Re Kalimpa Park Pty Ltd
[2021] VSC 654
•8 October 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 01800
IN THE MATTER of KALIMPA PARK PTY LTD (ACN 615 703 547) (RECEIVERS AND MANAGERS APPOINTED)
BETWEEN:
| HAIM BZEZINSKI (and Ors according to the Schedule attached) | Plaintiffs | |
| v | ||
| CAMERON HUGH SHAW IN HIS CAPACITY AS RECEIVER (and Ors according to the Schedule attached) | Defendants | |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 July 2021 |
DATE OF JUDGMENT: | 8 October 2021 |
CASE MAY BE CITED AS: | Re Kalimpa Park Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 654 |
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CORPORATIONS – Application for derivative leave pursuant to s 237 of the Corporations Act 2001 (Cth) – Whether applicant director has residual power to bring proceeding in name of company in receivership – Whether a serious question to be tried – Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780; Re Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432; El-Saafin v Franek (No 2) [2018] VSC 683; Swansson v RA Pratt Property Pty Ltd (2002) 42 ACSR 313; Deangrove Pty Ltd v Commonwealth Bank of Australia (2001) 108 FCR 77; Re Sundara Pty Ltd [2015] NSWSC 1694 considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Schlicht | Warlows Legal |
| For the First Defendant | Ms C Jones | Robert James Lawyers |
| For the Second, Third, and Fifth Defendants | Mr C Moller with Ms V Bell | Latep Legal |
HIS HONOUR:
Introduction
This is an application for leave to bring a proceeding in the name of Kalimpa Park Pty Ltd (‘the Company’). The application is brought pursuant to s 237 of the Corporations Act2001 (‘the Act’), or alternatively pursuant to the inherent jurisdiction of the Court.
Haim Bzezinski (‘Mr Bzezinski’), the first plaintiff, is one of two directors of the Company. At all relevant times the Company was the trustee of the Kalimpa Park Unit Trust (‘the Trust’). Mr Bzezinski also controls Bzezinski Pty Ltd, the second plaintiff, which owns one-third of the shares in the Company and a commensurate unitholding in the Trust. Mr Danny Ruschin is the third plaintiff. He controls Ruschin Pty Ltd, the fourth plaintiff, which also owns one-third of the shares in the Company and a commensurate unitholding in the Trust.
The remaining one-third of the shares and units are held by interests associated with Michael Stokie (‘Mr Stokie’), the second defendant. Mr Stokie also controls Hilback Pty Ltd (Hilback’), the third defendant. Mr Stokie is the second director of the Company, alongside Mr Bzezinski.
The plaintiffs seek leave to bring a proceeding in the name of the Company against Cameron Hugh Shaw (‘Mr Shaw’) and David Ross (‘Mr Ross’), the first defendant and fourth defendant respectively, in their capacity as agents of Hilback and as receivers and managers of the Company; and against Mr Stokie, Hilback, and Erim Downs Pty Ltd (‘EDPL’), the fifth defendant and an entity controlled by Mr Stokie (for convenience, together ‘the Stokie Parties’).
In broad terms, the proposed proceeding is the latest round in a suite of litigation which arose from the collapse of the Company in 2018. The Company was one of two corporate vehicles through which a livestock business was conducted on a property known as Erim Downs and located at 19094 Brand Highway, Warradarge in Western Australia (‘the Property’). The Company owned the Property, on which a business was operated by a separate entity, Kalimpa Livestock Export Pty Ltd (‘KLE’). The ownership interests in KLE aligned with those of the Company.
On 4 September 2018, Messrs Shaw and Ross were appointed as agents of Hilback. Hilback had taken possession of the Property pursuant to a mortgage granted by the Company in favour of Hilback.
Messrs Shaw and Ross were appointed as receivers and managers of the Company on 5 June 2019. EDPL acquired the Property from the Messrs Shaw and Ross on 28 June 2019.
The Proposed Claim
The plaintiffs seek leave to bring claims on behalf of the Company on the terms set out in a proposed statement of claim,[1] which broadly comprise the following allegations:
[1]Exhibited to an affidavit of Haim Bzezinski sworn 25 May 2021.
(a) the invalid exercise of power by Hilback to appoint agents to take possession of the Property and then to appoint receivers and managers to the Company, by reason of there being no moneys owing by the Company to Hilback and hence no default allowing Hilback to enforce its security rights;
(b) failure by Messrs Shaw and Ross in their capacity as receivers and managers and agents[2] to:
(i) properly maintain the Property;
(ii) properly insure the Property; and
(iii) properly secure the Property after dismissing all staff;
(c) the improper sale of the Property by Messrs Shaw and Ross to EDPL, insofar as EDPL is a company owned and controlled by Mr Stokie who also owns and controls Hilback;
(d) an improper sale process where the sale was conducted by closed bids rather than by auction, and where a substantially higher bid by a third party was rejected; and
(e) various breaches of duties owed to the Company by Mr Stokie arising out of the matters in (a) to (d), and also encompassing the creation of a document trail in the form of certain loan agreements and related securities such as ‘to lay a foundation whereby he could be unjustly enriched’.[3]
[3]This phrase is the heading for the allegations in the relevant paragraphs of the proposed statement of claim.
In order to understand the nature of the proposed claims that the plaintiffs wish to bring in the Company’s name, and to understand the defendants’ opposition, it is necessary to set out some of the factual background.
Factual Background
In late 2016 two other companies owned by Messrs Bzezinski and Ruschin, AHR Kalimpa Pty Ltd (‘AHR Kalimpa’) and Kalimpa Pty Ltd, were plaintiffs in a separate proceeding issued in this Court. That proceeding involved a dispute with a partner of Messrs Bzezinski and Ruschin in a separate livestock business (‘the AHR Kalimpa proceeding’).
The Company acquired the Property on 31 January 2017 for the price of $1.4 million.[4] The acquisition of the Property was funded in part by a loan made to the Company by the Commonwealth Bank of Australia (‘the CBA’) and in part, so Mr Stokie and Hilback contend, from funds advanced to the Company by Hilback.
[4]The total settlement price was $1,469,201.30.
The CBA’s contribution took the form of a loan facility for an initial amount of $840,000 (‘the Business Loan’), which was secured by a first registered mortgage over the Property (‘the CBA Mortgage’). On 31 March 2017, the CBA approved an increase in the Business Loan facility to $1,360,000.
Relatedly, on 23 June 2017 KLE entered into a separate agreement with the CBA to facilitate the acquisition of machinery and equipment for the operation of the feedlot on the Property; additionally, KLE entered into subsequent sub-agreements with the CBA for equipment finance on 26 June 2017 and 25 June 2018 (collectively ‘the Asset Loan Agreements’). The Company guaranteed KLE’s obligations under the Asset Loan Agreements.
On 15 September 2017, the Company leased the property to KLE.
In addition, on or about 15 September 2017, the Company entered into a series of loan facility agreements bearing that date.
The first loan facility agreement (‘the First Loan Agreement’) is between the Company as borrower and Hilback as financier. It records a facility commitment of $3 million for the specified purpose of purchasing the Property and undertaking its development. The First Loan Agreement specifies a commencement date of 20 July 2017; a date after settlement of the Property had taken place on 31 January 2017. The First Loan Agreement has been executed on the Company’s behalf by Messrs Stokie and Bzezinski as its directors. The First Loan Agreement lists as a condition precedent, among others things, due execution of the ‘Finance Documents’. The ‘Finance Documents’ include, among others, ‘Collateral Securities’, in turn defined to include:
(a) a general security agreement (‘GSA’) granted by the Company in favour of Hilback;
(b) a mortgage over the Property granted by the Company in favour of Hilback (‘the Hilback Mortgage’); and
(c) a deed of guarantee and indemnity in respect of the Company’s obligations under the First Loan Agreement, provided by Mr Ruschin and Mr Bzezinski (‘the Deed of Guarantee and Indemnity’).
The GSA bears the date 15 September 2017. It was executed on the Company’s behalf by Mr Stokie alone, who is described, wrongly, as the Company’s sole director.[5]
[5]The manner of execution of the GSA and the Hilback Mortgage was not relied upon to contend that those securities were invalid. Given Mr Bzezinski’s signing of the First Loan Agreement on behalf of the Company, it is clear that the Company agreed to provide such securities.
The Hilback Mortgage is dated 15 September 2017. It was again executed on the Company’s behalf by Mr Stokie alone, who is described, wrongly, as the Company’s sole director. The Hilback Mortgage was registered on 10 July 2018.
The second loan facility agreement (‘the Second Loan Agreement’) is between the Company as borrower and Hilback as financier. It is in substantially identical terms to the First Loan Agreement; though it records a facility commitment of $1,650,000 for the specified purpose of on-lending the funds to AHR Kalimpa to fund their ‘current legal proceeding’. The same conditions precedent are listed; and the definitions of Finance Documents and Collateral Securities are the same and refer to the GSA, the Hilback Mortgage, and a deed of guarantee and indemnity in respect of the Company’s obligations under the Second Loan Agreement provided by Ruschin and Mr Bzezinski . Evidently, the Second Loan Agreement is connected to the AHR Kalimpa proceeding.
The third loan facility agreement (‘the Third Loan Agreement’) is between the Company as financier and AHR Kalimpa as borrower. Evidently, it is related to the Second Loan Agreement and connected to the AHR Kalimpa proceeding. The Third Loan Agreement contains similar conditions precedent and definitions of Finance Documents and Collateral Securities,[6] but the schedule to the agreement confirms that the guarantee and indemnity has no application.
[6]The securities as defined were to be provided by AHR Kalimpa in favour of the Company and included a GSA.
It is clear that Hilback was to advance moneys to the Company, which would on-lend those moneys to AHR Kalimpa as party to the AHR Kalimpa Proceeding.
The fourth loan facility agreement (‘the Fourth Loan Agreement’) is between the Company as financier and KLE as borrower. It records a facility commitment of $400,000 for the specified purpose of facilitating the operation of KLE’s business. The same conditions precedent as in the other loan agreements are listed; however, whilst the definition of Finance Documents is the same, the definition of Collateral Securities incudes:
(a) a General Security Agreement in favour of the Company; and
(b) a Deed of Guarantee and Indemnity in respect of KLE’s obligations provided by Messrs Bzezinski and Ruschin;
but does not reference a mortgage.
The evidence before me includes a deed of guarantee and indemnity dated 15 September 2017 executed by Messrs Bzezinski and Ruschin as guarantors, by Hilback as lender, and the Company as borrower[7] (the Deed of Guarantee and Indemnity). The subject matter of the Deed of Guarantee and Indemnity is the ‘document entitled Loan Facility Agreement between the Lender (Hilback) and the Borrower (the Company) dated on or about the date of this Deed’.[8]
[7]Again, on the Company’s behalf by Mr Stokie, purportedly as sole director.
[8]This could be a reference to either or both of the First Loan Agreement or the Second Loan Agreement. In the affidavit sworn by Hilback’s solicitor, Mr Chezkel Deren, he described it as a guarantee of the First Loan Agreement. It matters not for the purposes of this proceeding whether the guarantee extends to the First Loan Agreement, the Second Loan Agreement, or both.
By mid-2018, the Company and KLE[9] encountered financial difficulties:
[9]By originating process filed 25 January 2019, Mr Stokie as a director applied to wind up KLE in insolvency pursuant to ss 459A and 459P of the Act. The fate of the application is not entirely clear, although KLE went into liquidation on 10 April 2019.
(a) On 6 August 2018, Latep Legal (‘Latep’), solicitors for Hilback, by letter sent notices of default on behalf of Hilback to the Company pursuant to the Hilback Mortgage and the First Loan Agreement. The letter asserted an event of default, including the failure of the borrower to pay interest payments under the terms of the First Loan Agreement and a ‘Material Adverse Effect’[10] due to the financial condition of the Company. The letter asserted that the secured moneys were immediately due and payable, and asserted that as at the date of the letter Hilback had advanced $5,079,218.23 pursuant to the First Loan Agreement.
[10]The First Loan Agreement defines ‘Material Adverse Effect’ to mean, in the reasonable opinion of the financier, a material adverse effect on:
(a)the ability of the Obligor to observe its obligations under a Finance Document;
(b) the priority, validity or enforceability of the whole or any part of any Finance Document or any right or remedy of a Financier under the Finance Documents;
(c)the value of the Secured Property; or
(d)the financial condition or business or operations of any Obligor.
(b) Also on 6 August 2018, Latep sent letters of demand to Messrs Bzezinski and Ruschin pursuant to the Deed of Guarantee and Indemnity. The letters attached the notice of default sent to the Company and demanded payment of the amounts said to be owing by the Company under the First Loan Agreement.
(c) Similarly, on 6 August 2018, Latep sent a notice of default on behalf of Hilback pursuant to the Second Loan Agreement and a corresponding letter of demand to Messrs Bzezinski and Ruschin as guarantors of the Company’s obligations under the Second Loan Agreement.
(d) Between 20 August 2018 and 25 October 2018, the CBA sent letters of demand to KLE demanding the arrears owing under the Asset Loan Agreements, and on 2 November 2018 the CBA sent a letter of demand to KLE demanding payment of the sum of $775,930.55, being the total amount owing under the Asset Loan Agreements.
(e) On 30 August 2018, Latep wrote to the Company and Messrs Bzezinski and Ruschin on behalf of Hilback, noting their failure to remedy the defaults under the First Loan Agreement, the Second Loan Agreement, and the Hilback Mortgage.
(f) On 4 September 2018, Hilback took possession of the Property (as second mortgagee) and appointed Messrs Shaw and Ross as its agents as mortgagee in possession.
(g) On 1 November 2018, CBA sent a notice of demand in respect of the obligations of the Company under the Business Loan, demanding payment of $1,344,295.52.
On or about 15 January 2019, CBRE was retained by Messrs Ross and Shaw as agents of Hilback (as mortgagee in possession) to conduct the proposed sale of the Property. Following a sales campaign and discussions with those parties who had submitted expressions of interest (‘EOIs’), Messrs Shaw and Ross, who in the interim been appointed as receivers and managers on 5 June 2019, sold the Property to EDPL for $1,700,000 (GST exclusive). The sale settled on 28 June 2019.
At settlement a sum of $1,143,643.19 was owing by the Company to the CBA under the Business Loan. Further, a sum of $902,203.27 was owing by KLE to the CBA under the Asset Loan Agreements; as mentioned above, KLE’s obligations under the Asset Loan Agreements had been guaranteed by the Company. According to an affidavit sworn by Hilback’s solicitor, Mr Chezkel Deren (‘Mr Deren’), the CBA asserted that because the Company was a guarantor of the Asset Loan Agreements, the debt under the Asset Loan Agreements was effectively secured by the CBA Mortgage over the Property. As such, the total debt owing under the CBA Mortgage was $2,045,846.46, which was higher than the amount of proceeds of sale.
Therefore, in order to discharge the CBA mortgage EDPL had to purchase the assets the subject of the Asset Loan Agreements, which it did, in the amount of $907,564. The ultimate purchase price of $1.7 million for the Property was applied as to, among others, CBA in the amount of $1,143,796.39; Hall Chadwick in the amount of $63,410.16; and as to Hilback in the amount of $311,754.67. The CBA also received the sum of $907,564 from EDPL for the assets the subject of the Asset Loan Agreements.[11] In the result that the combined receipts by CBA of the proceeds of sale was sufficient to discharge the Company’s indebtedness to CBA under the CBA mortgage.
[11]The settlement of the sale of the Property occurred simultaneously with the settlement of the purchase of the assets.
The County Court Proceeding
On 29 November 2019, Hilback commenced proceedings in the County Court of Victoria against Messrs Bzezinski and Ruschin claiming amounts allegedly outstanding by them to Hilback arising under the guarantee and indemnity provided with respect to the Loan Agreement (‘the County Court Proceeding’).[12]
[12]Hilback’s further amended statement of claim dated 17 November 2020 uses the term ‘Loan Agreement’ and not ‘First Loan Agreement’ and ‘Second Loan Agreement’, as was the case with an earlier version of the pleading.
In the County Court Proceeding, Hilback made the following allegations:
(a) between 25 January 2017 and 14 September 2017, Hilback lent $2,046,650,73 to the Company (‘the Initial Funding’);
(b) the Initial Funding constituted Secured Moneys under the terms of the First Loan Agreement;
(c) on 15 September 2017, Hilback and the Company entered into the First Loan Agreement;
(d) on 15 September 2017 Messrs Bzezinski and Ruschin each executed the Deed of Guarantee and Indemnity;
(e) between 15 September 2017 and 31 May 2018 Hilback lent the Company at least $1,206,695.70 (‘the Further Funds’);
(f) the total amount it lent to Kalimpa Park under the First Loan Agreement was $3,253,346.43.
Messrs Bzezinski and Ruschin have defended the claims made against them in the County Court Proceeding on the basis that, among other things:
(a) the funds allegedly invested by Hilback in the Company were in fact contributed by interests associated with Mr Stokie, namely Rackwood Pty Ltd and LS Investments Pty Ltd (‘the Stokie Shareholders’),
(b) those funds had not been advanced pursuant to the First Loan Agreement but in fact constituted equity contributions;
(c) further, that those funds were contributed not only to the Company but to or for the benefit of KLE;
(d) that Mr Stokie, in procuring the execution of the First Loan Agreement, the GSA, and the Hilback mortgage on the Company’s behalf, breached statutory and fiduciary duties owed by him to the Company in which Hilback was knowingly involved, knowingly assisted Mr Stokie’s breaches of fiduciary duties owed to the Company, or both; and
(e) that those breaches of duty had caused loss and damage to the Company, and that this loss and damage suffered by the Company should be offset against any amounts in which the Company was otherwise liable to Hilback and, in effect, could be relied upon by Messrs Bzezinski and Ruschin to reduce their liability under the guarantee.
On 19 June 2020, the County Court Proceeding was set down for trial to commence on 23 December 2020.
On 16 July 2020, the then-solicitors for Messrs Bzezinski and Ruschin, Dentons Australia, forwarded a letter advising that it was their clients’ intention to bring an oppression claim[13] (‘the Oppression Claim’). The letter enclosed a draft originating process and an affidavit in support for the Oppression Claim. The proposed plaintiffs in the Oppression Claim were Bzezinski Pty Ltd, Ruschin Pty Ltd, Mr Bzezinski, and Mr Ruschin; whilst the proposed defendants were the Company, KLE, the Stokie Shareholders, Hilback, Mr Stokie, and Mr Stokie’s son, Luke Stokie.
[13]The letter enclosing the draft originating process was marked ‘without prejudice save as to costs’ and at the hearing of this application the plaintiffs objected to its tender on that ground. With the agreement of the parties, I received it provisionally and indicated that I would rule on its admissibility in these reasons. Neither the letter nor the enclosure attract the protection of the ‘without prejudice’ privilege. Whilst the parties were in dispute when the letter was sent, the letter did not contain a concession, admission, proposal, offer, counter offer, or other communication relevantly connected with the an attempt to negotiate a settlement of any dispute: Biovision 2020 Pty Ltd v CGU Insurance Ltd [2010] VSC 589, [59]-[60] (Judd J). In fact, as the letter made clear, it was sent in furtherance of the parties’ obligations under the Civil Procedure Act 2010 (Vic): the parties were about to mediate the County Court Proceeding and made the evidently sensible suggestion that the mediation could extend to the matters the subject of the proposed oppression proceeding. In that respect, the letter did not suggest a method of compromising the dispute but simply proposed a mechanism to deal with the claim: GPI Leisure Corporation Ltd v Yuill (1997) 42 NSWLR 225.
The orders sought in the draft originating process included relief pursuant to s 233(1) of the Act, inter alia:
(a) setting aside the First Loan Agreement, the Second Loan Agreement, the Hilback Mortgage, the GSA, the Deed of Guarantee and Indemnity, the appointment of Mr Shaw and Mr Ross as receivers and managers;
(b) an order pursuant to s 233(1) of the Act that Hilback pay to the Company compensation in the amount received by it pursuant to the Hilback Mortgage, such amount to be unencumbered by any security interest;
(c) an order pursuant to ss 233(1)(f) and 233(1)(g) of the Act or both that the plaintiffs have leave to bring proceedings in the name of the Company against Mr Stokie for equitable compensation and compensation pursuant to s 1317H of the Act for breaches of duty owed to the Company in his capacity as a director of that company;
(d) an order pursuant to ss 233(1)(f) and 233(1)(g) of the Act or both that the plaintiffs have leave to bring proceedings in the name of the Company against Messrs Shaw and Ross; and
(e) equitable compensation and compensation pursuant to s 1317H of the Act for breach of duties owed to the Company in their capacity as receivers and managers of that company including, inter alia, for:
(iv) the failure to adequately insure the Property; and
(v) the sale of the Property for undervalue and without properly satisfying the requirements of s 420A of the Act.
On 19 August 2020, Dentons Australia sent to Latep a revised version of the proposed originating process for the Oppression Claim which included the addition as proposed defendants of Messrs Ross and Shaw in their capacity as receivers and managers of the Company.
The County Court Proceeding and the proposed Oppression Claim were mediated without success on 7 September 2020.
The Oppression Claim was not commenced.
On 6 November 2020, Mr Ruschin and Mr Bzezinski made application to vacate the trial date in the County Court Proceeding on the basis that they had retained new solicitors.
The affidavit material relied upon in support of the adjournment application, and sworn by their new solicitor,[14] deposed ‘the first and second defendants cannot afford to engage Dentons for the trial in this matter and this has necessitated a change of solicitors’. The affidavit further deposed that Mr Bettridge would be acting on behalf of the second defendant (that is, Mr Bzezinski), and that the first defendant (that is, Mr Ruschin) would be self-represented.
[14]Mr Reid Bettridge from B2B Lawyers.
On 17 November 2020, the adjournment application was heard before Judicial Registrar Muller. The 23 November 2020 trial date was vacated, but refixed for 25 November 2020.
On 19 November 2020, Messrs Bzezinski and Ruschin filed a notice seeking review of the decision of Judicial Registrar Muller. The application for review was heard by Judge Marks on 20 November 2020. Her Honour set aside the orders made on 17 November 2020, vacated the trial date of 25 November 2020, and refixed the matter for hearing on 14 July 2021.
On 26 May 2021, the plaintiffs issued this proceeding.
On 24 June 2021, the solicitor for Mr Ruschin and Mr Bzezinski in the County Court Proceeding, Ms Harriet Warlow-Shill of Warlows Legal, served an affidavit which deposed to, among other things, the overlapping nature of the matters in the County Court Proceeding and those in this proceeding.
On 25 June 2021,[15] counsel for Messrs Bzezinski and Ruschin foreshadowed an application for the further adjournment of the County Court Proceeding from 14 July 2021 on the basis that if this Court was to grant leave to bring the claim in the name of the Company, they would seek to have both the claim by the Company and the County Court Proceeding heard together.
[15]At pre-trial directions before Judicial Registrar Muller.
As a consequence, on that day Judicial Registrar Muller made orders vacating the trial date and refixing it for 20 October 2021. The orders included the following notation by the Judicial Registrar:
At the pre-trial directions hearing this, [sic] the defendants indicated to the Court that it would be seeking to make an application to adjourn the trial date in light of the pending application to bring a derivative action in the Supreme Court of Victoria. No satisfactory explanation was given for either the lateness of the proposed application to adjourn or the failure to inform either the plaintiff or the Court of their intention to make an application.
However, it is apparent that the matter cannot proceed to trial on 14 July 2021 because of the pending application in the Supreme Court and that the defendants are generally unprepared for trial. The Court also notes that this is the second time the matter will be adjourned at a very late stage because the defendants are not ready to proceed to trial.
This application for leave to bring the proceeding in the name of the Company
In the first instance, the plaintiffs bring this application pursuant to s 237(1) of the Act. Section 236(1) provides those persons who have standing to bring a s 237 application are:
(a) a member,[16] former member or person entitled to be registered as a member of the company or of a related body corporate; or
(b) an officer or former officer of the company.
[16]Mr Ruschin is not a director or shareholder of the Company and so does not have standing under the Act. Nothing turns on this; Mr Bezinski has standing, as does Ruschin Pty Ltd.
Section 237(2) provides the Court must grant leave under s 237(2) if it is satisfied that:
(a) it is probable that the company will not itself bring the proceeding, or properly take responsibility for them, or for the steps in them;
(b) the applicant is acting in good faith;
(c) it is in the best interests of the company that the application be granted;
(d) if the applicant is applying for leave to bring proceedings – there is a serious question to be tried; and
(e) either:
(vi) at least 14 days before making the application the applicant gave written notice to the company of the intention to apply for leave and the reasons for applying; or
(vii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.
The plaintiffs bears the burden of establishing each of the criteria specified in s 237(2).[17] If any of the criteria is not satisfied, the Court must not grant leave. There is no general discretion under the Act to grant leave.[18]
[17]Swansson v RA Pratt Property Pty Ltd (2002) 42 ACSR 313 (‘Swansson’), [24] (Palmer J).
[18]MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 461, [30]-[32] (Barker J).
The statutory derivative action is not available in some circumstances, for instance, where a company is in liquidation[19] or voluntary administration.[20]
[19]Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 (‘Chahwan’), 818 [125] (Tobias JA); Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (2018) 58 VR 1, 62-9 [290]-[307] (Connock J).
[20]El-Saafin v Franek (No 2) [2018] VSC 683 (‘El-Saafin’) [146] – [158] (Lyons J) and the cases cited therein.
In Re Sundara Pty Ltd (‘Re Sundara’),[21] Black J considered whether the statutory procedure could be available where a company is in receivership.
[21][2015] NSWSC 1694.
His Honour stated as follows:[22]
Mr Assaf identified a preliminary question as to whether s 237 of the Corporations Act applies to James Estate, where it is in receivership. Mr Assaf submitted that s 237 of the Corporations Act does not apply to a company in receivership, by analogy with a company in liquidation. … It seems to me that that proposition is less persuasive in the context of a company in receivership, first, because of the residual powers available to directors in respect of a company in receivership and, second, because the receiver will broadly be acting in the interests of his or her appointing creditor, rather than in the interests of the creditors generally.
[22]Ibid [117].
His Honour noted that in any event, the Court retained a discretion in its inherent jurisdiction to permit a contributory or creditor to bring proceedings and which had been held to apply where a company was in liquidation;[23] and that if the statutory procedure was unavailable, the Court’s inherent jurisdiction would nevertheless apply.[24] Ultimately, Black J did not consider that it was necessary to form a final view as to whether the statutory procedure applied to a company in receivership, given that in his view the outcome was likely to be the same regardless of whether the inherent jurisdiction or the statutory procedure applied.[25]
[23]Ibid [8]–[9].
[24]Ibid [119].
[25]Ibid [118].
In El-Saafin v Franek (No 2) (‘El-Saafin’),[26] Justice Lyons summarised the principal factor that courts consider when considering the inherent jurisdiction:[27]
(1)whether the proposed claims have some solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospects of success;
(2)the attitude of the liquidator to the proposed proceedings; and
(3)whether practical considerations support the initiation of the proceeding, with particular reference to the financial protection of the liquidator and the assets of the company by means of indemnity and, if indicated, security.
[26]El-Saafin (n 20).
[27]Ibid [167].
With respect, I agree with Black J that it is highly unlikely that the matters relevant to the exercise of the Court’s jurisdiction under s 237 of the Act and its inherent jurisdiction are likely to lead to a different result in the relevant circumstances.[28] That being so, it is sufficient that I undertake my analysis by reference to the criteria specified under s 237(2).
The criteria under s 237(2)
[28]Re Sundara (n 21) [118].
Probability that the Company will not bring the proceeding
Absent an express and authoritative refusal by the Company, after a properly articulated request by the applicant to take specific proceedings, the applicant bears the onus of establishing that in the circumstances actual refusal or the probability of refusal is to be inferred.[29]
[29]Swansson (n 17) [29].
Good faith requirement
Section 237(2)(b)
As Palmer J explained in Swansson v RA Pratt Property Pty Ltd (‘Swansson’),[30] there are two interrelated factors to which courts will always have regard in determining whether the good faith requirement is satisfied:[31]
The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. … The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.
[30]Swansson (n 17).
[31]Ibid [36].
In Chahwan v Euphoric Pty Ltd (‘Chahwan’),[32] Tobias JA expanded on Palmer J’s observations, stating that:[33]
… an applicant will only be acting in good faith for the purpose of s 237(2)(b) where, as a current or former shareholder or director of the company, he or she would suffer a real and substantive injury if a derivative action were not permitted provided that that injury was dependant upon or connected with the applicant’s status as such shareholder or director. It might be a positive indication of the good faith of a shareholder if he or she sought to institute a derivative action which would have the effect, if successful, of restoring value to his or her shares in the company.
[32]Chahwan (n 19).
[33]Ibid 797 [74].
His Honour expressly rejected the proposition that an absence of good faith would only be established if the application was an abuse of process within the principles articulated by the High Court in Williams v Spautz.[34] His Honour stated that the submission to that effect overlooked two factors:[35]
The first is that it is for the applicant to affirmatively establish that he or she is acting in good faith to the satisfaction of the court. It is not for the respondent to any such application to establish bad faith. The second is that I see no reason why the expression ‘good faith’ in s 237(2)(b) should be restrictively construed in the manner asserted by the appellant.
[34](1992) 174 CLR 509, 528 (Mason CJ, Dawson, Toohey, and McHugh JJ).
[35]Chahwan (n 19) 795 [69].
Further, in relation to the good faith requirement, Tobias JA differentiated between the personal interests of a person and their interests as a shareholder:[36]
As I have already observed, it must be kept well in mind that the onus lies upon the applicant to satisfy the court that, in applying to it for leave to bring the relevant proceedings, he or she is acting in good faith. If such an applicant is in reality seeking to further his or her own personal interests other than as a current or former shareholder of the company, rather than the interests of the company as a whole, then in my view that onus will not have been discharged.
[36]Ibid 798-9 [83].
Best interests of the Company: s 237(2)(c)
In Swansson, Palmer J emphasised that the ‘best interests’ requirement requires that the proposed action is (rather than may be) in the company’s best interests:[37]
[37]Swansson (n 17) [55].
At the outset, it is important to note that s.237(2)(c) requires the court to be satisfied, not that the proposed derivative action may be, appears to be, or is likely to be, in the best interests of the company but, rather, that it is in its best interests.
(italics in original)
His Honour explained that this criterion has a high threshold:[38]
The requirement of s 237(2)(c) that the applicant satisfy the court that the proposed action is in the best interests of the company is a far higher threshold for an applicant to cross. It requires the applicant to establish, on the balance of probabilities, a fact which can only be determined by taking into account all of the relevant circumstances.
[38]Ibid [56].
In Re Gladstone Pacific Nickel Ltd,[39] Ball J said that in considering whether granting leave is in the best interests of the company it is necessary to consider:[40]
[39](2011) 86 ACSR 432.
[40]Ibid 445 [57].
(a) the prospects of success of the action;
(b) the likely costs and likely recovery if the action is successful;
(c) the likely consequences if it is not;
(d) the nature of any indemnity the applicant has offered to the company if the action is brought;
(e) the likelihood that the company will recover under that indemnity;
(f) the resources available to the company; and
(g) whether some other remedy is available to the applicant so as to make the proposed action unnecessary from its point of view.
The last matter adverted to by Ball J was also noted by Palmer J in Swansson where his Honour stated:[41]
… there should be evidence enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will. So, for example, if the applicant can achieve the desired result in proceedings in his or her own name it is not in the best interests of the company to be involved in litigation at all.
[41]Swansson (n 17) [59].
Serious question to be tried
The applicant for leave must also establish that there is a serious question to be tried. The Court will not, however, normally enter into the merits of the proposed derivative action to any great degree.[42] The applicant has the same relatively low threshold to surmount as in the case of an application for an interlocutory injunction.[43]
[42]Ibid [25].
[43]Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 622 (Kitto, Taylor, Menzies, and Owen JJ).
Overlapping criteria
The relevant criteria clearly overlap. As Tobias JA noted in Chahwan:[44]
… if there was no serious question to be tried to the knowledge of an applicant for leave and that he had been advised that the case was hopeless and unlikely to succeed then that might well constitute evidence of bad faith or at least lack of good faith.
[44]Chahwan (n 19) [68].
Relatedly, if there was no serious question to be tried, then it can hardly be the case that it is in the best interests of the company to be granted leave to proceed
Applying the principles
Probability that the Company will not bring the proceeding – s 237(2)(a)
Mr Shaw,[45] accepts that Messrs Bzezinski and Ruschin have satisfied the preconditions in ss 237(2)(a) and (e) of the Act; namely that the they have given written notice to the Company pursuant to s 237(2)(e) and that it was probable that the Company itself would not bring the proposed proceeding pursuant to s 237(2)(a).
[45]Of Messrs Shaw and Ross, only Mr Shaw was represented; Mr Ross was not. Nothing turns on this however as the claims against each were identical.
The Stokie Parties do not dispute that Mr Bzezinski and Mr Ruschin gave notice to the Company and so have established the requirement set out in s 237(2)(e).
The Stokie Parties also accept that the Company itself is unlikely to bring the proposed proceeding because it is in receivership and without funds. However, they submit that Mr Bzezinski (as a director of the Company) retains a residual power to bring the claim in the Company’s name against the appointment of Messrs Shaw and Ross as receivers and managers.
In Deangrove Pty Ltd v Commonwealth Bank of Australia,[46] Sackville J, after conducting a review of the authorities, considered that it was clear that where a company in receivership had a claim against a debenture holder and the receiver declined to pursue that claim, the directors were entitled to initiate and maintain proceedings in the name of the company;[47] provided the directors offered the company a satisfactory indemnity against costs.[48]
[46](2001) 108 FCR 77 [40], [46].
[47]Ibid 87 [40].
[48]Ibid 88 [46]–[47].
As I understood the submission, the Stokie Parties argued that, in relation to the proposed claims against the appointment of the receivers and managers, the statutory criterion in s 271(1)(a) of the Act had not been established as Mr Bzezinski has a right as a director of the Company to bring that proceeding in the Company’s name. Had Mr Bzezinski been the sole director of the Company, there might have been something in this submission. However, Mr Bzezinski is only one of two directors, with the other director being Mr Stokie. I do not accept that the directors’ residual powers to initiate proceedings in the Company’s name, for the limited purpose of the claim against the appointment of Messrs Shaw and Ross as receivers and managers, will allow the proceeding to be commenced by other means. It is accepted that Mr Stokie would not vote in favour of such a proceeding.
To put it another way, Sackville J, and the authorities to which his Honour referred, contemplate the exercise of residual power to act in the company’s name by the directors acting as a body. The authorities do not recognise the right of a single director, acting alone and contrary to the wishes of the other director, to act initiate a proceeding in the company’s name.
Neither is it possible for Bzezinski Pty Ltd and Ruschin Pty Ltd to lawfully exercise their majority vote in a general meeting of the Company’s shareholders to do what the directors have not agreed to do, or to utilise their shareholding majority to remove Mr Stokie as a director. The Company acted solely as trustee of the Trust, and the unitholders’ agreement for the Trust provides that the commencement of any such action requires the unanimous agreement of the directors; moreover, they provide that the directors of the Company are to be Mr Bzezinski and Mr Stokie.
Accordingly, the directors’ residual powers cannot in this instance be deployed to authorise the commencement of a proceeding in the Company’s name against the appointment of the receivers and managers, as Mr Stokie would not assent to the claim. Further, it is doubtful whether such residual powers as exist would extend to claims by the Company against Messrs Shaws and Ross or EDPL in relation to the sale of the Property to EDPL and the failure to take out adequate insurance or secure the Property.
The plaintiffs have satisfied the first statutory criterion in s 237(2)(a) of the Act.
Good faith; best interests of the Company; serious question to be tried – ss 237(2)(a), (b) and (c)
The Stokie Parties contend that the application has not been brought in good faith, largely because of the timing of the application in relation to the proximity of the County Court Proceeding. In addition, they submit that the proceeding is not in the best interests of the Company for reasons including, but not limited to, because the proposed proceeding has little if any prospects of success.[49] Relatedly, they submit that the proceeding is not in the best interests of the Company as it is in receivership, and further the proposed indemnity from the Messrs Bzezinski and Ruschin is of little value as they appear to have insufficient personal assets to ensure that the indemnity is of worth. Additionally, the Stokie Parties also submit that the substance of the relief sought is available in other proceedings which would not require the Company to bring this proceeding in its own name, and for that reason it is not in the best interests of the Company that leave be granted.
[49]A corollary of this is that there is no serious question to be tried.
Mr Shaw opposes the grant of leave on the bases that the proceeding is not in the best interests of the Company having regard to the fact that the claims against Messrs Shaw and Ross have little to no prospects of success, and hence there is no serious question to be tried.
Because of the relationship between the best interests criterion and the serious question to be tried criterion, as well as the relationship between those criteria and the question of good faith, I propose to deal with the relevant matters by considering: first, whether there is a serious question to be tried; second, whether it is in the best interests of the Company that leave be granted leave; and finally, whether the plaintiffs have established that they are acting in good faith.
I propose to do so by reference to the main heads of claim sought to be advanced by Messrs Bzezinski and Ruschin in the Company’s name, as set out at paragraph [13] of the plaintiffs’ written submissions; but reframed slightly so as to accord with the manner in which the plaintiffs argued the application.
Did Hilback lend money to the Company?
Messrs Bzezinski and Ruschin allege that no moneys were advanced by Hilback to the Company. As such, they allege that there was no default under the First Loan Agreement or the Second Loan Agreement, and that therefore there is no actionable default under either the GSA or the mortgage which might support the appointment by Hilback of receivers and managers. Accordingly, they submit that Hilback was not entitled to take possession of the Property, to appoint Messrs Shaw and Ross as agents of the mortgagee in possession, or to subsequently appoint them as receivers and managers. Although the argument was advanced on the basis that no moneys were lent by Hilback to the Company, the real question is whether any advances were made pursuant to the secured loan agreements (that is, the First Loan Agreement and the Second Loan Agreement): it was pursuant to the securities given by the Company in respect of obligations arising under those agreements that Hilback took possession of the Property by its agents Messrs Shaw and Ross, subsequently appointed them as receivers and managers to the Company, and sold the Property to EDPL. It is conceivable that loans were made by Hilback to the Company which do not fall within the scope of the secured loan agreements.
Messrs Bzezinski and Ruschin accept that Hilback transferred moneys generally towards the enterprise, but contend that they were paid not to the Company but to Kalimpa Pty Ltd and to KLE; accordingly, they say that if these advances did constitute loans, then they were loans made to those entities not the Company. First, they rely on various bank statements which show payments deposited into the bank account of Kalimpa Pty Ltd and to KLE. Second, they point to allegedly conflicting financial records for KLE, including a balance sheet for KLE created on 6 June 2018 which records as non-current liabilities of KLE two loans, the first made by the Stokie Family Trust for $4,656,857.53, and the second made by the Stokie Family Trust HB[50] for $620,250.28. That 6 June 2018 balance sheet also records as a non-current liability the entry ‘loan Kalimpa Park’, which has a minus sign in front of it and then the figure $765,589.86.
[50]Presumably ‘HB’ means Hilback.
Messrs Bzezinski and Ruschin submit that these entries show that KLE, and not the Company, was indebted to the Stokie Family Trust (Hilback). Further, they argue that the entry marked with the minus sign shows that the Company owed KLE money.
They also point to balance sheets for both the Company and KLE, created by the Stokie Parties on 17 September 2018 for the period of June 2018. Those balance sheets contain no reference to any liability of the Company to KLE.[51] Messrs Bzezinski and Ruschin contend this is inconsistent with the 6 June 2018 balance sheets for KLE. Further, the 17 September 2018 version of the Company balance sheet now shows a liability of the Company to ‘Hilback (Stokie Family Trust)’ of $6,279,218.23.
[51]In fact it shows a liability from KLE of $23,197.89.
Messrs Bzezinski and Ruschin note that the KLE balance sheet created 6 June 2018 shows an indebtedness of KLE to Hilback (that is, to the ‘Stokie Family Trust’ for $4,656,857.53 and to the ‘Stokie Family Trust HB’ for $620,250.28), but that the Company balance sheet created 17 September 2018 for the same period shows a similar level of indebtedness by the Company to Hilback (that is, to the ‘Hilback (Stokie Family Trust) for $6,279,218.23). They submit that the two are inconsistent, with the 6 June 2018 balance sheet being more consistent with the true flow of funds.
The Stokie Parties rely on exhibit CD-17 to Mr Deren’s affidavit, which is described by Mr Deren as a ‘general journal which forms part of [the Company’s] books and records’ provided to Mr Deren by KLE and the Company’s bookkeeper. Mr Deren deposes that this document ‘records the moneys advanced by Hilback to [the Company] and KLE’ and which ‘shows that of the funds transferred by Hilback, $3,243,618.95 was attributable to loans to [the Company] for the purchase and development of the Property’. In contrast to the description in the body of the affidavit, the Form 43A certificate describes the document as a general journal for KLE, not the Company, and an examination of it shows that it relates to KLE. Although the document is relied upon by the Stokie Parties as constituting part of the Company’s books and records, it is in fact a general journal for KLE. In any event, and absent further and more precise explanation, it is not clear what the journal shows; at best, and reading the various balance sheets together with what is described in the body of Mr Deren’s affidavit, there appears to be some sort of suggestion by the Stokie Parties that the indebtedness shown in the original KLE balance sheet of 6 June 2018 was reversed by journal entry so as to reflect the arrangements in fact agreed.
In the result, the primary evidence adduced on behalf of the Stokie Parties which supports the advance of funds by Hilback to the Company is Mr Deren’s affidavit, where he deposes that ‘between 25 January 2017 and 14 September 2017, Hilback lent $2,046,650.73 to [the Company] to purchase the land and undertake the development [defined in the affidavit as the ’Initial Funds’]’, and that ‘between 15 September 2017 and 31 May 2018, Hilback lent a further $1,206,695.70 to Kalimpa Park [defined in the affidavit as the ’Further Funds’]’.
In the County Court Proceeding, Hilback also alleges that these same payments were advances made pursuant to the First Loan Agreement. Given that the First Loan Agreement was not executed until 25 September 2017 and has a commencement date of 20 July 2017, without further explanation it is not immediately clear how funds advanced before the commencement date are advances made pursuant to the Loan Agreement.
Later in the affidavit, Mr Deren deposes that ‘between 4 August 2015 and 16 October 2018 Hilback, directly and through its associated entities including Blueberd Pty Ltd, Carrison Pty Ltd, Katsfield Pty Ltd lent $1,668,244.57 for the legal fees in [the AHR Kalimpa Proceeding]’ and which loan ‘was not documented until the loan agreements were executed on 15 September 2017’. Mr Deren then deposes that these payments were transferred into various accounts in the name of Kalimpa Pty Ltd, ‘the Court’s trust account’, and solicitors Holding Redlich and Mills Oakley. Mr Deren exhibits three pages of a Kalimpa Pty Ltd bank statement to support these paragraphs.
In sum, the Stokie Parties have not adduced any evidence from the Company’s books and records which show loans having been made by Hilback to the Company; the only document which appears to be akin to the books and records of the Company is a balance sheet created in September 2018 for the Company as at June 2018 and exhibited by Mr Bzezinski.
Additionally, the Stokie Parties rely upon the existence of the First Loan Agreement and the Second Loan Agreement, both of which clearly contemplate advances by Hilback to the Company. Further, they point to the absence of any meaningful response, much less of any denials, by Messrs Bzeenzki and Ruschin to the initial letters of demand sent in 2018 which assert liability on their part under the Deed of Guarantee and Indemnity. Relevantly, the Deed of Guarantee and Indemnity was referable to any loans made pursuant to the First Loan Agreement, the Second Loan Agreement, or both.
Of course, the fact that the payments made by Hilback (or by other entities related to Mr Stokie and in some way yet to be articulated on Hilback’s behalf) were made not into the Company’s bank account but rather into a bank account of one or any of KLE, AHR Kalimpa, or Kalimpa Pty Ltd itself is far from conclusive. It is by no means uncommon for flows of funds to be inconsistent with agreed legal arrangements; nor is it uncommon nor improper for draft financial statements contemporaneously prepared by a book keeper to initially reflect the flow of funds and then later be journalised to correspond to the agreed arrangements.
Further, it was clearly contemplated by Hilback, the Company, and most relevantly by Messrs Bzezinski and Ruschin, who both signed the Deed of Guarantee and Indemnity, that Hilback would be advancing funds to the treated (at least from 30 July 2017 onwards, which is the commencement date of both the First Loan Agreement and the Second Loan Agreement) as loans made by Hilback to the Company and to be the subject of the security provided by the Company in favour of Hilback in the form of the GSA and the Hilback Mortgage. Moreover, the First Loan Agreement was signed on behalf of the Company by Mr Stokie and Mr Bzezinski as directors of the Company; further, it was AHR Kalimpa, owned by Messrs Bzezinski and Ruschin and not Mr Stokie, which was to benefit from funds advanced pursuant to the Second Loan Agreement.
Further, it is common ground that the Company (and not KLE) acquired the Property, and nor does it appear to be in dispute that Hilback made a payment which facilitated the acquisition of the Property by the Company. Rather, it is only the characterisation of that payment which is disputed.
Nor is it disputed that, subsequent to the acquisition of the Property by the Company, substantial improvement was made to the Property through the construction of a feedlot. It accords with obvious commercial sense that if Hilback was providing that funding, or at least part of it (as appears to be undisputed), and that the benefit of that funding would accrue to the Company, then the funding would take the form of a loan by Hilback to the Company and further that in return for making the loan to the Company, Hilback would obtain the benefit of the securities in the form of the GSA and the Hilback Mortgage.
There is no sound, or indeed any, commercial reason why Hilback would have agreed to lend money to Kalimpa Pty Ltd (as opposed to the Company), which entity did not own the Property and in respect of which there was no written agreement with Hilback. Nor is there any reason why Hilback would lend the money to AHR Kalimpa directly, undocumented and absent any security. The same considerations apply in relation to KLE at least in respect of the period after the commencement date of the First Loan Agreement and the Second Loan Agreement.[52] I consider it extremely unlikely that the payments constituted loans made by Hilback to KLE (after the commencement date of the First Loan Agreement and the Second Loan Agreement), to Kalimpa Pty Ltd, or to AHR Kalimpa, given the complete absence of documentation and commercial justification. Further, any suggestion of the provision of equity or of a gift borders on the absurd.
It is certainly open to conclude that what was intended by all relevant actors was that, regardless of the bank account into which the funds were transferred, the funds so transferred would be treated as loans between Hilback and the Company. To the extent to which journal entries in the books and records of Hilback and the Company are consistent with such characterisation, it may well be the case that such entries reflect the arrangements agreed between the Company (by its directors Mr Bzezinski and Mr Stokie on the one hand) and Hilback (by Mr Stokie), and as evidenced by the First Loan Agreement and the Second Loan Agreement.
However, that does not appear to be clear on the evidence before me. There is no evidence from Mr Stokie, nor is there reliable evidence of the Company’s books and records, only what appears to be books and records of KLE and the September 2018 version of the Company balance sheet referred to by Mr Bzezinski. Moreover, the bank accounts evidencing the relevant transfers show that many of the payments precede the date of the execution of the formal loan agreements and the commencement date under those loan agreements. In other words, the evidence of the proper characterisation of the payments is a mess.
The burden on the plaintiffs in establishing that there is a serious question to be tried is not a heavy one, and a court will not normally enter into the merits to any great degree. On the basis of the material before me, I do consider that the plaintiffs have established that there is a serious question to be tried as to whether the entirety of the funds evidenced in the payments made into bank accounts of Kalimpa Pty Ltd and KLE in fact constitutes advances made by Hilback to the Company pursuant to the First Loan Agreement and the Second Loan Agreement, and are hence the subject of the GSA and the Hilback Mortgage.
That there is a serious question to be tried as to whether the entirety of the funds evidenced in the bank transfers constituted secured loans to the Company only assists the plaintiffs so far. If the Company was in default under the First Loan Agreement[53] even for a lesser sum than that set out in the notice of default, then Hilback was entitled to enforce its securities.
[53]And conceivably the Second Loan Agreement, although that may not be relied upon: in the County Court Proceeding, Hilback appears to confine its claim to the Initial Funds ($2,046,650.73) and the Further Funds ($1,206,695.70), both said to have been advanced pursuant to the First Loan Agreement. It appears to be the case that it does not rely on the Second Loan Agreement and hence the payments made for the AHR Kalimpa Proceeding. This notwithstanding the initial default notice said that the default was in respect of the sum of $5,079,218.23
Whether the plaintiffs have established that there is a serious question to be tried as to whether there was no event of default at all under the GSA and the Hilback Mortgage is a more difficult hurdle for the plaintiffs to overcome.
Certainly, the plaintiffs’ case is strongest in relation to those payments made prior to the commencement of the First Loan Agreement, which comprise most (or all) of the Initial Funds. One possibility is that the payments were loans to the Company, but were not loans that fall within the ambit of the First Loan Agreement or the Second Loan Agreement, and as such do not fall within the ambit of the securities.
In relation to payments made after the entry into of the First Loan Agreement, the plaintiffs’ case is more problematic. It would be surprising if they were intended to be loans to KLE rather than to the Company. The documented arrangements are all consistent with secured loans from Hilback to the Company, and then from the Company to KLE.
The plaintiffs have adduced evidence of the bank transfers, along with what purport to be balance sheets of KLE which give rise to at least some evidence suggestive of there being no loans by Hilback to the Company. Whilst such matters of themselves might be explained in a manner consistent with the payments in fact being loans to the Company, there is an absence of evidence of any real probative nature adduced by the Stokie Parties; there is no evidence from Mr Stokie; there is no evidence of any probative value of the Company’s books and records or those of Hilback; nor is there evidence of adherence to the formal mechanisms to be followed under the First Loan Agreement prior to loans being advanced.[54]
[54]Both agreements also contemplate draw down notices being provided by the Company before the loans were advanced. There is no evidence that this occurred. If there were not there may be scope to argue that such a requirement was waived or otherwise cannot present as a bar to characterisation as to the nature of the payments.
Noting the relatively low threshold, I accept that there is a serious question to be tried as to whether there was a default by the Company under the Hilback Mortgage and the GSA. Unfortunately, the present case of the evidence is such that I am unable to positively conclude that there were loans made pursuant to the First Loan Agreement, and as such fall within the rubric of the Hilback Mortgage and the GSA. In circumstances where the plaintiffs have adduced some evidence to the contrary, and noting the low threshold, I accept that there is a serious question to be tried as to whether Hilback was entitled to enforce its securities, but I have some doubt that the proposed claim is a particularly strong one.[55]
The claims in respect of the failure to secure the Property, the failure to take out appropriate insurance, and the improper sale to EDPL
[55]These issues will no doubt loom large in the County Court Proceeding.
The plaintiffs seek leave to bring claims in the Company’s name against Messrs Shaw and Ross in relation to the alleged failure to properly maintain the Property and secure the Property after the dismissal of all staff, the alleged failure to properly insure the Property, and the allegedly improper sale of the Property to EPDL.
Before considering whether there is a serious question to be tried in relation to these matters, it is necessary to set out some of the facts which inform these proposed claims.
After the acquisition of the Property by the Company, the Company and KLE subsequently commissioned construction works at the Property to establish a 12,000 Standard Cattle Unit (‘SCU’) feedlot.
On 30 January 2018, Colliers International prepared a valuation of the Property for CBA, in connection with the Company’s CBA loan facilities. The date of the valuation was 30 January 2018, and the valuer purported to value the Property on an ‘in use as is’ basis at $8,350,000, and on an ‘in use as if complete basis’ at $12,650,000.
The valuation defined ‘in use value’ as:
… with regard to the subject property, [a value that] assumes its use as a feedlot and farming enterprise which relies on special purpose plant and equipment including irrigation headworks, pumps, pipework, centre pivots, specialised cattle handling facilities, feedlot approvals, feedlot pens and specialised feed milling/feed storage and distribution equipment. As the Property is considered saleable for the current operation we have provided a valuation on an ‘in use’ basis reflecting the added value (if any) of special improvements, plant and equipment.
The ‘as if complete’ value was defined as:
‘the Market value of the proposed improvements and detailed in the report on the assumption that all construction had been satisfactorily completed in all respects at the date of valuation. The valuation reflects the Valuer’s view of the market conditions existing at the date of valuation and does not purport to predict the market conditions and the value at the actual completion of the improvements because of the time lag. Accordingly the As If Complete’ valuation should be confirmed by a further inspection by the Valuer, initiated and instructed by the party relying upon this valuation, on completion of improvements. The right is reserved to review, and if necessary, vary the valuation in this report if there are any changes in relation to the project itself or in the property market conditions and prices’.
‘Market value’ was defined as:
… the estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion.
In the ’Executive Summary’ section of the valuation, under the subheading ‘Property Overview’, the valuer noted that the Property is currently being developed with a 12,000 SCU feedlot on the northern boundary, and listed the new infrastructure which had been completed to that date. The new infrastructure included, among other things, accommodation and transportable dongas, five DE silos each of 152 tonne capacity,[56] feedlot pens, and a 70 tonne weigh bridge suitable for B-doubles.[57]
[56]The reference to ‘DE’ is presumably to DE Engineers, a silo manufacturer.
[57]A ‘B-double’ is a type of freight vehicle.
The valuer also noted that the feedlot industry in Western Australia is small in comparison to the eastern and southern states, and this had necessitated the investigation of interstate sales to draw some meaningful comparisons for the valuation. The valuer also noted:
The proposed ‘Kalimpa’ feedlot is a specialised infrastructure asset with limited comparable sales evidence and as such subject to variability in value. If placed on the market in a forced sale situation a larger than normal discount may occur due to the specialised nature of the infrastructure and the feedlot business.
Similarly, under the subheading ‘Warnings’, the valuer noted that he was unaware of any local transactions involving directly comparable properties improved with a feedlot, and that notwithstanding that the resulting value represented the view of the valuer, he cautioned ‘that a range in views is possible given the lack of directly comparable evidence and the degree of subjectivity. As a result, inherent value volatility exists.’
The valuation also assumed that the licences to take water utilised on the subject property, described as an integral part of its ongoing market value, formed part of the security offered and notwithstanding that those licenses were the personal property of the owner and not part of the real property.
On 18 April 2018, the Company purchased an insurance policy from Scott Winton Insurance Brokers Pty Ltd which policy specified the insurer as QBE Insurance Australia Ltd (‘QBE’).
On 6 September 2018, the solicitors for Hilback wrote to the then-solicitors for Messrs Bzezinski and Ruschin, HWL Ebsworth, requesting a copy of the insurance certificate as it was entitled to do under the First Loan Agreement. A copy of the policy was provided by HWL Ebsworth on 13 September 2018.
On 18 September 2018, the solicitors for Hilback wrote to HWL Ebsworth advising that Hilback had reviewed the insurance and considered that the policy was deficient as it did not include any of the feedlot construction, including the pens, posts, railings, gates, water troughs, and bores, all of which had been constructed at a cost of several million dollars.
On 21 September 2018, HWL Ebsworth responded and noted that the obligation under the Loan Agreement to obtain insurance lay on the Company, of which Mr Stokie was also a director, and advised that Mr Bzezinski was in the process of obtaining quotes which might take up to 21 days to finalise.
On or about 29 September 2018, the Property was criminally damaged. The damage was significant in nature and quite clearly inflicted by well-organised and determined actors; remarkably, the damage that was effected to the Property extended only to the uninsured feedlot. The insurer’s assessor’s report noted that:
Every cattle pen has been destroyed beyond repair. Post and rail steel fencing has been flattened, bent and/or lifted out of the ground, still inside the concrete footings. There is nothing to be salvaged. Nineteen (19) out of the twenty (20), one tonne concrete water troughs, each of which had a capacity to hold 1,000 litres of water, are damaged had been picked up and upended from their bases.
A subsequent quotation obtained from Nash Brothers (WA) Pty Ltd for the repair of the Property estimated the cost of removing the damaged items and a rebuild of the feedlot, fencing, water troughs and feed troughs as in excess of $2 million.
A claim was made upon QBE. The claim was declined, on the basis that the items damaged did not fall within the ambit of the policy.
The exclusive sale authority conferred on CBRE specified a sale by expressions of interest (‘EOIs’), to close on 20 February 2019, and designated the principals under the agency agreement as Messrs Ross and Shaw as agents for the mortgagee in possession from the Company.
From 24 January 2019 to 28 February 2019, CBRE conducted its marketing campaign in respect of the Property. During the course of its marketing campaign it received six EOIs, four of which contained indicative offers and two of which did not. The indicative offers were for $1,000,000; $1,400,000 to $1,500,000; $1,600,000 and $3,600,000, the highest indicative offer being made by DC Capital Advisors Pty Ltd (‘DC Capital’).
On 11 April 2019, following a three week due diligence period which had been granted to DC Capital, on 19 May 2019 DC Capital submitted a formal offer to purchase the Property for $3,600,000, with assets located on but not affixed to the Property to be included in the purchase price.
By email from Hall Chadwick[58] to DC Capital dated 12 April 2019, DC Capital was advised that its offer was not capable of being properly considered because the agents had not been appointed to sell the other assets the subject of its offer. A proposal was put to DC Capital that it purchase the Property alone for $3.6 million, with a due diligence period up to 30 April 2019.
[58]At the time, Messrs Shaw and Ross were principals at Hall Chadwick.
This proposal was not accepted by DC Capital and by email dated 28 April 2019 DC Capital advised that they ‘were out’.
At this time, CBRE and Mr Ross also negotiated with the other interested parties who had made EOIs. At or around this time, EDPL expressed an interest in purchasing the Property and made an indicative offer of $1,600,000.
On 30 May 2019 EDPL made an offer to purchase the Property for $1,700,000 (GST exclusive) with settlement on 30 June 2019, subject to a special condition that it receive written confirmation that the equipment located on the Property could be purchased separately by EDPL. EDPL later agreed to remove that special condition and its offer became unconditional.
Following receipt of the offer from EDPL, the other parties who had submitted EOIs were advised to submit any offers they wished to make in respect of the Property by no later than 4 June 2019. No further offers to purchase the Property were received.
According to an affidavit sworn by Mr Shaw on 15 July 2021, he concluded that the EDPL offer to purchase the Property for $1,700,000 was a commercial offer that should be accepted, on the basis that:
(a) it was the highest unconditional offer received;
(b) the offer provided for an immediate sale;
(c) the Property had been on the market for approximately six months with CBRE and therefore it was unlikely that further time would result in a higher offer being received; and
(d) the value of the Property had been significantly reduced as a consequence of malicious damage to the feedlot that had been constructed on the Property.
On 5 June 2019, Messrs Shaw and Ross were appointed as receivers and managers of the Company, and in that capacity entered into a contract of sale to sell the Property to EDPL for $1.7 million.
Against the background of those circumstances, the plaintiffs seek to advance claims in the Company’s name against Messrs Shaw and Ross of the nature set out in paragraphs [8(b)]-[8(d)] above: that is, the alleged failure of Messrs Shaw and Ross to insure, maintain or secure the Property; the allegedly improper sale of the Property to EDPL; and the allegedly deficient sales process for the Property.
The failure to take out insurance
In my opinion, there is no serious question to be tried in relation to any of the proposed claims in subparagraphs [8(b)(i)]-[8(b)(iii)] above. First, at the time the damage occurred, the Company held the insurance originally taken out on 18 April 2018. Messrs Shaw and Ross had been appointed as agents of Hilback as mortgagee in possession on 4 September 2018. The relevant damage occurred on or about 29 September 2018.
There is no basis to suggest that the agents for the mortgagee Hilback breached some form of duty owed to the Company as mortgagor in failing to take out insurance which would have covered the criminal damage to the feedlot in the four weeks after their appointment. As noted above, the First Loan Agreement between Hilback and the Company required the Company to take out the insurance, and HWL Ebsworth had on 21 September 2018 assured the solicitors for Hilback that one of the Company’s directors, Mr Bzezinski, was in the process of obtaining quotes for additional insurance which may take up to 21 days to finalise. Quite why Messrs Shaw and Ross as agents for the mortgagee should have taken out a further policy for the benefit of the Company in such circumstances was not articulated with any cogency by the plaintiffs and is difficult, if not impossible, to conceive. There is no serious question to be tried with respect to the alleged breach of duty to maintain sufficient insurance.
The failure to secure the Property
The same conclusion follows with respect to the alleged failure on the part of Messrs Shaw and Ross as agents for the mortgagee to comply with a duty to secure the Property. The plaintiffs rely on a duty ‘to take reasonable steps to protect the premises’. Even if I were to accept, which I do not necessarily, that it is arguable that a mortgagee who has taken possession of secured property owes a duty to the mortgagor to take reasonable steps to protect that property, here the Property was a large, non-operating,[59] rural property. Compliance with any purported duty would depend on the identification of reasonable steps in light of the foreseeable risks. Any breach of such duty would only be causative of loss if the reasonable steps would have prevented the damage that resulted, and they were not taken.
[59]KLE had ceased operating the business at the Property.
The plaintiffs have not identified, with reference to the Property, what steps should have been taken and what foreseeable risks existed. Having regard to the nature of the damage effected, it is difficult to conceive of what security measures could have been deployed by the agents which would have been sufficient to prevent the determined and vindictive steps taken by the unknown actors, short of the engagement of a substantial security force. Absent foreseeable risk of that occurrence and some means to pay for and secure the appropriate protection, no breach could arise and no consequence follows from the imposition of the purported duty.
There is no serious question to be tried with respect to the allegation that Messrs Shaw and Ross breached a duty to the Company to ensure that the Property was secure.
The claim in respect of the improper sale
The claim that Messrs Ross and Shaw breached their duties as receivers and managers in failing to ensure an arm’s length sale of the Property at market value is built on the faulty edifice of a comparison between the price achieved in June 2019 and the value recorded in the Colliers valuation of January 2018.
There are a number of flaws with the plaintiffs’ argument:
(a) First, as the Colliers valuation made clear, the value it recorded was not an assessment of market value. The value recorded was an ‘in use value’ both in its current state and after all improvements had been completed and at the time of sale the Property was not in use.
(b) Second, the Colliers valuation evidently proceeded on the basis that part of the feedlot had been constructed[60] and that part was to be constructed.[61] Having regard to the criminal damage that was effected to the Property in late September 2018, the Property was sold with the feedlot destroyed. Thus, apart from its no longer being in use, the condition of the Property was also not as it was in January 2018.
(c) Third, the Colliers valuation expressly noted the uncertainty and inherent variability in the ‘as if’ and ‘as if complete’ valuations referred to in the Colliers valuation.
(d) Fourth, the Colliers valuation specifically noted the importance of the water licences to the value ascribed by Colliers, and carried out the valuation on the assumption that the water licences constituted part of the security notwithstanding that they were the personal property of the Company and did not form part of the Property. Preliminary remediation advice was obtained from Pritchard Francis on 21 May 2020, which estimated that the costs of works required to ensure compliance with the licence comprised earthworks and drainage works in the amount of approximately $180,000, together with soil stabilisation works costing between $300,000 and $2.6 million. It is not clear that the Property sold by CBRE included the water licences and in any event the status of the licences as at the time of sale is unclear.
[60]The ‘as if’ valuation.
[61]The ‘as if complete’ valuation.
In short, the Colliers valuation, which was the building block of the claim that the agents had breached their duty in effecting the sale of the Property, was not a market valuation. It made specific reference to the uncertainty and variability in the opinions expressed and, in any event, proceeded upon the basis of certain assumptions as to the condition of the Property which were not present at the time of sale.
Moreover and in any event, s 420A of the Act provides that in exercising a power of sale in respect of property a controller must take all reasonable care to sell the property for:
(a)if when it is sold, it has a market value – not less than that market value; or
(b)otherwise – the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
Thus, s 420A does not impose a duty upon the controllers to obtain the best possible price. Rather, the focus of the section is on the process adopted by the receiver or controller. As Branson J observed in Deangrove Pty Ltd v Buckby:[62]
The issue to be determined is whether that process was not one where all reasonable care was taken to sell the property for its market value, whatever that value was, or alternatively for the best price reasonably obtainable.
[62](2006) 56 ACSR 630, 639 [53]; citing Artistic Builders Pty Ltd v Elliott & Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16, [126] (Campbell J).
Here, the sale process undertaken by Messrs Shaw and Ross was thorough and robust. They engaged reputable estate agents, CBRE, who conducted a month-long expression of interest campaign with advertising online, on the premises and in three newspapers. The campaign’s effectiveness was demonstrated by the four indicative offers received. CBRE followed up each of the offers and ultimately effected a sale to that bidder who had made the highest unconditional offer as at the date of sale.
In submissions, counsel for the plaintiffs submitted that what Messrs Shaw and Ross should have done was not sell the Property and instead hold it for a period of time. Noting that KLE, the operating entity, had apparently ceased operations and that the Company was in default of its facilities with the CBA, it is far from clear as to how this could have occurred. In any event, a mortgagee is entitled to realise its security; and its obligation to take reasonable care to sell the mortgaged property in the manner set out in s 420A is to be assessed in the context of the mortgagee’s entitlement to realise its security.[63]
[63]Vasiliou v WestpacBanking Corporation (2007) 19 VR 229, 242 [63] (Maxwell P, Neave and Kellam JJA)
Accordingly, there is no serious question to be tried with respect to the sale of the Property.
In conclusion, the only claim advanced on behalf of the Company in respect of which there is a serious question to be tried is whether the Company was indebted to Hilback pursuant to the First Loan Agreement or the Second Loan Agreement, and as a consequence whether Hilback was entitled to enforce its securities including by the appointment of receivers and managers.
The conclusion that there is no serious question to be tried in relation to the matters concerning the sale of the Property or the damage to feedlot is also relevant to the utility of any proposed proceeding in the Company’s name in respect of the alleged improper exercise of security rights by Hilback. The ultimate consequence of any improper exercise of the security rights by Hilback would be that the Company’s asset, the Property, had been sold by Messrs Shaw and Ross when they had no authority to do so.
Even if there was no actionable default under the Hilback securities, the Company and KLE were in default under the CBA facilities and the sale of the Property was at market value. the relevant counterfactual is that the Property should not have been sold by Hilback as mortgagee in possession (or more specifically, as events transpired, by Messrs Shaw and Ross as receivers and managers appointed by Hilback). If that was the case, then the Company should have retained the Property.[64] If the market value of the Property is the same or consistent with the sale price achieved, which on the evidence before me it is, then all that has happened however is that the Company’s real property asset has been transformed into cash. One asset has been substituted for another.
[64]Save to the possibility, if not the probability, that CBA as the first registered mortgagee would have exercised its security rights over the Property.
Moreover, the Company was in default of its facility with the CBA, the registered first mortgagee. The price that was achieved for the sale was less than the amount needed to discharge the CBA’s security because that security also extended to equipment owned by KLE.
That being so, any wrongful exercise of security rights by Hilback and effected through the Messrs Shaw and Ross as receivers and managers cannot have caused any significant loss or damage to the Company.[65] KLE and the Company were in default to the CBA and there is no evidence that those defaults could have been remedied or that funding could have been obtained to ensure that KLE continued to operate the business. In any event, the plaintiffs have not been able to articulate any resultant loss and damage for the purposes of this application. The plaintiffs’ loss and damage calculus proceeds on the premise of a sale at substantial undervalue, including because of the damage to the Property which itself allegedly resulted from the failure to properly secure the Property. Alternatively, the plaintiffs loss and damage calculus assumes the breach in respect of the failure to take out insurance. There is no probative loss calculus articulated which proceeds on the basis of a sale at market value and no case with respect to the failure to secure or insure the Property.
[65]Aside from transaction costs, such as agents fees and the fees payable to the agents for the mortgagees in possession and the receivers and managers.
These matters have obvious significance with respect to the next criterion under s 237(2)(c): whether it is in the best interests of the Company that the proposed action, or any part of it, be commenced.
Best interests of the Company: s 237(2)(c)
In my opinion, the grant of leave is not in the best interests of the Company.
First, the only cause of action in respect of which there is a serious question to be tried is one which will not on the evidence lead to any substantial award in the Company’s favour. An award of substantial damages in the Company’s favour would depend on the sale have taken place at an undervalue, or there being a serious question to be tried with respect to either the failure to take out insurance or the failure to secure the Property, either of which would have resulted in a damages claim of a magnitude representing the value of the damaged feedlot. As I have concluded that there is no serious question to be tried in relation to those matters, the proposed claims will not yield any sufficient or significant damages to the Company. If there were no loans made by Hilback to the Company at all, or no secured loans, then such matters can be advanced by the plaintiffs in their defence to the claim by Hilback in the County Court Proceeding.
Second, the Company is in receivership. It does not trade and, on the face of it, does not have the funds to support any litigation. The plaintiffs’ affidavit material did not extend to the question of any indemnity, although in submissions the plaintiffs’ counsel confirmed that the plaintiffs would be willing to indemnify the Company with respect to its costs of the action and any costs liabilities that might result. However, there is no evidence of any capacity on the part of the plaintiffs to satisfy any such indemnity. Title searches reveal that none of the plaintiffs hold any real property, and I note that the plaintiffs have been represented by at least six different law firms prior to the engagement of their current lawyers.[66] Further, in the application made to vacate the November 2020 trial date, the affidavit material in support of the application deposed to the fact that Mr Ruschin would be self-represented; this gives rise to an inference of a lack of financial capacity on his part. That affidavit also deposed to the fact that Mr Bzezinski had been compelled to change solicitors from Dentons to B2B Lawyers because he could not afford the former’s fees. Of course, as it happened, B2B Lawyers no longer act for Mr Bzezinski in the County Court Proceeding. Although Mr Bzezinski deposes to the fact that he has paid all outstanding fees aside from those owing to one firm, with whom he is in dispute, one possible reason for the sheer number of solicitors who have ceased to act is a failure to put those firms in funds in a timely manner. The affidavit material of the defendants in this proceedings clearly put the plaintiffs on notice of the defendants’ belief that the plaintiffs were not capable of satisfying any indemnity for the costs that the Company would accrue in the proposed claim. Notwithstanding that, the plaintiffs did not put on any further affidavit material which satisfactorily ameliorated such concerns.
[66]Mills Oakley, Rickards Legal, Dentons, B2B Lawyers, Walpole Menzies, and HWL Ebsworth.
Third, there may be some other remedy available to the applicant so as to make the proposed action unnecessary from the Company’s point of view. Here there are a number of alternative remedies available:
(a) First, and in relation to the one cause of action which presents a serious question to be tried (that is, whether there has been an advance of funds by Hilback to the Company pursuant to the First Loan Agreement or the Second Loan Agreement), the plaintiffs are entitled to raise those matters (and indeed have done so) by way of their defence to the claims brought against them as guarantors in the County Court Proceeding.
(b) Secondly, and in relation to the other causes of action, which do not present any serious questions to be tried, the plaintiffs have previously foreshadowed bringing those claims as part of an oppression claim.[67] Those claims were prepared by senior counsel on behalf of the plaintiffs, and there is no reason why those claims cannot be brought by the plaintiffs in an ordinary oppression suit.[68] Whilst the Company might be joined as a party to that proceeding for reasons of conformity, the Company would not be the moving party in the action and so would not bear the attendant costs and other consequences that attach to a moving party in those circumstances. In the result, the plaintiffs have not established that it is in the best interests of the Company that leave be granted.
[67]See paragraph [32] above.
[68]I have not specifically dealt with the claims sought to be brought in the Company’s name against Mr Stokie for breach of directors’ duties. Insofar as they rely on Mr Stokie’s creation of a document trail in the form of the First Loan Agreement and the Second Loan Agreement, they are belied by the execution of the First Loan Agreement by Mr Bzezinski and the execution by Messrs Bzezinski and Ruschin of the Deed of Guarantee and Indemnity. Otherwise, and to the extent to which they are arguable (which I do not accept) they are the very types of matters commonly brought as part of an oppression suit.
Good faith
Nor do I accept that this proceeding has been brought in good faith.
Hilback made demands for repayment on 6 August 2018 and appointed Messrs Shaw and Ross as agents of the mortgagee in possession on 4 September 2018. The claim sought to be advanced in the Company’s name (that is, that Hilback had wrongfully taken possession) was not advanced until April 2021. Further, the County Court Proceeding was issued on 29 November 2019, and the defence to that proceeding has included a number of the allegations the subject of the proposed proceeding. The foreshadowed oppression proceeding covers the very same claims now sought to be raised in the proposed pleading and was contemplated in mid-2020. At no stage during that two year period did Messrs Bzezinski and Ruschin either commence any oppression proceeding or apply for the leave for which they now seek. Nor is there any explanation as to why these putative claims have not been advanced at an earlier date. In contrast, the proceeding was issued on 28 May 2021 and then relied upon in June 2021 to vacate (for the second time) the trial of the County Court Proceeding against Messrs Bzezinski and Ruschin.
The plaintiffs have not established that the proceeding has been brought in good faith.
Disposition
In order to be granted leave under s 237(2) of the Act, the applicants for leave bear the burden of establishing each of the criteria specified in s 237(2). As the plaintiffs have not discharged that burden in relation to all criteria, leave will not be granted. As the matters that need to be established pursuant to the Court’s inherent jurisdiction are of the same nature, the same conclusion follows in relation to the application or leave pursuant to the Court’s inherent jurisdiction.
Accordingly, the proceeding is dismissed. I shall hear the parties as to costs.
SCHEDULE OF PARTIES
| S ECI 2021 01800 | |
| BETWEEN: | |
| HAIM BZEZINSKI | Plaintiff |
| BZEZINSKI PTY LTD (ACN 164 662 300) | Second Plaintiff |
| DANNY RUSCHIN | Third Plaintiff |
| RUSCHIN PTY LTD (ACN 608 521 544) | Fourth Plaintiff |
| - and - | |
| CAMERON HUGH SHAW IN HIS CAPACITY AS RECEIVER AND MANAGER OF KALIMPA PARK PTY LTD (ACN 615 703 547) (RECEIVERS AND MANAGERS APPOINTED) | First Defendant |
| MICHAEL STOKIE | Second Defendant |
| HILBACK PTY LTD (ACN 842 451 980) | Third Defendant |
| DAVID ROSS IN HIS CAPACITY AS RETIRED RECEIVER AND MANAGER OF KALIMPA PARK PTY LTD (ACN 615 703 547) | Fourth Defendant |
| ERIM DOWNS PTY LTD (ACN 633 681 428) | Fifth Defendant |
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