Re Legal Practice Management Group Pty Ltd

[2018] NSWSC 527

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Legal Practice Management Group Pty Ltd, nSynergy Pty Ltd, nSynergy International Pty Ltd [2018] NSWSC 527
Hearing dates:	14 September 2017, 22 March 2018, last submissions 11 April 2018
Decision date:	27 April 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Leave for the Applicants to bring proposed derivative proceedings under s 237 of the Corporations Act 2001 (Cth) is granted. Parties to bring in short minutes of order to give effect to this judgment and question of costs to be determined.
Catchwords:	CORPORATIONS – membership, rights and remedies – derivative action – application for grant of leave by shareholders to bring derivative proceedings in name of companies under Corporations Act 2001 (Cth) s 237 – whether applicants acting in good faith in bringing proceedings – whether in the best interests of companies that applicants be granted leave – whether proposed proceedings involved serious questions to be tried – indemnity.
Legislation Cited:	- Civil Procedure Act ss 56, 98 - Corporations Act 2001 (Cth) ss 9, 180, 181, 182, 233, 236, 237, 237(1), 237(2), 237(2)(a), 237(2)(b), 237(2)(c), 237(2)(d), 237(2)(e), 241, 242, 1317H, 1317K - Federal Court of Australia Act 1976 (Cth) s 37N
Cases Cited:	- Blue Oil Energy Pty Ltd v Tan [2014] NSWSC 81 - Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 - Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 - Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132 - DIF III Global Co-Investment Fund LP v VBLP LLC [2016] VSC 401 - Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 56 ACSR 705 - Fitzpatrick v Cheal [2012] NSWSC 261 - Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd (2005) 63 NSWLR 203 - Gerace v Auzhair Supplies Pty Ltd (in liq) [2014] NSWCA 181; (2014) 87 NSWLR 435; 100 ACSR 465 - Hannon v Doyle [2011] NSWSC 10; (2011) 82 ACSR 259; - Huang v Wang [2016] NSWCA 164 - Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 - Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Pty Limited [2012] NSWSC 462 - MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367 - Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 - Patterson and Ors v Humphrey and Ors (2014) 291 FLR 246 - Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd [2017] FCA 699 - Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 - Re DH International Pty Ltd (in liq) [2017] NSWSC 870 - Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 - Re Imperium Projects Pty Limited [2015] NSWSC 16 - Re Imperium Projects Pty Limited [2015] NSWSC 123 - Re Imperium Projects Pty Limited [2015] NSWSC 141 - Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 - Vadori v AAV Plumbing Pty Ltd (2010) 77 ACSR 616 - Victory Projects Pty Ltd v AAA Self Storage Pty Ltd [2016] NSWSC 1758 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2007] FCA 503; (2007) 61 ACSR 583 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 - Walsh v Worleyparsons Ltd (No 4) [2017] VSC 292
Category:	Principal judgment
Parties:	Keith Stewart Alistair Redenbach (First Applicant) Campbell Jeffrey Ray (Second Applicant) Legal Practice Management Group Pty Ltd (First Respondent) nSynergy Pty Ltd (Second Respondent) nSynergy International Pty Ltd (Third Respondent)
Representation:	Counsel: N Hutley SC/M Karam (Applicants) Dr R C A Higgins SC (14.9.17, 22.3.18)/A J H O’Brien (14.9.17) (Respondents)     Solicitors: Deutsch Miller (Applicants) Arnold Bloch Leibler (Respondents)
File Number(s):	2017/194171

Judgment

Nature of the application

1. By Originating Process filed on 29 June 2017 the Applicants, Mr Keith Redenbach and Mr Campbell Ray apply for leave, under s 237 of the Corporations Act 2001 (Cth), to bring proceedings on behalf of Legal Practice Management Group Pty Ltd (“LPMG”), nSynergy Pty Ltd (“nSynergy”) and nSynergy International Pty Ltd (“nSynergy International”) (“Respondent Companies”). The application was opposed by the Respondent Companies, which are under the control of Mr Karl Redenbach (who is Mr Keith Redenbach’s brother) and Mr Peter Nguyen-Brown, who are also defendants to the proposed proceedings.

2. This application was first heard on 14 September 2017, when much of the hearing day was taken up by detailed oral submissions by Mr Hutley, who appears with Mr Karam for the Applicants, as to the events in issue between the parties. Those submissions were directed to establishing the merits of the Applicants’ claims, which are relevant both to whether the commencement of the proceedings are in the best interests of the relevant companies and whether a serious question to be tried is established. On that date, I granted leave to the Applicants under ss 236–237 and 241 of the Corporations Act, on an interim basis, to file the Statement of Claim, to avoid further limitations issues arising, for the reasons set out in my ex tempore judgment delivered on that date. The application was then adjourned, initially to 5 December 2017, and that listing was subsequently vacated and the matter referred to mediation at the parties’ request. The hearing continued for a second day on 22 March 2018 and further written submissions were made in April 2018.

The proposed proceedings

3. I turn, first, to the nature of the proposed proceedings and then to the background facts and the evidence on which the Applicants rely. The Applicants prepared a proposed Statement of Claim setting out the proposed claims, which would be brought against twelve defendants, including Mr Karl Redenbach, Mr Nguyen-Brown and ten corporate defendants, and involve claims in the name of LPMG that the affairs of nSynergy have been conducted in a manner that is oppressive, unfairly prejudicial or unfairly discriminatory and contrary to the interests of members as a whole for the purposes of s 232 of the Corporations Act and claims for alleged breaches of directors’ duties and ancillary liability to be brought by LPMG, nSynergy and nSynergy International. In opening submissions, Mr Hutley summarised the claims sought to be brought as follows:

“The affairs of LPMG and nSynergy International have been and are being conducted by [Mr Karl Redenbach] and Mr [Nguyen-Brown] in a manner that is oppressive, unfairly prejudicial or unfairly discriminatory to them and contrary to the interests of members as a whole: draft Statement of Claim, paragraph 119(a) …

The affairs of nSynergy have been and are being conducted by [Mr Karl Redenbach] and [Mr Nguyen-Brown] in a manner that is oppressive or unfairly prejudicial to LPMG: draft Statement of Claim, paragraph 119(b) …

[Mr Karl Redenbach] and [Mr Nguyen-Brown] have breached statutory and equitable duties owing to LPMG, nSynergy and nSynergy International: draft Statement of Claim, (paragraphs 120 and 121), and seek orders that they compensate those entities pursuant to s 1317H of the Act for breaches of statutory duties, and orders for equitable compensation or account of profits for the breaches of equitable duties: draft Statement of Claim, paragraphs 132–134 …

The various other corporate parties presently claimed as the Third to Twelfth Defendants in the draft Statement of Claim are liable to the Respondent [Companies] under the first and/or second limbs of Barnes v Addy (1874) LR 9 Ch App 244 or pursuant to sections 79 and 1317H of the Act …”

4. The proposed Statement of Claim pleads that Mr Karl Redenbach and Mr Nguyen-Brown owed duties as directors of the Corporate Respondents under ss 180–183 of the Corporations Act and parallel fiduciary duties. It pleads a detailed narrative of the relevant facts, including the commencement in July or August 2002 of a business to develop information technology and software to assist in the management of legal practices and other businesses, steps that were subsequently taken to commercialise a product known as “MyLeOn” as an online legal matter management system, LPMG’s acquisition of the shares in nSynergy in June 2003 and its subsequent association with Microsoft, and the issue of shares in September 2003 with the result that Messrs Keith and Karl Redenbach and Mr Nguyen-Brown each held approximately 31⅔% and Mr Ray held 5% of the share capital of LPMG.

5. The proposed Statement of Claim pleads that, in January 2004, LPMG retained Mr Karl Redenbach and Mr Nguyen-Brown as subcontractors at an agreed remuneration and also refers to Mr Keith Redenbach’s resignation as a director of LPMG and nSynergy at that time, leaving Mr Karl Redenbach and Mr Nguyen-Brown as the directors of those companies from that date. The proposed Statement of Claim also refers to the incorporation of nSynergy International in 2004 and alleges that, in August 2005, Mr Karl Redenbach and Mr Nguyen-Brown incorporated a US entity, nSynergy LLC; in 2006, nSynergy filed patent applications for a communications system and other technology developed by it; and, by May 2006, nSynergy had developed a central platform for collaboration by users described as “MyDocs”. The proposed Statement of Claim then pleads the incorporation of several further companies by Mr Redenbach and Mr Nguyen-Brown from June 2007 onwards, which it is alleged was unknown to Mr Keith Redenbach and Mr Ray, and the growth of nSynergy’s revenue and business over that period.

6. The proposed Statement of Claim then pleads a communication from the solicitors then acting for Mr Karl Redenbach and Mr Nguyen-Brown, and now acting for the Respondent Companies in this application, seeking a contribution from Mr Keith Redenbach for alleged debts due by nSynergy, or alternatively offering to purchase Mr Keith Redenbach’s shares in nSynergy for a relatively small amount, and pleads the incorporation of further corporate entities by Mr Karl Redenbach and Mr Nguyen-Brown from mid-2012 onwards. The proposed Statement of Claim alleges that, in October 2013, unknown to Mr Keith Redenbach and Mr Ray, Mr Karl Redenbach and Mr Peter Nguyen-Brown incorporated a further entity nSynergy OSC Holdings Pty Ltd (“nSynergy OSC Holdings”) (now known as Rhipe Cloud Solutions Pty Ltd) with companies associated with them as its shareholders and them as its directors, transferred shares in other entities that they had incorporated to that entity, and lodged further patent applications by those entities, with the alleged result that the Respondent Companies’ collaboration platform business was transferred to one of those entities and its consulting and services business with another entity.

7. The proposed Statement of Claim alleges that, in December 2014, shares in companies associated with Mr Karl Redenbach and Mr Nguyen-Brown were sold to Rhipe Ltd (“Rhipe”), a public company listed on Australian Securities Exchange, for a substantial payment and the issue of shares and, from January 2015, a sale and backdoor listing of other companies associated with Mr Karl Redenbach and Mr Nguyen-Brown was implemented.

8. The proposed Statement of Claim then pleads that the several entities associated with Mr Karl Redenbach and Mr Nguyen-Brown were incorporated to take the benefit of customers and business opportunities diverted away from one or more of the Respondent Companies, to compete with their business, or to have their assets or property transferred to them, and developed or sold products, technology and services substantially similar to those of the Respondent Companies. The proposed Statement of Claim also pleads that, from May 2012 and the date of subsequent arrangements involving the entities associated with Mr Karl Redenbach and Mr Nguyen-Brown, they diverted customers and business opportunities away from the Respondent Companies, caused the entities that they had incorporated to compete with the Respondent Companies, and preferred the business and interests of those entities to the business and interests of the Respondent Companies.

9. These matters are alleged to have constituted oppression or conduct that was unfairly prejudicial or unfairly discriminatory to Mr Keith Redenbach and Mr Ray and contrary to the interests of members of the Respondent Companies. This conduct is also alleged to have breached the pleaded statutory and fiduciary duties owed by each of Mr Karl Redenbach and Mr Nguyen-Brown. The proposed third-twelfth defendants are alleged to have knowingly received property of the Respondent Companies diverted in breach of fiduciary duty, knowingly assisted in a dishonest or fraudulent design, or to have been knowingly involved in the breach of the relevant statutory duties. The relief sought includes an order for the purchase by Mr Karl Redenbach and Mr Nguyen-Brown of Mr Keith Redenbach and Mr Ray’s shares in LPMG and nSynergy International at fair value, without taking into account the effect of the alleged oppression or breaches of duty, compensation under s 1317H of the Corporations Act, and equitable compensation or an account of profits.

The evidence led in the application and background facts

10. I now set out a summary of the background facts, partly drawn from a helpful chronology prepared by the Applicants, and partly from the evidence to which I have referred above. Mr Hutley took the Court through these documents at considerable length on the first hearing day in this application. I do not make findings as to contested matters where they are generally not necessary for this application, and where Mr Keith Redenbach led affidavit evidence but was not cross-examined and the Respondent Companies did not lead affidavit evidence of Mr Karl Redenbach or Mr Nguyen-Brown. It will immediately be apparent that the matters which the Applicants seek to agitate extend over a considerable period.

11. The Applicants rely on Mr Keith Redenbach’s affidavit dated 27 June 2017 in respect of the application. Mr Keith Redenbach owns approximately 31⅔% of the shares in LPMG and nSynergy International as trustee of the Kookaburra Supreme Annuity Redeemable Trust (“KSAR Trust”) and LPMG owns all of the shares in nSynergy. The Applicants also rely on Mr Ray’s affidavit of the same date.

12. By a further affidavit dated 20 July 2017, Mr Keith Redenbach led evidence of the factual background to the proceedings, supported by two lever arch folders of documents that sought to establish the matters set out in the proposed Statement of Claim. That affidavit refers to the establishment of LPMG and nSynergy and the development of its initial products; to Mr Keith Redenbach’s concern, commencing in 2005, as to the level of remuneration paid to Mr Karl Redenbach and Mr Nguyen-Brown; and to the financial support, including by the provision of guarantees, given by Mr Keith Redenbach and Mr Ray to nSynergy in 2005. Mr Keith Redenbach also refers to the continuance of the dispute as to remuneration during 2007, to an offer made by Mr Nguyen-Brown that he and Mr Karl Redenbach would acquire Mr Keith Redenbach’s shares in August 2008 and to steps taken by the Respondent Companies’ accountant to seek to bring about a resolution of the dispute in late 2008. Mr Keith Redenbach also refers to communications in late 2008, where he claims that Mr Karl Redenbach asserted that he and Mr Nguyen-Brown owned the services business conduct by the Respondent Companies and made an offer to Mr Keith Redenbach to acquire his shares for a modest amount. Mr Keith Redenbach also refers to subsequent events, including requests for information concerning the Respondent Companies that he has made since at least 2011.

13. The Applicants also rely on an affidavit also dated 20 July 2017 of their solicitor, Mr Anderton, which refers to the nature of the proposed proceedings and indicates that Mr Keith Redenbach and Mr Ray propose to procure a deed of indemnity from AmTrust Europe Ltd (“Amtrust”), a company incorporated in England and Wales, in favour of the Respondent Companies (as plaintiffs in the proposed proceedings) in respect of any costs order made in favour of the proposed defendants against the Respondent Companies, presently capped at $500,000. There is evidence that AmTrust is a registered insurance company of substantial size. A further affidavit dated 6 September 2017 of Mr Anderton annexes that proposed deed of indemnity as approved by AmTrust. I will refer to several aspects of that indemnity below.

14. By a further affidavit dated 19 March 2018, Mr Anderton led evidence to support claims for legal professional privilege in a redacted litigation funding agreement dated 18 April 2017 (“LFA”) between Mr Keith Redenbach and Mr Ray and a litigation funder, Balance REV Ltd (“Balance REV”). Those claims for legal professional privilege were ultimately not contested by the Respondent Companies. The extent of the masking of the LFA for legal professional privilege nonetheless makes it difficult to draw any conclusions as to the effect of that agreement, since it is not possible to determine whether the provisions that were made available for review are qualified by other provisions that were not made available.

15. The Respondent Companies rely on an affidavit dated 17 August 2017 of their solicitor, Mr Alexander King, which annexes correspondence between the parties, but does not otherwise address the substance of the allegations made by the Applicants.

16. Turning now to the background facts, between 1999 and 2002, the Messrs Redenbach conducted a publishing business called “Ratio Multi-Media” (Keith Redenbach, 20.7.17, [12]). In July 2002, they were introduced to Prima Consulting Pty Ltd (“Prima”) and, in July or August 2002, they discussed establishing a business for the development of information technology to assist in the management of legal practices under the name “Legal Practice Management Group” (Keith Redenbach, 20.7.17, [13]–[14]); and, on 14 August 2002, the Messrs Redenbach and Mr Ray made a presentation to Prima proposing the development and distribution of a legal practice management system under the name “MyLeOn” (short for “my Legal Online”) (Keith Redenbach, 20.7.17, [15], Ex A2, tab 48). About that time, LPMG was incorporated, with the Messrs Redenbach as its directors and equal shareholders (Ex A2, tab 1). A research and development plan was also prepared for LPMG dealing with software and “collaborative solutions” between service providers (Keith Redenbach, 20.7.17, [17], Ex A2, tab 14).

17. The Second Respondent, nSynergy, was incorporated in November 2002. LPMG then owned 50% of its shares, associates of Prima owned the balance of its shares and its directors were the Messrs Redenbach and persons associated with Prima (Keith Redenbach, 20.7.17, [18], Ex A2, tab 2). A further research and development plan prepared by nSynergy in December 2002 was also directed to development of software and also to “collaborative solutions” between service providers (Ex A2, tab 15).

18. In late December 2002, nSynergy and Prima then entered into a Technology Commercialisation Agreement with Telstra (as the owner of the MyLeOn technology) by which nSynergy obtained a worldwide but non-exclusive license to commercialise the “Telstra Technology” defined in Schedule 1 (cl 4.1) and was to own all intellectual property and modifications (as defined) in the Telstra Technology (cl 5.1) (Ex A2, tab 16). From late 2002, nSynergy developed a product under the name “LegalNet” which was intended to assist collaboration between legal practitioners and client representatives (Keith Redenbach, 20.7.17, [19]).

19. The Applicants contend that, in 2003, nSynergy commenced development of a product which was proposed to allow users to share and edit documents, integrate with Microsoft Office products and provide a collaboration platform for multiple users and also commenced the development of a product that was later named “Drag&DropIt” which was said to enable users to drag and drop emails from Microsoft Outlook into Microsoft SharePoint; integrate emails into a document library with other Microsoft Office products such as documents, spreadsheets, power point presentations and calendar entries; and collaborate by Microsoft SharePoint with other users in relation to information stored in the document library (Keith Redenbach, 20.7.17, [19]). In mid-2003, nSynergy applied for an AusIndustry Research and Development grant under the title “LegalNet Collaboration Project” (Keith Redenbach, 20.7.17, [19], Ex A2, tab 17).

10. LPMG subsequently became the sole shareholder of nSynergy in June 2003 (Keith Redenbach, 20.7.17, [19]) and, in August 2003, nSynergy obtained Microsoft “.Net Connected Logo certification” (Keith Redenbach, 20.7.17, [19]) and sought a grant from Information Technology Online Australia for funding for a product named “HealthNet”, described as a collaboration tool for healthcare providers, apparently extending its activities beyond the legal field (Keith Redenbach, 20.7.17, [19], Ex A2, tab 18). In September 2003, the shareholding in LPMG was changed so that Keith Redenbach, Karl Redenbach and Mr Nguyen-Brown each held 31⅔% of the shares and Mr Ray held 5% of the shares (Keith Redenbach, 20.7.17, [19].

11. The Applicants contend that, in early 2004, LPMG and nSynergy, in addition to developing the information collaboration business, developed an information technology services business directed towards assisting businesses with their information technology needs (Keith Redenbach, 20.7.17, [20]) and, at that time, Mr Karl Redenbach and Mr Nguyen-Brown were engaged as subcontractors by LPMG, with their remuneration fixed at $150,000 per annum, and Mr Karl Redenbach’s “contracted services” included consulting “in relation to LPMG’s research and development plan” and his responsibilities included “all areas of business including the two main areas of sales and IT on behalf of LPMG’s interests” and “general sales … for both services and licence sales” (Keith Redenbach, 20.7.17, [22], Ex A2, tab 49). At a directors’ meeting of nSynergy held in January 2004, its directors decided, inter alia, to obtain patents for its “Business Management Software” (item 7) and promote the services business, and incorporate a new entity called “nSynergy International” for this purpose (Keith Redenbach, 20.7.17, [23], Ex A2, tab 19). Mr Keith Redenbach resigned as a director of LPMG and nSynergy and Mr Nguyen-Brown was appointed a director of each entity at that time (Keith Redenbach, 20.7.17, [21], [24], Ex A2, tabs 1 and 2). The Applicants contend that, by early 2004, the “MyDocs” product had been developed as a document management system that used the functionality in LegalNet to make retrieval and searching of documents/emails more efficient and, with LegalNet, was able to become the central repository for both matters and documents (Ex A2, tab 20) and LegalNet was developed to allow in-house corporate Counsel to collaborate with their external law firms.

12. In May 2004, nSynergy International was incorporated, with the same shareholding as LPMG, and the Applicants contend it was to conduct the services business (Keith Redenbach, 20.7.17, [25], Ex A2, tab 3). In late 2004, Mr Karl Redenbach relocated to the United Kingdom and worked in LPMG’s, nSynergy’s and nSynergy International’s business from there (Keith Redenbach, 20.7.17, [26]).

13. In February 2005, nSynergy filed an Australian provisional patent application titled “Communication System” (Ex A2, tab 23). In March 2005, a dispute arose as to whether, as Mr Keith Redenbach contended, Mr Karl Redenbach and Mr Nguyen-Brown were being paid sums exceeding their salaries without shareholder approval (Keith Redenbach, 20.7.17, [27]-[28], Ex A2, tab 50). Notwithstanding that dispute, in late May 2005, each of the Messrs Redenbach, Mr Nguyen-Brown and Mr Ray provided guarantees for an overdraft that nSynergy obtained from an Australian bank (Keith Redenbach, 20.7.17, [29], Ex A2, tab 51). The Applicants contend that, by May 2005, LPMG, nSynergy and nSynergy International had employees, offices, clients, and partnerships in Australia and overseas, had received government grants, developed a business relationship with Microsoft and developed expertise in specialist information technology services (Keith Redenbach, 20.7.17, [32]).

14. By late 2005 or early 2006, the Messrs Redenbach were again in dispute as to the levels of remuneration paid to Mr Karl Redenbach and Mr Nguyen Brown (Keith Redenbach, 20.7.17, [30]).

15. In February 2006, nSynergy filed an international patent application titled “Communication System” (Ex A2, tab 23) and, in April 2006, nSynergy filed an Australian innovation patent application titled “Drag and Drop eMails from Outlook into SharePoint” (Ex A2, tab 24). In May 2006, Mr Karl Redenbach uploaded a video presentation of “Drag-and-Drop”, using “MyDocs” and the Microsoft SharePoint programme, to YouTube (Keith Redenbach, 20.7.17, [32], Ex A2, tab 25). The Applicants contend that, by May 2006, “MyDocs” had been developed to enable a central platform for multiple users to collaborate in relation to a document library capable of containing, for example, emails, documents, spreadsheets, scanned documents; tasks; events and appointments; administrative functions such as managing user access and site presentation; discussions; alerts; and links (Keith Redenbach, 20.7.17, [32]).

16. In its special purpose financial reports for the financial year ended 30 June 2006, nSynergy recorded revenue of $626,553, comprising consulting fees of $102,572, government grants of $518,828 and other revenue of $5,153; expenses of $1,154,986, including “consultancy/contractors” of $518,898 and salaries and wages of $371,228; and recorded a loss before tax of $528,433. In its special purpose financial reports for that year, nSynergy International recorded revenue of $700,502, primarily comprising consulting and service fees of $697,511; expenses of $296,260, including “consultancy fees” of $295,000; and recorded profit before tax of $404,242 (Ex A2, tab 26).

17. The Applicants also contend that, by May 2007, LPMG, nSynergy and nSynergy International had offices in Melbourne, London, Shanghai and New York and approximately 40 employees (Keith Redenbach, 20.7.17, [32]). In May 2007, nSynergy filed an international patent application in relation to the nSynergy Drag-and-Drop technology (Ex A2, tab 27). At the end of June 2007, two new entities, KUR Technology Pty Ltd (“KUR”) and MPNB Pty Ltd (“MPNB”) were incorporated with Mr Karl Redenbach and Mr Nguyen-Brown (and his wife) as their respective shareholders and directors (Ex A2, tabs 4 and 5).

18. In its special purpose financial reports for the financial year ended 30 June 2007, nSynergy recorded revenue of $201,487, comprising consulting fees of $72,000, government grants of $127,763 and reimbursements of $1,724; expenses of $1,144,525, including “consultancy/contractors” of $916,408 and salaries and wages of $69,455 and recorded a loss before tax of $943,038. In its special purpose financial reports for that year, nSynergy International recorded revenue of $700,502, primarily comprising consulting and service fees totalling $697,511, expenses of $296,260 including “consultancy fees” of $295,000 and recorded profit before tax of $404,242 (Ex A2, tab 28).

19. Some correspondence from Mr Karl Redenbach at that time, and particularly an email dated 1 July 2007 containing an estimated cashflow statement, raises the possibility of a higher profit within nSynergy, referring to the possibility of hitting a “1m + profit by December”, which would “value the business at a cost of approx $10m”. The Applicants recognise, in submissions, that that estimate is inconsistent with the losses recorded in nSynergy’s then financial statements but note the possibility that revenue derived by other companies in the nSynergy group would also be taken into account. It should also be recognised that the determination of profit of any one entity within the group would be sensitive to the allocation of expenses, including consultant fees and remuneration, between entities in the group. Further correspondence and discussion about remuneration levels took place between the Messrs Redenbach in early July 2007 (Keith Redenbach, 20.7.17, [34]–[35], Ex A2, tab 52).

20. In its special purpose financial reports for the financial year ended 30 June 2008, nSynergy recorded a similar position to earlier years with expenses exceeding income, recording revenue of $614,938, comprising consulting fees of $536,100, government grants of $77,232 and other revenue of $1,606; expenses of $1,500,589 including “consultancy/contractors” of $1,192,977 and travelling expenses of $137,699; and recording a loss before tax of $885,651 (Ex A2, tab 29).

21. In July and August 2008, correspondence between Mr Keith Redenbach and Mr Nguyen-Brown, copied to Mr Karl Redenbach, dealt with Mr Keith Redenbach’s and Mr Ray’s role in the companies (Keith Redenbach, 20.7.17, [39], Ex A2, tabs 53–54). In September 2008, the Respondents’ Companies’ then accountant offered to assist in seeking a resolution to the then disagreements between shareholders and circulated a summary of the issues between them and a restructuring proposal (Keith Redenbach, 20.7.17, [41]–[42], Ex A2, tab 55), which was then discussed between the Messrs Redenbach (Keith Redenbach, 20.7.17, [43]–[44]).

22. A memorandum prepared for the Messrs Redenbach by the Respondent Companies’ accountant in September 2008 (Ex A2, tab 55) recorded the shareholders’ interests in nSynergy and noted the scope of its activities, stating that:

“The main software products developed by the company are My Docs and Legal Net.

The company provides support services and consultancy around software developed and sold.

The company provides consulting services on SharePoint which is a Microsoft software product.

The company receives AusIndustry grants in respect of research and development activities carried out.”

That memorandum also noted the dispute between the shareholders as to the future direction of the business, current and future value of the business and its products and intellectual property and the value of the contribution to the business made by Mr Keith Redenbach reflected in his shareholding. That memorandum referred to possibilities including buying out other shareholders of the company, where an offer had been made to Mr Keith Redenbach; recapitalising the company through capital raising from shareholders; or conducting SharePoint consultancy in another entity owned by the directors and recorded that:

“Keith [Redenbach] has raised concern around current value of the business including its IP being transferred to another entity, thus reducing the value of the issued shares in the company. Keith believes that his shareholding in the company is a fair reflection of his contribution to the company in the past together with his being a co-guarantor in respect of the company’s overdraft.”

33. The special purpose financial reports for the financial year ended 30 June 2009 for nSynergy continued the pattern of increased revenue and expenses, with the latter exceeding the former, recording revenue of $2,638,457, comprising consulting fees of $2,549,255, government grants of $86,913 and other revenue of $2,289; expenses of $3,484,137, including “Consultancy/Contractors” of $3,010,384 and travelling expenses of $219,736; and recording a loss before tax of $845,680 (Ex A2, tab 30). Various industry publications at that time, which are of uncertain weight, referred to nSynergy’s growth (Ex A2, tabs 31 and 32) and, from 2009, nSynergy appeared to receive significant industry recognition and publicity in respect of its workflow and document management products.

34. In February 2010, Online Services Corporation Pty Ltd (ACN 141 990 025) (“OSC”) was incorporated, with KUR and MPNB as its equal shareholders and Mr Karl Redenbach and Mr Nguyen-Brown as its directors (Ex A3, tab 2). “Client prepared” financial statements for nSynergy for the financial year ended 30 June 2010, which were subject to a strong disclaimer of liability by nSynergy’s accountants, showed significant consultancy expenses incurred by nSynergy and significant liabilities to associated entities, but did not appear to reflect the value of intellectual property developed by associated companies. Those financial statements recorded revenue of $3,255,608, comprising consulting fees of $3,243,785, government grants of $1,865, and commission received of $9,958; expenses of $4,873,364, including “Consultancy/Contractors” of $3,283,847 and travelling expenses of $245,786; loans to nSynergy International of $791,900, to nSynergy Ltd of $145,550, to LPMG of $15,650, to nSynergy Solutions of $711,026 and to OSC of $7,071.42; and recorded a net loss of $1,611,660 and net assets of $3,400,685 (Ex A2, tab 33).

35. In October 2010, OSC (in which Mr Keith Redenbach and Mr Ray had no interest) issued a press release (Ex A2, tab 35) in which it described itself as “founded in late 2009 and part of the nSynergy Group”, and described nSynergy as:

“founded in 2001, nSynergy provides specialist services in Microsoft SharePoint worldwide with offices located in Sydney, Melbourne, Canberra, Brisbane, London, New York, San Diego and Shanghai….”.

The recognition of nSynergy’s products continued through 2010 and 2011, when documents published by nSynergy record the provision of a wide range of services including, for example, technical, strategic and business solutions, custom development functions and the provision of cloud services. The Applicants contend that, in late 2011, the worldwide addresses and telephone numbers provided for OSC were the same as those for nSynergy and, on its website, OSC held itself out as providing specialist solutions to customers in transitioning to the Microsoft Cloud platform, and provided information technology services to customers, including in the following areas exclusively in relation to that platform: consulting services; design and planning services; integration services; development services, including branding, development and customisation; migration services; training services; support services; and managed services (Keith Redenbach, 20.7.17, [51]).

36. From August 2011, Mr Keith Redenbach sought information concerning companies within the nSynergy Group, including OSC, and made threats of litigation in respect of those requests for information (Keith Redenbach, 20.7.17, [52]-[55], [57], Ex A2, tabs 57-61). At least by November 2011, Mr Keith Redenbach was threatening litigation in respect of nSynergy, nSynergy International and other entities associated with Mr Karl Redenbach, and advanced allegations of breach of directors duties in respect of the establishment of a separate business by Mr Karl Redenbach and Mr Nguyen-Brown and the diversion of business opportunities away from the nSynergy companies to that business.

37. By letter dated 22 May 2012, the solicitors then and now acting for Mr Karl Redenbach and Mr Nguyen-Brown wrote to Mr Keith Redenbach’s solicitors and denied Mr Keith Redenbach’s allegations, without otherwise advancing any substantive response to them. They advised that various debts were due from nSynergy to its creditors (including Mr Karl Redenbach and Mr Nguyen-Brown) of around $3,400,000; requested Mr Keith Redenbach pay $820,000 to contribute towards nSynergy’s debts, or offer $33,000 in exchange for his shares in the nSynergy Group by 28 May 2012; and indicated that otherwise Mr Karl Redenbach and Mr Nguyen-Brown would “…cause the business of nSynergy to be sold as soon as possible after 28 May 2012…”. Those solicitors also indicated that Mr Keith Redenbach was not a shareholder in several other entities, including entities incorporated using the “nSynergy” name, but offered to permit Mr Keith Redenbach to view the books of nSynergy, nSynergy International, nSynergy Solutions, LPMG, OSC, nSynergy Ltd (UK), and nSynergy Queensland Pty Ltd (Ex A2, tab 41). It appears that difficulties subsequently arose in that regard.

38. In May 2012, four more entities were incorporated, namely ZTH Tech Pty Ltd (“ZTH”) with Mr Karl Redenbach as sole director and shareholder on incorporation (Ex A2, tab 6); NIA Tech Pty Ltd (“NIA”) with Mr Nguyen-Brown as its sole director and shareholder on incorporation (Ex A2, tab 7); Information Management Corporation Pty Ltd (“IMC”) with Mr Karl Redenbach and Mr Nguyen-Brown as the directors on incorporation, and ZTH and NIA as shareholders (Ex A2, tab 8); and Information Management Corporation R and D Pty Ltd (“IMC RND”) with Mr Karl Redenbach and Mr Nguyen-Brown as the directors on incorporation and ZTH and NIA as shareholders (Ex A2, tab 9).

39. nSynergy and Microsoft appear to have had a collaborative relationship through the period, including announcing a “strategic partnership” to promote elaborative technologies to Australian businesses in 2012. It appears that nSynergy’s successful collaboration with Microsoft continued into 2013, when it was recognised by several awards, although by that time it becomes difficult to identify whether those awards were being made to the Respondent Companies or the other entities incorporated by Mr Karl Redenbach and Mr Nguyen-Brown which seem to have been variously incorporated under or changed their names to or traded under the “nSynergy” name.

40. In April 2013, IMC changed its name to nSynergy OSC Pty Ltd (“nSynergy OSC”) (Ex A2, tab 8) and IMC RND changed its name to nSynergy OSC R and D Pty Ltd (“nSynergy OSC RND”) (Ex A2, tab 9) although those entities did not have any shareholding link with LPMG, nSynergy or nSynergy International and Mr Keith Redenbach and Mr Ray had no interest in them.

41. In July 2013, Mr Karl Redenbach and others applied for a provisional patent in respect to a “browser based designer tool for a user interface and the administration of tiles” (Ex A2, tab 42). In August 2013, “nSynergy” was the winner of the “Collaboration and Content Partner of the Year” category of Microsoft’s Australia Partner Awards 2013 (Ex A2, tab 43). In October 2013, “nSynergy” was reported to be working with the Tasmanian government to develop an emergency services website, utilising “nSynergy’s LiveTiles interface”, which was described as “a browser based design tool for SharePoint that supports modern UI design, out-of-the-box integration with external platforms and mobile design” (Ex A2, tab 44). That report also states that:

“LiveTiles is being officially launched by nSynergy with synchronised launch events taking place in Melbourne and New York on 4 October 2013. The company has been a Microsoft SharePoint partner since 2004 and was recently named Microsoft Australia Collaboration & Content Partner of the Year.”

These references appear to be to the newly incorporated entities controlled by Mr Karl Redenbach and Mr Nguyen-Brown rather than LPMG, nSynergy or nSynergy International, although they refer to the history of the earlier entities.

42. Another entity, nSynergy OSC Holdings Pty Ltd was incorporated on October 2013, with Mr Karl Redenbach and Mr Nguyen-Brown as its directors and ZTH and NIA as its shareholders (Ex A2, tab 10), and it then became the sole shareholder of nSynergy OSC and nSynergy OSC RND (Ex A3, tab 3). In March 2014, LiveTiles LLC (“LiveTiles LLC”) was incorporated in Delaware, in the United States, with its members listed as nSynergy OSC Pty Ltd and Mr Karl Redenbach (Ex A2, tab 11). In August 2014, LiveTiles Pty Ltd (ACN 601 177 691) was incorporated, with its directors as Mr Karl Redenbach and Mr Nguyen-Brown and its sole shareholder as nSynergy OSC Holdings (Ex A2, tab 12).

43. In November 2014, Rhipe Ltd (“Rhipe”) (then known as Rhype Ltd) announced that it had agreed to acquire 100% of “nSynergy Group” for $25.35m (including a contingent earn out of $8m) and had taken a 12.5% stake in the “LiveTiles Group” for $2.5m (Ex A3, tabs 4 and 5). A presentation made at the annual general meeting of Rhipe Ltd in November 2014 referred to Rhipe’s 100% acquisition of nSynergy, described as providing “global cloud professional services and solutions, and modern support programs” and its 12.5% investment in LiveTiles, described as “global cloud UX platform” and noted that nSynergy (Services) and LiveTiles (Products) were owned by the same vendor prior to that investment. The history provided by Rhipe of nSynergy relied on activities previously undertaken in the Respondent Companies, recording that the company was founded in 2002 and referring to matters apparently within the original business. The reference to LiveTiles also recorded that it used its “sister-company nSynergy to do key implementation work”.

42. In December 2014, LiveTiles Holdings Pty Ltd (ACN 603 266 888) (“LiveTiles Holdings”) was incorporated with Mr Karl Redenbach and Mr Nguyen-Brown as its directors and ZTH and NIA among its shareholders (Ex A2, tab 13) and nSynergy OSC Holdings then transferred all of its shares in several entities, namely nSynergy OSC RND LiveTiles LLC and LiveTiles Pty Ltd, to LiveTiles Holdings (Ex A3, tab 6). Rhipe LiveTiles Pty Ltd (“Rhipe LiveTiles”) was then incorporated, with Rhipe as its sole shareholder (Ex A3, tab 7) and ZTH and NIA transferred all the shares in nSynergy OSC Holdings to Rhipe, and Rhipe completed its 12.5% investment in LiveTiles Holdings through its wholly-owned subsidiary, Rhipe LiveTiles (Ex A3, tab 7). nSynergy OSC RND then changed its name to LiveTiles R and D Pty Ltd (Ex A2, tab 9).

43. In submissions, Mr Hutley also draws attention to patent applications made in the United States by Mr Karl Redenbach and others in January 2015, which he submits have their origins in the systems previously developed by nSynergy.

44. In April 2015, ZTH and NIA entered into a share sale agreement with Modun Resources Ltd (“Modun”) (which later changed its name to LiveTiles Ltd) for the sale of all of their shares held in LiveTiles Holdings (87.5% of all shares) which valued LiveTiles at $33.75m, and Mr Karl Redenbach and Mr Nguyen-Brown were respectively allocated 19,500,000 and 6,750,000 “incentive shares” and the “nSynergy Employee Trust” was allocated 5,586,750 ordinary shares (Ex A3, tab 8, Ex A2, tab 45). In May 2015, nSynergy OSC Holdings changed its name to Rhipe Cloud Solutions Pty Ltd (Ex A2, tab 10) and, in June 2015, nSynergy OSC Pty Ltd changed its name to Rhipe Solutions Australia Pty Ltd (Ex A2, tab 8).

45. A prospectus for Modun was then issued (Ex A2, tab 45) and the transaction was completed in late August 2015 and Modun changed its name to LiveTiles Ltd (Ex A3, tab 10) and LiveTiles Pty Ltd changed its name to LiveTiles APAC Pty Ltd (Ex A2, tab 12). Live Tiles was relevantly described as having been established in 2012 by Mr Karl Redenbach and Mr Nguyen-Brown and the “LiveTiles” product was described as:

“A software tool that enables companies to build user interfaces for Microsoft cloud platforms”.

The prospectus issued by Modun in July 2015 in turn described the relevant product as:

“A proprietary software tool that deploys on top of Microsoft’s cloud collaboration platforms, enabling businesses to build and utilise modern user computer interfaces, including intranets (internal private websites) and extranets (external private networks).”

The prospectus emphasised the relationship between LiveTiles and Microsoft and also recorded that:

“Prior to December 2014, LiveTiles was part of the nSynergy Group. The nSynergy Group’s core business was technology consulting. In December 2014, LiveTiles was demerged from the nSynergy Group when Rhipe Limited acquired the nSynergy Group.”

48. In December 2016, the solicitors for the Applicants wrote to the solicitors for Mr Karl Redenbach and Mr Nguyen-Brown setting out the Applicants’ claims (Keith Redenbach, 27.6.17, annexure “E”) and, in February 2017, the Applicants gave notices of their intent to seek leave for derivative proceedings to the Respondent Companies under s 237(2)(e)(i) of the Corporations Act (Keith Redenbach, 27.6.17, annexure “F”). The Respondent Companies also tendered correspondence between their solicitors and the Applicants’ solicitors in August and September 2017 (Ex R2). For completeness, the Applicants referred to deregistration action which had been commenced by the Australian Securities and Investments Commission (“ASIC”) against nSynergy and nSynergy International, and the Respondent Companies tendered correspondence from ASIC dated 14 February 2018 and 6 March 2018 respectively deferring that deregistration action against nSynergy and nSynergy International for a period of 90 days (Ex R3).

Scope of s 237 of the Corporations Act

49. The Applicants rightly recognise that leave of the Court is not required under s 237 of the Corporations Act to pursue the oppression claims in respect of LPMG and nSynergy International, which are available to Mr Keith Redenbach and Mr Ray in their capacity as shareholders in those entities, but contend that leave is required to bring the oppression claim sought to be brought by LPMG in respect of the affairs of nSynergy, the claims against Mr Karl Redenbach and Mr Nguyen-Brown for breach of statutory and equitable duties owed to the Respondent Companies and the claims based on ancillary liability by those companies against the proposed third to twelfth defendants. There is no dispute that the Applicants have standing to bring this application under s 236 of the Corporations Act on behalf of LPMG and nSynergy International, as members of the companies, and since Mr Keith Redenbach is a former officer of LPMG, and on behalf of nSynergy since they are members of a related body corporate, LPMG, and Mr Keith Redenbach is a former officer of LPMG; compare Hannon v Doyle [2011] NSWSC 10; (2011) 82 ACSR 259.

50. In an application for leave to bring such proceedings, the Applicants need to satisfy the criteria for the grant of leave specified in s 237(2) of the Corporations Act. In order to grant leave under that section, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. Those matters are that it is probable that the Respondent Companies will not themselves bring the proceedings; the Applicants are acting in good faith; it is in the best interests of the Respondent Companies that the Applicants be granted leave; there is a serious question to be tried; and at least 14 days before making the application, the Applicants gave written notice to the Respondent Companies of their intention to apply for leave and of the reasons for applying. The first and fifth of those matters were not in dispute in this application.

51. The Applicants bear the onus of establishing that each of these matters is satisfied on the balance of probabilities: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [26]. On appeal in Huang v Wang [2016] NSWCA 164, Bathurst CJ observed that, irrespective of whether an application for leave under that section is characterised as interlocutory or final, an applicant must satisfy each criterion on the balance of probabilities in order to obtain leave under that section. The Chief Justice also observed (at [59]) that, in the case of a solvent company, whether the proceedings are in the company’s best interests will have regard to the interests of shareholders in that capacity, and a collateral benefit to a particular shareholder from bringing proceedings is irrelevant. Barrett AJA also emphasised that the determination to be made under that section is not discretionary in nature, but involves an evaluation against the statutory criteria specified in the section by reference to primary facts found by the Court. If all the requirements of s 237(2) are satisfied, the Court must grant leave to bring the proposed proceedings. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12]–[13]; Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 at [55]–[65].

52. The Respondent Companies submit, and I broadly accept, that leave under s 237 must not be given lightly, although that proposition might be advanced in respect of any exercise of judicial discretion. The Respondent Companies also submit, and I accept, that the Court should be conscious that the grant of leave results in a company being compelled to engage in litigation as a plaintiff against its will, or at least against the will of its controllers: Swansson v RA Pratt Properties Pty Ltd above.

Whether the Applicants are acting in good faith

53. The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Corporations Act, is that the Applicants must establish to the Court’s satisfaction that they are acting in good faith. Factors relevant to that requirement include whether the Applicants have an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief, and whether they are seeking to bring the action for a collateral purpose. In Swansson v RA Pratt Properties Pty Ltd above at [36], Palmer J observed that:

“… there are at least two interrelated factors to which the Courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. 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.”

54. It is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant’s shares would be increased: Swansson v RA Pratt Properties Pty Ltd above at [38]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58]; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Pty Limited [2012] NSWSC 462.

55. The Applicants rely on the evidence of Mr Keith Redenbach and Mr Ray that they are acting in good faith and that the allegations contained in the draft Statement of Claim are true and correct to the best of their knowledge and belief (Keith Redenbach 27.6.17 [6]; Ray 27.6.16 [6]). They also point out that both Mr Keith Redenbach and Mr Ray have significant shareholdings in LPMG and nSynergy International and an indirect interest in nSynergy by their shareholding in LPMG. I accept that a recovery made by the Respondent Companies in the proceedings would potentially increase the value of Mr Keith Redenbach’s and Mr Ray’s interests in those companies. The Applicants also rely on litigation funding and indemnity arrangements which they have made in respect the proceedings, which I address below, as indicators of their good faith.

56. Dr Higgins, who appears for the Respondent Companies, submits that the Court cannot be satisfied that the Applicants are acting in good faith. She submits, first, that no witness has given evidence to the effect that the pleaded allegations enjoy reasonable prospects of success. It seems to me that Mr Keith Redenbach’s and Mr Ray’s evidence broadly addresses that question but, even if it did not, the Court may assess that matter having regard to the documentary and other evidence led in the application. Dr Higgins also initially submitted that the absence of indemnities offered by Mr Keith Redenbach and Mr Ray personally as to the Respondent Companies’ costs undermined their claim to be acting in good faith. Such undertakings were offered in the course of the hearing and I need not now address that question.

57. It seems to me that, like Hannon v Doyle above at [108], this is a case where the findings that I reach below as to the existence of serious questions to be tried, the conclusions that I also reached below as to the best interests of the Respondent Companies, and the evidence of the steps taken by Mr Keith Redenbach and Mr Ray to assemble the relevant evidence and to pursue this application, support an inference that they have an honest belief in the existence of good causes of action with reasonable prospects of success and support a finding that they are acting in good faith. I am satisfied that the requirement that the Applicants are acting in good faith under s 237(2)(b) of the Corporations Act is satisfied.

Whether it is in the best interests of the Respondent Companies that the Applicants be granted leave

58. The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Corporations Act, is that the grant of such leave is in the Respondent Companies’ best interests. The Applicants refer to the summary of the relevant principles in Swansson v RA Pratt Properties Pty Ltd above at [55]–[56], where Palmer J noted that that provision required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the relevant company’s best interests. In Re Gladstone Pacific Nickel Ltd above, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the company if the action is unsuccessful. In order to prove that leave is in the best interests of the company, an applicant should generally give evidence of the character of the company, in the sense of the nature of the company’s operations; the business of the company so that the effects of the proposed litigation on the conduct of its business may be appreciated; whether there are other means of obtaining the same redress so that the company does not have to be brought into litigation against its will; and the proposed defendant’s ability to meet at least a substantial part of any judgment in favour of the company so that the Court may ascertain whether the action would be of practical benefit to the company.

59. I have referred to the comprehensive evidence led by the Applicants above as to the history of the Respondent Companies, and that evidence seems to me to be sufficient to establish a seriously arguable case for the diversion of corporate assets and business opportunities from the Respondent Companies, reinforced by the evidence that entities associated with Mr Karl Redenbach and Mr Nguyen-Brown have found it necessary, or at least desirable, to use the “nSynergy” name for opportunities which have been taken up in entities other than the Respondent Companies, and have from time to time claimed the benefit of their earlier activities for more recently incorporated entities. The scale of the opportunities exploited by the new entities, and the extent to which value has been realised by a public listing of those new entities, suggests that there is a real potential of significant recoveries, by way of an account of profits or equitable compensation, although much would turn on the detail of the evidence led at a final hearing.

60. In oral submissions, Mr Hutley placed some weight on the proposition that the Respondent Companies are effectively dormant, and have no assets other than the claims that are brought in this litigation, as a matter supporting a conclusion that it is in their best interests to grant the relevant leave, and went further to submit that any liabilities to which the Respondent Companies may be exposed with respect to costs would not redound to their disadvantage, because they have nothing (T63). That does not seem to me to be a particularly persuasive submission, where only the most strictly utilitarian analysis could conclude that it was in the best interests of a company which had no assets to bring proceedings which might secure it recoveries if successful, but would leave third parties with unrecoverable claims for costs if they failed. It is not necessary to express a final view as to that submission, where Mr Keith Redenbach and Mr Ray have now offered a personal indemnity as to costs as to the Respondent Companies.

61. Dr Higgins submits that it is not in the Respondent Companies’ best interests that the Applicants be granted leave and that redress is available by other means, including by proceedings for oppression or breach of fiduciary duty that would avoid the Respondent Companies being brought into litigation against their will. I am not persuaded by that submission. First, the availability of oppression proceedings, as an alternative to or in addition to derivate proceedings, has not been treated as preventing the grant of leave to bring derivative proceedings in other cases: see, for example, Hannon v Doyle above; Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705; Power v Ekstein [2010] NSWSC 137; Fitzpatrick v Cheal [2012] NSWSC 261; and Re Imperium Projects Pty Limited [2015] NSWSC 16. The Applicants submit, and I accept, that the decision of Ward J in Vadori v AAV Plumbing (2010) 77 ACSR 616 is distinguishable, since leave to bring a derivative claim was superfluous in that case, because the Court had already found that it would grant the primary relief sought by the plaintiffs in their oppression claim. Dr Higgins fairly accepted in oral submissions that she could not identify any case in which leave to grant derivate proceedings has been declined on the basis that oppression proceedings might have been brought, or might be brought in parallel to the derivative proceedings.

62. Second, as Mr Hutley points out, oppression proceedings at least arguably could not extend to claims against the proposed third to twelfth defendants, which could only be held liable in an accessorial capacity in respect of breaches of duties by Mr Karl Redenbach and Mr Nguyen-Brown, and that matter may be of real practical significance if, for example, Mr Karl Redenbach and Mr Nguyen-Brown do not hold assets in their personal capacity, but only through trusts or by way of interests in other corporate entities. The Applicants point out, and I accept, that the efficacy of a buy-out order or other order made against Mr Karl Redenbach or Mr Nguyen-Brown in oppression proceedings would depend upon the extent of their personal assets. Third, at least arguably, oppression claims are not available in respect of nSynergy, since shares in it are held by LPMG and nSynergy International rather than by Mr Keith Redenbach and Mr Ray. These matters together are sufficient to answer the proposition that oppression proceedings would be an inadequate alternative to the grant of leave to bring derivative proceedings.

63. In submissions in rejoinder, Dr Higgins raised the possibility that the proposed third to twelfth defendants could be joined as defendants in a claim for oppression, where the alleged oppressive conduct consists of breaches of statutory and general law directors’ duties, and refers to the decision in Patterson and Ors v Humphrey and Ors (2014) 291 FLR 246 in that respect. That course does not seem to me to be either so certain or so uncontroversial that it could be said that the Applicants should be required to follow it, rather than to pursue the derivative claims which they seek to bring in the Respondent Companies’ names. In response to the Applicants’ submission that oppression proceedings could not be brought in respect of nSynergy, the Respondent Companies also contend that there is authority that the affairs of a subsidiary may form part of the affairs of its holding company for the purposes of an oppression claim, and refer to the flexible character of the relief that may be granted under s 233 of the Corporations Act. Again, it seems to me that there is room for real controversy as to the scope of relief that may be granted in oppression proceedings in respect of nSynergy and the possibility that a wide view might be taken of the relief that is available does not substantially undermine the case for the grant of leave for derivative proceedings.

64. The Respondent Companies also submit that it is not in their best interests that the proceedings be brought by these Applicants. They point to a history of conflict between Mr Karl Redenbach and Mr Keith Redenbach as tending against the grant of leave. I recognise that, as Mr Keith Redenbach has acknowledged in correspondence that is in evidence in the proceedings, there are “many emotions, as well as family ties” involved in the dispute and there has been an absence of “courtesy between brothers” in aspects of the dispute (Ex A1, tab 63), and threats of litigation have been made by Mr Keith Redenbach over a long period, extending not only to Mr Karl Redenbach and Mr Nguyen-Brown but also to their legal representatives. The Respondent Companies submit, and I accept, that judgments as to prospects of recovery and as to possible settlement terms may be more difficult to make where emotions run high. It does not, however, follow that the fact that an applicant may be strongly, and possibly justifiably, aggrieved by particular conduct, that he or she ought to be deprived of the means to seek redress for it, including by the commencement of derivative proceedings.

58. The case law establishes that, even if an applicant for leave was motivated by animus against the proposed defendant, that would not of itself prevent the grant of leave: Swansson v RA Pratt Properties Pty Ltd above at [41]; Maher v Honeysett & Maher Electrical Contractors above at [45]. In any event, it seems to me that the existence of conflict between Mr Karl Redenbach and Mr Keith Redenbach reflects, at least in part, the history of their dealings in respect of the Respondent Companies, and that these proceedings are very likely motivated by the prospect of the recovery of significant compensation by them, and consequential financial benefit to Mr Keith Redenbach and Mr Ray, which are legitimate objectives in a claim of this character. So far as the Respondent Companies suggest that it is not in their best interests that the proceedings be brought by these Applicants, the Applicants rightly respond that these Applicants are the only persons who could sensibly bring the relevant proceedings. That seems to me to be a complete answer to that proposition.

59. The Respondent Companies also submit that the “insubstantial nature of the evidence served in support of the proposed claims” and the absence of cogent evidence of quantum suggests that the Respondent Companies will enjoy no, or no substantial, fruits from the proposed litigation and may be exposed to significant adverse costs orders. It does not seem to me that the evidence led by the Applicants, reflected in the narrative of facts that I have set out above, can properly be characterised as “insubstantial”. I accept that there is limited evidence of quantum, other than for the evidence of the significant proceeds of realisation of other companies associated with Mr Karl Redenbach and Mr Nguyen-Brown to which I have referred above. It seems to me that those matters are sufficient to support an inference that the amounts in issue in the proceedings are substantial, and that there is a real prospect of significant recoveries from the proposed proceedings.

The Respondent Companies’ costs of the proceedings, indemnity for those costs and issues arising from a proposed litigation funding agreement

67. The Applicants recognise the relevance of the likely costs of the action and consequences to the Respondent Companies if leave is granted to bring the proceedings and those proceedings are unsuccessful. The Applicants point out that they have obtained capped litigation funding, to which I will refer below, to prosecute their claims. The Applicants recognise that the substantive proceedings may well be costly, but also rightly recognise that those costs will be incurred, at least to some extent, to the extent that Mr Keith Redenbach and Mr Ray are also prosecuting separate oppression claims which arise out of the same matters. In Re Imperium Projects Pty Ltd above at [40], to which the Applicants refer, I noted the relevance of the fact that additional costs incurred in a derivative action may be limited, where an oppression claim is proceeding in any event, and an indemnity was offered by the applicant for leave. As I will note below, the Applicants have now offered a personal indemnity in respect of the Respondent Companies’ costs of these proceedings, and the issues as to any gaps in the funding agreement and indemnity are less significant by reason of that personal indemnity.

68. The existence of an indemnity given by a shareholder who seeks leave to bring the derivative proceedings in favour of the relevant company in respect of costs is relevant to whether it is in the company’s interests to bring the proceedings. The Applicants accept that the case law has recognised the desirability of an indemnity to be given to the company to protect it from adverse costs exposure: Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132 at [73]–[76]; Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 at [108]; MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367 at [64] and refer to my observations in Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [31] that:

“… the question of an adequate indemnity to be given by [the applicant] and those standing behind it in favour of the companies in respect of the costs which they would incur in conducting the proceedings and the costs to which they would be exposed if the proceedings were unsuccessful, and in respect of any amount which they may be ordered to pay by way of security for costs, is significant. The case law emphasises the importance of such an indemnity as a means of addressing the risk of prejudice to the companies from the commencement of the proceedings, should they ultimately prove to be unsuccessful, and the risk of exposure to costs and expenses of litigation including costs orders.”

69. The Applicants initially relied on litigation funding and an indemnity from AmTrust to satisfy any requirement for such indemnity. The Applicants have obtained litigation funding for a capped amount, from Balance REV, a company incorporated in England and Wales. Clause 2 of the LFA contains several conditions precedent to the provision of funding under that agreement, including the entry into a costs agreement with the solicitors and Counsel conducting the proceedings and the provision of security to the funder for Mr Keith Redenbach’s and Mr Ray’s obligations under the agreement and it is not apparent whether those conditions precedent have presently been satisfied. Clause 3.1 of the LFA provides for the funder to pay certain amounts, including “legal costs” (as defined) to the extent incurred within the budget, policy premiums to cover the costs of certain insurance arrangements and other costs to which the funder has given prior written consent. Clause 3.4 provides, inter alia, that the litigation funder is under no obligation to provide “additional funding”, being funding in excess of specified work, and part of that clause, which may or may not affect the substance of the obligation, is masked. Clause 3.5 of the LFA provides that Mr Keith Redenbach and Mr Ray agree, in consideration for the funding, that in the event of a recovery, the funder is entitled to payment of the amounts, and in the priority, specified in clause 2(a) of the Priorities Agreement. An unexecuted version of the Priorities Agreement was annexed to the LFA, but cl 2 of that agreement which provides for an irrevocable instruction to the solicitors to pay out the claim proceeds, apparently in a specified order, was masked in its entirety and it is not possible to assess whether it would impact upon any recoveries made by the Respondent Companies.

70. Clause 4 of the LFA in turn provides that:

“4.1   Receipt and use of Claim Proceeds

The Plaintiff [defined as Mr Keith Redenbach and Mr Ray] will procure (including through instructions to the Solicitors which are hereby irrevocably given by this clause) that any person in receipt of or with control of any Claim Proceeds will pay the Claim Proceeds into the Trust Account.

4.2   Application of Claim Proceeds

Upon any Recovery, the Plaintiff irrevocably instructs the Solicitors to pay the Claim Proceeds from the Trust Account in accordance with the terms of the Priorities Agreement (and in particular clause 2 of the Priorities Agreement, which relates to ‘Application of Claim Proceeds’).”

71. The term “Claim Proceeds” is defined as:

“The aggregate of any and all value (both monetary and non-monetary in nature), awarded in favour of, or received by or due to, the Plaintiff (but without double counting), whether by way of or as a result of interim or final settlement, orders, judgment, or award in connection with the Claim [as defined], including payment of any damages, compensation, interest and costs, (including any legal costs), dividends or other returns, in each case, without set-off or deduction of any amounts, and before deduction of any taxes which the Plaintiff may be liable to pay in respect of such proceeds.”

72. Clause 4 of the LFA can attach to recoveries made by Mr Keith Redenbach and Mr Ray personally in the proceedings, and there is no difficulty with that so far as the grant of leave for derivative proceedings is concerned. Mr Hutley contends that that clause cannot apply to recoveries made by the Respondent Companies, both because the definition of “Claim Proceeds” is limited to amounts received or due to “the Plaintiff”, defined as Mr Keith Redenbach and Mr Ray, rather than extending to recoveries by the Respondent Companies, and because Mr Keith Redenbach and Mr Ray do not have authority to dispose of proceeds recovered by the Respondent Companies in the proceedings. While I accept that proposition, in broad terms, it seems to me that that clause could readily be misunderstood, and possibly misapplied, particularly if compensation was ordered in favour of Mr Keith Redenbach and Mr Ray and the Respondent Companies in a manner that did not clearly differentiate the amounts to which each of them was entitled. The risk of misapplication of recoveries achieved by the Respondent Companies would be increased by the fact that the Claim Proceeds (as defined) would or may be mixed with other proceeds of the litigation in the solicitors’ trust account, which the solicitors are then committed to disperse in accordance with the Priorities Agreement, in an undisclosed manner. The effect of that clause is reinforced by cl 7.6(e) of the LFA, which provides that, if requested by the funder, the plaintiffs must notify, or instruct their solicitors to notify the proposed defendants and their solicitors that it is a condition of any settlement that all Claim Proceeds must be paid into the solicitors’ trust account. While that term does not, on its proper construction, extend to recoveries by the Respondent Companies, as distinct from recoveries by Mr Keith Redenbach and Mr Ray, it could also readily be misunderstood or misapplied in respect of claim proceeds to which Mr Keith Redenbach, Mr Ray and the Respondent Companies had a joint or joint and several entitlement.

73. These risks can readily be addressed by making an order, as a condition of the grant of leave to commence the proceedings that, notwithstanding cll 4 and 7.6(e) of the LFA or any definition in the LFA or any instructions given to the solicitors or any terms of the Priorities Agreement or any other agreement, no amount to which the Respondent Companies have an entitlement (including a joint or joint and several entitlement with Mr Keith Redenbach and Mr Ray) may be paid out without their agreement or an order of the Court. That term is consistent with the position that the Applicants put to the Court and would only cause difficulty for the litigation funder if it is presently operating under a misunderstanding as to the scope of its rights as against any recoveries which may be made by the Respondent Companies in the proceedings.

74. Clause 5.1 of the LFA incorporates a “matter protocol” into the funding agreement, which has not been tendered. Clause 5.3(a) of the LFA provides that, subject to cll 5.5 and 5.6 which deal with settlement disputes and conflicts:

“The Plaintiff agrees that the Funder has the right to give day-to-day instructions to the solicitors on, and make binding decisions on behalf of the Plaintiff in relation to, any matter relating to the Proceedings and the claim provided that the Funder takes reasonable endeavours to seek the agreement of the Plaintiff if the funder, acting reasonably, considers this practicable.”

75. After reserving judgment, I invited submissions as to whether cl 5.3 of the LFA extended beyond the level of control ordinarily permitted to a litigation funder by Australian case law and whether it was inconsistent with the Applicants’, or potential plaintiffs’, obligations under s 56 of the Civil Procedure Act 2005 (NSW) and drew the parties’ attention to the observations in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd [2017] FCA 699 at [127] in that regard.

76. The Applicants submitted that cl 5.3 of the LFA did not extend beyond what was permitted by way of control by a litigation funder. They noted that, in Fostif Pty ltd v Campbells Cash and Carry Pty Ltd (2005) 63 NSWLR 203 at [85], Mason P had accepted that a contract could permit a third party funder to maintain day-to-day control of a proceeding, where the legal representatives continued to consult with a representative plaintiff on key issues, although Mason P also observed that the agreement would be contrary to public policy if the legal representatives had fully abdicated their obligation to act for the representative party. They also drew attention to other circumstances recognised in Fostif above where a third party may be permitted a degree of control of the proceedings, including the conduct of litigation by an insurer in the name of an insured. On appeal to the High Court in Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386, Gummow, Hayne and Crennan JJ recognised at [89] that it was “hardly surprising” that a litigation funder might wish to control the conduct of litigation and (at [90]–[93]) that existing principles of abuse of process and the rules recognising legal representatives’ duties in circumstances of conflicting duties were sufficient to address those matters. In a minority judgment, Callinan and Heydon JJ observed that a greater level of control provided to a funder may increase the likelihood that proceedings involve an abuse of process. The Respondent Companies also drew attention to the decision of the Supreme Court of Victoria in Walsh v Worleyparsons Ltd (No 4) [2017] VSC 292, but fairly accepted that the level of control conferred on the funder by cl 5.3 of the LFA falls short of the control at issue in that case.

77. The Applicants also point out that cl 5.3(a) of the LFA is subject to cl 5.5, which deals with resolution of settlement disputes and would have no application prior to a settlement, and cl 5.6 which deals with the steps that are to be taken where the solicitors representing the plaintiffs in the proposed proceedings consider there is a conflict between the plaintiffs and the funder’s interests.

78. The Applicants also point to rule 3.1 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (“Conduct Rules”) which provides that a solicitor’s duty to the Court and the administration of justice is paramount and prevails to the extent of inconsistency with any other duty, and they submit that that obligation would “trump any inconsistent obligation to the funder in the LFA, if one were present”. They also point to rule 4.1.1 of the Conduct Rules which provides that a solicitor must act in the best interests of a client in any matter in which the solicitor represents the client, and submit that:

“This preserves the rights of the funded parties in circumstances where any purported exercise of control on the part of the litigation funder might conflict with the interests of the funded parties.”

79. The Applicants also draw attention to rule 8.1 of the Conduct Rules which provides that a solicitor must follow a client’s lawful, proper and competent instructions. That submission proceeds on the basis that an instruction given by the Respondent Companies would be lawful, proper and competent, notwithstanding that cl 5.3 of the LFA purportedly confers the right to give day-to-day instructions to the solicitors on the litigation funder, and I will also proceed on that basis.

80. The Applicants also distinguish the observations of Yates J in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd above by reference to the differing terms of s 37N of the Federal Court of Australia Act 1976 (Cth) and s 56 of the Civil Procedure Act. They point out, and I accept, that s 56 of the Civil Procedure Act expressly imposes obligations on a person with a relevant interest in the proceedings, including a person who provides financial assistance or other assistance to a party in the proceedings or exercises any direct or indirect control or influence over the conduct of the proceedings, and that section gives examples, in a note, of insurers and funders of litigation as persons who are bound by its operation. The Applicants also point out that their legal representatives could not act in accordance with an instruction given by the funder that was inconsistent with s 56 of the Civil Procedure Act, by reason of the obligations imposed on them under s 56(4) of the Civil Procedure Act. I accept that, in those circumstances, the degree of control otherwise permitted by cl 5.3(a) of the funding agreement does not undermine the operation of s 56 of the Civil Procedure Act, because the funder and the Respondent Companies’ legal representatives will be bound by the operation of that section. The Applicants also seek to distinguish the substance of the obligations imposed by cl 5.3 of the LFA and the relevant clauses of the policy that were in issue in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd above. It is not necessary to address that distinction given the conclusions that I reach on other grounds above.

81. The Respondent Companies rightly pointed out that these questions arose, in this case, not in respect of the conduct of a class action, but in respect of the exercise of the Court’s discretion whether to grant leave to bring proceedings under s 237 of the Corporations Act, and were relevant to the questions of whether the proposed proceedings would be brought in good faith and in the Respondent Companies’ best interests. The Respondent Companies accepted that cl 5.3 of the LFA did not appear to give rise to an abuse of process and that, provided the LFA was construed subject to the general law and applicable statute law, and on the assumption that the parties complied with the LFA as construed in that manner, it generally should not operate in a manner inconsistent with the Applicants’ duties.

82. The Respondent Companies also raised a possibility that two other clauses of the LFA, cll 3.6(c)–(d), read together with cl 5.3 of the LFA, could be inconsistent with such duties. Clause 3.6(c) of the LFA would require the Applicants to have any costs claimed by any defendant taxed or assessed, purportedly preventing their agreeing the amount of those costs, and cl 3.6(d) of the LFA would prevent the Applicants from compromising a costs claim with a defendant or reaching agreement as to the form or amount of any security for costs without first obtaining the funder’s consent. The Respondent Companies submit that those paragraphs potentially restrict the Applicants’ ability to compromise costs and security for costs disputes in a manner inconsistent with s 56 of the Civil Procedure Act. It seems to me that that proposition is, however, answered in the same manner as any other difficulties arising from cl 5.3 of the LFA. If those clauses had that effect, then s 56 of the Civil Procedure Act will prevent the Applicants, their legal representatives and the funders acting in accordance with those clauses, thereby depriving them of that effect.

83. It seems to me that, if cl 5.3(a) of the LFA had effect in accordance with its terms, it might well have extended beyond the control which would be permitted to a litigation funder by Australian law. However, the Applicants have persuaded me that that clause could not, in any situation in which difficulty with it arose, be given effect, because the professional obligations of the legal representatives under the Conduct Rules and s 56 of the Civil Procedure Act would override that clause. Any difficulty with cl 5.3 of the LFA is therefore not that it undermines the Applicants’ or the Respondent Companies’ control of the proposed proceedings, but only that it is not transparent as to the significant limitations on the funder’s ability to control the proceedings arising from the Conduct Rules and s 56 of the Civil Procedure Act. I need not be concerned to protect the funder’s interests in that respect, which are not relevant to whether leave should be granted under s 237 of the Corporations Act.

79. Clause 12 of the LFA in turn provides for termination of that agreement by the funder, and the funder’s obligations under the LFA, including obligations as to claims for payments incurred up to the date of termination, are not preserved on a termination for cause. That clause appears to expose the Applicants (although that is a matter for them) and the Respondent Companies to a risk that, if the proceedings went badly, and significant costs were incurred, the funder may purport to terminate the LFA for cause before an obligation to pay those costs has crystallised and seek to avoid its liability for past costs on that basis. Less turns on that risk than would otherwise be the case, where, as I will note below, both Mr Keith Redenbach and Mr Ray now offer personal indemnities for the Respondent Companies’ costs of the proceedings.

80. Clause 15 of the LFA in turn provides that Mr Keith Redenbach and Mr Ray grant the funder a security interest over the “Collateral” (as defined) for the purpose of securing their obligations to the funder under and in connection with the LFA. The term “Collateral” is defined to include the “Claim”, and the definition of that term expressly extends to the claim the Respondent Companies have or may have against the proposed defendants, the “Claim Proceeds” (which have a narrower definition as noted above) and the insurance policy required under the LFA in respect of security for costs and its proceeds. I also afforded the parties an opportunity to make further submissions as to whether cl 15 of the LFA, combined with the definition of “Collateral” in the LFA, purported to give security in favour of the funder over that insurance policy (also issued by AmTrust but not tendered by the Applicants) and its proceeds, which would otherwise be available to meet an order for costs against the Respondent Companies and, if so, whether the Applicants had authority to give such security and whether the giving of that security undermined the value of that policy for the Respondent Companies.

81. The Applicants submitted that cl 15 of the LFA did not have that effect and acknowledged that, if it did, they would not have the authority to give such security and that such security would then undermine any value of the insurance policy for the Respondent Companies. The Applicants relied, in that submission, on a “First Endorsement” to the AmTrust policy issued on 20 July 2017, which had also not been tendered, and point out that the Respondent Companies are treated as “insureds” under the AmTrust policy by reason of that endorsement. The Applicants point out that, but for the tender of that endorsement, a letter from AmTrust to the Applicants’ solicitor dated 19 July 2017 (annexed to Mr Anderton’s affidavit affirmed 20 July 2017) would give a misleading impression as to the effect of the AmTrust policy. I grant leave to tender that endorsement to correct that otherwise misleading impression.

82. The Applicants submit that cl 15 of the LFA, combined with the definition of “Collateral” which is limited to the Applicants’ right under, relevantly, the AmTrust policy and its proceeds, does not give security in favour of the funder of the policy and its proceeds so far as they respond in respect of the Respondent Companies. The Applicants submit, and I accept, that the Respondent Companies’ rights under the policy are not the subject of security to the funder. The Applicants also point out that the security given under that clause does not extend to the separate deed of indemnity provided by AmTrust, on which the Applicants rely in support of the application for leave to bring the proceedings. The Respondent Companies accepted, in submissions, that it did not appear that the giving of security undermined any value of the relevant insurance policy and recognised that the Applicants primarily relied on the deed of indemnity, which was not affected by the giving of security over the relevant policy under cl 15 of the LFA.

83. It seems to me that cl 15 of the LFA would potentially have given rise to a difficulty in respect of the grant of leave to bring a derivative action if it secured the AmTrust policy or the claims of the Respondent Companies (and not only the claims of Mr Keith Redenbach and Mr Ray) to the litigation funder to meet Mr Keith Redenbach’s and Mr Ray’s personal obligations. However, I am satisfied that difficulty does not arise, since Mr Keith Redenbach and Mr Ray do not have, and do not claim to have, the authority to grant such security to the funder over assets of the Respondent Companies as distinct from over their personal assets.

84. As I noted above, the Applicants also rely on a deed of indemnity to be provided by AmTrust in favour of LPMG, nSynergy and nSynergy International which relevantly provides that, subject to several clauses, AmTrust unconditionally and irrevocably undertakes to pay to the Respondent Companies any sum which they are legally liable to pay to the defendants in respect of the defendants’ costs in the proceedings, up to the specified maximum limit of AUD$500,000. The defendants named in that deed are the persons proposed to be joined as defendants in the derivative proceedings. I proceed on the basis, recognised by Hargrave J in DIF III Global Co-Investment Fund LP v BBLP LLC [2016] VSC 401 and by the Court of Appeal in Blue Oil Energy Pty Ltd v Tan [2014] NSWCA 81 that, at least in the context of security for costs, the ultimate question is whether security is sufficient to protect the relevant parties’ interests, and the fact that a policy is written by an insurer outside the jurisdiction is not necessarily reason that it is insufficient to protect the Respondent Companies’ interests.

85. The Respondent Companies initially contended that the litigation funding and indemnity agreements arranged to fund the proposed proceedings insulated the Applicants against the ordinary costs and risks of litigation and deprived the Respondent Companies of protections which they should properly have. The Respondent Companies also complained that the figure of $500,000, which was the cap of the AmTrust indemnity, was arbitrary where the matters in issue were not yet clearly identified and the substantive proceedings may be significant and costly. There is force in the Applicants’ response that those matters can be addressed by a mechanism for variation of a cap, and by the Court’s ability to revoke leave to continue the proceedings, if the indemnity was exhausted. The Respondent Companies also submit, and I accept, that the grant of leave should be conditioned by permitting a party, after the substantive proceeding has been commenced, to seek an increase to the cap on the indemnity provided by AmTrust and, if necessary, a stay pending provision of that increased indemnity, or alternatively an order that leave be revoked on the basis that the indemnity is insufficient. Whether such an order would ultimately be made would depend, in part, on the weight that is now to be given to the personal indemnities given by Mr Keith Redenbach and Mr Ray.

86. The position significantly shifted in the course of the hearing, when Mr Keith Redenbach offered a personal indemnity in respect of the costs of the proceedings. By supplementary submissions made, by leave, on 26 March 2018, the Applicants confirmed that each of Mr Keith Redenbach and Mr Ray now offer to indemnify the Respondent Companies against all costs, charges and expenses of and incidental to bringing and continuing the derivative proceedings for which leave is sought. Once such an indemnity was offered, then the deed of indemnity from AmTrust becomes a support for the personal indemnity, rather than the only basis of that indemnity. The Applicants also offered an undertaking regarding the costs of enforcement and registration of any judgment against AmTrust, in respect of the indemnity provided by AmTrust. The Applicants’ offer of such an indemnity in their personal capacity supports a conclusion that the proceedings are in the Company’s best interests, although there are gaps in the evidence as to the economic benefit of the proceedings and the likely costs of the proceedings.

87. In supplementary submissions, by leave, the Respondent Companies accepted that the offer of personal indemnities by Mr Keith Redenbach and Mr Ray, in respect of the Respondent Companies’ costs of the proceedings, and the offer of an undertaking regarding certain costs of enforcement of the indemnity offered by AmTrust, addressed several of the concerns previously raised by the Respondent Companies as to good faith and as to whether the proceedings are in the Respondent Companies’ best interests. The Respondent Companies fairly accepted that neither those offers nor the undertakings as to the costs of enforcement are so worthless as to be deprived of weight in the Court’s discretionary consideration, although they point to a submission made by the Applicants that the involvement of the litigation funders indicates that the Applicants need assistance in respect of the costs of the proposed litigation. It does not seem to me that that proposition goes far enough to establish that the personal indemnity offered by Mr Keith Redenbach and Mr Ray does not support a conclusion that the proceedings are in the Respondent Companies’ best interests. The Respondents Companies also submit that the lateness of the offer of a personal indemnity by Mr Keith Redenbach and Mr Ray, part way through the second day of the hearing in the case of Mr Keith Redenbach and after the oral hearing in the case of Mr Ray, will be relevant to costs. I will hear the parties as to costs after the delivery of judgment.

88. On balance, and for the reasons set out above, it seems to me that the requirement that it is in the best interests of the Respondent Companies that the Applicants be granted leave to bring the proposed proceedings under s 237(2)(c) of the Corporations Act is therefore satisfied, subject to the matters noted in paragraph 73 above, the liberty to apply if the cap to the AmTrust indemnity becomes insufficient to which I referred in paragraph 90 above and the Applicants giving the personal indemnities as to costs and enforcement costs noted in paragraph 91 above.

Whether there is a serious question to be tried

94. The fourth requirement under s 237(2)(d) of the Corporations Act is that there is a serious question to be tried in the proceedings. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson v RA Pratt Properties Pty Ltd above at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. In Re Gladstone Pacific Nickel Ltd above, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]):

“The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163 ; 74 ALR 505 at 509–10:

However, applying the “serious question” test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief.”

95. The Applicants also refer to authority, which I summarised in Re Imperium Projects Pty Ltd [2017] NSWSC 141 at [26], that the diversion of assets or opportunities from a company to other entities may both constitute oppression and a breach of directors’ duties. The Applicants summarise the events to which I have referred in some detail in the outline of facts set out above, and the series of software products developed by nSynergy and other entities, which they characterise as having a common premise of using a central online location where documents and files could be located, and multiple users could access and collaborate in relation to them from remote locations. They also refer to the development of a consulting and servicing revenue business within nSynergy.

96. The Applicants submit that a serious question to be tried is established as to whether the assets and businesses of the Respondent Companies have been “stripped”. While I would not necessarily accept that language, the evidence does seem to me to establish a serious question as to the diversion of business and opportunities from those entities to newly incorporated entities, and the Applicants also formulate their claims as involving serious questions as to whether both the consulting and services business was diverted from the companies and sold to Rhipe in November 2014 and the collaboration platform business was diverted from the companies to become LiveTiles, and subsequently sold or floated in 2015. It seems to me that the events to which I have referred above do establish serious questions to be tried as to those issues. The Applicants also submit that a serious question to be tried is also established in respect of the claims against the proposed third to twelfth defendants, so far as they were all entities incorporated by Mr Karl Redenbach and Mr Nguyen-Brown and operated by them, at least for a material period after incorporation, although they are now, at least partly, under the control of third parties. It seems to me that a serious question as to such liability is established, having regard to the factual narrative set out above, and the summary of the principles by Gleeson JA in Re DH International Pty Ltd (in liq) [2017] NSWSC 870 at [100]–[102].

97. The Respondent Companies submit that the Applicants have failed to establish that there is a serious question to be tried. They point to the absence of an independent legal opinion in support of the claims and submit that no view as to prospects is expressed by the solicitor on the record for the Applicants and that the proposed Statement of Claim is not signed by Counsel. The Respondent Companies also submit, without calling substantive evidence, that there is no sufficient basis for several of the allegations. They submit that the Applicants have not adduced expert evidence in support of certain contentions for which expert evidence would likely be required. The Applicants respond that there is no express requirement for such legal advice under s 237(2) and it is rarely led in applications of this kind, not least by reason of difficulties in tender of such advice without loss of legal professional privilege. It seems to me that the evidence which has been placed before the Court, and detailed submissions, allow the Court to address the relevant issues without the need for such advice. As the Applicants point out, the Statement of Claim would be verified, both by the proposed plaintiffs, and by their solicitor, that the claim has reasonable prospects before it is filed.

98. Dr Higgins also raised, in submissions, a limitations issue, although she also fairly acknowledged that several of the claims, including those under the first or second limbs of Barnes v Addy above, would not be affected by that issue. The Applicants accepted that s 1317K of the Corporations Act provides for proceedings to be commenced not later than six years after the alleged contravention, and that the Court would ordinarily follow the statutory limitation period under that section in respect of corresponding claims for breach of equitable fiduciary duties, unless there has been other fraudulent concealment or conduct by the Respondent Companies that is sufficient to prevent reliance on the limitation period: Gerace v Auzhair Supplies Pty Ltd (in liq) [2014] NSWCA 181; (2014) 87 NSWLR 435; 100 ACSR 465 at [70]–[75]. There are plainly significant limitation issues in respect of the earlier events at issue in this case, although at least some of the conduct that is challenged occurred within the six year limitation period. In any event, it seems to me that the limitation issues are ultimately matters of defence, which will depend on a detailed examination of the facts, possibly including the extent of any concealment by Mr Karl Redenbach and Mr Nguyen-Brown and the extent of any knowledge by Mr Keith Redenbach and Mr Ray of the relevant conduct. It does not seem to me that the existence of those issues has the consequence that the proposed proceedings do not give rise to a serious question to be tried or are not in the best interests of the Respondent Companies.

99. For these reasons, the requirement that a serious question to be tried exists under s 237(2)(d) of the Corporations Act is therefore satisfied.

Orders and costs

100. For these reasons, I am satisfied that I should grant leave, now on a final basis, for the continuance of the proposed proceedings under s 237 of the Corporations Act, subject to the order to which I referred in paragraph 73 above, the liberty to apply if the cap to the AmTrust indemnity becomes insufficient to which I referred in paragraph 90 above, and the Applicants giving the personal indemnities noted in paragraph 91 above. Those undertakings should be recorded in the orders to give effect to this judgment.

101. I should also note that the question of the costs of this application remains to be determined. Section 98(1) of the Civil Procedure Act provides that costs are in the discretion of the Court and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, subject to Part 42, if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of those costs. Section 242 of the Corporations Act also deals specifically with orders for costs in respect of an application for leave under s 237 of the Corporations Act, and provides that the Court may at any time make orders it considers appropriate about the costs of, inter alia, the person who applied for or was granted leave, the company or any other party to the proceedings or application, and that an order under that section may require indemnification for costs. One possibility is that the costs of the application, or some part of them, should be the Applicants’ costs in the cause of the substantive proceedings: Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 at [19]; Re Imperium Projects Pty Limited [2015] NSWSC 123. Dr Higgins has also foreshadowed an issue as to the extent to which costs should be allowed, given the Applicants’ changed approach to whether they would personally give an indemnity, in the course of the second day of the hearing. I will determine the question of costs on written submissions, if the parties are unable to reach agreement as to that question.

100. The parties should bring in agreed short minutes of order to give effect to this judgment, including as to the provision of an indemnity for the Respondent Companies’ costs of conducting the proposed proceedings and any orders against them in those proceedings, within 14 days and, in the event of any disagreement between them, their respective draft orders and short submissions as to any differences between them.

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Decision last updated: 30 April 2018