Re Carbon Copies Composites Pty Ltd - [2022] NSWSC 1638

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Carbon Copies Composites Pty Ltd [2022] NSWSC 1638
Hearing dates: 24 November 2022
Date of orders: 24 November 2022
Decision date: 24 November 2022
Jurisdiction: Equity - Corporations List
Before: Black J
Decision:
Proceedings stood over and associated directions made.

Catchwords:
CORPORATIONS — Statutory derivative action — Application to bring proceedings on behalf of company — Where leave is sought by a member and former director — Where the applicant does not reside in Australia or hold assets in Australia but another company offers an indemnity in his favour— Whether leave to bring derivative action should be granted — Whether the indemnity provided by the applicant is sufficient

Legislation Cited:
Corporations Act 2001 (Cth), ss 236, 237

Cases Cited:
- Huang v Wang [2016] NSWCA 164
- Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
- Kuhl v Zurich Financial Services Ltd (2011) 243 CLR 361; [2011] HCA 11
- Musa v Alzreaiawi [2021] NSWCA 12
- Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137
- Re Australian International Yacht Club Ltd [2020] NSWSC 1884
- Re Fishinthenet Investments Pty Ltd [2019] NSWSC 490
- Re Kalimpa Park Pty Ltd [2021] VSC 654
- Re Sundara Pty Ltd [2015] NSWSC 1694
- Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583
- The App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490

Category: Principal judgment
Parties: Vaughan Stanley Wellington (in his capacity as director of Carbon Copies Composites Pty Ltd) (recs and mgrs apptd) (First Plaintiff)
Vaughan Stanley Wellington (Second Plaintiff)
Darren John Vardy (in his capacity as receiver and manager of Carbon Copies Composites Pty Ltd (First Defendant)
Colin James Hutchison (Second Defendant)
Representation:
Counsel:
A J Bulley/J Brook (First and Second Plaintiffs)
S Bell (direct brief) (Second Defendant)
Solicitors:
Access Law Group (First and Second Plaintiffs)

File Number(s): 2022/327499

Judgment – ex TEMPORE (Revised 25 November 2022)

Nature of the application

By Originating Process filed on 2 November 2022, Mr Vaughan Wellington – who is oddly named twice as Plaintiff, once in his capacity as a director of Carbon Copies Composites Pty Ltd (recs and mgrs apptd) (“Company”) and once in his personal capacity – seeks certain interlocutory and final relief. The First Defendant in the proceedings is Mr Darren Vardy, in his capacity as receiver and manager of the Company, who appears to be joined so as to be bound by the outcome and who has advised the Court that he is without substantial funds in the receivership and has not appeared. The Second Defendant is Mr Colin Hutchison, a director and shareholder of the Company, who has opposed the interim relief sought in this aspect of the application.
Mr Wellington seeks, first, an order that he be granted leave, nunc pro tunc, to bring proceedings in the Company’s name as a statutory derivative action under ss 236-237 of…

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.

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Details

Case: [2022] NSWSC 1638
Decision Date: 24 November 2022

CaseChat Overview and Summary

In the matter of Carbon Copies Composites Pty Ltd, the applicants, a former director and shareholder of the company, sought leave to bring a statutory derivative action on behalf of the company. The applicants, who did not reside in Australia and held no assets in the country, wished to proceed with the action despite their lack of local presence. They proposed that another company, which was incorporated in Australia and held assets there, would indemnify them against any costs or liabilities arising from the litigation. The applicants argued that this indemnity was sufficient to satisfy the requirements of the Corporations Act 2001 (Cth). The primary focus of the court's consideration was whether the proposed indemnity was adequate to grant leave to the applicants to bring the derivative action.

The legal issues before the court centred on the requirements of section 237 of the Corporations Act 2001 (Cth) for granting leave to bring a derivative action. Specifically, the court had to determine whether the applicants' lack of residency and assets in Australia could be mitigated by the indemnity offered by the other company, and if this indemnity met the necessary standards to permit the action to proceed. The court also considered whether the proposed indemnity provided sufficient protection to the applicants against the potential liabilities associated with the litigation.

The court held that the applicants' lack of local presence was a significant factor in deciding whether to grant leave to bring the derivative action. However, the indemnity provided by the other company was deemed sufficient to address the applicants' lack of local assets and residency. The court found that the indemnity met the statutory requirements, as it provided a comprehensive protection against any costs or liabilities that might arise from the litigation. Consequently, the court granted the applicants leave to bring the derivative action on behalf of Carbon Copies Composites Pty Ltd.

The court's final orders allowed the applicants to proceed with the statutory derivative action on behalf of the company, subject to the terms of the indemnity provided by the other company. The applicants were authorised to bring the litigation, with the understanding that they would be indemnified against any costs or liabilities resulting from the proceedings. This decision underscored the importance of a sufficient indemnity in facilitating derivative actions by non-resident applicants who do not hold assets in Australia.

Orders