Ragless v IPA Holdings Pty Ltd (in Liquidation) & Carnie (Non Party) - [2012] SASC 203

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
RAGLESS v IPA HOLDINGS PTY LTD (IN LIQUIDATION) & CARNIE (NON PARTY)
[2012] SASC 203
Reasons for Decision of The Honourable Justice White
6 November 2012
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER - STATUTORY DERIVATIVE ACTION
The plaintiff was granted leave under s 237 of the Corporations Act 2011 (Cth) to bring proceedings on behalf of the defendant - the grant of leave was confirmed on appeal - the plaintiff commenced proceedings in the name of the defendant against the applicant and his company ("the 2009 Action") - the applicant and his company then issued a third party notice to the plaintiff and his company.
The applicant now seeks an order revoking the grant of leave, contending that the plaintiff is not acting in good faith or in the best intersts of the company, as required by s 237.
He contends the plaintiff has now caused the defendant to make claims of a materially different kind from those contemplated by him when seeking leave; that the plaintiff is conducting the 2009 Action in a partisan way and in pursuit of interests other than his interest as a shareholder; and that the plaintiff is conducting the 2009 Action for an ulterior motive based on personal animus and malice.
Held (dismissing the application):
(1) the present application is not an occasion to re-agitate complaints about the Master's decision to grant leave, nor to determine issues of construction of a deed which are at the heart of the issues to be determined in the 2009 Action (at [13]-[16], [41], [53]-[54]);
(2) the plaintiff obtained leave as a shareholder of the defendant, in accordance with s 236(1) of the Act, and the plaintiff retains standing in that capacity (at [44]);
(3) the claim which the defendant may have against the plaintiff and his company can be heard and determined in the third party action (at [51]-[52]);
(4) when derivative proceedings are to be brought for a proper purpose, the fact that the applicant for leave may be motivated by some personal animus is not decisive (at [57]);
(5) it has not been shown that the plaintiff is not acting in good faith nor in the best interests of the defendant in the 2009 Action (at [61]).
Corporations Act 2001 (Cth) s 236, s 237, s 241; Supreme Court Civil Rules 2006 (SA) r 242, referred to.
BP Chemicals ANZ Pty Ltd v Manildra Starches Pty Ltd [1997] FCA 1189; Chahwan v Euphoric Pty Ltd (2008) 227 FLR 43; Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; Iliopoulos v BM 2008 Pty Ltd (in liq) [2010] FCA 787; Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859; Pearl Coast Divers Pty Ltd (in liq) v Cossack Pearls Pty Ltd [2008] FCA 927; Ragless v IPA Holdings Pty Ltd (in liq) (2008) 254 LSJS 225; Swansson v Pratt [2002] NSWSC 583; West Beach Trust v Profile Events Pty Ltd [2008] SASC 221, considered.

RAGLESS v IPA HOLDINGS PTY LTD (IN LIQUIDATION) & CARNIE (NON PARTY)
[2012] SASC 203
Civil

WHITE J: This is a decision on an application for the revocation of leave previously granted by this Court to the plaintiff (Mr Ragless) to bring derivative proceedings.
On 2 July 2007 a Master granted leave to Mr Ragless under s 237 of the Corporations Act 2001 (Cth) to bring proceedings on behalf of the defendant (Holdings). The grant of leave was confirmed on appeal.[1]
[1] Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90; (2008) 254 LSJS 225.
Following the dismissal of the appeal, Mr Ragless commenced proceedings (the 2009 Action) in the name of Holdings against Mr Carnie and his company Onetemp Pty Ltd (Onetemp).
On 30 June 2009 Onetemp and Mr Carnie issued a third party notice to Mr Ragless and another entity IPA Manufacturing Pty Ltd (Manufacturing).
Progress in the 2009 Action has been regrettably slow. However, it seems that parties will in the near future be ready to proceed to trial.
Mr Carnie seeks an order revoking the grant of leave made on 2 July 2007. He contends that Mr Ragless is not acting in good faith nor in the best interests of Holdings as was required by s 237(2)(b) and (c) of the Corporations Act 2001 (Cth) for the grant of leave. Mr Carnie points in addition to decisions since that of the Full Court in 2008 to the effect that s 237 is not applicable in the case of companies in liquidation, as is the case with Holdings. He accepts that this is not an independent ground for revocation of the grant of leave but contends that it is a matter to be taken into account if the Court is satisfied that one or other of his two principal grounds is made out.
Preliminary Considerations
Mr Carnie’s submissions were made primarily on the basis that the grant of leave by the Master on 2 July 2007 was an interlocutory decision, so that the principles relating to the revocation by the Court of one of its earlier interlocutory decisions are pertinent. In retrospect, this issue should have received more attention at the hearing as it is by no means plain that the Master’s decision and order should be characterised as interlocutory in nature.
In New South Wales the contrary view is taken: Swansson v Pratt;[2] Fiduciary Ltd v Morningstar Research Pty Ltd;[3] and Maher v Honeysett & Maher Electrical Contractors.[4] On the other hand, the power vested in the Court by s 237(1) is to grant leave to bring proceedings or to intervene in proceedings. A decision concerning intervention is more obviously of an interlocutory kind than the former. If it is interlocutory, then a decision in the exercise of the same statutory power granting leave to bring proceedings may also be interlocutory. It may also be pertinent that s 237(1)(d) incorporates the standard for interlocutory injunctions.
[2] [2002] NSWSC 583 at [24].
[3] [2005] NSWSC 442 at [15].
[4] [2005] NSWSC 859 at [12].
Counsel for Mr Carnie adverted, albeit briefly, to r 242 of the Supreme Court Civil Rules 2006 which permits this Court, in limited circumstances, to vary or set aside a final judgment. His submissions did not indicate, however, a circumstance in which r 242 could be invoked in the present circumstances.
As the Corporations Act 2001 (Cth) applies nationally, the courts in the various States and Territories should apply a consistent approach to its construction and application. That indicates that this Court should follow the approach taken in the New South Wales cases. On the other hand, Mr Ragless did not contest the view that the Court was being asked to revoke one of its own previous interlocutory decisions nor the view that the principles relating to such a revocation are appropriate.
I consider that it is not necessary for me to reach a concluded view about the matter because, on the view most favourable to Mr Carnie, I am satisfied that his present application should fail. I will accordingly address his submissions on the basis that the Master’s original decision granting leave under s 237 was interlocutory in nature but without thereby implying that that is the proper view of the matter.
The approach of courts when asked to revoke or vary an interlocutory order of a substantive kind, such as the present, is well settled. I reviewed many of the authorities in West Beach Trust v Profile Events Pty Ltd.[5] The power to revoke or vary an interlocutory order of a substantive kind should be exercised only sparingly. An applicant must show some good reason for the Court to intervene. Good reason may be shown to exist when there has been some significant change of circumstances; when a party becomes aware of facts which he or she could not reasonably have known at the time of the original hearings; when there has been a change in the relevant law; or when it appears that the order is having an effect which is significantly different from that which was contemplated at the time when it was made. This approach avoids the injustices and inappropriate use of judicial time and resources which may arise if interlocutory orders can be re‑litigated at will. However, the overriding principle is that the Court should remain in control of its interlocutory orders and should vary or revoke such orders if the interests of justice require it to do so in the circumstances of a particular case.
[5] [2008] SASC 221 at [25]-[28].
One matter is, however, clear. The jurisdiction to revoke or vary an interlocutory order of a substantive kind should not be exercised when the real basis for the application is that the original order was wrongly made. The recourse available to a litigant making that contention is by means of appeal.[6]
[6] BP Chemicals ANZ Pty Ltd v Manildra Starches Pty Ltd [1997] FCA 1189.
This latter principle is particularly pertinent in the present circumstances as some of the submissions made on Mr Carnie’s behalf were to the effect that the Master’s decision of 2 July 2007 was erroneous. It is not open to Mr Carnie to advance a complaint of that kind presently. That was the complaint which he made on the appeal and which was rejected by the Full Court. The present application cannot become a vehicle by which Mr Carnie renews his complaints about the correctness of the original decision of the Master.
Further, the present application is not a vehicle for the review of decisions made by the Court in the 2009 Action. If Mr Carnie is dissatisfied with any of those decisions, his remedy lies in the 2009 Action itself, including by way of appeal. In line with the principle of judicial comity, the Court presently should proceed on the basis that the decisions made by the Masters in the 2009 Action, pursuant to which steps have been taken by Mr Ragless in the name of Holdings, were correct.
Several of Mr Carnie’s submissions depended for their force on the construction of a trust deed to which I will refer shortly. An application of the present kind is not the appropriate occasion on which the proper construction of the deed should be addressed.
Background
The background circumstances to Mr Carnie’s application are unusual. They are set out in some detail in the reasons of Debelle J which comprised the reasons of the Full Court.[7] Although the parties in the present proceedings referred to additional features of the background, I did not understand them to contend that the summary contained in the reasons of Debelle J is inaccurate in any material respect. Accordingly, the following summary is substantially derived from the reasons of Debelle J.
[7] Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90 at [2]-[18]; (2008) 254 LSJS 225 at 255-8.
Holdings was originally established as the vehicle by which Messrs Ragless and Carnie would conduct a joint venture manufacturing and selling pyrometers, ie, devices for measuring and controlling temperature in an industrial environment. They had originally conducted the business in partnership. In June 1982 they incorporated Holdings (then known as Industrial Pyrometers (Aust) Pty Ltd) to conduct the business as trustee for the Industrial Pyrometers (Aust) Pty Ltd Unit Trust (the IPA Trust). The IPA Trust has issued two units: one held by Manufacturing as trustee of the Ragless Family Trust, controlled by Mr Ragless; and the other held by Onetemp as trustee of the Carnie Family Trust, controlled by Mr Carnie. Onetemp has previously had different names, including the name “Industrial Pyrometers (Aust) Pty Ltd”, but it is convenient to refer to it throughout by its present name.
Holdings has a paid‑up capital of $2 represented by two fully paid ordinary shares of $1 each. One share is held by Mr Ragless and the other by Mr Carnie.
The IPA Trust Deed contemplated that the Trust would terminate in June 2003 (unless terminated earlier in accordance with the Deed (cl 10), but that did not occur). Upon termination of the IPA Trust, it was intended that the assets and goodwill of the business would be sold and the proceeds distributed to the unit holders (cl 12). Either unit holder was to be at liberty to purchase the assets and goodwill of the IPA Trust from the other.
However, late in 1990 Messrs Ragless and Carnie made a further agreement to which effect was given in February 1991. Mr Ragless and his company Manufacturing took over the manufacture of the sensors used in the pyrometers, and Mr Carnie and his company took over the sales of the sensors as well as the controllers which also formed part of the pyrometers. That division occurred in 1991 but the agreement concerning it was not reduced to writing until 25 June 1999 when the parties (and others) executed a deed (the 1999 Deed).
The 1999 Deed provided for the lease of Holdings manufacturing assets to Manufacturing and of its sales assets to Onetemp respectively, with a licence to each respectively to manufacture sensors and to sell sensors and controllers (cl 4). The consideration for the lease and licence was the payment by each company of $75,000 per annum to Holdings (cl 4.2). The 1999 Deed provided that the goodwill of the business was to remain with Holdings (cl 3).
This arrangement was to remain on foot for a period of two years from 1 July 1997 (cl 2.21). On the expiry of that term, either Holdings, Manufacturing or Onetemp could terminate the agreement on three months notice in writing (cl 7).
On 8 December 1999, just over five months after the Deed had been executed, Onetemp and Mr Carnie gave notice terminating the agreement.
Regrettably, apart from making provision for the sale of one division from Manufacturing to Onetemp or vice versa and provision for the sale of the combined business in certain circumstances, the 1999 Deed made no provision for the consequences of termination.
The notice given by Onetemp and Mr Carnie expired on 8 March 2000. Messrs Ragless and Carnie could then have combined the two separate businesses into one to be conducted in partnership or to be sold, or to continue their separate businesses. In the events which happened, they continued to conduct their separate businesses and that led to disputes. Mr Ragless asserts that he and Mr Carnie had agreed that the assets were to be leased to each division and thus, on termination, the two divisions were to merge so that the business could be sold as a whole unless the parties agreed otherwise. Mr Carnie, on the other hand, says that all the assets other than goodwill were transferred to each division.
On 1 June 2003 the IPA Trust vested so that it was necessary for the business to be wound up pursuant to the terms of the Trust Deed. That has not occurred and this has led to further disputes.
On 28 November 2005, this Court made an order on the application of Mr Ragless winding up Holdings and appointing a liquidator. The liquidation is not yet complete.
In support of Mr Ragless’ application for leave under s 237, his solicitor exhibited a draft of the proposed statement of claim in the proposed derivative proceedings. The reasons of Debelle J in the judgment of the Full Court contain a summary of that statement of claim. Part of Mr Carnie’s present complaint is that Mr Ragless has now caused Holdings to make claims of a materially different kind from those which he foreshadowed at the time of his application for leave, as evidenced in the statement of claim. That being so, it is convenient to repeat the summary given by Debelle J:
Ragless claims that Holdings has claims against Onetemp in relation to breaches of the Deed made on 25 June 1999 and, in particular, for the failure of Onetemp to return sales division assets to it and the failure of Onetemp to account for profits realised from the sales division assets while it unlawfully retained possession of those assets contrary to the terms of the Deed. The statement of claim alleges that it was an implied term of the agreement made in 1991 that on termination Onetemp was to return the sales assets to Holdings, cease using the logo and to cease using the words “Industrial” or “Pyrometers” or “IPA” in its name and was to cease using the intellectual property referred to in the Deed and to cease selling all sensors manufactured by Holdings. It alleges that, on the termination becoming effective, Onetemp ceased to trade with Manufacturing causing loss to Manufacturing. It further alleges that Onetemp was and continues to act in breach of the agreement as evidenced by the 1999 Deed. It alleges that since June 2000 neither Manufacturing nor Onetemp have paid the lease and fees payable pursuant to clause 10 of the 1999 Deed thereby causing a loss to Holdings. It then recites events allegedly demonstrating how Ragless and Carnie are unable to agree as to the management of Holdings. Manufacturing seeks orders restraining Onetemp from using the sales assets, using the logo and using intellectual property and selling sensors. It further claims damages for breaches of the agreement evidenced by the 1999 Deed and under the Trade Practices Act 1974 (Cth). Ragless acknowledges that Manufacturing has a liability to return manufacturing assets to Holdings and to account for profits realised while it had possession of those assets contrary to the terms of the Deed. These claims raise issues as to the proper interpretation of the Trust Deed and the 1999 Deed.[8]
(Emphasis added)
[8] Ibid at [18]; 228.
Mr Carnie’s Submissions
Mr Carnie submits that Mr Ragless is conducting the 2009 Action in a partisan way and in pursuit of the interests of the Ragless Family Trust, rather than in his capacity as a shareholder. He also submits that Mr Ragless is conducting the 2009 Action on a basis which is markedly different from that which he put before the Court when applying for the grant of leave under s 237.
As already seen, under the 1999 Deed, Holdings leased the “manufacturing assets” to Manufacturing, and the “sales assets” to Onetemp. Each of these expressions was defined to include the goodwill associated with products specified in a Schedule to the Deed “and any additional similar products”. In the 2009 Action, Mr Ragless has caused Holdings to plead an expansive view of the expression “any additional similar products” in relation to the sales products leased to Onetemp.
When seeking the grant of leave, Mr Ragless accepted that Manufacturing would have to return the “manufacturing assets” and the goodwill associated with them to Holdings, in the same manner that he sought from Onetemp. He also accepted that Manufacturing would have to account for the profits which it had realised from its possession of the manufacturing assets after the termination of the Deed. Mr Ragless’ now contends that there are no “manufacturing assets” for which Manufacturing or he must account. Mr Carnie submits that this is a radical departure from the basis put forward by Mr Ragless when seeking the grant of leave and has the effect of undermining the express basis upon which the Court acted when granting leave.
Next, Mr Carnie contends that Mr Ragless had “arrogated to himself, in a quite partisan way, the right to identify any additional similar product” as evidenced by his instructions to the chartered accountant from whom he had sought an opinion of the value of the goodwill associated with the sales assets.
Mr Carnie drew attention to the difference between the Holdings’ pleaded case, on the one hand, and the instructions which Mr Ragless had given to the chartered accountant, on the other.
In the sixth statement of claim filed on 2 September 2011 (6SC), Mr Ragless caused Holdings to make the following plea:
[30]By reason of the matters pleaded in paragraphs 23 to 29 above Holdings has suffered loss and damage particulars of which will be provided after discovery and inspection through the provision of an expert’s report for the following reasons:
(a) The plaintiff’s claim for damages is comprised of two elements:
(i)The current capital value of the Sales Assets, being the assets leased and licensed to Onetemp by the 1999 Contract and/or the 1999 Deed; and
(ii)The income that Holdings would have received from the Sales Assets had they been returned when demanded in accordance with the 1999 Contract and/or the 1999 Deed.
(b) In the alternative to (a)(ii) the plaintiff claims an account of profits by Onetemp for the profits it enjoyed from the use of the Sales Assets after the same were required to be returned to Holdings pursuant to the 1999 Contract and/or the 1999 Deed.
…
Paragraph 30 of the 6SC goes on to foreshadow identification of the current value of the “Sales Assets” by a methodology which, with respect, is not entirely clear. The 6SC seems to contemplate, however, that the goodwill associated with the Sales Assets would be a portion of the overall goodwill of the business of Onetemp.

It now seems that Mr Ragless contemplates Holdings presenting a more broad‑ranging claim than that foreshadowed in [30] of the 6SC. He caused instructions to be given to the chartered accountant retained to provide an expert opinion on the basis that “100 per cent of the products sold by Onetemp Pty Ltd during [the period from March 2001 to August 2008] are either referred to in [the Schedule of Sales Assets] or are additional similar products to those referred to in that Schedule”. The chartered accountant has provided a report dated 17 October 2011 in which he made the assumption that the goodwill of Onetemp is entirely attributable to the Sales Assets specified in the 1999 Deed.
Mr Carnie complains about both the way in which the 6SC has been framed and the basis on which the chartered accountant’s report has been prepared. It involves, he contends, not only a misconstruction of the 1999 Deed, but a misconstruction which wholly favours Mr Ragless’ interests at the expense of his own. He submits that this demonstrates Mr Ragless’ partisanship and is inconsistent with the impartiality with which derivative actions under s 237 are to be conducted.
These circumstances also led Mr Carnie to submit that the 2009 Action is not being pursued by Mr Ragless in his capacity as a shareholder but instead is being pursued for the benefit of the Ragless Family Trust.
Finally, Mr Carnie referred to some correspondence sent to him by Mr Ragless which he submits indicates that the latter is motivated by malice or, at least, by an ulterior motive to inflict harm upon him. Mr Ragless accepted, as I understood it, that he was the author of the communications in question.
On the basis of these matters, Mr Carnie contends that, contrary to s 237(2)(b), Mr Ragless is not acting in good faith and, in the alternative, contrary to s 237(2)(c), the 2009 Action is not in the best interests of Holdings.
Consideration
For the reasons already given, I consider that the present application is not an occasion to revisit the correctness of the Master’s decision of 2 July 2007. Mr Carnie’s remedy in that respect was the one which he exercised at the time, namely, an appeal which was heard by the Full Court. It is not open to Mr Carnie to have the Court, on the present application, review the correctness of the Master’s decision or that of the Full Court.
That means that the submissions made by Mr Carnie to the effect that the previous decisions of the Court are erroneous need not be considered further. However, that does not mean that it is not open to Mr Carnie to point to some change of circumstance making the continuation of the grant of leave inappropriate.
Who Will Benefit?
It is well established that any benefit to be obtained by an applicant for a grant of leave under s 237 must be obtained in the applicant’s capacity as a person with standing under s 236(1)(a), in this case, as a shareholder and not in some other capacity. Palmer J stated the position in Swansson v Pratt:[9]
[42]If a wrong appears to have been done to a company and those in control refuse to take proceedings to redress it, the Court should permit a derivative action to be instituted only by those within the categories allowed by s.236(1) who would suffer a real and substantive injury if the action were not permitted. The injury must be necessarily dependent upon or connected with the applicant’s status as a current or former shareholder or director and the remedy afforded by the derivative action must be reasonably capable of redressing the injury.
[43]Further, if an applicant for leave under s.237 seeks by the derivative action to receive a benefit which, in good conscience, he or she should not receive, then the application will not be made in good faith even though the company itself stands to benefit if the derivative action is successful. Such a benefit would include, for example, a double recovery by the applicant for a wrong suffered or recompense for a wrongful act inflicted upon the company in which the applicant was a direct and knowing participant with the proposed defendant in the derivative action. In such a case the law would not permit the applicant to derive a benefit from his or her own wrongdoing.
See also Chahwan v Euphoric Pty Ltd.[10]
[9] [2002] NSWSC 583.
[10] [2008] NSWCA 52 at [87]; (2008) 227 FLR 43 at 63.
The capacity in which Mr Ragless obtained the grant of leave in 2007 has not changed since the decisions of the Master or the Full Court. Both the Master and the Full Court referred to Mr Ragless’ shareholding in Holdings and to the latter’s capacity as Trustee of the IPA Trust. Mr Carnie’s submission that Mr Ragless should be regarded as pursuing the derivative action for the benefit of the Ragless Family Trust amounts, in effect, to an attempt to re‑agitate on the present application an issue upon which he did not succeed previously. For the reasons previously given, I hold that it is not open to him to do so.
The Liability of Manufacturing to Account
There does appear to have been some change in Mr Ragless’ position since the grant of leave with respect to the accounting by Manufacturing for the manufacturing assets and the goodwill associated with them. However, that change of position is not as marked as the submissions by Mr Carnie suggested. In any event, the potential liability of Mr Ragless and Manufacturing to return manufacturing assets and to account for any profits derived from them will, irrespective of any view of Mr Ragless, be heard and determined in the 2009 Action.
The possible claims which Holdings may have against Manufacturing were addressed directly by both the Master and the Full Court. In his reasons, the Master recounted the following submission from Mr Ragless’ then counsel:
Mr Ragless’ position … has been and continues to be … that he is ready, willing and able to account to Holdings for the manufacturing assets as they are known on the basis that he shouldn’t have to do that until the claim by Holdings against Mr Carnie has been resolved. And the reason for that is that to the extent that Mr Ragless’ company still holds manufacturing assets he’s happy to account for them and determine and deal with them in accordance with the terms of the deed. But to do so now or to do so at any time before Mr Carnie does so would effectively put those assets at risk if Mr [Ragless’] company Manufacturing simply returned those assets into the control of Holdings therefore the liquidator in isolation such that they couldn’t be combined with the sales assets to come together as a whole and be sold for value, those assets would effectively wither on the vine and be rendered valueless. So we accept that we have that obligation but what we say is that it would be inappropriate for us to do it outside of a solution of the claim that Holdings has against Mr Carnie’s company.
(Emphasis added)
The Master concluded that while it may be preferable for the proposed derivative action to be brought instead by the liquidator of Holdings that was unlikely to occur. He thought it appropriate, however, to grant the leave to Mr Ragless to bring the proceedings because, if successful, the proceedings would result in Holdings receiving a benefit which would be in the hands of the liquidator. It was to be expected that the liquidator would then utilise those funds to the necessary degree to recover from Mr Ragless or Manufacturing any amount which the liquidator believed to be due by Mr Ragless or Manufacturing to Holdings.
In other words, the Master did not contemplate at the time of granting leave that any claim which Holdings may have against Manufacturing would be dealt with in the same proceedings. He contemplated, to the extent necessary, a second claim by the liquidator against Manufacturing. Any such claim would depend on the view which the liquidator took about the recoverability of assets or profits from Mr Ragless or Manufacturing.
I note that in his reasons, Debelle J recorded an acknowledgement by Mr Ragless that Manufacturing had a liability to return manufacturing assets to Holdings and to account for profits which it had realised while it was in possession of those assets contrary to the terms of the Deed.[11]
[11] Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90 at [18]; (2008) 254 LSJS 225 at 228.
Unlike the Master, Debelle J considered that the claim which Holdings may have against Ragless and Manufacturing could be heard and determined in the derivative action. He referred first to the power of the Court under s 241(1)(d) of the Corporations Act 2001 (Cth) to appoint an independent person to investigate and report to the Court on the financial affairs of Holdings. Debelle J then continued:
… The court has power to add Carnie as a defendant. Carnie will be able to bring a cross-claim against Ragless and Manufacturing. These powers combined with the other wide powers available under s 241 will enable the court to address any issues deriving from the conflict of interest which Ragless has and will enable it to determine the matter fairly between the two warring shareholders in Holdings. Those powers will enable the court to order that Ragless and Manufacturing will account to Holdings in accordance with the undertaking Ragless has given.[12]
[12] Ibid at [33]; 232.
In the events that have happened, Onetemp and Mr Carnie have commenced third party proceedings against Mr Ragless and Manufacturing. In those proceedings they seek, amongst other things, an order that Manufacturing deliver up to Holdings the manufacturing operations, damages for breach of the 1991 contract and/or an order that Manufacturing account for the profits which it has derived from its manufacturing operations since 8 March 2000 (cl 18). In effect Onetemp and Mr Carnie thereby assert a liability of Mr Ragless and Manufacturing to Holdings which corresponds to that asserted by Holdings against Onetemp.
I do not overlook that Mr Ragless acknowledges that he now takes the view that Manufacturing no longer has any of the manufacturing assets leased by Holdings to it. He gives an explanation for that view which, in the main, derives from a construction of the 1999 Deed. It is not necessary for present purposes to consider the plausibility of that construction. It is sufficient to note that, even if not in the manner contemplated by the Master’s original decision, the potential liability of Mr Ragless and Manufacturing to Holdings will be heard and determined as a consequence of the grant of leave under s 237. This being so, Mr Ragless’ changed view about the existence, and possible extent, of a liability of Manufacturing to Holdings does not warrant a revocation of the grant of leave.
Identification of “Additional Similar Products”
Mr Carnie’s contention that Mr Ragless had “arrogated to himself … the right to identify any additional similar product” appeared, in part, to be in the nature of an advocate’s flourish. In other respects, it turned on the proper construction of the 1999 Deed. An application of the present kind is not an appropriate occasion to determine such an issue. Amongst other things, the proper construction of the 1999 Deed is likely to require an understanding of the factual matrix in which it was made, something which is not presently possible.
It is true that Mr Ragless has instructed a chartered accountant to provide a valuation on a particular basis, but that does not amount to an assertion that he is entitled under the Deed to determine the scope of the assets coming within the description “any additional similar products”. That is an issue which will have to be determined in the 2009 Action having regard to the proper construction of the 1999 Deed and matters of fact and circumstance regarding the sales assets to which it refers.
Personal Animus
It may well be the case that Mr Ragless is prompted to bring the action, at least in part, by some personal animus towards Mr Carnie. The differences between the plea made at [30] of the 6SC and the instructions given to the chartered accountant provide some evidence that this may be so. It may well be that Mr Ragless’ apparent endeavour to maximise the liability of Onetemp while minimising that of Manufacturing, is another such indication. However, the presence of such animus, if it exists, does not make a grant of leave inappropriate. Palmer J referred to this circumstance in Swansson v Pratt.[13]
To take another example: a derivative action sought to be instituted by a current shareholder for the purpose of restoring value to his or her shares in the company would not be an abuse of process even if the applicant is spurred on by intense personal animosity, even malice, against the defendant: it is not the law that only a plaintiff who feels goodwill towards a defendant is entitled to sue …[14]
Brereton J made a similar observation in Maher v Honeysett & Maher Electrical Contractors:[15]
Moreover, the existence in an applicant of a personal interest in the outcome of a proposed derivative action, or even of a personal animus against the company, or other members of it, cannot be significant, let alone decisive; they are usual concomitants of the types of disputes which lead to derivative actions, and few if any such actions would be brought but for personal interest on the part of the relevant applicant and in the absence of animus against the company or other shareholders.[16]
[13] [2002] NSWSC 583.
[14] Ibid at [41].
[15] [2005] NSWSC 859.
[16] Ibid at [45].
I respectfully agree with the observations of each of Palmer J and Brereton J.
In those cases in which the proceedings are otherwise brought for a proper purpose, the existence in the applicant of some personal animus is immaterial. There is always the possibility that personal animus, when it exists, may influence to some extent the way in which the derivative proceedings are conducted.
There is no reason to suppose that the Masters who have had the management of the 2009 Action have not been aware of the antipathy which apparently exists between Messrs Ragless and Carnie. There is no reason to suppose they have not made the various interlocutory decisions and orders without that awareness. In those circumstances, it would be a very significant step for the Court on the present application to hold that such personal animus as Mr Ragless may have displayed warrants the revocation of the grant of leave under s 237.
The correspondence from Mr Ragless to Mr Carnie is also material to Mr Ragless’ state of mind and purpose in the proceedings.
It is not necessary to describe the content of the correspondence in any detail. It is sufficient to say that at least some of the correspondence provides a reasonable basis for the assertions which Mr Carnie makes with respect to the animus of Mr Ragless. However, five of the seven communications upon which Mr Carnie relies were made before the Full Court decision. It was open to Mr Carnie to adduce this evidence in the proceedings before the Master and, possibly, on the appeal. His omission to do so has not been explained. The remaining two communications may indicate some pleasure by Mr Ragless at the successes which he perceived he had had in the interlocutory proceedings in the 2009 Action but they cannot reasonably be understood as indicative of an ulterior motive for the whole of the 2009 Action, for example, to cause Mr Carnie embarrassment, personal pain or poverty. Nor can they reasonably be understood as indicating an absence of a belief by Mr Ragless that Holdings has a good cause of action against Onetemp.
Conclusion
For these reasons, I consider that Mr Carnie has not made good his claims that Mr Ragless is not acting in good faith and that the 2009 Action is not in the best interests of Holdings. That being so, it is unnecessary to address Mr Carnie’s submissions concerning the inapplicability of s 237 to companies in liquidation or the exercise of the Court’s inherent power in circumstances such as the present.[17]
[17] See Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 227 FLR 43; Pearl Coast Divers Pty Ltd (in liq) v Cossack Pearls Pty Ltd [2008] FCA 927; Iliopoulos v BM2008 Pty Ltd (in liq) [2010] FCA 787.
Mr Carnie’s application for revocation of the grant of leave under s 237 is dismissed.