Re Sundara Pty Ltd

[2015] NSWSC 1694

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Sundara Pty Limited & Ors [2015] NSWSC 1694

Hearing dates:

6-8 October 2015

Decision date:

13 November 2015

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Application for leave should be dismissed in each proceeding. Mr James should pay the Rabobank Parties’ and ROI’s costs of the applications, as agreed or as assessed.

Catchwords:

CORPORATIONS – membership, rights and remedies – derivative action – application for grant of leave by shareholder to bring proceedings in name of companies in Court’s inherent jurisdiction and under Corporations Act 2001 (Cth) s 237 – whether company will bring proceedings – whether Corporations Act 2001 (Cth) s 237 applies to a company in receivership – whether applicant acting in good faith in bringing proceedings – whether in the best interests of companies that applicant be granted leave – whether proposed proceedings involved serious questions to be tried – indemnity.

Legislation Cited:

- Aboriginal Land Rights Act 1983 (NSW) s 40(2)
- Civil Procedure Act 2005 (NSW) s 91
- Corporations Act 2001 (Cth) pt 2F.1A ss 236, 237, 237(2), 237(3), 1335
- Evidence Act 1995 (NSW) s 136
- Farm Debt Mediation Act 1994 (NSW) ss 3, 5, 5(1), 6, 7, 7(4), 8, 8(1), 9, 10
- Local Government Act 1993 (NSW) s 45
- Real Property Act 1900 (NSW) s 42, 42(3)
- Real Property & Conveyancing Legislation Amendment Act 2009 (NSW) sch 3
- Supreme Court Act 1986 (Vic) s 49
- Transfer of Land Act 1958 (Vic)
- Water Management Act 2000 (NSW)

Cases Cited:

- Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250
- Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337
- Bendigo and Adelaide Bank v McMahon [2013] NSWSC 628
- Blakeney v Blakeney [2015] WASC 73
- Breskvar v Wall (1971) 126 CLR 376
- Cadima Express Pty Ltd (in liq) v Deputy - Commissioner of Taxation (1999) 157 FLR 424; 33 ACSR 527
- Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577
- Chahwan v Euphoric Pty Ltd (trading as Clay & Michel) [2008] NSWCA 52; (2008) 245 ALR 780
- Champion Mortgage Services Pty Ltd v Craigie [2006] NSWSC 869
- City of Canada Bay Council v Bonaccorso Pty Ltd [2007] NSWCA 351
- Constantinidis v Equititrust Ltd [2010] NSWSC 299
- Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480
- Craigie v Champion Mortgage Services Pty Ltd [2007] NSWCA 15
- Electricity Trust of South Australia v O’Leary (1986) 42 SASR 26
- Fitzpatrick v Cheal [2010] NSWSC 717
- Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91
- Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284
- Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534
- Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWR 782; (1969) 92 WN (NSW) 199
- Hoath v Connect Internet Services Pty Ltd [2006] NSWSC 158; (2006) 229 ALR 566
- Horvath v Commonwealth Bank of Australia [1999] 1 VR 643
- Kogarah Municipal Council v Golden Paradise Corporation [2005] NSWCA 230
- Koompahtoo Local Aboriginal Land Council v KLALC Property Investment Pty Ltd & Ors [2008] NSWCA 6
- Lawloan Mortgages Pty Ltd v Young [2008] NSWSC 1180
- Lawloan Mortgages Pty Ltd v Hancock [2001] NSWSC 607
- Liberty Funding Pty Ltd v Ivosevich [2002] NSWSC 140
- 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
- Michalakas v Powell [2014] SASCFC 132
- Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69
- Oswal v Burrup Fertilisers Pty Ltd (recs & mgrs apptd) [2013] FCAFC 9; (2013) 295 ALR 708
- Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302
- Ragless v IPA Holdings Pty Ltd (in liquidation) [2008] SASC 90
- Re CGH Engineering Pty Ltd [2014] NSWSC 1132
- Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64; (2014) 97 ACSR 581
- Re Featherston Resources Ltd; Tetley v Weston [2014] NSWSC 1139; (2014) 101 ACSR 394
- 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 Staway Pty Ltd (in liquidation) (receivers and managers appointed) [2013] NSWSC 819
- Re Sundara Pty Ltd (Recs and Mgrs Apptd) (in Liq) [2015] NSWSC 1443
- Riva NSW Pty Ltd v Key Nominees Pty Ltd [2013] NSWSC 1952
- Roxo v Normandie Farm (Dairy) Pty Ltd [2012] NSWSC 765
- Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No 1) (1987) 6 ACLC 213
- Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722
- Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313
- Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2008] NSWSC 1209
- Varga v Commonwealth Bank of Australia (1997) NSW ConvR 55-797
- Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293
- Waller v Hargraves Secured Investments Ltd [2012] HCA 4; (2012) 245 CLR 311

Texts Cited:

- S Hepburn, “Interpretive Strategies in the Overriding Legislation Exception to Indefeasibility” (2009) 21(2) Bond Law Review 86

Category:

Procedural and other rulings

Parties:

2014/71424
David Anthony James (Applicant)
Rabobank Australia Limited (First Respondent)
Neil Robert Cussen and Vaughan Neil Strawbridge (in their capacity as receivers and managers of Sundara Pty Ltd (recs & mgrs apptd) (in liq) (Second Respondents)
ROI Lands & Hedging Pty Ltd (Third Respondent)
Philip Hosking and David Hirst (in their capacity as liquidators of Sundara Pty Ltd (recs & mgrs apptd) (in liq) (Fourth Respondents)

 

2014/71396
David Anthony James (Applicant)
Rabobank Australia Limited (First Respondent)
Neil Robert Cussen and Vaughan Neil Strawbridge (in their capacity as receivers and managers of Killara 10 Pty Ltd (recs & mgrs apptd) (in liq) (Second Respondents)
ROI Lands & Hedging Pty Ltd (Third Respondent)
Philip Hosking and David Hirst (in their capacity as liquidators of Killara 10 Pty Ltd (recs & mgrs apptd) (in liq) (Fourth Respondents)

2014/71413
David Anthony James (Applicant)
Rabobank Australia Limited (First Respondent)
Neil Robert Cussen and Vaughan Neil Strawbridge (in their capacity as receivers and managers of Wine National Pty Ltd (recs & mgrs apptd) (in liq) (Second Respondents)
ROI Lands & Hedging Pty Ltd (Third Respondent)
Peter William Marsden and Richard Stone (in their capacity as liquidators of Wine National Pty Ltd (recs & mgrs apptd) (in liq) (Fourth Respondents)

  2015/162637
David Anthony James (Applicant)
Rabobank Australia Limited (First Respondent)
Neil Robert Cussen and Vaughan Neil Strawbridge (in their capacity as receivers and managers of James Estate Wines Pty Ltd (recs & mgrs apptd) (Second Respondents)
ROI Lands & Hedging Pty Ltd (Third Respondent)

Representation:

Counsel:
M Cashion SC (Mr D A James)
B F Katekar (Rabobank Australia Ltd)
F Assaf (ROI Lands and Hedging Pty Ltd)

  Solicitors:
Allsop Glover (Mr D A James)
Kemp Strang (Rabobank Australia Ltd)
Paramante Legal (ROI Lands and Hedging Pty Ltd)

File Number(s):

2014/71424; 2014/71396; 2014/71413; 2015/162637

Judgment

Background to the application

1. Mr David James brings these applications for leave to bring derivative proceedings in his capacity as the sole contributory of each of Sundara Pty Ltd (recs & mgrs apptd) (in liq) (“Sundara”), Killara 10 Pty Ltd (recs & mgrs apptd) (in liq) (“Killara 10”), Wine National Pty Ltd (recs & mgrs apptd) (in liq) (“Wine National”) and James Estate Wines Pty Ltd (recs & mgrs apptd) (“James Estate”) and he was also the sole director of each of those companies. Three of the companies are in liquidation, namely Sundara, Killara 10 and Wine National and applications for leave to bring the proceedings are brought in the Court’s inherent jurisdiction in respect of those companies. The application in respect of James Estate, which is not in liquidation, is brought under ss 236 and 237 of the Corporations Act 2001 (Cth).

2. The First Respondent to each of the leave applications and the proposed First Defendant in each of the proposed proceedings is Rabobank Australia Limited (“Rabobank”). Messrs Cussen and Strawbridge, who are receivers appointed by Rabobank to each of the four companies (“Receivers”) are the Second Respondents to the leave applications and the proposed Second Defendants in the relevant proceedings. I will refer to Rabobank and the Receivers together as the “Rabobank Parties” in this judgment, where it is not necessary to distinguish their positions. The Third Respondent to each of the leave applications and a further defendant in the proposed proceedings is ROI Lands & Hedging Pty Ltd (“ROI”) which purchased real property and other assets sold by the Rabobank Parties in the exercise of rights under the relevant securities. It is not pleaded in the proposed proceedings that ROI was anything other than a good faith purchaser for value in respect of that real property and those assets.

3. Broadly, Rabobank, which was previously known as Primary Industries Bank of Australia, was a lender to companies associated with Mr James from 17 January 2001. It will be helpful to refer briefly to the several transactions between Rabobank and entities associated with Mr James. Rabobank made a loan of $3,500,000 to Sundara and James Estate to repay a loan from National Australia Bank Limited which had been used to acquire a property at Baerami in the Hunter Valley, New South Wales, which included a winery and vineyard. Rabobank subsequently made a further loan to Wine National to acquire the assets of the Hill Wine Group, including the Fernhill property in McLaren Vale, South Australia, on which there was a warehouse, other premises and a small vineyard. In December 2006, Rabobank made a loan to Killara 10 to repay a loan from ANZ Bank in respect of a property at Pokolbin in the Hunter Valley. In July 2009, Rabobank offered to vary its existing facilities to increase its loan to James Estate to $2,400,000 and its loan to Sundara to $3,500,000, and made loans to Wine National of $7,320,000 and $2,000,000, to Liquor National Pty Ltd of $4,600,000 and to Killara 10 of $1,800,000. Sundara, James Estate, Wine National and Killara 10 provided charges by way of security and Sundara and Killara 10 gave mortgages over the Baerami and Pokolbin properties respectively and other charges and guarantees were also given. A restated letter of offer was issued by Rabobank on 12 July 2013; Mr James contends that the companies associated with him accepted that restated letter of offer on 13 August 2013 and that is denied by Rabobank, although it will not be necessary or appropriate to determine that dispute in this application; Rabobank issued an amended restated letter of offer on 14 August 2003, and Mr James contends that the relevant companies also accepted that offer. Rabobank appointed the Receivers on 28 August 2013. By letter dated 10 December 2013, Rabobank demanded payments of amounts guaranteed in respect of various companies, totalling $23,945,841.25 (Ex R1.13).

4. Mr James contends that, as at each of 24 July 2009, 13 July 2013 and 16 August 2013, each of Sundara, James Estate, Wine National and Killara 10 was a “farmer” within the meaning of the Farm Debt Mediation Act 1994 (NSW) (“FDMA”); the debts owing by Sundara, James Estate, Wine National and Killara 10 were “farm debts” within the meaning of the FDMA at each of those dates; and the Sundara mortgage and Sundara charge, the James estate charge, the Wine National charge, the Killara 10 mortgage and Killara 10 charge were each a “farm mortgage” within the meaning of the FDMA at each of those dates. Mr James contends that Rabobank contravened s 8 of the FDMA, to which I will refer below, by taking “enforcement action” (as defined in the FDMA) against the relevant companies, in their capacity as “farmers” (as defined in the FDMA) in respect of the relevant securities, without first giving a notice to those companies under s 8 of the FDMA and that, by reason of s 6 of the FDMA, the enforcement action taken by Rabobank is void.

5. The Receivers appointed by Rabobank subsequently took possession of the Baerami property and the Pokolbin property and of assets under each of the relevant securities. ROI subsequently purchased the Baerami property previously owned by Sundara and the Pokolbin property previously owned by Killara 10 and also entered asset sale agreements to acquire assets used on those properties. Mr James contends that the Receivers’ taking of possession of those properties and assets and their sale was also void under s 6 of the FDMA.

6. In the draft pleadings sought to be filed on behalf of the companies and in written submissions, Mr James identifies the causes of action pleaded by the companies, consequential on the alleged invalidity of the enforcement action taken by Rabobank, the appointment of the Receivers and the sale of the properties and assets in trespass and conversion, and contends that the amounts claimed as damages exceed the amounts advanced by Rabobank as at 16 and 28 August 2013, so far as the gross amount claimed in the proceedings exceeds $50 million less realisations in excess of $4.4 million from the two property sales to ROI. Mr James relies on his affidavits dated 7 March 2014, 21 May 2014, 18 June 2014, and 3 September 2015 in support of the application. Mr James’ affidavit dated 21 May 2014 sets out the financial position of companies subject to the proceedings, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as evidence of his understanding, to the effect that the net asset position of Wine National at March 2013 was $24,354,040 and the net asset position of Sundara at March 2013 was $7,450,000.

7. The Rabobank Parties rely on the affidavits of the Receivers, Mr Cussen, dated 19 May 2014, 21 August 2014 and 1 October 2015 and affidavits of its solicitor, Mr Peter Harrison, dated 27 May 2014, 24 February 2015 and 10 September 2015, and also tendered Mr James’ affidavit of 13 March 2014 which dealt with his present financial position. ROI reads the affidavit of Mr Robert Bounassif dated 2 October 2015 and an affidavit of its solicitor in the proceedings, Mr Hadchiti, dated 1 October 2015.

Whether the Court should grant leave for proceedings in its inherent jurisdiction

8. The Court has power to grant leave to bring derivative proceedings where a company is in liquidation, in its inherent jurisdiction, upon the application of a contributory or creditor. In oral submissions (T43), Mr Cashion, who appears for Mr James, recognised that the Court’s power to grant leave to bring proceedings in its inherent jurisdiction is discretionary, whereas the Court must grant such leave under s 237 of the Corporations Act (to which I refer below in respect of James Estate) if the factors specified in that section are satisfied. In oral submissions, Mr Cashion noted that it was common ground that the main matters to be determined in respect of whether the Court should grant leave to Sundara in its inherent jurisdiction was whether the proceedings had some solid foundation, in that they exhibited such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success, the attitude of the liquidator, and whether practical considerations supported the initiation of the proceedings with particular reference to the financial protection of the liquidator and the company by means of an indemnity and, if indicated, security (T53–54).

9. In Chahwan v Euphoric Pty Ltd (trading as Clay & Michel) [2008] NSWCA 52; (2008) 245 ALR 780, the Court of Appeal unanimously held that the statutory derivative action under Pt 2F.1A of the Corporations Act is not available where a company is in liquidation although the inherent jurisdiction is available in that situation. In Re Featherston Resources Ltd; Tetley v Weston [2014] NSWSC 1139; (2014) 101 ACSR 394 at [35], Brereton J noted that the Court’s inherent jurisdiction to permit a contributory or creditor to bring proceedings in the name of a company in liquidation, where a liquidator did not do so, was founded in the Court’s supervisory jurisdiction over liquidators.

10. In Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577 at [23] – [36], Barrett J (as his Honour then was) helpfully summarised the criteria to be applied in granting leave to bring proceedings on behalf of a company in liquidation (at [34]), in a manner consistent with the common ground identified by Mr Cashion, as follows:

“1   The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success.

2   The attitude of the liquidator to the question whether the proceedings should be pursued.

3   The question whether ‘practical considerations support the initiation of the proceedings’, with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.”

His Honour also reviewed earlier authorities and expressed the view (at [30]) that the requirement that a claim had a “solid foundation” involved “as a practical matter, that there are reasonable prospects of success and some tangible benefit is genuinely in prospect”.

11. In Re Staway Pty Ltd (in liquidation) (receivers and managers appointed) [2013] NSWSC 819 at [24]-[25], I summarised the relevant principles in respect of the grant of leave to bring proceedings in respect of a company in liquidation as follows:

“The general principle is that proceedings in the name of a company in liquidation should be conducted by the liquidator: Scarel Pty Ltd v City Loan and Credit Corporation Pty Ltd (No 2) (1988) 17 FCR 344; (1988) 12 ACLR 730 at [733]; Hu v PS Securities Pty Ltd above at [35]. However, the power to grant leave to a creditor or contributory of a company in liquidation to use a company’s name as a plaintiff is available in the Court’s inherent jurisdiction and under s 511 of the Corporations Act: Hu v PS Securities Pty Ltd above at [25]–[29]. Where a company is in liquidation, that power is available to the exclusion of the statutory derivative action under Pt 2F.1A of the Corporations Act: Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 at [124]–[125]; (2008) 65 ACSR 661.

In Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250, McLelland J observed that the Court’s inherent power to order that a creditor or contributory of a company in liquidation be authorised to use the company’s name as plaintiff ‘is of respectable antiquity and is sanctioned by high authority’. His Honour noted that that jurisdiction was based on the principle that allows a person to obtain orders in chancery against his or her trustee to be allowed to use the trustee’s name to recover trust property: Cape Breton Co v Fenn (1881) 17 Ch D 198 at 207. In Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577 at [25], Barrett J noted that the power to authorise derivative proceedings by a beneficiary in the name of a trustee was available ‘in special circumstances’, which could involve a failure, excusable or inexcusable, by the trustee in the performance of the duty they owed to the beneficiary to protect the trust property or protect the interests of the beneficiary of the trust estate. His Honour also identified (at [34]) three matters which should be taken into account in an application for such leave, namely:

1.   The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious or oppressive and to present reasonable prospects of success.

2.   The attitude of the liquidator to the question whether the proceedings should be pursued.

3.   The question whether ‘practical considerations support the initiation of the proceedings’, with particular reference to the financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.

That test was also adopted by Ward J in Hu v PS Securities Pty Ltd above at [38]ff.”

12. In Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64; (2014) 97 ACSR 581 at [9], I again summarised those principles as follows:

“It was common ground between the parties that the Court has an inherent jurisdiction to permit proceedings to be taken in the name of a company in liquidation upon the application of a creditor or contributory and it was also common ground between the parties, and I accept, that relevant factors in such an application include whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success; the liquidator’s attitude to the question whether the proceedings should be pursued; and whether ‘practical considerations support the initiation of the proceedings’, with particular reference to financial protection of the liquidator and the company’s estate by means of indemnity and, if indicated, security: Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252; Brightwell v RFB Holdings Pty Ltd (in liq) [2003] NSWSC 7; (2003) 44 ACSR 186 at [45]; Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 66 ACSR 564 at [34]; Hu v PS Securities Pty Ltd as trustee of the Joseph Family Trust [2011] NSWSC 303 at [38]; Staway Pty Ltd (in liq) (recs and mgrs apptd) [2013] NSWSC 819 at [25]. It also appeared to be common ground that these matters are not exhaustive, since the grant of leave in the Court’s inherent jurisdiction requires the exercise of the Court’s discretion to which other matters might also be relevant.”

Whether the Court should grant leave in its inherent jurisdiction for Sundara to bring proceedings against the Rabobank Parties

13. Mr James identifies the first question in respect of leave to grant a derivative action, in the Court’s inherent jurisdiction, as whether the proposed proceedings have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success. In oral submissions, Mr Cashion submits that the prospective claims based on Rabobank’s alleged non-compliance with the FDMA, so as to establish that the enforcement actions were void, are seriously arguable, and indeed are reasonably strong claims, particularly against the Rabobank Parties. Mr Cashion also relies on the size of the claims as a matter suggesting that it is in each of the company’s best interests that leave be granted (T46).

14. In determining whether Sundara’s claim has a solid foundation or a serious question to be tried is established in respect of that claim, it is necessary to have regard to the terms and structure of the FDMA, which will also be relevant to Mr James’ application in respect of the other companies. Section 3 of the FDMA provides that:

“The object of this Act is to provide for the efficient and equitable resolution of farm debt disputes. Mediation is required before a creditor can take possession of property or other enforcement action under a farm mortgage.”

In Varga v Commonwealth Bank of Australia (1997) NSW ConvR 55-797, Young J (as his Honour then was) noted that the FDMA must be construed to fulfil its purpose and observed that its purpose “was to prevent persons being driven off their farms because of inability to pay debt where it was possible for the debt to be rearranged after a bona fide mediation process”, and expressed the view that the overriding purposes of the FDMA should not be defeated by technicalities. In Waller v Hargraves Secured Investments Ltd [2012] HCA 4; (2012) 245 CLR 311 at [28], Heydon J also pointed to the background to the FDMA in the range of difficulties that face Australian farmers.

15. Section 5(1) of the FDMA provides that the FDMA applies in respect of creditors only so far as they are creditors under a “farm debt” (as defined). The term “creditor” is defined in the FDMA as a person to whom a farm debt (as defined) is for the time being owed by a farmer (as defined). The term “farm debt” is defined as a debt incurred by a farmer (as defined) for the purposes of the conduct of a farming operation (as defined) that is secured wholly or partly by a farm mortgage (as defined). The term “farmer” is defined as a person who is solely or principally engaged in a farming operation (as defined) and includes a person who owns land cultivated under a share-farming agreement. I pause to note that definition appears to require an ongoing state of cultivation. The term “farming operation”, which is used in the definition of “farm” and “farmer”, in turn means:

“A farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or any other operation prescribed by the regulations … .” [There are no applicable regulations].

16. The term “farm mortgage” is in turn defined as including:

“Any interest in, or power over, any farm property securing obligations of the farmer whether as a debtor or guarantor, including any interest in, or power arising from, a hire purchase agreement relating to farm machinery, but does not include:

(a)   Any stock mortgage or any crop or wool lien; or

(b)   The interest of the lessor of any farm machinery that is leased.”

The term “farm property” is in turn defined as a farm or part of a farm; farm machinery used by a farmer in connection with a farming operation, or an access licence (within the meaning of the Water Management Act 2000 (NSW)) held by a farmer in connection with a farming operation.

17. In Varga v Commonwealth Bank of Australia above, Young J expressed the view that the word “purposes” in the definition of “farm debt” includes “a debt incurred for the purpose of acquiring the land or an interest in the land on which the farming operation is conducted” and the same view was taken by Adamson J in Roxo v Normandie Farm (Dairy) Pty Ltd [2012] NSWSC 765 at [28]. The question whether a person is “solely or principally” engaged in a farming operation is not resolved by a mathematical calculation of the percentage of time spent on farming but involves a question whether “in all the circumstances is farming that person’s principal activity”: Roxo v Normandie Farm (Dairy) Pty Ltd above at [30]. In Australian Cherry Exports Ltd v Commonwealth Bank of Australia (1996) 39 NSWLR 337 at 340, Priestley JA noted that the effect of the section was to impose a temporary moratorium on actions to enforce farm mortgages, as distinct from farm debts, and Cole JA also there noted (at 345) that the FDMA does not apply either to unsecured debts or to liabilities, or to secured debts or liabilities that are not incurred for the purpose of conduct of a farming operation.

18. In Lawloan Mortgages Pty Ltd v Hancock [2001] NSWSC 607, Bergin J referred to the definition of “farming operation” in the FDMA and held (at [81]–[82]) that a business which offered accommodation, a function centre and other activities, although conducted on rural land which was farmland for the purposes of the assessment of the rates that were payable, was not a farming operation within that definition in the FDMA. In Liberty Funding Pty Ltd v Ivosevich [2002] NSWSC 140, Simpson J held that a party which carried on both non-agricultural and agricultural businesses on a property was principally engaged in a “farming operation” although it seems to me that finding reflected the facts of the particular case. At first instance in Champion Mortgage Services Pty Ltd v Craigie [2006] NSWSC 869, Johnson J noted the dictionary definition of the term “farm” included a “tract of land devoted to agriculture” and held that a commercial fish hatchery was not a “farming operation”. An application for leave to appeal from Champion Mortgage Services Pty Ltd v Craigie above was dismissed in Craigie v Champion Mortgage Services Pty Ltd [2007] NSWCA 15 where Hodgson JA (with whom Santow and McColl JJA agreed) observed (at [6]) that the trial judge was correct in his approach of having regard to “the core meaning of the concepts of farm and farming operation” and did not inappropriately have regard to “traditional agricultural activities” in that respect.

19. In Constantinidis v Equititrust Ltd [2010] NSWSC 299, Barrett J noted (at [13]) that the definition of “farm debt” has regard to the circumstances existing when the debt was incurred, but so far as it refers to a “farmer” and security under a “farm mortgage”, it also directs attention to the present status of the person who incurred the debt in the past and the present status of the mortgage by which the debt was incurred. His Honour observed at [14] that:

“A person who is today a farmer and whose farm property stands today as security for a debt will be protected if the purpose of the original incurring of the debt was a relevant farming purpose (and whether or not the person was then a farmer), but not if the original incurring was for some non-farming purpose; while, if the original incurring was for a relevant farming purpose but either the person by whom the debt is owed is not today a farmer or the security property is not today a farming property, the protection will not be attracted.”

20. Section 6 of the FDMA in turn provides that enforcement action (as defined) taken by a creditor (as defined) to whom the FDMA applies otherwise than in compliance with the FDMA is void. I have referred to the definition of “creditor” above. The term “enforcement action” is defined, in relation to a farm mortgage (as defined) as relevantly:

“Taking possession of property under the mortgage or any other action to enforce the mortgage, including the giving of any statutory enforcement notice, or the continuation of any action to that end already commenced.”

In Waller v Hargraves Secured Investments Ltd above, Heydon J observed that that concept included not only taking possession of property, but any other action to enforce the mortgage, and was “wide enough to extend beyond enforcement of the security by taking possession to include reliance on any of the rights in the farm mortgage”.

21. Section 8(1) of the FDMA in turn provides that a creditor (as defined) to whom money under a farm mortgage (as defined) is owed by a farmer (as defined) must not take enforcement action (as defined) against the farmer in respect of the farm mortgage until at least 21 days have elapsed after the creditor has given a notice to the farmer under the section. In Constantinidis v Equititrust Ltd above, Barrett J helpfully summarised the operation of s 8(1) of the FDMA as follows:

“The s 8(1) prohibition operates to preclude action by a person who, at the time the action is taken, is a ‘creditor’ to whom money is, at that time, owed under a mortgage which is at that time a ‘farm mortgage’ by a person who is, at that time, a ‘farmer’. Thus, the prohibition does not operate unless all of ‘creditor’ status of the person taking action, the ‘farm mortgage’ status of the mortgage under which money is owed to that person and the ‘farmer’ status of the person owing the money exist at the time the action is taken.”

It is common ground that Rabobank did not give any notice to Sundara (or other relevant companies) under s 8(1) of the FDMA before the Receivers were appointed in August 2013. If such notice is given, the farmer may then give notice under s 9 of the FDMA requesting mediation concerning the relevant farm debt and, if such notice is given by the farmer, s 10 prevents a creditor taking enforcement action in respect of the farm mortgage until that mediation has been completed.

The claim and evidence in respect of Sundara

22. Mr James seeks an order that a previous order made on 11 May 2015 dismissing proceedings brought by Sundara against the Rabobank Parties be set aside. Second, Mr James seeks an order in the Court’s inherent jurisdiction that he have leave to bring and prosecute proceedings on behalf of and in the name of Sundara in the form of a draft Statement of Claim annexed to the Interlocutory Process, conditional upon him, or some other acceptable person, giving an undertaking to the Court set out in the schedule to the Interlocutory Process. That undertaking is as follows:

“1.   [Mr James] will pay and bear all costs of [Sundara] as Plaintiff in the proceedings in the event that leave to proceed is granted.

2.   [Mr James] will indemnity and keep indemnified each of the following from and against all liability and all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings in the event that leave is granted, including without limitation any order for adverse orders for costs [sic] that may be made:

(a)   [Sundara];

(b)   Vaughan Neil Strawbridge and Neil Robert Cussen in their capacities as Receivers and Managers of [Sundara];

(c)   ROI Lands and Hedging Pty Ltd;

(d)   Philip Hosking and David Hurst in their capacities as Liquidators of [Sundara].”

23. The proposed Amended Statement of Claim to be brought by Mr James, on Sundara’s behalf, names Rabobank as First Defendant, the Receivers as Second Defendants, and ROI as Third Defendant. The Amended Statement of Claim pleads that Sundara became the registered proprietor of land at Baerami, in the Hunter Valley, which it continued to own and acquired two water licences in respect of that land and a producer/wholesaler and package liquor licence attached to the property, and also acquired a herd of approximately 200 cattle on its acquisition of the property on 17 December 1997.

24. Mr James contends that, first, Sundara was a “farmer” for the purposes of the FDMA because it owned the property at Baerami since 1997, on which it maintained a herd of 200 cattle. In its proposed Amended Statement of Claim, Sundara pleads that, between 17 December 1997 and 28 August 2013, it carried on the business of grazing, breeding and selling cattle on and from the Baerami property. It contends that, by reason of that matter, it conducted a “farming operation” upon the Baerami property within the meaning of the FDMA; the Baerami property was a farm within the meaning of the FDMA; and Sundara was a farmer within the meaning of the FDMA.

25. Mr James contends, second, that Mr James conducted an olive farming operation at that property under a share farming agreement. In its proposed Amended Statement of Claim, Sundara pleads its entry into a first share farming agreement (“First SFA”) with Mr James which provided for him to farm olives upon the Baerami property on 1 January 2001 and contends that Mr James farmed olives on that property pursuant to the First SFA to the date of appointment of the Receivers on 28 August 2013, and contends that the growing, cultivation, picking and producing of olives upon the Baerami property pursuant to the provisions of the First SFA constituted a farming operation within the meaning of the FDMA.

26. Mr James also contends that James Estate Wines, Wine National and Liquor National operated a vineyard and winery operation, growing grapes and making wine from them under a share farming agreement at that property. In its proposed Amended Statement of Claim, Sundara pleads the cultivation of a vineyard upon the property and the entry into a share farming agreement (“Second SFA”) on 10 July 2002 with James Estate, Wine National and Liquor National as farmer, and the continued conduct of vineyard operations upon the property between 10 July 2002 and the date of appointment of the Receivers on 28 August 2013.

27. Sundara also pleads its entry into a share farming agreement with Wine National and Killara 10 (“Third SFA”) in respect of another property situated at Hermitage Road, Pokolbin in November 2006, and contends that the Pokolbin property was a farm property within the meaning of the FDMA. It will not be necessary to address whether Sundara has a solid foundation for a claim that it was a farmer at relevant times on that basis given the findings that I reach on other grounds.

28. Sundara in turn pleads the facilities, to which I referred above, provided by Rabobank to Sundara and pleads that, at the entry into the Rabobank facility on 24 July 2009, Sundara was a farmer within the meaning of the FDMA; the debt incurred by Sundara to Rabobank on that date was a farm debt within the meaning of the FDMA; and the charge provided by Sundara to Rabobank was a farm mortgage within the meaning of the FDMA. Sundara pleads the same matters in respect of the alleged entry into a restated letter of offer dated 12 July 2013 from Rabobank, to which I referred above. Sundara also pleads that, as at 28 August 2013, the date of appointment of the Receivers, James Estate was conducting a farming operation upon the Baerami property and was a farmer within the meaning of the FDMA and Wine National was conducting a farming operation on the Baerami property and the Pokolbin property and was a farmer within the meaning of the FDMA; and Sundara was a farmer within the meaning of the FDMA, by reason of the grazing of the cattle herd at Baerami and the ownership of land under the First SFA and the Second SFA; the debt owed by Sundara to Rabobank was a farm debt; the Sundara mortgage was a farm mortgage within the meaning of the FDMA; the Sundara charge was a farm mortgage within the meaning of the FDMA; the appointment of receivers by Rabobank under the Sundara charge was void by reason of s 6 of the FDMA; and subsequent steps taken by Rabobank or the receivers were also void by reason of s 6 of the FDMA.

29. Sundara claims that it has suffered loss and damage by reason of unlawful conduct, trespass and conversion by the Rabobank parties, which is particularised as the difference between the value of Sundara’s property and assets as at 28 August 2013 claimed as approximately $10,950,000 and the amounts realised from the sales of its property and assets by the Rabobank Parties. Mr James also claims to have suffered loss and damage, being the loss of his occupation of the Baerami property and of his personal assets on it and by reason of demands made upon him under a guarantee. Mr James is, of course, entitled to pursue proceedings in his own name without any requirement for leave.

30. Mr James’ evidence, in his affidavit dated 7 March 2014 in respect of the Sundara proceedings (read with a limitation under s 136 of the Evidence Act as limited to his understanding) was that Sundara farmed beef cattle and cultivated wine grape vines and olives on the Baerami property. Mr James’ evidence in his affidavit dated 18 June 2014 was that, prior to the acquisition of the Baerami property, he observed that it was an extensive farming operation running beef cattle, vineyards, olive grove, fruit and nut trees together with a winery with bottling facilities. He also referred to farming activities undertaken by him and staff on the properties and referred to dealings with Rabobank in respect of Sundara and the property. Mr James also referred to returns lodged with the Department of Agriculture, Fisheries and Forestry in respect of the wine grape levy, which he described as referrable to grapes “grown and used to make wine on the Baerami Farm”; however, those levies appear to be referrable to grapes crushed at the winery, rather than grown on the property. Mr James also refers to evidence which is consistent with the use of the property for primary production, including the fact that the Baerami property is zoned primary production and is assessed for land tax on the basis that it is used for the business of primary production.

31. Mr James’ evidence in his 3 September 2015 affidavit is that, on 17 January 2001, Sundara and James Estate borrowed $3.5 million from Primary Industry Bank of Australia, the predecessor of Rabobank, and the funds were applied to repay existing loans from National Australia Bank and to pay costs of developing an enlarged vineyard and winery at the Baerami property (James 3.9.15 [27]). Mr James’ evidence is that the balance sheet of Sundara included in the quarterly compliance certificate for the quarter ended 31 March 2013 disclosed total assets of $10,950,000 comprising land and buildings, which was the Baerami property, including the vineyard and fixtures (James 3.9.15 [77]–[79]). Mr James’ evidence is that Sundara carried on a cattle business at Baerami on its property (James 3.9.15 [11]–[14], [16], [101] (the last of these paragraphs was subject to a limitation under s 136 of the Evidence Act). Mr James’ evidence in his September 2015 affidavit is that Sundara also carried on a cattle business at the Pokolbin property under the Third SFA (James 3.9.15 [52], [54], [102]).

23. A valuation report in respect of the Baerami property dated 7 May 2009 (Ex A1, p 46) refers to the property as comprising, inter alia, an irrigated vineyard, as well as a winery and grazing lands and associated infrastructure and refers to approximately 98 hectares of vines (Ex A1, p 48). That report refers to the vineyard on the property and also to 100 olive trees on the property, although it notes that the latter are not continued to be a viable entity. That report also indicates that the plantings are in full and optimum production and refers to the grazing land as being “ideal for the running of beef cattle”, although it does not indicate whether beef cattle were then being run on the property.

24. An advertisement for sale of equipment from the property in December 2013 referred to that equipment as “farm machinery” and identified equipment which appeared to have that character, supporting the inference that the property was then used for a farming purpose. The description of the property for sale, on the Receivers’ behalf, in turn described it as encompassing a vineyard as well as a winery and cellar door operation, and noted that 86 hectares were planted for various varieties of wine (Ex A1, p 94). An article published in the media about the same time also referred to the vineyards yielding between 500 and 900 tonnes of grapes a year (Ex A1, p 93).

Whether Sundara’s claim against the Rabobank Parties has a solid foundation

34. Mr Cashion did not, in opening submissions, seek to distinguish the strength of the claims under the FDMA in respect of the particular companies. As will emerge below, the factual position differs in respect of the four companies and it is therefore necessary to consider the facts underlying the relevant claims in respect of each of the companies separately. In oral submissions, Mr Cashion noted that Mr James’ approach was to have regard to the four companies in respect of which leave is sought, as members of a group of companies carrying on a farming operation which comprised different components. I accept, of course, that the question whether each of the companies is subject to the FDMA is to be determined in its context, including by reference to the activities of other companies within the group. I do not accept, however, that there is any solid basis for a claim that a particular company, which was not itself a farmer, could be treated as a “farmer” for the purposes of the FDMA because other companies within the group were carrying on activities which led to their properly being characterised as a “farmer” or which constituted a farming operation.

35. Mr Cashion also submitted (T102) that the concept of “farming operation” included not only growing or harvesting grapes but also the crushing of the grapes, the fermenting of the wine, the bottling of wine and the distribution or sale of wine. Mr Cashion, at least at some points, indicated Mr James’ position was that, if company A operated a farm which produced milk and an associated company B operated a bottling business for milk, then a loan to company B was a “farm debt” because the bottler bottled the milk produced on the farm. It does not seem to me that there is any solid basis for that submission, which seems to me to be inconsistent with the definitions of “farm” and “farming operation” in the FDMA, and would extend the operation of the FDMA well beyond that which is supportable by its terms, or by the authorities which have considered it. There was, however, a degree of ambiguity in Mr Cashion’s submission in this respect, since at other points it appeared to be no more than a submission that the Court should consider the status of each company in its context (T105) which I would accept.

36. So far as Sundara is concerned, Mr James submits that the loan from Rabobank to Sundara to repay a loan from National Australia Bank used to acquire the Baerami property and for further funding to develop the vineyard and winery at that property was “clearly a farm debt” at the date of the loan. Mr James also submits that, at all relevant times, including August 2013, Sundara carried on a cattle business on its property at Baerami, the operation of the vineyard and olive growing at Baerami, and he also relies on the cultivation of the property at Pokolbin as noted above.

37. The Rabobank Parties submit that leave should be refused in respect of the claim for Sundara on the basis that there is no solid foundation for the claim. Mr Katekar, who appears for the Rabobank Parties, submits, and I accept that, for Sundara (and the other relevant companies) to establish a solid foundation for the claims, it must establish that the relevant loan was a “farm debt” as defined, and that matter is determined at the time the loan was made: Constantnidis v Equititrust above at [11]–[14]; Bendigo and Adelaide Bank v McMahon [2013] NSWSC 628 at [10]–[14]. Mr Katekar also submits and I accept that, to establish a solid foundation, Sundara (and the other relevant companies) also need to establish a solid foundation for the proposition that Rabobank was enforcing a “farm mortgage”, which is to be determined at the time of enforcement. In oral submissions Mr Katekar also submitted that the requirement for Mr James to establish a solid foundation for his claim would be more demanding, where he was impecunious and there would be a substantial costs exposure if leave to proceed was given (T63). I will address Mr James’ financial position below.

38. Mr Katekar acknowledges that, as pleaded in the Statement of Claim by Sundara, the First SFA appears to have been in place between Sundara and Mr James in early 2001 in respect of the growing of olives, although he raises the possibility that the arrangement was not a commercial one and did not amount to an “operation” within the FDMA, referring to Lawloan Mortgages Pty Ltd v Young [2008] NSWSC 1180 at [48]. Mr Katekar also recognises the existence of the Second SFA between Sundara and Wine National and others entered into in July 2002, by which Sundara was to meet 5% of the expenses and was entitled to 5% of the proceeds of finished wine. Mr Katekar indicated in oral submissions that the Rabobank Parties accepted, at least for the purposes of this application, that growing grapes and extracting them from grape vines was a “farming operation” for the purposes of the FDMA, but contended that the crushing of grapes for the purposes of manufacturing wine was no longer such an operation (T116). However, Mr Katekar submits that, at the time Rabobank first made a loan available to Sundara in 2000, Sundara was not a farmer. This depends upon the proposition that Sundara itself was not then a farmer, and that only the First SFA then in place was with Mr James for a non-commercial olive growing operation. It does not seem to me that the evidence is presently sufficiently clear to reach a conclusion that Sundara does not have a solid foundation for a claim that it was then a farmer by reason of the olive growing undertaken on its land by Mr James pursuant to the First SFA. That submission also does not address the claim as sought to be pleaded by Sundara, which turns in part on a variation of the loan in 2009, when grape cultivation and the Second SFA was in place.

39. Mr Katekar also submits that the proceedings sought to be brought by Sundara have no substantial prospect of success, because it was not a farmer by the time of enforcement in August 2013 and the mortgage over Baerami was not a “farm mortgage” at that time. As I noted above, s 8(1) of the FDMA applies to an action taken by a creditor (as defined) only where money is owed by a farmer (as defined) under a farm mortgage (as defined), and the relevant enforcement action is taken against the farmer in respect of the farm mortgage. I accept that, in order to establish that Sundara’s claim has some solid foundation, it must show that there is some solid foundation for the proposition at least that it was a farmer in August 2013 and that the mortgage was a farm mortgage at that time.

40. The Rabobank Parties submit that Sundara was not a farmer and the security was not a “farm mortgage” at the time of Rabobank’s enforcement action. Mr Katekar recognises that Mr James’ evidence (admitted with limiting orders under s 136 of the Evidence Act, as evidence of his understanding only) is that, at that time, Sundara owned the Baerami property and carried on the cattle business and also that he cultivated the olive grove and the vineyard and winery were operated pursuant to the First SFA and the Second SFA respectively. However, Mr Katekar submits that, at least by 2012, Sundara did not conduct a business and was a land holding company only. Mr Katekar relies on evidence given by Mr James in that respect in cross-examination before White J on 18 October 2013 (Ex R1.18, p 519). Mr Katekar also refers to Rabobank’s internal records, including a credit committee memorandum of March 2013 (Ex R1.4) which described the relevant companies’ businesses as follows:

“Wine National (“WN”) focuses on the manufacture of wine, cellar door sales, and owns most of the group’s wine stock. A large portion of W[ine] N[ational] wines are sold through Liquor National (“LN”) on a just in time basis. … W[ine] N[ational], Sundara P/L (“SUN”) and Killara 10 P/L (“KIL”) own 4 properties (including vineyards and a winery) that form part of the Bank’s security. Both SUN and KIL are non-trading entities. …”

41. Mr Katekar also refers to a loan strategy report of Rabobank for James Estate referring to an application dated 24 October 2013 (Ex R1.5) which described the business in similar terms. That document also contains a schedule which describes Sundara as follows:

“Owns property Baerami. W[ine] N[ational] occupies the Baerami property. Bulk wine stock is stored at Baerami. It charges and recharges costs of sales to W[ine] N[ational].”

Mr Katekar also refers to Sundara’s profit and loss summary (Ex A4, DAJ-2, tab 33) and points to evidence that Sundara leased equipment under an equipment finance facility.

42. Mr Katekar submits that, by the time of enforcement, Sundara was not itself “solely or principally engaged in a farming operation” and must rely on the extension to the definition of “farmer” as referring to “a person who owns land cultivated under a share farming agreement”. Mr Katekar submits, and I accept, that that extension requires that the land be cultivated at the relevant time. Mr Katekar points out that Sundara’s financial records indicate that it did not incur any costs in respect of the cultivation of the Baerami property for 2013 (Ex A4, Tab 33) and submits that a real question arises as to whether the Second SFA was still operational in 2013, so far as it contemplated that Sundara would incur 5% of the expenses of cultivation of the relevant land and no such costs were incurred.

43. As I have noted above, Sundara itself claims to have conducted and to conduct farming operations on the Baerami property, because it carried on the cattle business and it owned land cultivated by Mr James in respect of olives under the First SFA, and it owned land cultivated by other entities and itself in respect of grape cultivation under the Second SFA. It seems to me the evidence to which I have referred above is sufficient to indicate that Sundara has a solid foundation for a claim that it was a “farmer”, at least at the time of the 2009 loan variation and any subsequent loans, by reason of one or more of these matters, and the relevant “farm debt” was incurred for the purposes of the conduct of a “farming operation” so far as it related to the costs of acquisition of the Baerami property. It seems to me that the evidence to which I referred above, and particularly the description of the property at the time of sale by the Receivers, supports the same conclusion at the time of the appointment of the Receivers and the sale of the property. That conclusion does not seem to me to be displaced, at least for the purposes of this application, by the fact that the winery also existed on the Baerami property, where it was operated by entities other than Sundara. While the evidence to which Mr Katekar refers may well be adverse to Sundara’s case at a final hearing, that evidence does not seem to me to be sufficient to establish that Sundara’s case has no solid foundation, so far as it would be open to a Court at a final hearing to accept Mr James’ evidence and the other evidence that Sundara was principally engaged in, and the Baerami property was operated as, a combination of a grazing operation, an olive plantation or a vineyard over the relevant period and until August 2013, notwithstanding that Sundara may not have complied with any obligation to incur part of the costs of cultivation under the Second SFA.

44. I am satisfied, by reference to the evidence to which I have referred above, and particularly the evidence as to the description of the Baerami property at the time of its sale, that Sundara’s claim that the Baerami property was and is a farm and that it was and is, at relevant times the owner of land cultivated under the First SFA and the Second SFA and therefore a farmer within the meaning of the FDMA has a solid foundation. It is not necessary to determine whether Sundara’s further claim based on the Third SFA in respect of the Pokolbin property also has a solid foundation given the conclusion that I reach in respect of its claim founded on the cultivation of the Baerami property.

45. The damages claimed by Sundara (and the other companies) are based upon the difference between the amount recorded for assets in the compliance certificates completed by Mr James on behalf of the companies and the amount for which the relevant properties were sold. Mr Cashion, in submissions, seeks to rely on the fact that the compliance certificates were “accepted” by Rabobank, but does not draw attention to any obligation under the loan documents for Rabobank to undertake an independent assessment of the information provided by the borrower in such certificates. The difference between those two figures is substantial for some, but not all, of the assets. As a matter of logical possibility, that difference could arise because the amount at which those assets were valued in the compliance certificates were overstated and the properties were sold at market value, or alternatively the properties were sold at undervalue, and a third possibility is that the value of the properties was to some extent overstated in the compliance certificates and they were to some extent sold at undervalue. It is not appropriate, in seeking to determine whether the companies’ cases have a solid foundation, to seek to determine that question, particularly where there is limited evidence going to the question.

46. Mr Katekar also points to authority that the damages recoverable in a claim for conversion is the market value of the goods at the time of conversion and any consequential loss which is not too remote: Electricity Trust of South Australia v O’Leary (1986) 42 SASR 26 at 28. He also refers to authority indicating that the balance of authority is that the tort of conversion is not available in respect of intangible property: Hoath v Connect Internet Services Pty Ltd [2006] NSWSC 158; (2006) 229 ALR 566 at 594; Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2008] NSWSC 1209 at [184]. So far as Mr James seeks to rely on the value recorded in the balance sheet of the companies for the assets to seek to establish a claim for damages, there will be an issue, which Mr Katekar identifies in oral submissions, whether the value attributed to those assets is book value, or original cost, as distinct from market value, or at least that the basis of the relevant valuation is unclear (T70–T71). These matters may also be adverse to Sundara’s claim but do not seem to me to be such as to deprive it of a solid foundation for the purposes of the leave application.

Whether Sundara’s claim against ROI has a solid foundation

47. ROI also opposes the application for leave to proceed against it in respect of Sundara and the other entities. First, it adopts the Rabobank Parties’ submissions in opposition to the grant of leave which I have addressed above in respect of Sundara. Second, ROI submits that leave should not be granted for any proceedings to be brought against it, because it is a bona fide purchaser for value of the relevant properties and assets from Sundara and the other companies without notice, and its title to the properties and assets cannot be impeached by reason of any failure of Rabobank to comply with the FDMA. In oral submissions, Mr Assaf, who appears for ROI, adopted Mr Katekar’s submissions on behalf of the Rabobank Parties and pointed out that, if the Rabobank Parties were successful in opposing the grant of leave, then the need for determination of particular issues in respect of ROI would not arise. In the event, where I have held that there should not be leave to commence the proceedings against the Rabobank Parties by reason of other matters noted below, then there would also not be such leave in respect of proceedings against ROI. I will, however, also address the issues raised in Mr Assaf’s submissions that are specific to whether Sundara’s claim against ROI has a solid foundation.

48. I made some preliminary observations as to this question in my judgment dealing with a security for costs application previously brought by the Rabobank Parties and ROI in respect of the costs of this application ([2015] NSWSC 1443). In the relief sought in its proposed Amended Statement of Claim, Sundara seeks a declaration that the sale of the Baerami property by Rabobank exercising a power of sale under the Sundara mortgage to ROI is void; an order that the registered transfer of the Baerami property to ROI be set aside; a declaration that the sale of the property and assets of Sundara by Rabobank to ROI on 10 December 2014 is void and that all sales of the property and assets of Sundara by the Rabobank Parties to ROI be set aside.

49. In my security for costs judgment, I noted that ROI was not itself alleged to have breached the FDMA and its only involvement in the matter is as a purchaser of properties and other assets sold by the Receivers who, on Mr James' case, were invalidly appointed, as a result of transactions which Mr James contends were void. I there noted that Mr James' submissions, on which he also relies in this application, describe the claim against ROI as:

“To set aside the transfer of the Baeremi and Pokolbin properties, they also having been void and notwithstanding their subsequent registration.”

50. It is not alleged, in the proposed Amended Statement of Claim in respect of Sundara (or any of the other proposed Statements of Claim) that there are any material facts, beyond the claimed invalidity of the transfer, that give rise to a claim for restitution against ROI, or that the companies propose to or have the capacity to place ROI in the position it would have been in had the transactions not occurred, by repaying the purchase price and interest to ROI. It is not alleged that, so far as ROI was a purchaser of assets, it did not pay substantial consideration for them or act in good faith. It is not alleged that, so far as ROI has indefeasible title to the land transferred to it, it acted fraudulently for the purposes of s 42 of the Real Property Act 1900 (NSW). There is also no pleading of any claim for damages against ROI or identification of any cause of action which might give rise to such a claim.

51. ROI submits that the claim against it must fail since it is a registered purchaser for value of the Baerami and Pokolbin properties, and there is no pleaded allegation that it had notice of any wrongdoing by the Rabobank Parties, and that registration of title in the relevant properties conferred indefeasibility upon ROI under s 42 of the Real Property Act. Mr Assaf refers to Breskvar v Wall (1971) 126 CLR 376 at 385–386, where Barwick CJ observed that the Real Property Act establishes a system of title by registration and that a registration which results from a void instrument is effective according to the terms of the registration, irrespective of the reason for which the instrument is void. The same approach was taken in Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 at 736 and in Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284 at [12]. ROI also submits that none of the exceptions to indefeasibility are available in the present case and, in particular, the exception for fraud is not available where fraud is not pleaded against ROI.

50. Mr Assaf recognises that it could be (and is) put by Mr James that the relevant provisions of the FDMA impliedly repeal or qualify the provisions as to indefeasibility in the Real Property Act, but ROI submits that such an implication is not readily drawn. ROI submits that, in this case, there is no inconsistency between a provision which is directed to the validity of enforcement action in the FDMA and a provision that is directed to indefeasibility of title to property arising from registration in the Real Property Act, because the FDMA is not directed to the question of title to real property arising from registration. Mr Assaf refers to the decisions of the Victorian Court of Appeal in Horvath v Commonwealth Bank of Australia [1999] 1 VR 643 and the Court of Appeal of this Court in Koompahtoo Local Aboriginal Land Council v KLALC Property Investment Pty Ltd & Ors [2008] NSWCA 6 in that respect. Mr Cashion responds that there are potentially complex issues as to any interaction between the relief available under the FDMA and the extent of statutory indefeasibility of title under s 42 of the Real Property Act, and also referred to the particular terms of s 7 of the FDMA, which I will address further below.

51. The case law has addressed the question whether a registered proprietor of property may rely on its title, arising by registration, notwithstanding that a statutory provision may avoid an anterior step to the acquisition of title, and whether a later statute such as the FDMA may impliedly repeal or qualify the indefeasibility of title otherwise available under s 42 of the Real Property Act. The relevant case law has been comprehensively reviewed by Associate Professor Hepburn in her article “Interpretive Strategies in the Overriding Legislation Exception to Indefeasibility” (2009) 21(2) Bond Law Review 86 and I should indicate that I have been assisted by, and have drawn upon, that review in the review of the case law which follows. In Horvath v Commonwealth Bank of Australia above, on which Mr Assaf relied, the Court of Appeal of the Supreme Court of Victoria considered whether s 49 of the Supreme Court Act 1986 (Vic), which avoided loan contracts entered into by a minor, impliedly repealed the indefeasibility provisions in the Transfer of Land Act 1958 (Vic). Ormiston JA (with whom Phillips JA agreed) held that no implied repeal was established, since the relevant provisions could each operate within their respective sphere, such that s 49 of the Supreme Court Act addressed the status of the loan contract, leaving the indefeasibility provisions of the Transfer of Land Act unaffected in respect of the effect of registration of a transfer.

52. In Kogarah Municipal Council v Golden Paradise Corporation [2005] NSWCA 230, the Court of Appeal, by majority, recognised the possibility of conflict between s 45 of the Local Government Act 1993 (NSW), so far as it deprived a local council of power to dispose of community land, and s 42 of the Real Property Act, but also held that conflict was resolved by a sequential assessment of the relevant provisions, such that they were each operated within their respective sphere. The majority (Tobias JA, with whom McColl JA agreed, Basten JA taking a different view) held that, once a transfer was registered, the transferee was entitled to rely on indefeasibility arising under s 42 of the Real Property Act. The Court of Appeal took the same view in City of Canada Bay Council v Bonaccorso Pty Ltd [2007] NSWCA 351 and held that the relevant provisions could operate sequentially, where s 45 of the Local Government Act did not expressly apply to the registration of transfers or title to land.

53. A corresponding approach was taken, in respect of s 40(2) of the Aboriginal Land Rights Act 1983 (NSW) in Koompahtoo Local Aboriginal Land Council v KLALC Property Investment Pty Ltd above by the majority (Giles and Tobias JJA, with Young CJ in Eq taking a different view). Giles JA there acknowledged the importance of that section but held that its focus was upon invalidating the transaction rather than upon attacking title obtained by registration, consequential upon the relevant transaction. There seems to be substantial force in the proposition that the focus of s 6 of the FDMA is similarly upon the validity of the relevant enforcement action, leaving open any challenge to that action up to the point of registration of a transfer under the Real Property Act, rather than upon the validity of that registration.

54. Mr Cashion responded to ROI’s reliance on indefeasibility of title under s 42 of the Real Property Act by reference to s 7 of the FDMA, which provides, inter alia, that the FDMA has effect despite any other Act. It does not seem to me that that section substantially assists Sundara, since the question here is not whether the FDMA has effect despite the Real Property Act, but whether its effect is, on its proper construction, such as to override the operation of s 42 of the Real Property Act once a transfer of real property is registered. To put that proposition another way, it is not apparent that the FDMA could not be given full effect, and s 42 of the Real Property Act could not also be given full effect, by recognising that the former is directed to the validity of the enforcement action taken by the relevant creditor whereas the latter preserves the title which arises from registration of a transfer of real property. Mr Cashion’s submission has the further difficulty that, so far as s 6 of the FDMA provides for the avoidance of enforcement action taken by a creditor (emphasis added), it is plainly open to question whether it would apply to an act of registration of a transfer of real property undertaken by the Registrar General, whether or not that act is prompted by a request by the purchaser of property from a mortgagee or receiver, or indeed by the mortgagee or receiver itself.

55. Mr Cashion’s submission has the third, and potentially fundamental, difficulty that, as Mr Assaf points out, s 42(3) of the Real Property Act provides that that section prevails over an inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contended in that section. That subsection was introduced by the Real Property & Conveyancing Legislation Amendment Act 2009 (NSW) with effect from 13 May 2009, after the decisions to which I have referred above. Section 7(4) of the FDMA does not specifically refer to s 42 of the Real Property Act or state that it is to have effect despite s 42 of the Real Property Act to allow it to prevail over that section. The FDMA was also not included in a list of sections of other Acts found in Schedule 3 of the Amendment Act, when it was introduced, which were amended to include express provisions that they prevailed over s 42 of the Real Property Act. The introduction of s 42(3) of the Real Property Act appears inconsistent with any suggestion that the FDMA impliedly ousted s 42 of the Real Property Act, so far as it appears to have confirmed the continued application of that section subsequent to the passage of the FDMA.

56. The parties paid lesser attention to ROI’s purchase of other assets. As I noted above, it is not pleaded that ROI is anything other than a bona fide purchaser for value of that property; no claim for restitution is pleaded in respect of that property; and there is no suggestion that Sundara could place ROI in a position that it would have been had those assets not been acquired, by repayment of the purchase price. There are therefore also obvious difficulties with Sundara’s claim in that respect.

57. The proposed claims by Sundara against ROI seem to me to face formidable obstacles in the terms of s 6 of the FDMA, the terms of s 42(3) of the Real Property Act, the several authorities that suggest that s 6 of the FDMA and s 42 of the Real Property Act could be reconciled by allowing them successive operation in their respective spheres, the absence of any claim that ROI was not a good faith purchaser for value of other assets and Sundara’s present inability to repay the purchase price if relief were granted. It does not seem to me to be necessary to express a view as to whether the claim rises to the level that it could be said to amount to a serious question to be tried or have a solid foundation. It is sufficient in the present case to find, as I do, that those difficulties are such that any claim by Sundara against ROI would have very substantial risks, and that leave should not be granted for Sundara to permit it without an effective indemnity to protect Sundara, its creditors and the liquidator against the risk of failure. No such indemnity is offered in this application.

Whether Mr James is acting in good faith

60. Mr James has sworn that he is acting in good faith in bringing the proposed proceedings. He points out that he is the sole shareholder of Sundara (and also James Estate, Wine National and Killara 10) and would stand to benefit if the proposed proceedings are ultimately successful. In oral submissions, Mr Cashion submits that the inference that Mr James is acting in good faith should be drawn from the fact that he is the sole shareholder in Sundara (also Killara 10, Wine National and James Estate) and that he, and unsecured creditors, stand to benefit from the derivative proceedings if they are ultimately successful (T44–45). Mr Cashion relies on the observation of Palmer J in Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 that it would be relatively easy to satisfy the good faith requirement where an application is made by a current shareholder with more than a token shareholding and invites me to infer from Mr James’ pursuit of the matters that he believes that a good cause of action exists and has reasonable prospects of success (T45). I accept that submission, with the significant qualification that a shareholder in the companies would only benefit from the proceedings if the amount recovered was ultimately greater than the amount of the companies’ secured and unsecured debts.

61. The Rabobank Parties contend that, by reason of the issues which they raise as to whether the proceedings give rise to a serious question to be tried, Mr James has nothing to gain from bringing the proceedings, and the Court may consider that the proceedings are not being brought for a proper purpose. I do not draw that inference. It is difficult to identify any purpose that Mr James would have in bringing the proceedings, other than the hope of recovery from them, and it seems to me likely that Mr James has a different assessment of the merit of the proceedings than the Rabobank Parties. I consider that Mr James’ good faith is sufficiently established to permit the grant of leave to bring the proceedings, if the other requirements for the grant of leave are satisfied.

62. ROI also submits that the Court should infer that Mr James is not acting in good faith in respect of the claim sought to be brought by James Estate, by reason of the poor prospects of success of the proposed proceedings, the proffering of a worthless undertaking, previous failures to comply with directions made by the Court in respect of earlier claims, and other attempts by Mr James and related parties to seek relief in relation to the real property the subject of the application, including an unsuccessful attempt to maintain caveats over the property. On balance, I do not draw that inference, particularly where it is clear that Mr James’ conduct of the proceedings has been subject to significant financial constraints.

Whether the proposed proceedings would be pointless

63. The Rabobank Parties also contend that the proposed proceedings by Sundara (and the other companies) would be pointless because any proceeds obtained from them would “circle back” to the Rabobank Parties to cover Sundara’s (and the other companies’) liability for debts owed to Rabobank. In response to the claim of futility, Mr James submits that the claim by the borrowers and security providers exceeds Rabobank’s debt. I have referred to the manner in which Sundara quantifies its damages in paragraphs 45-46 above. It seems to me preferable not to express a view as to whether such damages could be established at a final hearing where it is not necessary to do so given the conclusion that I have reached on other grounds.

64. Mr Katekar also submits that the proceedings are not in Sundara’s best interests, since Sundara is a cross-guarantor in respect of debts owed to Rabobank, and the FDMA does not apply to Rabobank’s rights of enforcement against Sundara by reason of its cross-collateralisation of a non-farm debt owed by Print National Pty Ltd to Rabobank. So far as its wider claim that the proceedings brought by Sundara and others would be pointless is concerned, the Rabobank Parties submit that Rabobank was entitled to enforce its charge over the other entities’ assets due to a default by Print National, whose loan expired on 31 May 2013, and was secured by a charge over the other entities’ assets. The Rabobank Parties also submit that s 5 of the FDMA has the effect that the FDMA did not apply to Rabobank’s enforcement of the securities given by those entities, by reason of Print National’s default, and that Rabobank was not obliged to comply with the FDMA in enforcing collateral securities given by the relevant entities in respect of a non-farm debt. Mr James responds that Print National was not in default in August 2013; a new loan had been entered in August 2013, and no demand was made on Print National so the loan could not be repayable (James 3.9.15 [100]). Ultimately, the evidence on which Mr Katekar relied was not sufficient to establish that there was an act of enforcement by Rabobank in respect of Print National, and the Rabobank Parties’ submission as to Print National should therefore be given little weight in the application.

Relevance of dismissal of earlier proceedings brought by Sundara

65. The Rabobank Parties also rely on the fact that earlier proceedings brought by Sundara were dismissed by consent of the liquidators of Sundara on 11 May 2015 and the orders effecting that dismissal were entered on 13 May 2015. Mr Cashion submits that, where the proceedings were previously dismissed other than following a hearing on the merits, and that order has been entered, the Court does not have power to set aside those orders under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), but the proceedings may be recommenced under s 91 of the Civil Procedure Act 2005 (NSW).

66. The Rabobank Parties initially contended that the Court did not have power to set aside the order dismissing the earlier proceedings. Mr Katekar subsequently qualified that submission, by reference to s 91 of the Civil Procedure Act on which Mr Cashion relied. Mr Katekar points out, in oral submissions, that there is authority that, where proceedings are not dismissed on the merits, and are restarted, the Court may stay the second proceedings until the costs of the first proceedings were paid: Riva NSW Pty Ltd v Key Nominees Pty Ltd [2013] NSWSC 1952 at [12]. Had I otherwise been satisfied that leave to bring the proceedings was properly granted in respect of Sundara, I would have only granted that leave conditional upon the payment of the Rabobank Parties’ costs of the proceedings which had previously been dismissed in respect of Sundara prior to the commencement of any further proceedings.

Other matters relevant to the grant of leave – practical consideration as to the liquidators’ attitude and indemnity

67. Mr Cashion recognises that further relevant questions to the grant of leave include the liquidators’ attitude to whether the proceedings should be pursued and whether practical considerations support the initiation of the proceedings, with particular reference to financial protection of the liquidator and the companies’ estate by means of indemnity and, if indicated, security. Mr Katekar (for the Rabobank Parties) and Mr Assaf (for ROI) respectively submit that practical considerations militate against leave being granted in respect of the claim against the Rabobank Parties and ROI. Mr Assaf also submits that the Court would not grant leave, in the exercise of discretion, for proceedings against ROI in its inherent jurisdiction.

68. In Carpenter v Pioneer Park above at [31], Barrett J noted that the liquidator’s view whether a proceeding should be initiated by a company will be an important consideration where the Court is asked to sanction a course by which a creditor or contributor is given carriage of the proceeding on behalf of the company. Mr James submits that the liquidators of Sundara (and Killara 10), Messrs Hosking and Hurst do not oppose the bringing of the proceedings, and do not seek cash security for their costs other than the indemnity that is proposed in the schedule to the Interlocutory Processes. That submission, with respect, does not properly reflect the position which they have expressed in correspondence, namely that they do not oppose the proceedings, provided an “appropriate” indemnity is granted. They do not, in terms, indicate that they accept that the undertaking offered by Mr James is presently an appropriate indemnity and, for the reasons that I note below, it seems to me that it is not.

69. Mr Katekar submits that a party which seeks leave to bring a derivative action on behalf of a company should bear the burden of the company’s costs in respect of the proceedings. In Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No 1) (1987) 6 ACLC 213 at 216–217, Bryson J treated the absence of a proposal for security for an indemnity as a significant matter as to whether such leave should be granted. In Cadima Express Pty Ltd (in liq) v Deputy Commissioner of Taxation (1999) 157 FLR 424; 33 ACSR 527, in the context of a company in liquidation, Austin J at [49] pointed to the relevance of practical considerations, and noted that an applicant typically:

“offers to indemnify the company in liquidation and the liquidator in respect of the proceedings, and to conduct the proceedings in such a fashion that liability to pay costs is undertaken by the applicant rather than the company to the extent that it is possible to do so. The Court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected. To these ends, the Court may require that the person who conducts the litigation gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to the litigation.”

I followed that decision in Re Colorado Products Pty Ltd (in prov liq) above at [10] in the context of a company in provisional liquidation. In Carpenter v Pioneer Park Pty Ltd above at [59], Barrett J similarly held that the company’s interests would not be served by a grant of leave, unless suitable and adequate security for the applicant’s compliance with such orders were provided, and rejected the argument that a company which had no assets suffered nothing if more liabilities were heaped upon it.

70. In Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 at [108], in the context of an application for leave under s 237 of the Corporations Act, Austin J noted that the risk of prejudice to a company by exposure to the costs and expenses of litigation and the risk of an adverse costs order could be addressed by making the grant of leave conditional upon an undertaking by the applicant to pay, bear and indemnify the company against all costs, charges and expenses of and incidental to the bringing and continuation of the claims for which leave is granted, and held that such a condition was appropriate in that case. In Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [138], also in the context of an application for leave under s 237 of the Corporations Act, Gilmour J held that the necessary balance between the prejudice to the company if claims are pressed unsuccessfully on its behalf and there is an adverse costs order, and the advantage if the claims are successful, could be addressed by conditioning the grant of leave on an undertaking by the plaintiff that it would pay the company’s costs of prosecuting the action; indemnify the company against adverse costs order in the litigation and, on the facts of that case, not claim contribution from the company in respect of any adverse costs order. A similar approach was adopted in Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 at [116] again in the context of an application for leave under s 237 of the Corporations Act.

106. By letter dated 7 March 2014, Mr Marsden, as liquidator of, inter alia, Wine National did not consent to Mr James conducting these proceedings in Wine National’s name (Ex R1.11). Mr Katekar confirmed in his submissions that Wine National’s liquidators, for whom he also appears, oppose the orders for leave to bring the proposed proceedings. Mr James submitted that the view of Wine National’s liquidators is of lesser importance, because they were first appointed as administrators of Wine National by Rabobank on 24 October 2013, before subsequently becoming liquidators following the second meeting of creditors in the administration on 25 November 2013. It seems to me that submission is inconsistent with the independence that is required of a liquidator and I do not accept it.

107. I would also not have granted leave for the proposed proceedings by Wine National by reason of the absence of adequate protection of the liquidator’s interests and Wine National’s position if such proceedings were brought.

Whether the Court should grant leave under s 237 of the Corporations Act for James Estate to bring proceedings against the Rabobank Parties

114. By Amended Interlocutory Process dated 1 September 2015, in proceedings 2015/162637, Mr James seeks leave to bring proceedings under ss 236 and 237 of the Corporations Act on behalf of and in the name of James Estate, in the form of a draft Amended Statement of Claim, conditional upon Mr James, or some other acceptable person, giving an undertaking in the form set out in the Schedule to the Interlocutory Process. That undertaking is in substantially the same form as that offered in respect of Sundara.

115. The proposed Amended Statement of Claim relies on Sundara’s purchase of the Baerami property and pleads that, between December 1997 and July 2002, Sundara and James Estate jointly cultivated the existing vineyard and, between 1999 and 2001, Sundara and James Estate jointly planted and developed further grapevines upon the Baerami property. The Amended Statement of Claim pleads the Second SFA between James Estate, Wine National and Liquor National and pleads that, between 10 July 2002 and the appointment of the Receivers on 28 August 2013, James Estate and Wine National jointly and continuously conducted specified operations on the Baerami property, corresponding to those pleaded in the claim by Wine National. The Amended Statement of Claim also pleads that, from 10 July 2002 to 28 August 2013, James Estate was a farmer within the meaning of the FDMA; that, as at the entry into a facility with Rabobank on 24 July 2009, James Estate was a farmer within the meaning of the FDMA; the debt incurred by James Estate to Rabobank was a farm debt within the meaning of the FDMA and the James Estate charge was a farm mortgage within the meaning of the FDMA; and pleads the same matters in respect of a restated letter of offer dated 12 July 2013 from Rabobank and an amended restated letter of offer dated 14 August 2013 from Rabobank.

116. The Amended Statement of Claim, in similar form to the other Statements of Claim that I have addressed above, pleads that the appointment of the Receivers by Rabobank and subsequent steps were void by reason of s 6 of the FDMA and pleads that James Estate has suffered loss and damage by reason of unlawful conduct, trespass and conversion by the Rabobank Parties, pleaded as:

“The difference between the value of the property and assets of James Estate Wines and Wine National together as at 28 August 2013 of approximately $35,365,085 and the amounts realised from the sales of their property and assets by the Receivers and Rabobank.”

There is no explanation as to why James Estate should be entitled to recover any difference as to the value of property and assets of Wine National.

117. Mr Assaf identified a preliminary question as to whether s 237 of the Corporations Act applies to James Estate, where it is in receivership. Mr Assaf submitted that s 237 of the Corporations Act does not apply to a company in receivership, by analogy with a company in liquidation. Mr Assaf drew attention to the Court of Appeal’s decision in Chahwan v Euphoric Pty Ltd above, which held that s 237 of the Corporations Act did not apply to a company in liquidation, inter alia, because the liquidator was the appropriate party to determine whether to commence proceedings (at [101]). Mr Assaf submits that the same can be said of a company in receivership. It seems to me that that proposition is less persuasive in the context of a company in receivership, first, because of the residual powers available to directors in respect of a company in receivership and, second, because the receiver will broadly be acting in the interests of his or her appointing creditor, rather than in the interests of the creditors generally. Mr Assaf also pointed to the Court of Appeal’s reference to s 237(3) of the Corporations Act in Chahwanv Euphoric Pty Ltd above as tending against a finding that the section applied to a company in liquidation. In Re CGH Engineering Pty Ltd [2014] NSWSC 1132 at [15], Brereton J held that s 237 of the Corporations Act was not available where a company was in voluntary administration, but held that the Court had power to order that a contributory of a company in administration be authorised to use its name as a plaintiff, by analogy with the inherent jurisdiction of the Court in a liquidation. The availability of a claim under s 237 of the Corporations Act in respect of a company in receivership seems to have been assumed by the Full Court of the Supreme Court of South Australia in Michalakas v Powell [2014] SASCFC 132.

118. On balance, I would be inclined to take the view that s 237 of the Corporations Act does apply to a company in receivership, since the appointment of a receiver to some or all of the company’s assets does not displace the authority of its officers in the same way as the appointment of a liquidator or administrator, although it will limit that authority depending upon the scope of the receivership, so that the directors may not take steps to prejudice the receiver's or its appointor's legitimate interests or impede the receiver's proper functions, and a receiver does not owe duties to the body of creditors generally in the same manner as a liquidator or administrator: Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWR 782 at 790; (1969) 92 WN (NSW) 199; Oswal v Burrup Fertilisers Pty Ltd (recs & mgrs apptd) [2013] FCAFC 9; (2013) 295 ALR 708. However, I do not consider it necessary to express a final view as to that question, where it is highly unlikely that the matters relevant to the exercise of the Court’s jurisdiction under s 237 of the Corporations Act and in its inherent jurisdiction would lead to a different result in the relevant circumstances.

119. Assuming, without deciding, that s 237 of the Corporations Act applies although receivers have been appointed to James Estate (and noting that the Court’s inherent jurisdiction would be available if it did not), Mr James is a member of James Estate and a person entitled to apply to the court for leave to bring statutory derivative proceedings under s 236 of the Corporations Act. In an application for leave to bring such proceedings, Mr James needs 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 James Estate will not itself bring the proceedings; Mr James is acting in good faith; it is in James Estate’s best interests that Mr James be granted leave; there is a serious question to be tried; and at least 14 days before making the application, Mr James gave written notice to James Estate of his intention to apply for leave and of the reasons for applying, or alternatively it is appropriate to grant leave even though written notice is not given. Mr James bears the onus of establishing that each of the matters specified in s 237(2) of the Corporations Act are satisfied on the balance of probabilities: Swansson v RA Pratt Properties Pty Ltd above at [26]. 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].

Whether James Estate will bring the proceedings

120. The first requirement for a grant of leave to bring a derivative action, under s 237(2)(a) of the Corporations Act, is that it is probable that James Estate will not otherwise bring the proceedings. In oral submissions, Mr Cashion submits that, where James Estate is in receivership, it is to be assumed that the receivers, which were appointed by Rabobank, will not bring the proposed proceedings against themselves and Rabobank (T44). That proposition was not contested and I proceed on that basis.

Whether Mr James is acting in good faith

121. The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Corporations Act, is that Mr James must establish to the Court’s satisfaction that he is acting in good faith. Factors relevant to that requirement include whether Mr James has 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 he is seeking to bring the action for a collateral purpose. In Swansson 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.”

122. 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 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. The Court does not consider the merits of the claim in deciding whether the applicant has satisfied s 237(2)(b) of the Corporations Act, since the merits are considered in respect of the question whether there is a serious question to be tried, which arises under s 237(2)(d) of the Act: Fitzpatrick v Cheal [2010] NSWSC 717 at [41].

123. I have addressed the question of good faith in paragraphs 60-62 above and I consider that I should proceed on the basis that Mr James is acting in good faith and consistent with his belief as to the merit of the claims.

Whether it is in the best interests of James Estate that Mr James be granted leave

124. 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 James Estate’s best interests. In Swansson above, Palmer J noted that that paragraph required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in James Estate’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 relevant company if the action is unsuccessful. In order to prove that leave is in the best interests of James Estate, Mr James would need to give evidence as to the nature of its operations and its business 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 James Estate does not have to be brought into litigation against its will; and the Defendants’ ability to meet at least a substantial part of any judgment in favour of James Estate so that the Court may ascertain whether the action would be of practical benefit to James Estate: Ragless v IPA Holdings Pty Ltd (in liquidation) [2008] SASC 90 at [35]. 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, and I reviewed the relevant authorities in that regard in paragraphs 68-73 above.

125. In this case, it seems unlikely that James Estate could obtain the relief sought without commencing proceedings, and it seems likely that at least Rabobank could meet any judgment against it, although there is little evidence as to the Receivers’ or ROI’s position. Mr Katekar submits that the proceedings in respect of James Estate are futile, because James Estate is a cross-guarantor in respect of other debts owed to Rabobank, and that Mr James is not in a financial position to protect James Estate in respect of the costs of the proceedings, so that it is not in James Estate’s best interests for leave to be given for the proceedings. I do not consider it necessary to decide that question given the findings that I have reached on other grounds. However, the lack of substance in the indemnity offered by Mr James is such that I am not satisfied that it is in James Estate’s best interests to grant leave, quite apart from the issues as to whether there is a serious question to be tried noted below. Mr Assaf also submits that it is not in James Estate’s best interests to bring the claim against ROI for the purposes of s 237 of the Corporations Act. I accept that submission, for the reasons that I have accepted that submission in respect of the Rabobank Parties.

Whether there is a serious question to be tried

126. 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 above at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd above at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. In Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 at [34], Barrett J noted that the “serious question to be tried” test involved, in the interlocutory context, an inquiry as to whether there was:

“a sufficiently cogent showing of some such infringement or wrong to warrant the imposition of an order to preserve the status quo pending full investigation”.

127. In Re Gladstone Pacific Nickel Ltd above at [56], Ball J summarised the test as to whether there is a serious question to be tried as follows:

“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.”

128. Mr James’ evidence is that James Estate was a farmer in respect of the Baerami property under the Second SFA and that James Estate had an interest in the vineyard and winery pursuant to the Second SFA, including the wines and machinery for cultivating, maintaining and harvesting and making the wine and the charge over such assets was a “farm mortgage” (James 3.9.15 [59], [64], [101]). Mr James’ affidavit of 3 September 2015 also refers to, inter alia, James Estate being involved in the production of wines at the Baerami property and there is evidence that it completed wine grapes levy returns in respect of the crushing of grapes at the winery situated on that property (James 3.9.15 [41], [53], [57], [59]–[64]). Mr Katekar submits, it seems to me correctly, that this evidence relates to the crushing of grapes in the process of winemaking rather than the growing of grapes, although it is not necessary or appropriate to express a final view as to that matter for the purposes of this application. The proposed Asset Purchase Agreement of October 2012 in turn refers to James Estate as the owner of brands under which wine was sold (Ex A4, tab 31, p 485). Mr Katekar refers, in oral submissions, to the fact that there is no evidence that James Estate itself had any assets, and the process adopted by James Estate of seeking to recover loss by reference to its and Wine National’s assets may be suggestive of an attempt to avoid that difficulty (T73).

129. The Rabobank Parties submit that there is no serious question to be tried as to the claim by James Estate, since there is no evidence that can support a serious question to be tried as to the proposition that it was a farmer at any time or that the FDMA applied to it. Mr Katekar submits that James Estate is not alleged to have owned farm property itself and, in particular it did not own the Baerami property and submits the charge over its assets was not a “farm mortgage”. Mr Assaf also submits that there is no serious question to be tried in respect of the claim against ROI.

128. It does not seem to me that the evidence as to James Estate’s activity is sufficient to establish a serious question to be tried that, at least at the point of enforcement of Rabobank’s securities, the debt was a farm debt, James Estate was a farmer, or the relevant securities were a farm mortgage for the purposes of s 8 of the FDMA. James Estate’s activities, to the extent there is any evidence of them, seem to be the ownership of wine brands, and the evidence does not support a suggestion that any continuing activities of James Estate in respect of the Second SFA amounted to a sole or principal engagement in farming operations, by contrast with its involvement in ownership of wine brands. I am not satisfied that a serious question to be tried has been established in respect of the proposed proceedings by James Estate. I am reinforced in that view, in respect of the proposed claim by James Estate against ROI, by reason of the matters that I have noted above in respect of s 42 of the Real Property Act and the lack of any challenge to its being a good faith purchaser of the relevant assets.

Notice

131. The fifth requirement for the grant of leave under s 237 of the Corporations Act is that, at least 14 days before making the relevant application, Mr James gave written notice to James Estate of his intention to apply for leave and for the reasons for applying, or it is appropriate to grant leave although that notice was not given. It is not necessary to determine whether this requirement is satisfied, or leave should be granted, given the conclusions I have reached on other grounds.

Orders and costs

132. For these reasons, the application for leave should be dismissed in each proceeding, although I have reached that result on narrower grounds in respect of Sundara and wider grounds in respect of Killara 10, Wine National and James Estate. Mr James should pay the Rabobank Parties’ and ROI’s costs of the applications as agreed or as assessed.

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Decision last updated: 18 November 2015