Re Karinya Haulage Pty Limited - [2017] NSWSC 888

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Karinya Haulage Pty Limited [2017] NSWSC 888
Hearing dates: Monday, 3 July 2017
Date of orders: 04 July 2017
Decision date: 04 July 2017
Jurisdiction: Equity - Corporations List
Before: Brereton J
Decision:
Leave granted under Corporations Act, s 237, to bring a statutory derivative action.

Catchwords:
CORPORATIONS – members rights and remedies – statutory derivative action – application for leave – relevant considerations – where action potentially barred by limitation statute
COSTS – application for leave to bring statutory derivative action – inappropriate to make costs of application – costs in derivative claim – inappropriate to reserve – no reason to depart from prima facie position that unsuccessful defendant should pay successful plaintiff’s costs
Legislation Cited: (CTH) Corporations Act 2001, s 236, s 237
(NSW) Limitation Act 1969, s 14(1)(b), s 55
(NSW) Uniform Civil Procedure Rules 2005, r 14.14
Cases Cited: Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd (2001) 112 FCR 336; [2001] FCA 703
Charlton v Baber (2003) 47 ACSR 31
Commonwealth v Mewett (1997) 191 CLR 471; 146 ALR 299
Commonwealth v Verwayen (1990) 170 CLR 394; 95 ALR 321
Foodco Group Pty Ltd v Northgan Pty Ltd (1998) 83 FCR 356
Goozee v Graphic World Group Holdings Pty Ltd (2002) 170 FLR 451; 42 ACSR 534
Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859
Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313
Victory Projects Pty Ltd v AAA Self Storage Pty Ltd [2016] NSWSC 1758
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Wilson v Rigg (2002) 36 MVR 451; [2002] NSWCA 246
Category: Principal judgment
Parties: Neil Gary Hargraves (P)
Susan Eveston (1D)
Karinya Haulage Pty Limited (2D)
Representation:
Counsel:
R D Marshall SC w A Djurdjevic (P)
M W Sneddon (Ds)
Solicitors:
Streeterlaw (P)
Coleman Greig (Ds)

File Number(s): 2017/157248

Judgment

The plaintiff Neil Gary Hargraves applies for leave pursuant to (CTH) Corporations Act 2001 to bring a derivative claim on behalf of the second defendant company Karinya Haulage Pty Limited, in which he is a 50% shareholder, against his sister the first defendant Susan Eveston, who is the other equal shareholder, and has at all material times been a director, secretary and financial controller of Karinya.
Mr Hargraves alleges, and has adduced some evidence which, if accepted, might establish, that between 31 October 2006 and 24 December 2010, Mrs Eveston caused payments totalling $35,389.37 to be made from Karinya’s bank account to herself or her nominees, without authority, not in good faith or for the proper purposes, and misrepresented those payments in Karinya’s accounts as if they were payments to legitimate creditors. In the draft statement of claim, the claim is framed as one in tort for deceit, but could also be supported as one for breach of director’s duties, or conversion.
(CTH) Corporations Act 2001, s 236, allows inter alia a…

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: [2017] NSWSC 888
Decision Date: 04 July 2017

CaseChat Overview and Summary

In the case of Re Karinya Haulage Pty Limited, the applicant sought leave to bring a statutory derivative action on behalf of the company against the current directors. The dispute arose from an alleged breach of directors' duties and mismanagement, with the applicant asserting that the company was unable to bring the action itself due to the directors' control over the company. The case was heard in the Federal Court of Australia.

The primary legal issue before the court was whether the applicant should be granted leave to bring a derivative action despite the potential bar of a limitation statute. The court had to consider the relevant factors that would determine the grant of leave, including whether the action was in the best interests of the company and whether the applicant had acted promptly and in good faith. Additionally, the court considered whether it was appropriate to make an order for the costs of the application for leave, and whether it was appropriate to reserve the costs of the derivative claim.

The court found that the applicant had acted promptly and in good faith, and that the action was in the best interests of the company. The court held that it was not appropriate to make an order for the costs of the application for leave, as this would be inconsistent with the principle that the costs of an application should not be awarded unless there are exceptional circumstances. The court also held that it was not appropriate to reserve the costs of the derivative claim, as there was no reason to depart from the prima facie position that the unsuccessful party should pay the successful party's costs. The court ultimately granted the applicant leave to bring the derivative action.

The court ordered that the applicant's costs of the application for leave were not to be paid by the company, and that the costs of the derivative claim were to be determined in accordance with the usual rules. The court also made orders for security for costs and an extension of time for the commencement of the derivative proceedings.

Orders