Re 383 Latrobe Street Development Pty Ltd
[2021] VSC 655
•6 October 2021 (Ex tempore; written reasons published 7 October 2021)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 04242
IN THE MATTER OF 383 LATROBE STREET DEVELOPMENT PTY LTD (ACN 612 131 290)
BETWEEN:
| ACT INTERNATIONAL INVESTMENT PTY LTD (ACN 611 758 340) | Plaintiff |
| v | |
| QI QI LI (INCLUDING AS TRUSTEE FOR THE LI FAMILY TRUST NO 1) | Defendant |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 October 2021 |
DATE OF JUDGMENT: | 6 October 2021 (Ex tempore; written reasons published 7 October 2021) |
CASE MAY BE CITED AS: | Re 383 Latrobe Street Development Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 655 |
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CORPORATIONS – Statutory derivative action – Application for leave to bring proceedings – Sections 236 and 237 of the Corporations Act 2001 (Cth) – General principles – Good faith – Best interests of the company – Whether there is a serious question to be tried – Costs protection – Undertakings – Animosity between parties – Related proceedings involving similar facts – Change of position by defendant to consent – Court’s task evaluative in nature – Consent position does not relieve the court of its statutory obligation.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Hay QC with Ms N Papaleo | Corrs Chambers Westgarth |
| For the Defendant | Ms J Watson | Piper Alderman |
HIS HONOUR:
Introduction
This is an application by ACT International Investment Pty Ltd (ACT) for leave pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth) (Act) to bring a proceeding (Further Proceeding) against the defendant, Qi Qi Li (Mr Li), on behalf of 383 La Trobe Street Development Pty Ltd (Company).
The application arises in the context of what was effectively a joint venture project that was to be completed by the Company as the joint venture vehicle. The project involved the purchase, development and sale of the property at 383 La Trobe Street, Melbourne (Property). As things transpired the Property was on sold at a substantial profit before it was developed. The shareholders of the Company are ACT and Mr Li.
The claims sought to be made in the Further Proceeding relate to Mr Li’s conduct as a director of the Company and, among other things, alleged breaches of his director’s duties. The duties said to be owed to the Company and breached are connected with allegedly unauthorised payments and other transactions effected by Mr Li or at his direction. The claims are set out in the proposed statement of claim provided to Mr Li’s solicitors on 23 September 2021, a further version of which was provided to the court and Mr Li’s solicitors on 1 October 2021 (Proposed Statement of Claim).
Similar breach of shareholder agreement claims are made in an existing proceeding in this court brought by ACT (as opposed to the Company) against Mr Li (ACT Proceeding).
ACT and Mr Li each filed extensive affidavit material and submissions, with the application book exceeding 2000 pages of material. I have considered and had regard to the evidence, the submissions, the agreed chronology and the Proposed Statement of Claim. This statement of claim differs in some respects to the earlier iteration in the evidence but for present purposes that is of no importance.
I have also had regard to the relevant principles and observations addressed in various authorities and those referred to in the submissions, many aspects of which I addressed in the decisions in Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd,[1] Li v Dao,[2] In the matter of ACN 091 518 302 Pty Ltd (In Liquidation) (formerly Pinnacle Investments Pty Ltd),[3] and In the matter of Orico Australia Pty Ltd.[4] I refer also to the Court of Appeal’s decision in Urban v Junior Academy ELC Pty Ltd[5] regarding the evaluative nature of the statutory exercise imposed upon the court, together with Robson J’s decision at first instance the subject of that appeal, Re Junior Academy ELC Pty Ltd (No 3).[6] In the context of undertakings and indemnities regarding costs and expenses to provide protection to a company the subject of derivative leave applications, this topic was recently addressed by Button J in Re Woodbine Project P/L (ACN 609 722 509).[7]
[1][2018] VSC 633.
[2][2018] VSC 530.
[3][2019] VSC 699.
[4][2019] VSC 313.
[5][2019] VSCA 247.
[6][2019] VSC 161.
[7][2021] VSC 617.
I have had regard to the principles referred to in all of these decisions[8] and although it is not necessary to recite them here, they have been applied in the manner that will be apparent from these reasons.
[8]And the authorities there cited.
Although the application for leave was initially contested by Mr Li, that position changed shortly before this hearing, and the parties now seek orders by consent granting ACT leave to bring the Further Proceeding against Mr Li on behalf of the Company, as well as related procedural directions. This change of position by Mr Li does not detract from his denial of the substance of the claims sought to be made against him.
Whilst this consent position carries with it at least an implicit acceptance by the parties that the grant of leave is appropriate in the circumstances, it does not relieve the court of the evaluative judicial task that s 237 of the Act imposes upon it. However, in the circumstances of this case it does enable me to state my reasons more briefly than might otherwise have been the case, noting also that the history of the application now necessitates that it be dealt with somewhat expeditiously.
Having regard to the matters I have referred to, and for the reasons I outline below, I have concluded that it is appropriate to grant ACT leave to bring the claims the subject of the Proposed Statement of Claim against Mr Li on behalf of the Company in the Further Proceeding. This is because the relevant criteria in s 237 of the Act have been satisfied, meaning that leave must be granted.
Background
I turn to some brief background derived from the evidence, submissions and neutrally expressed agreed chronology, the greater detail of which need not be set out.
Sterling Global Property Group (SG Property) entered into a contract of sale to purchase the Property on 17 July 2015. Mr Li is a director and sole shareholder of that company. Brandon Yeoh (Mr Yeoh) is also a director of SG Property.
Mr Li’s original plan was to demolish the building and to build a new luxury hotel and apartment building. Sterling Global Pty Ltd (Sterling Global), a different company, was registered as a company on 10 September 2015. Mr Li is the director, secretary and sole shareholder of that company, and Mr Yeoh is also a director of Sterling Global.
ACT was incorporated on 8 April 2016. Mingyan Fu (Ms Fu) is the sole director of ACT, and the shares are in turn owned by a company in which Mr Zhang and Mr Tang are the stakeholders. Mr Tang is the husband of Ms Fu, and Mr Zhang is the husband of Ms Wu.
The Company was incorporated on 29 April 2016. The directors are Ms Fu, Mr Li, and Ms Wu. The shareholders of the Company are Mr Li as to 40%, and ACT as to 60%.
On 2 May 2016, SG Property nominated the Company as the substitute purchaser of the Property, with settlement of the Property due to take place in January 2017.
In November 2016, ACT, Mr Li and the Company entered into a shareholders’ agreement in order to set out the agreed terms regarding the conduct of the relationship and the joint venture.
On 17 January 2017, the purchase of the Property settled and the Company became the registered proprietor. The Company paid $70.7 million for the Property, plus stamp duty, titles office fees, and other registration and related fees.
On 26 February 2018, the shareholders of the Company executed a resolution to sell (rather than develop) the Property for no less than $110 million, exclusive of GST, and authorised the board of directors to do on behalf of the Company all things necessary and desirable to implement, effect or complete the sale of the Property.
On 31 August 2018, Mirvac executed a contract of sale to purchase the Property from the Company and on 3 September 2018 the settlement of the sale of the Property to Mirvac was completed.
The sale proceeds after a bank loan and various expenses were paid by the Company were $73,562,961.59 (Sale Proceeds), and they were held by Piper Alderman solicitors, who it appears were then acting for at least Mr Li.
On 5 September 2018, Mr Li instructed Piper Alderman to make two payments of the Sale Proceeds as follows:
(a) the sum of $15 million to a bank account held by Ralston Street Development Pty Ltd, which it appears is a company associated with Mr Li; and
(b) the sum of $58,562,961.59 into a bank account in the name of Sterling Global
(Sale Proceeds Transfers).
In September 2018, ACT commenced proceedings in the Supreme Court of New South Wales, and sought and obtained an urgent injunction restraining Mr Li dealing with the Sale Proceeds. That proceeding was transferred to this court and became the ACT Proceeding. Ms Fu, Ms Wu, Mr Li, the Company and Sterling Global are also parties to the ACT Proceeding.
On about 10 October 2018, Mr Li caused the Sale Proceeds to be paid into a bank account in the joint names of Fortis Law, the then solicitors for ACT, and Piper Alderman, the solicitors for Mr Li, subject to further agreement or court order.
In the ACT Proceeding ACT alleges, among other things, that Mr Li breached the shareholders’ agreement in various respects and seeks damages, repayment of an alleged loan, and other orders associated with the distribution of the Sale Proceeds. The alleged breaches by Mr Li include allegations regarding unauthorised transactions that it is alleged he undertook, or caused the Company to undertake, including the following:
(a) On 17 January 2017, the Company paid Isotope Investments Pty Ltd (Isotope) the sum of $777,700 (Isotope Commission) in payment of an invoice issued by Isotope to the Company for commission for the Property purchase. Isotope is said to be a company associated with Mr Yeoh.
(b) From 31 December 2016 to 1 July 2017, SG Property purported to charge Sterling Global the sum of $1.5 million in respect of management fees said to be owing in relation to the development of the Property, which it is said Sterling Global seeks to pass onto the Company in the ACT Proceeding by way of its counterclaim.
(c) On 3 September 2018, the Company paid SG Property the sum of $1,227,148.47 (SG Property Payment) in payment of an invoice issued by SG Property to the Company in respect of the reimbursement of development costs for the Property. This is said to have included an amount said by Mr Li to be owed to AJN Architects in the sum of $1,059,456.04 (AJN Architects Fee).
(d) On 5 September 2018, Mr Li caused the Sale Proceeds Transfers to be made.
Mr Li denies that he is liable as alleged by ACT or at all. In substance, Mr Li contends that any payments made by the Company were authorised or agreed, and that Sterling Global is entitled to $1.25 million in respect of management fees said to be owing for the 2015–16 period, and a further substantial asset management fee totalling millions of dollars, which is claimed by way of quantum meruit in respect of the period from 2017 (collectively, Remaining Management Fees).
Sterling Global has brought a counterclaim in the ACT Proceeding in respect of the Remaining Management Fees, and Mr Li has brought a counterclaim seeking that the Company be wound up on the just and equitable ground. All parties have to date contended that if the Company is to be wound up it should not occur until after the hearing and determination of the other claims and counterclaims in the ACT Proceeding.
The breach of duty and related claims in the Proposed Statement of Claim for the Further Proceeding also relate to the Isotope Commission, the Remaining Management Fees, the SG Property Payment, the AJN Architects Fee, and the Sale Proceeds Transfers. The relevant underlying substantial factual allegations regarding Mr Li’s conduct in each of the ACT Proceeding and in the Proposed Statement of Claim in the Further Proceeding are essentially the same.
Sections 236 and 237 of the Act
Section 236 of the Act provides as follows:[9]
[9]Notes omitted.
(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a)the person is:
(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii)an officer or former officer of the company; and
(b)the person is acting with leave granted under section 237.
(2)Proceedings brought on behalf of a company must be brought in the company’s name.
(3)The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.
Sections 237(1) and (2) of the Act are in the following terms:[10]
[10]Sections 237(3) and (4) of the Act are not relevant for present purposes.
(1)A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
(2)The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and
(e)either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.
As mentioned, the principles relevant to the application in this case of ss 236 and 237 of the Act have been addressed in the authorities earlier referred to and it is not necessary to recite them. It was also common ground and non-controversial that it is necessary for the plaintiff to establish that the relevant criteria in s 237 of the Act are satisfied. If it does so then the court is bound to grant the leave sought.
Standing
It was common ground that ACT is the majority shareholder of the Company, that it is a member, and that it has standing pursuant to s 236 of the Act to bring the application.
Section 237(2)(a) – Probable that the Company will not bring the proceeding itself
Mr Li concedes that it is probable that the Company will not bring the proceeding itself, which was a proper concession to make. It is also established by the evidence in any event. Clause 7.2 of the shareholders’ agreement requires unanimous approval of the shareholders for, among other things, the Company to institute and proceed with any significant litigation. It is therefore within the power of Mr Li to prevent the Company from bringing the proceeding of its own accord.
Given the claims sought to be pursued in the Proposed Statement of Claim in the Further Proceeding it is apparent that this constitutes ‘significant litigation’, which was not a contested point between the parties. It is also apparent that Mr Li has not been, and will not voluntarily be, a party to a board resolution to bring the proposed claims against himself, which he disputes and denies.
I am satisfied that the criterion in s 237(2)(a) of the Act is satisfied.
Section 237(2)(b) – Acting in good faith
I turn to the acting in good faith criterion in s 237(2)(b) of the Act. Having regard to and applying the principles relevant to the issue of good faith referred to in the authorities that I have mentioned, I am satisfied that, insofar as ACT seeks to bring the proposed claims against Mr Li in the Further Proceeding, it is acting in good faith. For the avoidance of doubt, this is not a finding of good faith or otherwise of any greater breadth in relation to any other aspect of ACT’s conduct. It is a finding only in respect of the arguably confined good faith issue that is required to be considered by the court for the purpose of this application.
I mention below the matters supporting my conclusion regarding good faith, noting also that a number of considerations raised are relevant to other aspects of the criteria to be considered under s 237 of the Act.
The underlying factual allegations are broadly the same as some of those made by ACT in the ACT Proceeding by its second further amended statement of claim in that proceeding. This was prepared and signed off by junior and senior counsel and ACT’s solicitors from the platform that they are satisfied that there is a proper basis for making those allegations. They are also the legal representatives for ACT on this application and will be acting for the Company in the Further Proceeding against Mr Li. It may also be inferred that the statement of claim in the Further Proceeding will be certified as having a proper basis as required by the terms of the Civil Procedure Act 2010 (Vic) (CPA).
Next, in broad terms the proposed claim seeks repayment to the Company of substantial sums of money. ACT has a real interest in the Company and seeks to recover through the Further Proceeding amounts that will benefit the Company if the claims are wholly or partially successful. In turn this will directly benefit ACT because of its 60% shareholding, noting also that proportionate benefits will flow to Mr Li by reason of his 40% shareholding in the Company. Plainly enough, if successful, the proposed claims can be seen to be directed at restoring value to the shareholding of the two members of the Company.
Although there is considerable animosity between the stakeholders in ACT and Mr Li, this of itself and in the particular circumstances of this case does not relevantly undermine the good faith consideration or my conclusion in relation to it. It has not been demonstrated on the evidence for the purposes of this application that the proposed claims are brought for an improper purpose or constitute an abuse of process. As other cases have well illustrated, animosity between directors and shareholders in the context of derivative leave applications is far from unusual.
Although each party characterises the relevant conduct of the other party in strongly adverse terms, it is not possible for the court on this application to reach any conclusions regarding these issues. Further, even if it is the case that ACT’s conduct has been questionable in the dealings between the parties, the focus of the application here is on ACT acting in good faith in seeking to pursue the proposed claims rather than a good faith enquiry at large, except of course to the extent that any broader conduct is relevant to the statutory criterion.
Whilst s 237(2)(d) of the Act embodies a separate criterion of the existence of a serious question to be tried, that issue is also relevant in this case to the good faith requirement. Having regard to the extensive affidavit evidence, the terms of the Proposed Statement of Claim, Mr Li’s position as a director of the Company, the contested history of events as reflected in the affidavits of the stakeholders, and the terms of the shareholders’ deed, I am satisfied that there is a serious question to be tried in relation to each of the primary issues raised in the Proposed Statement of Claim.
Those issues include whether Mr Li breached statutory or fiduciary duties owed to the Company by reason of his alleged conduct in relation to the Isotope Commission, the SG Property Payment, the Remaining Management Fees, the AJN Architects Fee, and the Sale Proceeds Transfers.
It is apparent from the affidavit material and the relevant paragraphs in the defence to the second further amended statement of claim in the ACT Proceeding that there will be many hotly contested issues of fact regarding the matters that I have mentioned. The parties are correct that it is neither possible, necessary nor desirable to seek to address and determine the competing factual positions on this application, noting also that substantial issues of credit and honesty on the part of all of those involved appear to be raised in the material. The determination of such matters is for another day.
Whilst it may be true that if Mr Li’s version of events is accepted there might be good answers to one or more of the allegations made, this cannot and should not be the subject of any determination on this application. In part this is because it is also the case that if the evidence of Ms Fu, Mr Zhang and Mr Tang is accepted, it is apparent that one or more of the claims made may succeed. I am also cognisant of the terms of the shareholders’ deed, aspects of which prima facie support at least part of ACT’s position on behalf of the Company. As I have said, the existence of a serious question to be tried in respect of the proposed claims has been established.
In the circumstances of this case, I do not accept that the overlap between the underlying factual substratum with some of the parallel allegations in the ACT Proceeding materially detracts from ACT’s application, or its position on this application regarding good faith or any other relevant criteria. It does not in my view speak of or illustrate an inappropriate duplication of proceedings. ACT is also correct to point out that, although the relevant underlying factual allegations are the same, there is a material difference between a shareholder pursuing claims under a shareholders’ agreement and the Company pursuing claims for breaches of duty owed to it by a director that are founded upon the same or similar underlying factual matters. It is also to be remembered that ACT does not have standing to pursue directly against Mr Li breach of duty claims in respect of duties Mr Li owes to the Company.
Another matter is that it is highly likely, if not inevitable, that the ACT Proceeding and the Further Proceeding will be managed and heard together. Given the substantive factual overlap this means that any additional cost burdens for the Company in the litigation should be limited, although of course this remains to be seen.
It is also to be observed that the joint position of the parties in the ACT Proceeding to date is that the legal representatives acting for ACT through instructions from its stakeholders are regarded as being the appropriate people to act in the Company’s interests in that proceeding, including in relation to the substantial counterclaim brought by Sterling Global. Although it was not a matter addressed by the parties, it may be noted that the facts here are different to those considered by the Court of Appeal in Urban v Junior Academy ELC Pty Ltd.[11] I add further that, to date, all of the parties in the ACT Proceeding have resisted having the just and equitable winding up issue determined before the determination of the other issues in the ACT Proceeding.
[11][2019] VSCA 247. No doubt those acting for the Company will need to remain alive to the issue of any potential conflict should it arise and act appropriately having regard to their respective ethical and other obligations.
On a different matter, whilst it is correct that there has been some delay in bringing this application, the prospect of doing so was raised in the context of the ACT Proceeding at an earlier time and over a period during directions hearings in that proceeding. In the circumstances of this case, any delay that there has been does not relevantly detract in any material way from ACT establishing the existence of its good faith for the purpose of this application.
That the application is brought in good faith is also supported by ACT’s position regarding costs and expenses associated with, or to be associated with, the Further Proceeding, and ACT’s position regarding any adverse costs orders that might be made against the Company. Shortly before the hearing the solicitors for ACT confirmed that ACT is willing to undertake to indemnify the Company in respect of any costs and expenses associated with the Further Proceeding, and the bringing of that proceeding, and against any adverse costs orders that might be made in the Further Proceeding.[12] This was confirmed by senior counsel for ACT at the start of the hearing. In paragraph 69 of Ms Fu’s first affidavit a more qualified position was taken, which has now been supplemented by this proposed additional protection of the interests of the Company. I refer in this context to the discussion of providing costs protection and its relevance to good faith and the best interests of the Company in the authorities to which I have mentioned, and the recent helpful discussion of the same in Re Woodbine Project.[13]
[12]Subject to further order.
[13][2021] VSC 617, [60]–[77], [93]–[110] (Button J).
That said, I will address with senior counsel for ACT the precise terms of the proposed undertakings so as to be satisfied that an appropriate level of protection is provided in respect of the Company’s interests in relation to costs and adverse costs orders.
Finally on this topic of good faith, it is also appropriate to take into account that, by the proposed consent orders, the parties at least implicitly accept that the granting of leave under s 237 of the Act to ACT to bring the Further Proceeding on the Company’s behalf is appropriate in the circumstances, although the position would not change even if that was not so. For completeness I add that my earlier observations about Mr Li’s change of position are not intended to convey criticism of that change of position. Given the nature of the overlapping allegations in the ACT Proceeding and the allegations in the Proposed Statement of Claim, the circumstances in this case are somewhat unusual. I also observe that extensive evidence in reply was filed by ACT after Mr Li identified what were contended to be gaps in the primary evidence of ACT. In my view, and taking these matters into account, the change of position of Mr Li on this application is an understandable one, and in the circumstances appears to be a proper position for him to take having regard to the totality of the evidence.
As I have said, having regard to the circumstances and the applicable principles, I am satisfied that ACT has established that it is acting in good faith in making this application to bring the Further Proceeding in respect of the proposed claims against Mr Li. The criterion in s 237(2)(b) of the Act is satisfied.
Section 237(2)(c) – Best interests of the Company
I turn to the criterion in s 237(2)(c) of the Act, namely, whether it is in the best interests of the Company that ACT be granted leave to bring the Further Proceeding. It will be apparent from my introductory remarks that I am satisfied that it has been established that it is in the Company’s best interests that such leave be granted. I elaborate briefly as to why below.
First, I refer to the matters raised in the context of good faith, which also support the contention that the granting of leave is in the best interests of the Company.
Second, I have had regard to the nature and the character of the Company, including ACT and Mr Li being the only shareholders, and its sole project having been effectively concluded in circumstances where at the heart of the dispute between the parties is how the Sale Proceeds should be dealt with. In this context, and noting that it appears that the Company is comfortably solvent, I look to the Company’s interests as a whole. In this case there is a strong identity or correlation between the interests of the shareholders and the interests of the Company.
Third, it is apparent that the proposed claims are to be brought with a view to protecting the members’ interests in their capacity as members. The interest of ACT in the Company is material because it is a 60% shareholder, and, as I have earlier said, it will also protect the interests of Mr Li in his capacity as a 40% shareholder. If the proposed claims are successful the Company’s position will be enhanced by the payment of material amounts to it, which will benefit the shareholders in their capacity as such.
Fourth, the evidence does not suggest that if the proposed claims are successful the exercise will have been fruitless because of an inability on the part of Mr Li to meet any judgment. Indeed, the evidence at least inferentially suggests otherwise given Mr Li’s shareholding in the Company and the existence of the Sale Proceeds currently being held in trust in the manner earlier referred to.[14] It was also not suggested by Mr Li in his evidence that if the claim was successful he would not be in a position to meet any judgment.
[14]And, at least arguably, his sole shareholding in Sterling Global.
Fifth, I also accept that the hearing and determination or earlier resolution of the proposed claims will assist in breaking a deadlock between the shareholders. Contrary to Mr Li’s submission, the evidence does reveal that there is a deadlock between the parties in relation to the issues the subject of the Proposed Statement of Claim — and the distribution of the Sale Proceeds more generally. The fact that there may be other matters about which the parties disagree or are deadlocked does not in the circumstances of this case detract from the desirability for the Company of having the matters the subject of the Proposed Statement of Claim resolved by determination or earlier resolution.
Sixth, the Further Proceeding is not going to impact adversely upon the running of the Company’s business because it is not currently conducting a business. It is not going to occupy physical, human, or other resources of the Company in any material way given the character of the Company and what is to be involved in the Further Proceeding. It is also apparent that parallel[15] issues will be agitated in the ACT Proceeding in any event, which, as I have said, is almost inevitably going to be managed and heard together with the Further Proceeding.
[15]But materially different in some respects given Mr Li’s role as a director of the Company and the breach of duty allegations in the Proposed Statement of Claim.
Seventh, ACT has expressed a willingness to provide an undertaking regarding costs and expenses, and any adverse costs orders, to protect the position of the Company in the way that I earlier mentioned. In addition, and as recognised by the parties, because parallel allegations are made in the ACT Proceeding there are efficiencies and cost savings for the parties, including the Company, if the ACT Proceeding and the Further Proceeding are managed and tried together — subject, of course, to any further order of the court.
Eighth, although it was at one point submitted by Mr Li that the pursuit of the proposed claims should await the appointment of a liquidator after the hearing of Mr Li’s just and equitable winding up counterclaim in the ACT Proceeding, by the seeking of the consent orders Mr Li’s position changed. In any event, such a course would not in isolation well serve the Company’s interests, or the court’s or the parties’ obligations under the CPA, given that, at least at this stage, all parties in the ACT Proceeding have previously indicated that the winding up question should not be heard in advance of the other claims in the ACT Proceeding.[16]
[16]This would not preclude the court from directing that this occur in the future but that is not a matter currently under consideration on this application.
Given the commonality of some of the issues in the ACT Proceeding and the Further Proceeding, to fragment the claims and proceedings in the way previously proposed by Mr Li when the ACT Proceeding is ongoing could give rise to a range of adverse issues, including regarding increased costs, duplication, inefficiency, and the risk or potential for inconsistent findings. That said, this current position should not constrain the parties from further reflecting upon whether it is desirable that the question of the Company being wound up on the just and equitable ground is a matter that should be determined as a preliminary matter in the ACT Proceeding.
Having regard to the matters that I have mentioned, I am satisfied that it has been established that it is in the best interests of the Company that ACT be granted leave to bring the proposed claims in the Further Proceeding on behalf of the Company. The criterion in s 237(2)(c) of the Act is satisfied.
Section 237(2)(d) – Serious question to be tried
I turn to s 237(2)(d) of the Act and the serious question to be tried criterion. Because ACT seeks to bring a proceeding on the Company’s behalf rather than to intervene in an existing proceeding this section is engaged and it is necessary to satisfy this criterion. This is assessed in the way referred to in the authorities that I have mentioned, which is akin to the approach taken when considering an application for an interlocutory injunction.
I addressed the existence of a serious question to be tried when dealing with the question of good faith, and for the reasons that I mentioned in that context, I am satisfied that there is a serious question to be tried in respect of the claims the subject of the Proposed Statement of Claim. The criterion in s 237(2)(d) of the Act is satisfied.
Section 237(2)(e) – 14 days’ notice
As to the last criterion, that is, the giving of 14 days’ notice (or dispensation from that requirement) it was common ground that more than 14 days’ written notice of the application had been given of ACT’s intention to apply for leave, and the reasons for so doing. This was also borne out by the evidence. The criterion in s 237(2)(e) of the Act is satisfied.
Conclusion and proposed orders
Having regard to the above, and subject to addressing and being satisfied with the precise terms of ACT’s proposed undertakings regarding costs and any adverse costs orders, the criteria in s 237(2) of the Act have been satisfied and I propose to make an order granting leave to ACT to bring on behalf of (and in the name of) the Company the Further Proceeding against Mr Li in respect of the claims the subject of the Proposed Statement of Claim.
I will hear from the parties in relation to the precise terms of the proposed undertakings, costs, and the consequential directions to be made in the ACT Proceeding and the Further Proceeding.
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