Re 383 Latrobe Street Development Pty Ltd - [2021] VSC 655

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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Re 383 Latrobe Street Development Pty Ltd

Details

AGLC: Re 383 Latrobe Street Development Pty Ltd [2021] VSC 655
Case: [2021] VSC 655
Decision Date: 6 October 2021 (Ex tempore; written reasons published 7 October 2021)

CaseChat Overview and Summary

The applicant, 383 Latrobe Street Development Pty Ltd, sought leave to bring a statutory derivative action against the company and its directors. The case was heard in the Supreme Court of Victoria. The primary dispute centred on the validity of the company’s decision to reject a proposed development project and the subsequent sale of the property for a significantly lower price. The applicant claimed that the directors breached their duties by acting in a manner contrary to the best interests of the company.

The legal issues before the court involved whether the applicant had established a serious question to be tried and demonstrated that the proceedings were in the best interests of the company. The court also considered the principles of good faith, the applicant's entitlement to costs protection, and the effect of any undertakings provided by the applicant. The animosity between the parties and the existence of related proceedings with similar facts were also factors that the court evaluated. The court had to determine whether the change in position by the defendants, who agreed to consent to the proceedings, relieved it of its statutory obligation to independently assess the merits of the application.

The court found that the applicant had established a serious question to be tried, primarily because the directors' actions in rejecting the development proposal and subsequently selling the property appeared to be in the interests of certain shareholders rather than the company as a whole. The court also held that the applicant acted in good faith and that the proceedings were in the best interests of the company. The court noted that while the change in the defendants' position to consent to the proceedings was a significant development, it did not absolve the court of its obligation to conduct an independent evaluative assessment of the application. The court granted leave for the proceedings to continue, subject to certain conditions.

The court ordered that the applicant provide an undertaking as to damages, which would limit the company’s exposure to costs if the proceedings were ultimately unsuccessful. Additionally, the court ordered that the applicant pay the defendants’ costs up to a specified amount, reflecting the change in the defendants' position. The court’s decision emphasised the importance of its independent assessment of the application, despite the consent of the defendants, and the need to balance the interests of the company, its shareholders, and the applicant in derivative actions.

Orders