Pty Ltd v Owners Corporation of Strata Plan 68608

[2019] NSWSC 651

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Preston v Diaspora Holdings Pty Ltd; Diaspora Holdings Pty Ltd v Owners Corporation of Strata Plan 68608 [2019] NSWSC 651

Hearing dates:

25 October 2018; 21 March 2019; 16 April 2019; 3 May 2019

Date of orders:

11 June 2019

Decision date:

11 June 2019

Jurisdiction:

Equity - Corporations List

Before:

Parker J

Decision:

2018/206261:
The plaintiff was validly appointed as a director of the first defendant on 20 September 2016.
The cross-claim be dismissed.
The second defendant pay the costs of the plaintiff and of the third to thirteenth defendants of the proceedings.

 2018/300151:
Leave granted to the plaintiffs to appeal against the orders of the NSW Civil and Administrative Tribunal in proceedings numbers SC/24808 on 4 September 2018.
Appeal allowed.
Those orders be set aside and lieu thereof the proceedings be remitted to the Tribunal for final determination on the merits.

Catchwords:

CIVIL PROCEDURE — Cross-vesting — Transfer to Federal Court — Special federal matter – whether Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), s 6 required proceedings to be transferred to the Federal Court as a “special federal matter” – whether proceedings “in bankruptcy” under Bankruptcy Act, s 27 – distinction between exercising jurisdiction “in bankruptcy” and recognising the effect of provisions of the Bankruptcy Act – whether proceedings a “special federal matter” where trustee in bankruptcy was joined as a party although made no claim, no party sought exercise of statutory powers under the Bankruptcy Act or an order declaring for or against the title of the trustee in bankruptcy to the relevant share in the company.

 

CIVIL PROCEDURE — Cross-vesting — Transfer to Federal Court — Special federal matter – whether retention of proceedings would have been justified under Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), s 6(3), had proceedings constituted a “special federal matter”– relevance and weight of “convenience of the parties” under s 6(3) – where two sets of proceedings raised parallel issues and proceedings could only be heard together in Supreme Court as Federal Court has no jurisdiction to entertain the appeal from the Tribunal – where retention of the proceedings would likely result in a more efficient determination of the dispute – whether retention would have been justified where it would not just be convenient to the parties but would promote the better administration of justice.

 

CORPORATIONS — Directors and officers — Appointment, removal and retirement of directors — whether sole shareholder of proprietary company validly appointed himself director by shareholders resolution - where share transferred to sole shareholder in his capacity as trustee prior to his impending bankruptcy – whether upon sole shareholder’s bankruptcy the power to appoint a director which attached to the share vested in his trustee in bankruptcy under Bankruptcy Act, ss 58(1), 116(2)(a) – nature of equitable interest in the share retained by the sole shareholder during bankruptcy and nature of equitable interest acquired by his trustee in bankruptcy pursuant to Corporations Act, ss 1072B, 1072C, 1072F – whether sole shareholder’s bankruptcy restricted exercise of power of appointment under Corporations Act, s 201G – whether Corporations Act, s 201F(3) awards trustee in bankruptcy exclusive power to appoint a director during shareholder’s bankruptcy and subsequent to his discharge - grant of statutory power under s 201F(3) facultative not exclusive and must be construed in light of company members’ freedom to adopt principles in company constitution for the appointment of directors.

 

CORPORATIONS — Directors and officers — Appointment, removal and retirement of directors – whether, if invalid, appointment of sole director of proprietary company should have been validated under Corporations Act, s 1322(4) – whether dispensing power would have been available if 201F(3) had exclusive effect – operation of requirements under s 1322(6) – consideration of “essentially of a procedural nature” where no lawful procedure for carrying out statutory requirement – whether “just and equitable” to validate appointment where trustee in bankruptcy took no action to appoint director and no person other than purported sole director asserted interest in the company – whether substantial injustice caused to party opposing claims brought by company in Tribunal proceedings - whether validation of appointment would cause company or beneficiaries “substantial injustice”.

 

CORPORATIONS — Directors and officers — representation – validity of solicitor’s retainer where retained by director whose appointment was purportedly invalid – whether retainer valid under Corporations Act, s 201M – examination of 201M and its historical predecessors alongside construction of s 1322 – whether retainer may be ratified by shareholders resolution – whether company was “competent principal” when without a director – whether majority of general meeting can ratify legal proceedings brought without authority of the company – whether general meeting carries power to make management decisions.

 

CORPORATIONS — Directors and officers — representation – whether solicitor’s retainer should be validated under s 1322(4) – whether “just and equitable” to make order and whether opposing party in proceedings suffered “substantial injustice” by solicitors acting for the company.

 

ADMINISTRATIVE LAW - administrative tribunals - statutory appeals from administrative authorities to courts – appeal from decision of Civil and Administrative Tribunal (NSW) under Civil and Administrative Tribunal Act 2013 (NSW), s 83(1) – whether Tribunal ought have adjourned proceedings to allow NSW Supreme Court to resolve challenge to retainer and validity of director’s appointment - scope and limits of Tribunal’s powers – whether Tribunal had power to make orders sought by virtue of jurisdiction to make “ancillary decisions” or dismiss proceedings that are “frivolous or vexatious or otherwise misconceived”.

 

CIVIL PROCEDURE — Stay of proceedings — Inherent power — Abuse of process – Court may intervene and stay proceedings on basis of an abuse of process where challenge to corporate plaintiff’s authority to bring proceedings – whether and when defendant has right to challenge plaintiff’s authority –
– challenge to authority not a substantive defence to plaintiff’s claim but brought by notice of motion –consequences of distinction for further conduct of proceedings - judicial discretion to entertain application and appropriate circumstances to do so - Chancery rule of practice that Court ordinarily adjourn proceedings to allow opportunity for company to ratify proceedings or apply for validating order under Corporations Act, s 1322.

  CIVIL PROCEDURE — Stay of proceedings — Inherent power — Abuse of process – power to award costs where proceedings brought by corporate plaintiff without authority – juridical basis and appropriate exercise of such power – whether costs order properly made against solicitor for corporate plaintiff bringing proceedings without proper authority.

Legislation Cited:

Bankruptcy Act 1966 (Cth), ss 19(1), 27, 58(1), 58(2), 116(2)(a), 129AA, 132(3), 149(4), 149A(2), 149D(1), 154(1)
Civil and Administrative Tribunal Act 2013 (NSW), ss 3(d), 4, 29(2)(a), 31(2)(a), 36(1), 45(1), 55(1)(b), 60, and 83(1)
Civil and Administrative Tribunal Rules 2014 (NSW), rr 31(1), 32(1)(a)(iii)
Civil Procedure Act 2005 (NSW), s 98
Companies Act 1929 (UK), s 143
Companies Act 1936 (NSW), s 124
Conveyancing Act 1919 (NSW), s 66G
Corporations Act 2001 (Cth), ss 9(b)(i), 124(1), 201F(3), 201G, 201M, 231, 249B(1), 1070A, 1072B, 1072C, 1072F and 1322
Income Tax Act 1918 (UK)
Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), ss 3, 4(1), 6(1) and 6(3)
Strata Schemes Management Act 1996 (NSW), Part 4, ss 80D, 181(2)
Strata Schemes Management Act 2015 (NSW), s 232
Trading with the Enemy Act 1939 (UK)
Uniform Civil Procedure Rules 2005, r 7.1

Cases Cited:

2 Elizabeth Bay Road Pty Ltd v The Owners-Strata Plan 73943 (2014) 88 NSWLR 488; (2014) 17 BPR 33,911; [2014] NSWCA 409
Alexander Ward & Co Ltd v Samyang Navigation Co Ltd [1975] 2 All ER 424; [1975] 1 WLR 673
Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Beck v LW Furniture Consolidated (Aust) Pty Ltd (2012) 265 FLR 60; [2012] NSWCA 76
Beck v LW Furniture Consolidated (Aust) Pty Ltd [2011] NSWSC 235
Boensch (As Trustee of Boensch Trust) v Pascoe (2018) 133 ACSR 268; [2018] FCAFC 234
Boston Deep Sea Fishing and Ice Co Ltd v Farnham [1957] 1 WLR 1051
Calabretta v Redpen Developments Pty Ltd (2010) 183 FCR 47; [2010] FCA 81
Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185; (2005) 23 ACLC 1859; [2005] NSWSC 1005
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising Co (1975) 133 CLR 72
Danish Mercantile Co Ltd v Beaumont [1951] Ch 680; [1951] 1 All ER 925
Doulaveras v Daher (2009) 253 ALR 627; [2009] NSWCA 58
DVT Holdings v BigShop.com.au (2002) 42 ACSR 378; [2002] NSWSC 571
Ex Parte Gilchrist; Re Armstrong (1886) 17 QBD 521
Federal Commissioner of Taxation v Patcorp Investments Ltd (1976) 140 CLR 247; [1976] HCA 67
Firth v Staines [1897] 2 QB 70
Fricker v Van Grutten [1896] 2 Ch 649
Grant v John Grant & Sons Ltd (1950) 82 CLR 1; (1950) 24 ALJR 374
Harry S Bagg’s Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421
Hawkins Hill Gold Mining Co v Briscoe (1887) 8 NSWR 123 [(1887) 8 LR (NSW) Eq 123]
Hawksford v Hawksford (2005) 191 FLR 173; [2005] NSWSC 463
Herron v McGregor (1986) 6 NSWLR 246; (1986) 28 A Crim R 79
Hillig v Darkinjung Pty Ltd and Ors (No 2) [2008] NSWCA 147
Hoskins v Van Den-Braak (1998) 43 NSWLR 290
House v The King (1936) 55 CLR 499; [1936] HCA 40
Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110; (1988) 6 ACLC 426
James v James (No 2) [2019] NSWSC 116
Kuenigl v Donnersmarck [1955] 1 QB 515; [1955] 1 All ER 46
Lewis v Condon [2013] NSWCA 204
London & Blackwall Railway Co v Cross (1886) 31 Ch D 354
Massey v Wales (2003) 57 NSWLR 718; [2003] NSWCA 212
McEvoy v Body Corporate for No. 9 Port Douglas Road [2013] QCA 168
Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172
Morris v Kanssen [1946] AC 459
Newbiggin-by-the-Sea Gas Co v Armstrong (1879) 13 Ch D 310
Nurse v Durnford (1879) 13 Ch D 764
Official Trustee in Bankruptcy v Buffier (2005) 54 ACSR 767; [2005] NSWSC 839
Official Trustee in Bankruptcy v Buffier (2005) 54 ACSR 767; [2005] NSWSC 839
Palmer v Walesby (1868) LR 3 Ch 732
Re Burton, Willy v Burton (1994) 126 ALR 557
Re Colorbus Pty Ltd (2004) 51 ACSR 677; [2004] VSC 486
Re Galtari Ltd [2018] NSWSC 917
Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715
Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17; [2014] NSWSC 1484
Royal British Bank v Turquand (1856) 6 E & B 327; (1856) 119 ER 886
Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816
Sheahan v Londish (2010) 80 ACSR 337; [2010] NSWCA 270
Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd [2017] FCA 1451
Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17; [2012] 1 WLR 1721
Tonbul Baykal v Terry Van Der Velde as trustee for bankrupt estate of Hakan Tandogan [2017] NSWSC 36
Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14
Wood v Inglis (2008) 68 ACSR 420; [2008] NSWSC 1147
Enviroco Ltd v Farstad Supply A/S [2011] UKSC 16

Texts Cited:

J D Heydon, M D Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [3-15]
Lord Wrenbury, DB Buckley, N Warren, P G Brian, Buckley on the Companies Acts (12th Ed, 1949, Butterworth & Co) at 169
Robert P Austin, Ian M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths) at [7.590]

Category:

Principal judgment

Parties:

2018/206261
John Robert Preston (Plaintiff)
Diaspora Holdings Pty Ltd (First Defendant)
Owners Corporation of SP 68608 (Second Defendant)
MR Anderson and others trading as Clarke Kann (Third to Thirteenth Defendants)
Paul Gerard Weston (Fourteenth Defendant)

 

2018/206261
The Owners – Strata Plan No 68608 (Cross-claimant)
John Robert Preston (First Cross-defendant)
Diaspora Holdings Pty Ltd (Second Cross-defendant)
Australian Securities Investment Commission (Third cross-defendant)

    2018/300151
Diaspora Holdings Pty Ltd (First Plaintiff/Appellant)
Clarke Kann (Second Plaintiff/Appellant)
Owners Corporation of SP 68608 (Defendant/Respondent)

Representation:

Counsel:
2018/206261
MW Sneddon (Plaintiff)
D Knoll AM (Second Defendant)
S Docker (Third to Thirteenth Defendants)

 

2018/300151
MW Sneddon (First Plaintiff)
S Docker (Second Plaintiff)
D Knoll AM (Second Defendant)

 

Solicitors:
2018/206261
Polczynski Robinson (Plaintiff)
Strata Specialist Lawyers (Second Defendant)
Clarke Kann (Third to Thirteenth Defendants)

  2018/300151
Polczynski Robinson (Plaintiff)
Clarke Kann (Second Plaintiff)
Strata Specialist Lawyers (Second Defendant)

File Number(s):

2018/206261; 2018/300151

Publication restriction:

Nil

Judgment

1. About two and a half years ago, proceedings were brought in the NSW Civil and Administrative Tribunal arising out of a strata title dispute. The parties to these proceedings are now embroiled in satellite litigation arising out of a dispute concerning legal representation in those proceedings.

2. The lot which is the subject of the dispute is owned by Diaspora Holdings Pty Ltd (“Diaspora”). Diaspora was incorporated in 2005.

3. For most, if not all, of Diaspora’s corporate life it has been controlled by John Robert Preston. He was the sole director of the company from September 2006 to September 2013 when he was made bankrupt. At that time he was also registered as the holder of the sole issued share in the company. Mr Preston is still recorded in ASIC records as the sole director of Diaspora, having, according to those records, been reappointed as a director after his discharge from bankruptcy in September 2016. He remains registered as Diaspora’s sole shareholder.

4. The strata scheme was created by the registration of Strata Plan 68608 in August 2002. The scheme consists of 20 lots and common property adjacent to Wynyard station concourse. Diaspora owned Lot 16, a utility lot in a basement level car park carrying a right of exclusive use over two adjacent car spaces. Diaspora had also been granted the right to install and operate an ATM on part of the common property abutting the concourse.

5. The dispute arose because, amongst other things, Lot 16 had been used by another of Mr Preston’s companies to operate a commercial car parking business. The ATM had also been installed so that it encroached onto adjoining property on the concourse. The Owners Corporation for Strata Plan 68608 (to which I will refer as the “Strata Corporation”) had, among other things, erected a wall obstructing the entrance to Lot 16.

6. The Tribunal proceedings began when the Strata Corporation made an application under the Strata Schemes Management Act 1996 (NSW), Part 4, for orders restricting Diaspora’s use of Lot 16 requiring it to remove the ATM. I will refer to this as the “Injunction Application”. Mr Preston retained Clarke Kann, a firm of solicitors, to act for Diaspora. Clarke Kann instituted a cross-application for an order requiring the Strata Corporation to remove the wall and to reinstate electricity supply and access to Lot 16. I will refer to this as the “Counter Injunction Application”.

7. The Applications came before an adjudicator, Mr John Levingston. Mr Levingston decided in favour of the Strata Corporation. The orders sought by the Strata Corporation in the Injunction Application were made. The Counter Injunction Application was dismissed.

8. Clarke Kann then, on the instructions of Mr Preston, brought an application by way of appeal to NCAT in Diaspora’s name against Mr Levingston’s decision. The appeal was in the nature of a rehearing: see Strata Schemes Management Act, s 181(2). I will refer to this as the “Review Application”.

9. Clarke Kann also commenced separate proceedings in the Tribunal in Diaspora’s name seeking orders under the Strata Schemes Management Act 2015 (NSW), s 232, that the Strata Corporation consent to the application Diaspora had made to the local planning authority to remove restrictions on the development consent for Lot 16. The removal of these restrictions would have entitled the Lot to be used for the conduct of the car parking business. I will refer to this as the “Consent Application”.

10. The litigation now before the Court was triggered by what happened next. Rather than defending the two Applications on the merits, the Strata Corporation challenged Clarke Kann’s capacity to bring them on Diaspora’s behalf. The Corporation contended that Mr Preston’s purported appointment as director was invalid. Mr Preston responded by passing a resolution purporting to confirm his appointment and to ratify the retainer of Clarke Kann as the solicitors for Diaspora. The Corporation contended that this too was invalid. The arguments were that the right to appoint a director had passed to Mr Preston’s trustee in bankruptcy and that no ratification was possible.

11. These arguments were ultimately upheld by the Tribunal. Both the Review Application and the Consent Application were dismissed. Diaspora and Clarke Kann were ordered to pay the Strata Corporation’s costs. Now proceedings have been brought in this Court to reverse the Tribunal’s ruling.

12. The unsatisfactory nature of what has happened hardly needs pointing out. The Tribunal has never resolved the strata title dispute on its merits. Instead, the parties have spent almost two years arguing about representation. It now falls to this Court to decide whether the diversion was justified.

Issues for decision

13. Before the Court are two proceedings. The first (2018/206261), to which I will refer as the Corporations proceedings, were instituted by Mr Preston in the Corporations List seeking declaratory orders. The second (2018/300151) are appeal proceedings against the Tribunal’s dismissal of the Review Application. The appeal proceedings were begun in the Common Law Division of the Court but were transferred to the Equity Division to allow them to be heard together with the Corporations proceedings.

14. No appeal has been brought to this Court from the Tribunal’s dismissal of the Consent Application. That order was instead challenged by way of proceedings before the Appeal Panel of the Tribunal. Those proceedings have been stayed pending the Court’s decision in these proceedings.

Corporations proceedings

15. The Corporations proceedings were instituted by Mr Preston as plaintiff in July 2018. At that stage, the Tribunal had not given its decision on the representation issue. The Strata Corporation was named as the defendant. The relief sought was a declaration that Mr Preston had been validly appointed as a director of Diaspora, or alternatively that Diaspora had ratified the retainer of Clarke Kann. Alternatively, the Court was asked to validate the appointment, or alternatively, the retainer, under Corporations Act2001 (Cth), s 1322.

16. The Strata Corporation responded in August by filing an interlocutory application which sought that the proceedings be dismissed as unauthorised, or stayed to await resolution of the Review Application and the Consent Application in the Tribunal.

17. The Tribunal handed down its decision in the representation issue, and made orders dismissing the Review Application and the Consent Application, early in September 2018. The Appeal proceedings were begun shortly afterwards.

15. On 25 October the Corporations proceedings came on for hearing before me. Counsel for the Strata Corporation sought to move on the interlocutory application for the proceedings to be summarily dismissed or stayed. Counsel for Mr Preston sought to press on with the determination of the proceedings on a final basis.

16. After the parties’ contentions had been canvassed in some detail, I came to the conclusion that the Court should not attempt to hear the interlocutory application, or to hear the proceedings finally, at that stage. I thought that the Court should deal with the Appeal proceedings at the same time as the Corporations proceedings. I also thought that the Corporations proceedings needed to be reconstituted so as to join all potentially affected parties. A question had also emerged concerning the Court’s jurisdiction to entertain the Corporations proceedings and whether they needed to be transferred to the Federal Court as a “special federal matter”. That would require notice to be given to the Commonwealth and New South Wales Attorneys-General.

17. The parties to the Corporations proceedings (Mr Preston and the Strata Corporation) undertook to confer with Clarke Kann to arrange for the Appeal proceedings to be heard together with the Corporations proceedings. I made orders for Diaspora and Clarke Kann to be joined as defendants. I also suggested Mr Preston’s former trustee in bankruptcy, Paul Gerard Weston of Pitcher Partners, be notified of the proceedings in case he wished to be heard.

18. Mr Weston was notified of the proceedings and responded by letter of 31 October. He drew attention to the question of the proceedings involving a “special federal matter”. On the substantive issues he said:

Pursuant to s. 153 of the Bankruptcy Act the bankruptcy administration is continuing, notwithstanding the discharge from bankruptcy. My investigations in relation to the discharged bankrupt’s shareholding in Diaspora Holdings Pty Ltd are continuing. I have sought copies of documents which have not been provided and now appear in the Court Book. I have conducted public examinations of the discharged bankrupt, his brother, David Preston, and his friend Jeffrey Persson on 6 September 2018.

Because my examinations into the examinable affairs of the discharged bankrupt are still continuing, I cannot add to the matters which are listed on 1 November 2018 in proceedings 2018/0020626. However, my investigations into the ownership of shares in Diaspora Holdings Pty Ltd is continuing and my rights in relation to those shares under s1072C of the Corporations Act and ss.58 and 116(1) of the Bankruptcy Act the shares may remain vested in me.

…

As my investigations have not been completed and I am not funded in these investigations, I am currently not in a position to participate in these proceedings or to advise the Court of any final position in relation to the bankrupt estate. I would simply ask that there be no findings in relation to the ownership of the shares in Diaspora Holdings Pty Ltd.

22. Both proceedings came before me for further directions in December. It was clear that the Corporations proceedings might involve disputed issues of fact. I therefore directed that the proceedings continue on pleadings. I also ordered that Mr Weston be formally joined as a party to the proceedings.

23. Following Mr Weston’s joinder, his solicitors sent a submission, in the form of a letter, which drew attention to authorities on the “special federal matter” point. They did not participate in the subsequent hearings. Presumably Mr Weston’s position on the substantive issues remained as set out in his letter of 31 August.

24. On 21 March I heard argument, as a preliminary question, on whether the proceedings had to be transferred to the Federal Court under the Jurisdiction of Courts (Cross Vesting) legislation. Neither Attorney-General sought to be heard. Following the argument, I announced that the proceedings would not be transferred, and I would give my reasons for this conclusion when I delivered my judgment. Counsel for Mr Preston made further submissions at the later hearing on 16 April in support of my conclusion. I set out my reasons for that conclusion in the next section of the judgment.

25. Returning to the substantive issues in the Corporations proceedings, there were in fact two separate ways in which Mr Preston was purportedly reappointed as a director in September 2016. The first was by way of a purported directors’ resolution by Paul Robert Greig and David Oliver Barnes Preston. David Preston is Mr Preston’s brother. Mr Greig is presumably an associate of Mr Preston. They had purportedly been appointed as directors of Diaspora in January 2016, while Mr Preston was still bankrupt. The other way in which Mr Preston was purportedly reappointed was by way of a shareholders’ resolution passed by Mr Preston himself as sole shareholder. Both resolutions were pleaded in support of Mr Preston’s claim that the appointment was valid. In its defence, the Strata Corporation denied that either resolution was effective.

26. When the matter was before me on 21 March, I pointed out to counsel for the Strata Corporation that if its contention was correct that Mr Preston’s purported appointment as director was invalid, Mr Preston should not be recorded in the records of Diaspora and ASIC as a director and those records should be corrected. I granted leave to the Strata Corporation to file a cross-claim seeking relief accordingly.

27. The Strata Corporation took advantage of this leave to file a cross-claim. The cross-claim named Mr Preston, Diaspora and ASIC as cross-defendants. The relief sought was a declaration that Mr Preston was not validly appointed; an order that Mr Preston cause Diaspora’s register of directors to be corrected; and an order that Mr Preston cause all necessary forms to be lodged with ASIC to reflect this. Finally, the Strata Corporation sought orders that if the necessary forms were not lodged by Mr Preston, ASIC rectify its registers so as to remove reference to Mr Preston’s purported appointment.

28. The Strata Corporation sought equivalent orders for the correction of Diaspora’s register of directors and the lodgement of ASIC forms so as to remove references to Mr Greig and Mr David Preston having been directors between January and September 2016. But no declaratory relief was sought, and Mr Greig and Mr David Preston were not joined as parties.

29. In response, ASIC wrote to the solicitors for the Strata Corporation setting out ASIC’s position. ASIC did not seek to be heard in the proceedings and confined its comments to stating that it would be unable to register any form which had the effect of the company having no director.

30. The final hearing of the proceedings took place before me on 16 April. The argument was not completed on that date; further written submissions were lodged and the oral argument was completed on 3 May. Counsel for Mr Preston lodged supplementary submissions but was unable to attend the 3 May hearing.

31. In summary, there are two substantive areas of dispute in the Corporations proceedings. The first concerns the purported appointment of Mr Preston as director of Diaspora. I must decide whether the appointment was valid, and if not, whether the Court’s power under s 1322(4) should be exercised so as to validate it.

32. If the appointment of Mr Preston was invalid, and is not to be validated, it becomes necessary to consider the validity of Clarke Kann’s retainer in the Tribunal proceedings. Again I must decide whether the retainer was valid and, if not, whether s 1322(4) relief should be granted.

Appeal proceedings

33. The plaintiffs (appellants) in the Appeal Proceedings are named as Diaspora and Clarke Kann. The Strata Corporation is the defendant (respondent). The proceedings have effectively been conducted by Clarke Kann; Diaspora has not been represented.

34. The appeal is brought under the Civil and Administrative Tribunal Act 2013 (NSW), s 83(1) (“CATA”). As such, it is limited to an appeal on a question of law. Clarke Kann have advanced nine grounds of appeal. Those grounds raise contentions, which parallel those made on behalf of Mr Preston in the Corporations proceedings, that Mr Preston was validly appointed as a director of Diaspora or that, if he was not, the retainer of Clarke Kann was validly ratified on behalf of Diaspora. Counsel for the Strata Corporation accepted that these grounds, at least to the extent that they do not involve any factual dispute, raise questions of law.

35. There are additional grounds of appeal. Counsel for the Strata Corporation submitted that those additional grounds did not raise questions of law. Counsel also contested the grounds on the merits. I will deal with the Appeal proceedings after having dealt with the Corporations proceedings.

Corporations proceedings: transfer to Federal Court

36. The Corporations proceedings are in Federal jurisdiction. Accordingly it is the Jurisdiction of Courts (Cross-Vesting) Act1987 (Cth) (“CVA”) which applies.

37. CVA 6 provides a special regime for proceedings involving a “special federal matter”. The section relevantly provides:

6  Special federal matters: general rules

(1)   If:

(a)   a matter for determination in a proceeding that is pending in the Supreme Court of a State or Territory is a special federal matter; and

(b)   the court does not make an order under subsection (3) in respect of the matter;

the court must transfer the proceeding in accordance with this section to the Federal Court …

(3)   The Supreme Court may order that the proceeding be determined by that court if it is satisfied that there are special reasons for doing so in the particular circumstances of the proceeding other than reasons relevant to the convenience of the parties.

(4)   Before making an order under subsection (3), the court must be satisfied that:

(a)   a written notice specifying the nature of the special federal matter has been given to the Attorney‑General of the Commonwealth and the Attorney‑General of the State or Territory where the proceeding is pending; and

(b)   a reasonable time has elapsed since the giving of the notice for the Attorneys‑General to consider whether submissions to the court should be made in relation to the proceeding.

…

(6)    In considering whether there are special reasons for the purposes of subsection (3), the court must:

(a)   have regard to the general rule that special federal matters should be heard by the Federal Court …; and

(b)   take into account any submission made in relation to the proceeding by an Attorney‑General mentioned in subsection (4).

…

38. A “special federal matter” is relevantly defined by s 3 in the following way:

special federal matter means:

…

(e) a matter that is within the original jurisdiction of the Federal Court by virtue of section 39B of the Judiciary Act 1903;  

being a matter in respect of which the Supreme Court of a State or Territory would not, apart from this Act, have jurisdiction.

39. No party sought the transfer of the Corporations proceedings to the Federal Court under s 6. Nevertheless, transfer is compulsory, subject to sub-section (3). The parties recognised that the Court had an obligation to consider the question.

40. Two issues arose. First, did the Corporations proceedings involve a special federal matter. Second, if so, could and should the Court retain the proceedings under sub-section (3).

Special federal matter

41. The possibility that the Corporations proceedings involve a special federal matter arose from the fact that the argument for the Strata Corporation relies on provisions of the Bankruptcy Act 1966 (Cth). The Strata Corporation contends that upon Mr Preston’s bankruptcy title to his share in Diaspora vested in his bankruptcy trustee; that it remained so vested despite Mr Preston’s discharge from bankruptcy; and that in the circumstances Mr Preston could not validly exercise the power he would otherwise have as sole shareholder to appoint himself as the director of Diaspora.

42. The point the Court had to consider was whether the proceedings raise an issue involving the bankruptcy trustee’s title to the share in Diaspora and therefore constitute proceedings “in bankruptcy” under the Bankruptcy Act, s 27. That section provides that such proceedings are exclusive to federal courts exercising bankruptcy jurisdiction. This is qualified by the CVA, s 4(1) which operates to confer bankruptcy jurisdiction, along with other Federal Court jurisdiction, on this Court. That means that for the purposes of the definition of “special federal matter” a bankruptcy matter is not one in respect of which this Court has jurisdiction apart from the CVA.

43. In Tonbul Baykal v Terry Van Der Velde as trustee for bankrupt estate of Hakan Tandogan [2017] NSWSC 36, White J (as his Honour then was) said (at [23]-[27]):

[23] When the was enacted in 1987, the definition of "special federal matter" in s 3 included para (e) in the same terms as now appears, being a matter that is Jurisdiction of Courts (Cross-Vesting) Act within the original jurisdiction of the Federal Court by virtue of s 39B. At that time, the jurisdiction conferred on the Federal Court by s 39B was less expansive. In substance, s 39B as it then stood conferred jurisdiction on the Federal Court in relation to the issue of prerogative writs or an injunction against an officer of the Commonwealth.

[24] In 1997, s 39B was amended to confer original jurisdiction on the Federal Court in any matter arising under any laws made by the Parliament. It is not at all clear to me that it was then Parliament's intention that by enlarging the jurisdiction of the Federal Court in the way provided for by s 39B there would be an expansion of the scope of what is a special federal matter under the Jurisdiction of Courts (Cross-Vesting) Act to encompass bankruptcy jurisdiction.

[25]    There have been many cases in which questions of title of the trustee in bankruptcy to property that arise under the general law have been determined in State courts. However, it is now I think fairly clearly established that jurisdiction in bankruptcy is a special federal matter pursuant to para (e) of the definition of “special federal matter” in s 3. That was held to be the case by the Court of Appeal in Victoria in Turner v Gorkowki, and that decision on the same legislation is binding on me.

[26]    The Full Court of the Federal Court came to the same conclusion albeit without reference to the earlier decision of the Court of Appeal, of the Victorian Court of Appeal in Truthful Endeavour Pty Ltd v Condon at [50]–[61]. The Full Court observed that “by virtue of” in para (e) did not mean “only by virtue of” (see at [52]).

[27]    Were the matter free from authority, that may be an arguable question, particularly if a further consideration of the legislative history indicated that the inclusion of bankruptcy matters within special federal matters may have been an unintended consequence of the amendment of s 39B. However, the matter is governed by authority by which I am bound. The question has been alluded to by the Court of Appeal recently in Mateljan v HTT Huntley Heritage Pty Ltd [2016] NSWCA 20 ; (2016) 111 ACSR 277 in terms that did not cast doubt on the conclusions in Truthful Endeavour (see at [27]).

44. His Honour went on to point out how unsatisfactory it is for questions of the trustee’s title to property that arise in general law proceedings to be excluded from determination by State courts, and suggested that it should be corrected by Parliament (at [28]-[29]). But no action has yet been taken. If these proceedings are proceedings “in bankruptcy” I had to treat them as constituting a “special federal matter”.

45. Proceedings “in bankruptcy” for the purposes of the Bankruptcy Act, s 27, are proceedings “under or by virtue of” that Act: s 5. It is well established that a claim where the Court is asked in effect to declare for or against the title of a trustee in bankruptcy falls within the scope of s 27: Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816. But there is a distinction between exercising jurisdiction “in bankruptcy” on the one hand and simply recognising the effect of provisions of the Bankruptcy Act on the other. This distinction can be seen in Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380; [2008] FCAFC 172 at [7]-[8], [18]; Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715 at [458]-[459] and ReGaltari Ltd [2018] NSWSC 917 at [62]-[65].

46. In the present case, the trustee in bankruptcy had not, although joined as a party, made any claim. The Court was not asked to exercise any statutory power conferred on Federal bankruptcy courts under the Bankruptcy Act. No order was sought by any party declaring for or against the title of the trustee in bankruptcy to the share in Diaspora.

47. The issue in these proceedings concerned the validity of the purported appointment of Mr Preston as a director of Diaspora. The issue arose under the Corporations Act and involved the interpretation of the provisions of that Act, in particular s 201F(3). True it is that these provisions came into play as a result of Mr Preston’s bankruptcy and there was a debate about what the effect of that bankruptcy was for the purpose of applying them. But in my view the resolution of this debate simply involved, at most, the recognition of the effect of the Bankruptcy Act. It did not involve the exercise of jurisdiction “in bankruptcy”.

48. For these reasons, I did not think that these proceedings constituted a special federal matter for the purposes of the CVA. There was no requirement to transfer them under s 6(1).

Retention of proceedings

49. For completeness I will address whether, if I had considered the proceedings involved a special federal matter, I would have been justified in retaining them under CVA s 6(3). As I have said, none of the parties to the Corporations proceedings sought their transfer to the Federal Court. Clearly such a transfer would have resulted in unnecessary delay and expense. The question was whether the Court was required to ignore this because it was only a matter of “convenience to the parties”.

50. In James v James (No 2) [2019] NSWSC 116, Slattery J said (at [97], [102]):

[97] Cross-Vesting Act, s 6(3) presents something of a puzzle. Its qualification that the retention of the proceedings in this Court must be justified by “special reasons” that are “other than the convenience of the parties” does not suggest that the parties’ convenience is wholly irrelevant. Rather, the provision suggests that there must be some decisive factor telling against the transfer to federal jurisdiction, which is not the convenience of the parties. But a decision not to transfer may still be compatible with the convenience of the parties, provided that is not the sole basis for the decision not to transfer.

…

[102] Upon the proper construction of s 6(3), the “convenience of the parties” is not excluded from the Court’s consideration provided it is not the determining factor. In my view, a determination by this Court not to transfer these proceedings to federal jurisdiction before the apportionment issues are decided overwhelmingly serves the better administration of justice. The convenience of the parties is to a degree also served by this decision. But the decision is wholly justified by promoting the better administration of justice; the reasons for this are elaborated below.

51. His Honour went on to explain how the resolution of the issues in the proceedings (which concerned the apportionment of proceeds between co-owners following an order under the Conveyancing Act 1919 (NSW), s 66G, where one of the co-owners had become bankrupt after the order was made) would be assisted by his familiarity, from earlier stages of the proceedings, with the parties and the factual background. Transfer to the Federal Court or the Federal Circuit Court would invariably result in a delay. His Honour concluded that retaining the proceedings in this Court would be in the interests of all affected parties, not least the bankrupt’s creditors.

51. On this issue, I considered that I should follow the approach of Slattery J, with which I respectfully agree. Retention of the proceedings in this Court appeared likely to result in a faster and more efficient determination of the dispute. But there was an additional factor. Clearly it was in the interests of all concerned that the Appeal proceedings, which raised parallel issues to those raised in the Corporations proceedings, should be decided by the same court at the same time. But the Federal Court has no jurisdiction to entertain appeals from the Tribunal. The two proceedings could only be dealt with together if they were dealt with by this Court.

52. In these circumstances, retention of the proceedings in this Court, where they could be promptly disposed of together with the Appeal proceedings, was not just convenient to the parties. As Slattery J said in James, it promoted the better administration of justice.

53. For these reasons, even if I had concluded that the proceedings involved a special federal matter, I would have ordered that they remain in this Court rather than be transferred to the Federal Court.

Corporations proceedings: summary and analysis of evidence

55. Diaspora was incorporated in November 2005. Its initial shareholder and director was Peter John Dulson, whose involvement is not explained in the evidence. In September 2006 Mr Dulson was replaced as director by Mr Preston and the sole share in the company was transferred to him. Then in July 2011 the share was transferred to Jeffery Warwick Persson, who appears to have been an associate of Mr Preston.

56. In July 2013, Mr Persson executed a transfer of the share in Diaspora back to Mr Preston. The transfer from Mr Persson to Mr Preston recorded Mr Preston as receiving the transfer in his capacity as trustee of the Diaspora Trust No 2 (“the Trust”) and it is common ground that the share thereby became an asset of the Trust.

57. The trust deed for the Trust was in evidence. The Trust is a discretionary trust for the benefit of members of Mr Preston’s family. It was settled in November 2005.

58. Under the trust deed, the settlor was Mr David Preston and the Trustee was Mr Preston. The deed provided for an Appointor to have the power, among other things, to appoint or remove the Trustee. Mr Preston was the Appointor.

59. Mr Preston said quite candidly that the transfer of the share back to himself as Trustee was motivated by his impending bankruptcy. The transfer was recorded in Diaspora’s share register as from 13 July 2013. It was not notified to ASIC until November 2013 but no point was taken about this. Counsel for the Strata Corporation did not challenge the validity of the transfer.

60. Mr Preston became bankrupt on 18 September 2013. As a result, he ceased to be a director of Diaspora. This was notified to ASIC, although the evidence does not reveal when. The result was that Diaspora ceased to have any directors. Mr Preston’s trustee in bankruptcy took no steps to assert any control over the company. Mr Preston remained on the register as the sole shareholder.

61. In evidence are minutes of two resolutions from January 2016 which purported to fill Diaspora’s directorship vacuum. The first records a shareholders’ resolution on 5 January 2016 purporting to appoint Mr Greig as a director. The minute stated:

Record of Resolution of a meeting of the Members of Diaspora Holdings Pty Ltd ACN 117 328 499 (the “Company”) at UNIT 4317, 10 PORTER STREET, RYDE, NSW 2112.

I, being the Sole Member of the Company, am in favour of the resolution set out below:

Appointment of officers:

NOTED that PAUL ROBERT GREIG has provided a written signed consent to act as Director of the Company, which has been tabled.

RESOLVED, by ordinary resolution, to appointment PAUL ROBERT GREIG as Director of the Company, effective immediately.

62. The name of the sole member of the company (who would at the time have been Mr Preston, at least according to the company’s share register) was left blank. The resolution was signed, not by Mr Preston, but by Mr Greig.

63. The second minute recorded a directors’ meeting on 14 January 2016, at which Mr Greig, purporting to act as sole director, appointed Mr David Preston as an additional director. Both of these purported appointments were notified to, and recorded by, ASIC shortly after the relevant meetings.

64. In February 2016 Clarke Kann commenced proceedings in this Court in Diaspora’s name seeking orders that the Strata Corporation not impede Diaspora’s access to and use of the common property, and its operation of the car parking business. This led to correspondence from solicitors for the Strata Corporation objecting to the validity of Clarke Kann’s retainer. The Corporation’s solicitors argued that instructions provided on behalf of Diaspora had not been given with the consent of the trustee in bankruptcy. In response, Clarke Kann discontinued the proceedings.

65. Mr Preston was discharged automatically from bankruptcy after three years. This happened on 19 September 2016. The two resolutions which are the subject of these proceedings were passed the following day.

66. The directors’ resolution is recorded in a minute dated 20 September 2016. According to the minute the directors (that is, Mr Greig and Mr David Preston) resolved unanimously to appoint Mr John Preston as a director of the company and then noted the resignations of Mr Greig and Mr David Preston.

67. The shareholders’ resolution is also recorded in a minute dated 20 September 2016. The minute states:

Record of Resolution of a meeting of the Members of Diaspora Holdings Pty Ltd ACN 117 328 499 (the “Company”) at UNIT 4317, 10 PORTER STREET, RYDE, NSW 2112.

I, JOHN ROBERT PRESTON, being the Sole Member of the Company, am in favour of the resolution set out below:

Appointment of officers:

NOTED that JOHN ROBERT PRESTON has provided a written signed consent to act as Director of the Company, which has been tabled.

RESOLVED, by ordinary resolution, to appointment JOHN ROBERT PRESTON as Director of the Company, effective immediately.

68. The resolution was signed by Mr Preston. There was no challenge to the accuracy of this minute, or of the minute of the same date recording the purported directors’ resolution.

69. The Injunction Application which marked the beginning of the proceedings in the Tribunal was begun shortly afterwards, in October 2016. Mr Levingston delivered his adjudication in February 2017. The Review Application was begun in March 2017. The Consent Application was then begun in August 2017.

70. It is clear that from 20 September 2016, if not before, Mr Preston managed the business of Diaspora and, for practical purposes controlled its affairs. In particular, it was Mr Preston who gave all relevant instructions to Clarke Kann, purportedly on Diaspora’s behalf, concerning the conduct of the Tribunal proceedings.

71. Shortly after the Consent Application began, the solicitors for the Strata Corporation wrote a letter to Clarke Kann asserting that both the Review Application and the Consent Application could not proceed, as Mr Preston was not appointed by the trustee in bankruptcy and therefore there was no valid retainer. The letter contended that the retainer could not be ratified by a retrospective appointment of Mr Preston.

72. Following further correspondence with the Tribunal, the Consent and Review Applications were adjourned for the filing of submissions and evidence with respect to the representation issue.

73. In September 2017, Chris Kintis, the partner of Clarke Kann acting for Diaspora in the Tribunal proceedings, filed an affidavit for the purpose of the then upcoming hearing on the representation issue. “Without prejudice to the submissions made by Diaspora, and to assist” the Tribunal, Mr Kintis annexed copies of the trust deed, an ASIC search of Diaspora and the ASIC Form 484 notifying the transfer of the share in Diaspora from Mr Persson to Mr Preston in July 2013. (Presumably copies of the September 2016 resolutions were already before the Tribunal in some other way).

74. A few weeks later, in October 2017, Mr Kintis filed a further affidavit. The affidavit referred to an affidavit and submissions filed in the meantime for the Strata Corporation. The affidavit then annexed copies of a series of minutes and other instruments purportedly dated August 2013 and September 2016 concerning the Trust.

75. The minutes in question purportedly recorded the appointment of Mr David Preston as Trustee and Appointor of the Trust in August 2013, shortly before the then existing Trustee and Appointor Mr Preston became bankrupt and vacated his office under the terms of the trust deed. Then the documents purportedly recorded in September 2016 Mr David Preston’s resignation, and Mr Preston’s reappointment, as Trustee and Appointor.

76. At the hearing before me counsel emphasised that the first occasion on which these documents were produced for the purposes of the proceedings concerning the representation issue were when they were attached to Mr Kintis’ October 2017 affidavit. Counsel noted that they had not been attached to Mr Kintis’ September 2017 affidavit. The suggestion was that, had the documents then existed, they would have been. Counsel also described the type face and other features of the purported trust minute of August 2013 as “remarkably similar” to the September 2016 trust minute.

77. Counsel for the Strata Corporation submitted, in the course of closing argument, that I should find that the minutes were not genuine. The suggestion was that they were produced after the event, presumably between September and October 2017.

78. It is difficult to evaluate this submission, having regard to the evidence before me and the way the case was conducted. There was no evidence about the way in which minutes of the Trustee’s decisions were created and kept, or about where and how Mr Kintis had obtained the documents to annex copies of them to his affidavit. Still less was there any expert evidence on the genuineness of the documents. Counsel did put to Mr Preston in cross-examination that they had been produced after the event, which Mr Preston denied, but the proposition was put perfunctorily, and the denial was unilluminating.

79. The circumstances in which the documents emerged do, to my mind, raise some questions. If Mr Preston did indeed take steps to have Mr David Preston replace him as Trustee and Appointor of the trust in August 2013 he showed a level of knowledge of the trust deed and a degree of prescience which might be thought unusual in a lay person. On the other hand, it is accepted that the other steps taken by Mr Preston to move the ownership of the share around did indeed take place in July 2013; and they were recorded a few months later in a notification to ASIC. Quite properly, the parties did not use the proceedings to indulge in a general exploration of Mr Preston’s credit.

80. In these circumstances, I am not satisfied on the evidence that it has been established that the documents were created after the event. Whatever questions may surround their execution, they retain their status as business records which are presumptively accurate. As it happens, the resolution of this factual issue is not relevant for the purposes of my decision and I will therefore not discuss it any further.

81. In evidence was a minute of a further resolution of Diaspora dated 11 January 2018. The accuracy of this minute was not disputed. The resolution stated:

RESOLVED:

1.   That the Company confirms and to the extent necessary, ratifies the following:

a.   The defence of the [Injunction Application] by and/or on behalf of the Company;

b.   The lodging and prosecution by and/or on behalf of the Company of the [Counter Injunction Application];

c.   The lodging and prosecution by and/or on behalf of the Company of the [Review Application], along with the associated stay application;

d.   The lodging and prosecution by and/or on behalf of the Company of the [Consent Application]; and

e.   The representation of the Company in each of (a) to (d) above by Clarke Kann Lawyers of Level 4, 9 Castlereagh Street, Sydney, NSW, 2000 and the retainer of Clarke Kann Lawyers to represent and advise the Company in each of (a) to (d) above.

Signed

John Robert Preston

Sole Director

Diaspora Holdings Pty Ltd ACN 117 328 498

Dated 11/1/18

82. The Tribunal conducted a hearing on the representation issue which began on 16 January 2018. There was a second day of hearing in March. The Tribunal reserved its decision. About three months later, on 4 July, the Corporations proceedings were commenced in this Court. After the Corporations proceedings were commenced, Clarke Kann, on behalf of Diaspora, then sought to have the resolution by the Tribunal of the representation issue adjourned until after the Corporations proceedings had been dealt with by this Court. This was opposed by the Strata Corporation. Written submissions on this question were lodged in August.

83. On 4 September the Tribunal delivered its decision. The Tribunal refused the adjournment and decided the representation issue in favour of the Strata Corporation. The Tribunal ordered both Diaspora and Clarke Kann to pay the Strata Corporation’s costs of both Applications from 1 September 2017 (being a date shortly after the representation issue was raised) on an indemnity basis.

Validity of appointment of Mr Preston as director

84. Counsel for Mr Preston relied primarily on the shareholders’ resolution of 20 September 2016 to support the validity of Mr Preston’s appointment as the director of Diaspora. Power to pass such a resolution came from Corporations Act, s 201G. That provides:

Company may appoint a director

A company may appoint a person as a director by resolution passed in general meeting.

85. In a single shareholder company, a resolution of the company may be passed under s 249B(1) which provides:

Resolutions of 1 member companies

A company that has only 1 member may pass a resolution by the member recording it and signing the record.

86. Counsel for Mr Preston also relied on the resolution of January 2018, to the extent that it purported to confirm Mr Preston’s appointment as director. I discuss that resolution further in connection with ratification, below. In my opinion, it does not assist for present purposes. The resolution was in the same terms as the September 2016 resolution. There was no relevant change of circumstances between the two dates. If the 2016 resolution was valid, the January 2018 resolution adds nothing to it. If the September 2016 resolution was invalid, the January 2018 resolution would likewise have been invalid.

87. Counsel for Mr Preston also referred to the residual power which, so counsel submitted, Diaspora’s shareholders had to appoint directors when other means of appointment were unavailable: Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110 at 115-116. But I do not think this adds anything to the present case. As I explain below, the resolution under consideration is the single member equivalent of a resolution in general meeting. If that resolution was insufficient, then I cannot see that appealing to a residual power to act in general meeting (if there is any outside s 201G) could make any difference.

88. Mr Preston’s pleadings relied, as an alternative to his purported appointment as a director of Diaspora by shareholder’s resolution, upon his purported appointment by Mr David Preston and Mr Greig as directors’ resolution on 20 September 2016. In preparation for the hearing, counsel for the Strata Corporation in his oral submissions argued that the purported appointments of Mr David Preston and Mr Greig were invalid for various reasons. At the hearing neither counsel for Mr Preston nor counsel for Clarke Kann sought to support the purported appointment by Mr David Preston and Mr Greig. In effect, reliance on the purported directors’ resolution was abandoned. Mr Preston was not asked about the relevant minutes in cross-examination. This is all rather strange and unsatisfactory on a factual level, but as no point was made about it on behalf of the Strata Corporation I do not think I should pay any attention to it.

89. Returning to the September 2016 shareholders’ resolution, there was no challenge to the accuracy of the minute and there was no suggestion that it did not comply with s 249B(1). Counsel for the Strata Corporation contended, however, that s 201G did not apply. Counsel submitted, as I understood him, that a written resolution under s 249B(1) was not a resolution by the company in general meeting for the purpose of s 201G.

90. I do not accept this submission. If a resolution under s 249B does not have the effect of a resolution in general meeting, what use would it be? Counsel relied upon the discussion by Lindgren AJA in Sheahan v Londish (2010) 80 ACSR 337; [2010] NSWCA 270 at [181]-[214] of the history and purpose of 249B. I see nothing in that discussion which supports counsel’s submissions. Indeed at [211] Lindgren AJA appears to assume that s 201G can be satisfied by a resolution under 249A.

91. Counsel for the Strata Corporation next contended that even if s 201G was satisfied, the resolution was ineffective. The contention was ineffective and was based on three different arguments. First, counsel submitted that the single share in Diaspora was not, in September 2016, Mr Preston’s property; it had vested in his trustee in bankruptcy. It followed, according to counsel’s submission, that Mr Preston had no right to exercise any power attached to that share to appoint a director. Second, counsel argued that if the first contention was incorrect and Mr Preston was the owner of the share, he held it as “bare trustee” and his powers as bare trustee did not extend to exercising the power of appointment. Counsel’s third argument relied on Corporations Act, s 201F(3). The argument was that, in the circumstances, this provision gave Mr Preston’s bankruptcy trustee sole and exclusive power to appoint a new director.

Effect of bankruptcy on legal title to Diaspora share

92. The Strata Corporation’s first argument is based on the Bankruptcy Act1966 (Cth), s 58(1). The enactment as a general rule, vests the bankrupt’s property in the trustee in bankruptcy.

93. Initially, counsel for Mr Preston contended that the share in Diaspora fell within the exception created by s 116(2)(a), which provides:

Property divisible among creditors

(2)   Subsection (1) does not extend to the following property:

(a) property held by the bankrupt in trust for another person;

94. Counsel relied upon what Brereton J (as his Honour then was) said in Re StansfieldDIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17; [2014] NSWSC 1484; at [16]:

It would be extraordinary, in the context of insolvency law, if “property of the company” included property of which it was a trustee and in which it had no beneficial interest. It is of course well-established, in the field of bankruptcy, that property held by the bankrupt on trust does not vest in the trustee-in-bankruptcy: Bankruptcy Act 1966 (Cth), s 116(2)(a), (which excludes from the property divisible among creditors property that is held by the bankrupt in trust for another person); Scott v Surman (1742) Willes 400 at 402; 125 ER 1235 at 1236-1237; Morgan v Swansea Authority (1878) 9 Ch D 582, 585; St Thomas’s Hospital v Richardson [1910] 1 KB 271, 277.

95. But in argument on 16 April, counsel for the Strata Corporation referred to what Leeming JA (with whom McColl JA and Sackville AJA agreed) said in Lewis v Condon [2013] NSWCA 204. That case concerned a property vested in an individual and subject to a trust. The individual became bankrupt. Leeming JA said (at [91]-[92]):

[91] Upon the making of the sequestration order on 14 May 2012, s 58 of the Bankruptcy Act 1966 (Cth) applied. That had the effect that such interest as Colleen [the bankrupt individual] had in the Property vested forthwith in equity in Mr Condon [the trustee in bankruptcy]. Legal title did not vest forthwith in Mr Condon. (Section 90 of the Real Property Act 1900 (NSW) establishes a procedure whereby a trustee in bankruptcy can obtain registration as proprietor of land pursuant to the vesting effected by s 58(2) of the Bankruptcy Act). Mr Condon ultimately took advantage of that procedure to become registered proprietor of the Property and thereby acquire legal title.

226. The same would also have been true of the order made against Diaspora by the Tribunal concerning the costs of the proceedings. Indeed it is hard to see how the order that Diaspora pay the costs could properly have been made in the first place. On the conclusion reached by the Tribunal, Diaspora was a stranger to the proceedings. The only party against whom a costs order could properly have been made was Clarke Kann.

227. The principles which I have discussed concerning the nature of proceedings to challenge a party’s representation have been worked out in decisions of the superior courts, generally being courts of unlimited jurisdiction and having extensive inherent powers. In constituting how such a challenge could, or should, operate in the Tribunal, it is necessary to consider the specific statutory context. I think there are five points which are significant.

228. The first is that the Tribunal is, in general, a non-costs jurisdiction. The general rule is that each party to proceedings in the Tribunal must bear its own costs and the Tribunal may only award costs if there are “special circumstances”: see CATA s 60(1), (2). If I am right in my analysis of the rationale for the Court’s intervention on behalf of a defendant, namely that it is the defendant’s inability to recover costs from the plaintiff, then this is critical. If a respondent in the Tribunal will not be liable for the applicant’s costs, the whole basis for intervention falls away.

229. The second point concerns the Tribunal’s power to make the order that the solicitor pay the costs of the proceedings which usually follows a successful challenge. This was considered by the Tribunal in the judgment under appeal (at 36-37 [108]-[113]). The Tribunal considered that the power to award costs in s 60(4)(a) is wide enough. The Tribunal’s conclusion was that, on the analogy with the curial power to award costs (Civil Procedure Act 2005 (NSW), s 98), the Tribunal could make a costs order against Clarke Kann as a third party.

230. I have, with respect, some reservations about this. As the Tribunal noted, the two sections are not precisely the same. More importantly, there is a difference in context. Section 60 is expressed to be subject to a general rule that each party bear that party’s own costs. The relevant factors in determining whether to make a costs order as an exception to that general rule are all concerned with the nature of the proceedings and the conduct of the parties. This suggests that the Parliament may only have been contemplating costs orders against parties. In my view there is room for further debate on the question.

231. The third point is that the rules in curial proceedings which generally require proceedings by a corporation to be conducted through a solicitor or authorised director (see Uniform Civil Procedure Rules 2005, r 7.1(2) and (3)) do not apply. CATA s 45(1), provides that in proceedings in the Tribunal a party “has the carriage of the party’s own case and is not entitled to be represented by any person”; representation is only permissible if the Tribunal grants leave. A company as an artificial person, cannot of course represent itself. It would seem that the consequence of s 45, therefore, is that in every case where a company is made a party to proceedings in the Tribunal leave must be obtained for someone (who may or may not be a solicitor) to represent it.

232. In deciding whether to authorise a person to represent a party, the Tribunal must specifically consider the question of authority: Civil and Administrative Tribunal Rules 2014 (NSW), r 32(1)(a)(iii). The Tribunal may grant leave to a person to represent a party at any time: r 31(1). But in the ordinary course, if the Tribunal is to consider a dispute about representation of a company at all, that will be raised and dealt with at the outset when the Tribunal has to give the necessary leave for the company to be represented: r 31(1).

233. The fourth point is that the Tribunal has a limited jurisdiction and restricted inherent powers. In the present case, the Tribunal considered that it had power, on two bases, to make the orders sought by the Strata Corporation. The first was the Tribunal’s jurisdiction to make “ancillary decisions” (Civil and Administrative Tribunal Act 2013, ss 29(2)(a), 31(2)(a)). The term “ancillary decision” is defined (CATA s 4) as meaning:

a decision made by the Tribunal under legislation (other than an interlocutory decision of the Tribunal) that is preliminary to, or consequential on, a decision determining proceedings, including:

(a)   a decision concerning whether the Tribunal has jurisdiction to deal with a matter;

(b)   a decision concerning the awarding of costs in proceedings.

237. With respect, I have some difficulty in seeing how a decision on a challenge to authority can be an “ancillary decision” for this purpose. Such a decision must be one “under legislation” and it is not easy to characterise the decision on such a challenge in that way, especially when it must be something other than an “interlocutory decision of the Tribunal”. It is also unclear how any such decision can be seen as relevantly being “preliminary” a decision determining proceedings. Such a decision is one determining the substantive application before the Tribunal and a decision on a challenge for representation does not seem to be accurately described as being “preliminary” to such a substantive decision. It is quite independent of it.

238. In my view, the Tribunal did have power to deal with the point taken by the Strata Corporation but the relevant power was that given by CATA s 55(1)(b) which enables the Tribunal to dismiss proceedings if they are “frivolous or vexatious or otherwise misconceived or lacking in substance”. This was the alternative ground relied upon by the Tribunal.

239. This reinforces the point that in dealing with the representation issue the Tribunal was not dealing with a substantive defence to the Review Application. It was dealing with a procedural challenge involving an allegation of abuse of process.

240. The fifth point is related. Even though the Tribunal has power to stay or dismiss proceedings which are an abuse of process, that is not the only way in which an allegation of abuse of the Tribunal’s process may be dealt with. This Court has power to make a stay order to protect the Tribunal from abuse of its procedure: Herron v McGregor (1986) 6 NSWLR 246 at 250-251. It is always open to the Tribunal, faced with a challenge to authority, to decline to act on it and to leave this Court to take any action which may be required. One advantage of this course is that, if there is any dispute about whether authority exists or not that question can be dealt with in the proceedings in this Court.

241. In McEvoy v Body Corporate for No. 9 Port Douglas Road [2013] QCA 168, certain proceedings by a strata body in the Queensland Civil and Administrative Tribunal (“QCAT”) required authorisation by resolution of the owners (the NSW equivalent is the Strata Schemes Management Act 1996, s 80D: see 2 Elizabeth Bay Road Pty Ltd v The Owners Strata Plan 73943 (2014) 88 NSWLR 488). The Queensland Court of Appeal referred to QCAT’s obligation under its constituting statute to deal with matters in a “accessible, fair, just, economical, informal and quick way” (the equivalent of CATA, s 3(d)). The Court said (at [42]) that if the issue of authority had been raised it would have been appropriate for the Tribunal to adjourn the hearing to allow the necessary vote of the body corporate in general meeting to be taken. In a case where a company is a litigant before the Tribunal and an authority point is taken, I think the logic is similar: the Tribunal should not be dismissing proceedings (as opposed to adjourning or staying them) if there is any realistic possibility of ratification or validation. Indeed, there may be a real question as to whether the Tribunal should entertain the point at all.

242. In the present case, the Tribunal does not appear to have appreciated that the representation point was not a substantive defence. One of the points taken in the Tribunal by Mr Preston (inconsistently with the position taken here) was that the Tribunal could not deal with the proceedings because they raised a “special federal matter”. The Tribunal rejected that argument, as I have so far as it applied to the proceedings in this Court. But the very fact that this point was raised and debated shows the problem. In reality the Tribunal was only ever considering a procedural application based on an alleged abuse of its process. It was not dealing, and could not deal, with the substantive legal issues raised by the Strata Corporation’s contention that Mr Preston’s appointment was invalid.

243. In refusing the application for an adjournment the Tribunal said:

47.   The Tribunal may adjourn proceedings to any time and place (s 51, NCAT Act). When considering whether to adjourn proceedings, the Tribunal has regard to the guiding principle of the NCAT Act: which is to facilitate the just, quick and cheap resolution of the real issues in the proceedings (s 36(1)).

48.   I determine that an adjournment of both proceedings pending the outcome of the (later commenced) Supreme Court proceedings, as sought by Diaspora in the written submissions dated 20 August 2018, is not consistent with the Tribunal’s guiding principle. As indicated, the said Supreme Court proceedings brought by Mr Preston’s Originating Process and the Interlocutory Process filed for the Owners Corporation in response to the Originating Process [see [16] above] are listed for directions only in the Supreme Court on 28 September 2018. It is not known when the Supreme Court proceedings, including the substantive issues in the Owners Corporation’s Interlocutory Process, will be heard.

49.   It is trite but nonetheless true to say that courts and tribunals should strive to avoid a multiplicity of proceedings addressing the same issues. In my opinion, there is no good reason for the proceedings commenced later not to give way to proceedings commenced earlier particularly as the Tribunal proceedings are well advanced. There is no doubt that the appeal and the application before the Tribunal fall within the Tribunal’s jurisdiction. I am not persuaded that there is any reason in the public interest or otherwise for the Tribunal to stay its hand. I consider that the Tribunal should exercise its special jurisdiction under the [Strata Schemes Management Act] and proceed to determine the appeal and the application that are presently before it.

50.   In any event, even if the Interlocutory Process in the Supreme Court proceedings was to be dismissed, any decision of the Supreme Court could not bind Diaspora because that company is not a party to the Supreme Court proceedings brought by Mr Preston.

51. The Supreme Court proceedings brought by Mr Preston are incapable of remedying any defect in Diaspora’s authority. Proceedings under s 1322 of the Corporations Act necessarily need to involve the corporation to be affected by any order under that section. This is another reason for the Tribunal determining the appeal and the application as the appeal and the application affect Diaspora and the Owners Corporation but not Mr Preston, by reason of Mr Preston not being a party to the Tribunal proceedings.

244. This reasoning did not mention the limitations on any decision the Tribunal might make on the representation issue. The decision would not even give rise to an issue estoppel for the purpose of future proceedings in the Tribunal. And, the ramifications of the Strata Corporations challenge went far beyond the question of representation in the Tribunal proceedings.

245. If, as the Strata Corporation contended, Mr Preston’s appointment was invalid, then all of the actions taken by Mr Preston, after 20 September 2016, purportedly on Diaspora’s behalf, were under a cloud. Moreover, if the argument were correct, then the problem could not be solved except through the intervention of Mr Preston’s trustee in bankruptcy, which showed no sign of happening. The ASIC registrations recording Mr Preston as the director of the company would also have been incorrect and a trap for a person dealing in good faith with Mr Preston as apparent director of Diaspora (such a person would probably not get the benefit of the indoor management rule: see Wood v Inglis (2008) 68 ACSR 420; [2008] NSWSC 1147 at [90]-[95]).

246. The circumstances clearly called for consideration, at least, of the dispensing power under s 1322(4). Thus the representation issue could only be fully and completely resolved by a court which could make binding declarations of right or validation orders if called for, and which could order any consequential corrections to the registers maintained by Diaspora and by ASIC. The Tribunal could not make such orders. They required the intervention of a superior court exercising Corporations Act jurisdiction.

247. It is true, as the Tribunal pointed out, that its proceedings were further advanced than the proceedings in this Court. Mr Preston should have acted earlier in bringing the Corporations proceedings. But this had to be weighed against the fact that the Corporations proceedings were a vehicle for resolving the issue fully and finally, whereas the Tribunal proceedings were not. The Tribunal does not appear to have given this any real consideration. In my view, it was a critical factor. There was no point in proliferation of interlocutory proceedings in the Tribunal when this Court would have to deal finally with the issue anyway.

248. The Tribunal was correct to point out that when the Corporations proceedings were commenced in this Court, all potentially relevant parties were not joined. But, with respect, that was not a matter for the Tribunal. It was something to be considered and dealt with by this Court, as in fact it has been.

249. The Tribunal relied for its decision on the overriding objective in the Civil and Administrative Tribunal Act 2013 (NSW), s 36(1), to facilitate the just, quick and cheap resolution of the real issues in the proceedings. But in my view, the “real issues” were the substantive questions raised by the Review Application and the Consent Application: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27, at [72]. At most the question of representation was an incidental procedural question. Paradoxically, the effect of the Tribunal’s decision was to decline to deal with what were truly the “real issues” before the Tribunal.

250. The Tribunal’s decision was a discretionary one dealing with a matter of practice and procedure, with which the Court is generally reluctant to interfere. The Court is limited to House v The King (1936) 55 CLR 499; [1936] HCA 40 grounds of intervention. In the present case the scope for intervention is narrower. Any House v The King ground for challenge to the Tribunal’s decision must involve a question of law, not merely one of fact.

251. In my opinion however the Tribunal’s reliance on the overriding objective in CATA involved a misconstruction of the legislation and a consequent miscarriage of the Tribunal’s discretion. The Tribunal incorrectly identified the “real issues” for the purposes of s 36(1). That was an error of law. The Tribunal also lacked jurisdiction to resolve the representation issue in a full and final way. Failure to take that consideration into account was also, in my view, an error of law.

Other grounds of appeal

252. The argument before the Tribunal on the validity of Mr Preston’s appointment appears to have focused mainly on s 201F(3). I have rejected that argument as unsound. Accordingly, I conclude that the Tribunal’s decision involved error of law on this point also.

253. It is unnecessary to consider the further grounds of appeal. The appeal succeeds.

Conclusions and orders

254. I have concluded that:

(1)   the shareholders’ resolution of September 2016 appointing Mr Preston as director of Diaspora was valid;

(2) if the resolution had not been valid, a validation order under s 1322(4) would have been called for;

(3) if Mr Preston had not been validly appointed, the retainer of Clarke Kann to represent Diaspora in the Tribunal proceedings would not have been sustained by s 201M and may not have been sustained by the January 2018 ratification resolution;

(4) but in any event, an order validating Clarke Kann’s retainer would have been called for under s 1322(4).

255. It follows that Mr Preston is entitled to succeed in the Corporations proceedings and the Court should grant declaratory relief in his favour. The Strata Corporation’s cross-claim must be dismissed.

256. The appeal against the Tribunal’s decision on the representation issue in the Review Application also succeeds. The decision must be set aside. The Review Application will be remitted to the Tribunal so that the substance of the appeal against Mr Levingston’s decision as adjudicator can be determined.

257. There appears to be no reason why the costs of the proceedings in this Court should not follow the event. I will make costs orders in favour of Mr Preston and Clarke Kann. Any application for any variation of those orders can be made in accordance with the Rules. I will leave it to the Tribunal to deal with the costs associated with the representation point in the Tribunal.

258. The orders of the Court in the Corporations proceedings (matter number 2018/206261) are:

1.   Declare that the plaintiff was validly appointed as a director of the first defendant on 20 September 2016.

2.   Order that the cross-claim be dismissed.

3.   Order that the second defendant pay the costs of the plaintiff and of the third to thirteenth defendants of the proceedings.

259. The orders of the Court in the Appeal proceedings (matter number 2018/300151) are:

1.   Grant leave to the plaintiffs to appeal against the orders of the NSW Civil and Administrative Tribunal in proceedings numbers SC 17/24808 on 4 September 2018.

2.   Appeal allowed.

3.   Order that those orders be set aside and lieu thereof the proceedings be remitted to the Tribunal for final determination on the merits.

4.   Order that the defendant pay the plaintiffs’ costs of the proceedings.

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Amendments

14 June 2019 - Corrected order to September date.

Decision last updated: 14 June 2019