Slea Pty Ltd v Connective Services Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

S CI 2011 04332

SLEA PTY LTD	Plaintiff
v
CONNECTIVE SERVICES PTY LTD & ORS (ACCORDING TO THE ATTACHED SCHEDULE)	Defendants

S ECI 2018 00073

CONNECTIVE SERVICES PTY LTD & ANOR (ACCORDING TO THE ATTACHED SCHEDULE)	Plaintiffs
v
GLENN ANDREW LEES & ORS (ACCORDING TO THE ATTACHED SCHEDULE)	Defendants

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JUDGE:	KENNEDY J
WHERE HELD:	Melbourne
DATE OF HEARING:	13 - 14 March 2019
DATE OF JUDGMENT:	3 April 2019
CASE MAY BE CITED AS:	Slea Pty Ltd v Connective Services Pty Ltd
MEDIUM NEUTRAL CITATION:	[2019] VSC 201

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CORPORATIONS – Application to amend statement of claim in oppression proceeding and derivative proceeding – Whether amendments can be granted in derivative proceeding without fresh application for leave to bring proceeding under s 237 Corporations Act 2001 (Cth) – Whether no real prospects of success - Amendments granted, in part.

PRACTICE & PROCEDURE – Injunction – Interlocutory injunction to restrain sale of business and for order setting limits on proposed application to court to approve sale - Orders refused where undertakings given.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff in the Oppression Proceeding and the Plaintiffs in the Derivative Proceeding	Mr J Delaney QC with Ms K Foley and Mr G Kosminsky	Arnold Bloch Liebler
For the First, Second and Fourth to Ninth Defendants in the Oppression Proceeding, and the Fifth to Tenth Defendants in the Derivative Proceeding	Mr D Batt QC with Mr D Guidolin	Quinn Emanuel Urquhart & Sullivan
For the Third Defendant in the Oppression Proceeding, and the Twelfth Defendant in the Derivative Proceeding	No appearance	-
For the First to Third Defendants in the Derivative Proceeding	Mr M Borsky QC with Ms G Crafti	Gilbert & Tobin
For the Fourth Defendant in the Derivative Proceeding	No appearance	-

TABLE OF CONTENTS

Background......................................................................................................................................... 1

General chronology...................................................................................................................... 1
Previous history..................................................................................................... 1
Sale process (2018-2019)........................................................................................ 5

Other matters of evidence.......................................................................................................... 10
Incomplete production........................................................................................ 10
Objections to Mr Korda’s evidence................................................................... 11

Current form of pleadings/relief sought................................................................................ 12
Preliminary issue........................................................................................................................ 14

Application to Amend Pleadings.................................................................................................. 15

Preliminary issue re: Derivative Proceeding.......................................................................... 21
Resolution............................................................................................................. 23
Provisions.............................................................................................................. 23
Analysis................................................................................................................ 24

ImproperPurpose...................................................................................................................... 26
Plaintiffs’ Submissions........................................................................................ 26
Defendants’ Submissions.................................................................................... 27
Resolution............................................................................................................. 28

Acting Beyond Power................................................................................................................. 32
Resolution............................................................................................................. 33

Injunction Application.................................................................................................................... 34

Preliminary issue........................................................................................................................ 34
Whether an order ought to be made which places limits on time for making proposed application to sanction the sale process.................................................................................................. 35
Whether injunctive relief otherwise appropriate................................................................... 37
Plaintiffs’ Submissions........................................................................................ 37
Defendants’ Submissions.................................................................................... 37
Legal Principles.................................................................................................... 38
Preliminary ‘effect’ point..................................................................................... 40
Whether injunctive relief ought to be granted................................................. 41

Conclusion......................................................................................................................................... 44

HER HONOUR:

This is an application for orders pursuant to an Amended Summons filed on 13 February 2019 by Slea Pty Ltd (Slea)(the plaintiff in proceeding S CI 2011 04332 [Oppression Proceeding]) and Connective Services Pty Ltd and Connective OSN Pty Ltd (the Connective companies)(the plaintiffs in proceeding S ECI 2018 00073 [Derivative Proceeding]).

The relief sought encompasses orders to amend pleadings and for injunctive relief.

A preliminary issue also arose at the hearing as to whether the amendment application ought to be determined before argument on the injunction.

For reasons which follow, I have determined that it is appropriate to hear all matters arising under the Amended Summons. Further, that there ought be leave given to amend the pleadings (in part), and that no injunctive relief is appropriate in circumstances where undertakings have been given.

Background[1]
[1]This background is substantially derived from the relevant facts summarised at [4]-[32] of the Court of Appeal decision in Connective Services Pty Ltd v Slea Pty Ltd 130 ASCR 321 (‘Connective Services’). The parties did not generally take issue with this. However, the specific matters concerning the ‘sale process’ are based on evidence adduced at the hearing of the Amended Summons.
General chronology
Previous history

The Connective companies were incorporated in October 2003. The Connective companies conducted business as a mortgage aggregator. The ‘founders’ of the business were Mr Glenn Lees (Mr Lees), his brother Mr Murray Lees and Mr Sofianos Tsialtas.

The initial registered shareholders of the Connective companies were Slea as to one third of the shares, and Mr Lees as to two thirds of the shares. Mr Tsialtas was and remains the sole shareholder and director of Slea. In 2006 Mr Lees transferred his shares to Millsave Pty Ltd (Millsave).[2]
[2]Mr Lees is the current sole director and 50 per cent shareholder in Millsave.

The initial directors of the Connective companies were Mr Lees and Mr Tsialtas. Mr Tsialtas ceased to be a director on 8 May 2008. Mr Mark Haron and Mr Graham Maloney became directors on 15 July 2011 (henceforth Mr Lees, Mr Haron and Mr Maloney will be referred to as the Directors). Mr Haron is now also a shareholder. He became a shareholder in the circumstances set out below.

The constitution of each of the Connective companies contains pre-emptive rights provisions regarding the issue and sale of shares. Pursuant to those provisions the Connective companies cannot issue shares unless they are first offered to existing shareholders, and shareholders cannot sell shares unless they are first offered to the other shareholders. The provisions set out detailed procedures to be followed in relation to these matters which are not presently relevant (the pre-emptive rights provisions).

In October 2008 Mr Tsialtas commenced working for Liberty Financial Pty Ltd (Liberty).

On or about 12 August 2010 Mr Tsialtas, Slea and Minerva Financial Group Pty Ltd (Minerva)(Liberty’s holding company) entered into an agreement entitled ‘Accommodation Agreement’. Amongst other things, the Accommodation Agreement provided that in return for providing financial accommodation to Slea and Mr Tsialtas, if further shares in the Connective companies came to or were offered to Slea, Minerva would consider lending Slea the money to enable Slea to buy those further shares. The Accommodation Agreement also provided that if Slea was to become the owner of all the shares in the Connective companies, and thus the sole shareholder, and therefore the shares would not be subject to the pre-emptive rights, then, at that time, Minerva had the option of buying those further shares.

The Accommodation Agreement remains on foot.

In May 2011 Mr Haron commenced a proceeding against Slea, the Connective companies and Millsave. The proceeding was founded upon an alleged agreement that Slea and Millsave would sell Mr Haron 25 per cent of the shares in each of the Connective companies. The dispute between Mr Haron and Millsave was resolved pursuant to a deed of settlement dated 16 August 2011 which provided for the transfer of shares from Millsave to Mr Haron. Otherwise this proceeding continued.

In August 2011 Slea commenced the Oppression Proceeding against the Connective companies alleging oppressive conduct of the companies’ affairs pursuant to s 232 of the Corporations Act 2001 (Cth) (the Act).

Between December 2012 and February 2013 the Directors of the Connective companies effected a corporate restructure. A number of subsidiary companies were established including Connective Group Pty Ltd (Connective Group). The Connective companies, Connective Group, and the other subsidiaries are the first, second and fourth to ninth defendants in the Oppression Proceeding (collectively, the Connective Parties). The Connective companies held all of the shares in Connective Group which in turn held all of the shares in the other subsidiary companies. The constitutions of Connective Group and the other subsidiaries do not contain provisions replicating the effect of the pre-emptive rights provisions.

In February 2013 the business operated by the Connective companies was transferred to Connective Group. No shares in the Connective companies were transferred (this Restructure is referred to in paragraphs 25 and 30 of the pleadings in the Derivative Proceeding).

Mr Haron’s proceeding and another proceeding brought by Slea concerning the pre-emptive rights settled on 22 October 2013. On or about 29 October 2013 and in accordance with the agreed settlement, Millsave transferred 300 of its shares in the Connective companies to Mr Haron, being a 16.67 per cent (or one sixth) interest, and Slea waived its pre-emptive rights in respect of that transfer. At that time, Mr Tsialtas was unaware that the Connective companies had agreed to sell, or were negotiating to sell, a 25 per cent interest in the business conducted by the Connective companies to Macquarie Bank.

On 31 October 2013 Macquarie Bank bought 25 per cent of the shares in Connective Group from the Connective companies for $5 million (this is referred to as the Sale in paragraphs 27 and 30 of the pleadings in the Derivative Proceeding). Because of the corporate restructure this sale did not enliven the pre-emptive rights provisions.

During November 2013 Mr Tsialtas became aware of the sale of the 25 per cent interest in the Connective business to Macquarie Bank Ltd (Macquarie Bank). On 22 November 2013 Slea applied for an injunction and was ultimately given undertakings by the Connective companies and Macquarie Bank.

On 6 December 2013 Slea applied to amend its statement of claim in the Oppression Proceeding and to join Macquarie Bank, the Directors and Millsave as defendants. In the proposed amended statement of claim, Slea alleged that the corporate restructure and the sale to Macquarie Bank breached directors’ duties owed to the Connective companies and that Macquarie Bank was an accessory to those breaches of duty. Slea sought relief which would unwind the corporate restructure and sale.

Efthim AsJ refused leave to amend and to join the Directors and Macquarie Bank on 14 March 2014, on the basis that an application under s 237 of the Act was required to allege that the Directors had breached their duties to the Connective companies and that Macquarie Bank had knowingly assisted or participated in that breach.

On 1 July 2014 Slea amended its statement of claim in the Oppression Proceeding, pleading, amongst other things, to include the corporate restructure and the Macquarie Bank sale as further instances of oppressive conduct. It also joined to the Oppression Proceeding the companies incorporated for the restructure, being Connective Group and the other subsidiaries. Slea did not apply for leave under s 237 of the Act at that time.

On 17 May 2016 Slea filed a summons, amended on 27 May 2016, seeking (amongst other things) leave under s 237 of the Act to bring a proceeding on behalf of the Connective companies against the Directors, Macquarie Bank and others, alleging breach of directors’ duties.

On 29 November 2017, Robson J granted leave for Slea to bring proceedings on behalf of, and in the name of the Connective companies, ‘substantially in the form set out in the draft statement of claim exhibited to the affidavit of Kimberley Chantelle MacKay sworn 17 May 2016, at KCM-5.’

The decision was subsequently appealed to the Court of Appeal which was heard on 3 August 2018.

Sale process (2018-2019)

In a (second) affidavit sworn on 1 March 2019 by Mr Korda (of Korda Mentha, an advisory firm) Mr Korda provides evidence of an ‘unsolicited’ approach from a third party (hereafter referred to as TPA) during August 2018. That evidence is given on the basis of information provided from Mr Lees as Mr Lees did not swear an affidavit.

Mr Korda states that he is informed by Mr Lees that the circumstances in which the ‘first unsolicited approach’ was made were:

(a) In mid-2018, [Mr Lees] was in commercial discussions with the CEO of [TPA] to explore a limited commercial transaction [remainder removed from published judgment due to confidentiality].

(b) In early August 2018, the CEO of [TPA] came back to him and said.. they were now interested in proposing a [different] transaction [partially removed from published judgment due to confidentiality].

(c) When Mr Lees said that this kind of transaction may not be possible because of the shareholder litigation, the CEO said that they were aware of the litigation and were still prepared to explore a possible transaction.

(d) The CEO said if Connective [Group] was prepared to engage with [TPA], he would seek board approval for the next steps, which he believed would be forthcoming. In response, Mr Lees told the CEO he would take advice on whether Connective [Group] could engage on the transaction given the litigation, and let him know. (emphasis added)

There is nothing adduced to show any further communications from Mr Lees. Rather, the next communication between TPA and Connective Group is by correspondence of 24 August 2018, below.

It is also unclear whether such an ‘approach’ was common.

However:

(a) in a staff communication and draft member communication document, the following statement appears:[3]
[3]Staff communication and draft member communication; Tab 21 of Plaintiff’s tender bundle.

‘I can, however, confirm that we have recently received a number of unsolicited approaches from parties seeking to explore a possible acquisition or merger with the business - this is not uncommon and we view such approaches as the industry’s recognition and validation of our collective success and good work.’

(b) in a draft media release later prepared by Mr Matt Patterson of Six Degrees Media (apparently following a discussion with representatives at Korda Mentha), the following is stated: [4]
[4]Draft media holding statement from Matt Patterson, 6 September 2018; Tab 19 of the Plaintiff’s tender bundle.

‘Connective confirms it has received a number of unsolicited approaches from parties seeking to merge with, or acquire, the company. It is not uncommon for Connective to receive approaches of this nature and we are not in advanced discussions with any party.’[5]

(c) there is also evidence that there was at least one other previous prospective purchaser.[6]

[5]Although this sentence appears to have been struck out in the media statement ultimately made. See tab 20 of the Plaintiff’s tender bundle.

[6]Exhibit RYL-4 to the Affidavit of Raphael Yehudah Liebler affirmed 5 March 2019.

There is little documentation surrounding what, if anything, occurred up to 15 August 2018. However, there appears to have been, at least, some communications between the Directors and 333 Capital (an advisory firm). Thus, on 15 August 2018, there is internal 333 Capital email correspondence which makes reference to a ‘pitch outline’ for the role of financial advisor.[7] The emails also make reference to the Connective Parties having been recently approached by a potential purchaser and that ‘the Directors believe that this offer has the potential to be attractive to shareholders…’[8]
[7]Email from Alan Murray to Bryan Pearson, 15 August 2018; Tab 6 of Plaintiff’s tender bundle.
[8]Ibid.

On 16 August 2018, there is an email of a draft announcement provided by Mr Scott Langdon (a partner of Korda Mentha) to Mr Bryan Pearson (of 333 Capital).[9] It refers to the receipt of an ‘offer’ and suggests that the board of Connective Services and Connective Group considers it prudent to appoint an independent third party to structure and execute the sale process of the business given the ongoing litigation. Mr Pearson amends the reference to an ‘unsolicited offer.’[10]
[9]Email from Scott Langdon to Bryan Pearson, 16 August 2018; Tab 9 of Plaintiff’s tender bundle.
[10]Email from Bryan Pearson to Scott Langdon, 16 August 2018; Tab 10 of Plaintiff’s tender bundle.

On 16 August 2018, Mr Korda then says (in his second affidavit) that he met with two of the directors of Connective Services and Connective Group, which was his first contact with the Connective Parties.[11]
[11]Affidavit of Mark Anthony Korda sworn 1 March 2019, [14].

Moreover, he says that between 16 August 2018 and 31 August 2018 he conducted ‘further’ due diligence on the Connective business.[12] There is no description of what, if any, earlier due diligence was provided.
[12]Ibid, [18].

By correspondence of 24 August 2018, TPA further wrote: [13]

‘Further to my initial approach and following the [TPA] Board meeting yesterday, I can confirm that [TPA] would like to formally explore the potential of a transaction with Connective Group Pty Ltd [remainder removed from published judgment due to confidentiality]

[13]Exhibit MK-4 to the Affidavit of Mark Korda sworn 1 March 2019.

It appears that TPA forwarded this document under the cover of an email sent at 6:30pm on 24 August 2018 to Mr Lees given there is an email from TPA which reads ‘As discussed… Have a great weekend.’ The relevant document then appears to be forwarded to the solicitors and then, inter alia, to Mr Korda on the same night.[14]
[14]Email chain circulating a letter, 26 August 2019; Tab 13 of the Plaintiff’s tender bundle.

However, no actual document is attached to the email. As highlighted already, there is also no evidence of what, if any, other discussions occurred with TPA between early August which might have led to this correspondence of 24 August 2018.

On the basis of oral information from Mr Lees, Mr Korda also says (in his second affidavit) that a second ‘unsolicited approach’ was received by Mr Lees on 28 August 2018 from Third Party B (TPB). He says that this TPB was ‘interested in exploring a sale transaction.’[15]
[15]Affidavit of Mark Anthony Korda sworn 1 March 2019, [20].

Mr Korda considers both approaches to be ‘genuine’.[16]
[16]Ibid, [19]-[20].

On 31 August 2018 Mr Korda says that he met with the directors of Connective Services and Connective Group. In his first affidavit (of 31 January 2019) he said he was told at that meeting that two ‘unsolicited offers’ had been received shortly before the 31 August 2018 meeting.

On 3 September 2018, the directors of Connective Services and Connective Group resolved to appoint Mr Korda as director of both companies and delegated to Mr Korda the power to investigate and, if appropriate, establish a transaction structure and timeline for Connective Services and Connective Group respectively.[17]
[17]Exhibit MK-1 to the Affidavit of Mark Anthony Korda sworn 31 January 2019, pp. 92-3.

By the terms of an engagement letter executed on 3 September 2018, the directors of Connective Group engaged Korda Mentha to ‘provide advice on the unsolicited offer received, which may include the potential of running a sale process.‘[18]
[18]Exhibit SL-2 to the Affidavit of Scott David Harry Langdon sworn 29 January 2019, pp. 5-7.

Mr Korda states that, under the terms of his engagement, he is authorised to conduct a transparent process to explore the unsolicited offers and, in doing so, to test the market, to enable the board of directors to make an informed decision on what is in the best interests of the Connective Parties given the current circumstances, including (among other things) the current shareholder litigation. However he does not have authority to commit Connective Group or its subsidiaries to a transaction.[19]
[19]Affidavit of Mark Anthony Korda sworn 31 January 2019, [12].

Further Mr Korda does not receive directors’ fee for his role as non-executive director, however he would receive a share of the profits if the sale goes ahead.[20]
[20]Ibid, [13].

On 6 September 2018, the Court of Appeal notified the parties that judgment was to be delivered in respect of the appeal on 10 September 2018.

The Court of Appeal judgment was then delivered on 10 September 2018.

On 10 September 2018, Mr Korda also wrote to shareholders advising that he had been appointed non-executive director on 3 September 2018. He further stated:[21]

‘Connective has recently received a number of unsolicited approaches to explore a possible acquisition or merger of the whole business. Connective considers it is prudent and in its commercial interest to explore the nature and merits of these (and any other) opportunities as part of an independently managed process.’

[21]Exhibit MK-1 to the Affidavit Mark Anthony Korda sworn 31 January 2019, pp. 12-3.

On 19 September 2018, Almond J made orders that the Oppression and Derivative Proceedings be heard and determined together, with evidence in one proceeding being evidence in the other.

Subsequently on 20 September 2018, 333 Capital was appointed as sale agent for the sale process.

On 1 November 2018, Slea and the Connective companies filed an application to restrain the sale which was listed for hearing before Robson J on 8 November 2018.

On 8 November 2018, the Connective Parties gave Slea an undertaking not to sell its shareholding or the Connective business until 15 February 2019. Undertakings thereafter continued for the period up to 24 May 2019 (by further undertakings given on 31 January 2019 and 13 February 2019).

As will be seen below, on the first day of the hearing a further undertaking was also given.

On 5 December 2018, Grant Thornton was appointed to advise on the sale and whether the sale was in the best interests of shareholders.

On 18 December 2018, an Information Memorandum was completed and distributed.

As at 31 December 2018, Connective Services and Connective Group had incurred costs of $1,730,068 in respect of the sale process with additional costs to end of January 2019 estimated to be $1,410,000.[22]
[22]Affidavit of Mark Anthony Korda sworn 31 January 2019, [29]-[30].

By 23 January 2019, relevant ‘teaser’ documents (also known as sale flyers) were sent to 35 parties; 15 Information Memorandum had been issued; and 5 interested parties had requested meetings with Connective Group.[23]
[23]Affidavit of Scott David Harry Langdon sworn 29 January 2019, [75]-[77].

By early February 2019 ‘multiple’ non-binding bids had been submitted and the ‘first phase’ of the sale process ended.[24]
[24]Affidavit of Scott David Harry Langdon sworn 14 March 2019, [8].

The current timetable contemplates that bidders reconfirm their indicative bids after a due diligence process by late March 2019, with final bids due early May 2019.[25]
[25]Ibid, [10].

Grant Thornton is then to produce its report which is intended to occur within 10 day of the preferred bidder being selected.[26]
[26]Ibid, [11].

Mr Langdon also says that if the Grant Thornton report is positive, then an application will be made to the Court for orders sanctioning or approving the sale transaction. The current timing for this to be filed is in mid to late May 2019.[27] He also says that it is currently proposed that final bids will be made on the basis of an agreement which will contain a condition precedent that no sale will occur without Court orders approving or sanctioning the sale.[28]
[27]Ibid, [12].
[28]Ibid, [14(a)].

Meanwhile, I have now listed the trial in both proceedings for 19 August 2019.

Other matters of evidence
Incomplete production

As is apparent from the above chronology, there are certain gaps in terms of the course of events, notwithstanding extensive recourse to subpoenas and notices to produce.

Slea and the Connective companies sought to adduce a table that identified documents produced by Korda Mentha and 333 Capital that involved the Directors, Connective Services and Connective Group, but were not produced by them.[29]
[29]Exhibit JTV-29 to the Affidavit of Justin Taede Vaatstra sworn 13 March 2019.

The Connective Parties objected to this evidence (which I overrule given the real complaint was not admissibility but that there were explanations for non-production) and produced a further affidavit (of Asia Lenard of 14 March 2019) regarding the documents identified, which stated that:

(a) 6 documents were not sent to any of the Connective Parties or the Directors or employees and thus could not be produced by them;

(b) 4 documents do not respond to the notices to produce issued to the Connective Parties;

(c) 2 documents were not produced on the basis of a legal privilege claim;

(d) 12 documents were produced in another form; and

(e) 1 document could not be located.

Slea and the Connective companies say that the question of production is ongoing, with privilege issues to be determined. However, Senior Counsel for the Directors highlighted a letter from his instructors advising that there were no documents to be produced beyond those already produced.

This is an application on an interlocutory basis where the situation is fluid in circumstances where the Court is simply unable to resolve whether there has been full production. However, as the above chronology itself makes clear, there are certain gaps in the details which will be referred to further below.

Objections to Mr Korda’s evidence

Slea and the Connective companies objected to paragraph 11 of the second Korda affidavit and part of paragraph 26 (from the opening sentence up to the word ‘generally’).

Those 2 paragraphs read as follows:

11. As I understand the Proposed Amended Pleadings, the plaintiffs are alleging that the directors of Connective Group and Connective Services, other than myself, initiated and have continued the Sale Process for an improper purpose. However, as I explain below, I consider these allegations to be misconceived, including because there is no factual basis for them.
26. From all of the documents and material that I have read, from my discussions with the two organisation that made unsolicited approaches, from my discussions and dealings with the directors of Connective Group and Connective Services, and from my involvement in relation to Connective Group and Connective Services generally, I have not observed, identified or otherwise become aware of any improper purpose for the potential sale of the Connective business being explored.

Paragraph 11 contains an opinion (as to the legal position) which Mr Korda is not qualified to give contrary to s 76 of the Evidence Act 2008 (Vic). I uphold the objection on this basis. Even if I am wrong on this, I would also give his opinion no weight as the matters he addresses are matters for the Court.

I will allow paragraph 26, however, on the basis that it purports to record what Mr Korda claims to have (not) observed, as well as the basis for that observation. However, the lack of specificity with the matters listed also suggests that little weight can be given to the observation.

Current form of pleadings/relief sought

The current Statement of Claim alleges that the Restructure and Sale were carried out by the Directors for an improper purpose which included to circumvent the pre-emptive rights provisions and reduce Slea’s interest in the Connective Business (defined as the Improper Purposes).

The relief sought in the Derivative Proceeding (leaving aside costs and interest) is then as follows:

A. Rescission of the Sale Purchase Deed and the transactions undertaken pursuant to the Share Sale Deed.

B. An order pursuant to s 1324 of the Corporations Act requiring Macquarie and Connective Services to pass resolutions amending the constitution of Connective Group in various ways [including to insert clauses replicating the effect of the Pre-Emptive Rights Provisions]

C. Alternatively to A and B, rescission of each of the transactions comprising the Restructure.

D. Alternatively to A and C, an order pursuant to section 1317H of the Corporations Act for the first, second and third defendants to compensate the Plaintiffs for the loss and damage suffered or, alternatively, to pay damages.

In considering this prayer for relief, the Court of Appeal states:[30]

The terms ‘Sale Purchase Deed’ and ‘Share Sale Deed’ in para A of the prayer for relief, are probably intended to refer to the ‘Share Purchase Deed’ in para 27 of the proposed statement of claim. In any event, there was no uncertainty about the fact that the relief claimed sought to ‘unwind’ the corporate restructure and the sale to Macquarie Bank. (emphasis added)

[30]See Connective Services (n1), footnote 8.

Similar claims are also made in the Oppression Proceeding,[31] which include claims for rescission (although Macquarie is not a party to this proceeding).[32]
[31]See Further Amended Statement of Claim, 18 September 2018, [45].
[32]See prayer for relief E and F in Further Amended Statement of Claim, 18 September 2018.

The Connective Parties, however, sought to make much of the fact that other relief was sought, including damages (at K) and an adjustment of shareholdings (at G and H). However, the readjustment sought was ‘to restore Slea to effective ownership of 33/3% of the Connective Business’ (see G and H).

There is a further claim in the Oppression Proceeding that Mr Haron and Millsave misled Slea during the settlement wherein shares were transferred by Millsave to Mr Haron, by concealing that the Connective business had been transferred. Accordingly, relief was also sought in the Oppression Proceeding for Millsave to offer to sell one sixth of the shares in the Connective companies, which offer Slea says it intends to accept (see D and J).

Slea and the Connective companies ultimately submit that if the relief sought in the two proceedings is granted, the Connective business would be restored to the Connective companies and Slea would own 50% of the shares in these companies.[33]
[33]Outline of Submissions Injunction and Amendment Applications, filed by the Plaintiff in S CI 2011 04432, the Plaintiffs in S ECI 2018 00073, 5 March 2019, [11].

Preliminary issue

Almond J allocated 2 days for the hearing of the Amended Summons, which included an application for orders to amend as well as for injunction relief.[34]
[34]Order of Almond J in Slea Pty Ltd v Connective Services and Connective Services & Anor v Glenn Andrew Lees & Ors (Supreme Court of Victoria, S CI 2011 04332 and S ECI 2018 00073, 15 February 2019).

However, Senior Counsel for the Connective Parties submitted that, given the injunction application was made on three bases, only one of which rested on the current pleadings, that it was unjust and inappropriate for the injunction application to be pressed pending determination of the application to amend. In particular, it was alleged that the Connective Parties suffered prejudice in dealing with an injunction on two bases which may never come into existence.

Senior Counsel for the Directors said there was ‘some force’ in the submissions of the Connective Parties but, in the result, put no further submissions.

I determined that the applications ought be heard together subject to the rights of the Connective Parties and the Directors to put on further submissions if any prejudice was demonstrated. My reasons for doing so are as follows.

First, there is a substantial overlap between the two applications in terms of prospects of success. It is undesirable that this issue be determined and considered on different occasions.

Secondly, consistent with the overarching purpose and taking into account the matters contained at s 9 of the Civil Procedure Act, it was desirable for the matters raised to be dealt with expeditiously. The parties have been engaged in protracted litigation for many years. Given the matters may now be finalised by a trial in August 2019, it is highly desirable that all outstanding interlocutory matters be dealt with in a timely manner.

Finally, I considered that any prejudice could be dealt with by the filing of further submissions. I am fortified in this approach given, in the result, no request has been made to file any such submissions.

Application to Amend Pleadings

The relevant amendments to the pleadings in the Derivative Proceeding are as follows:

THE THREATENED SALE

Sale Process

36 At all relevant times, Connective Services has had, and continues to have, effective control of Connective Group and has a power of veto over any decision by Connective Group to sell the Connective Business.

Particulars

(a) Connective Services holds 75% of the issued shares in Connective Group.

(b) As the majority shareholder, Connective Services is entitled to appoint the directors on the board of Connective Group, subject only to the right of Macquarie to appoint 1 director pursuant to clause 21.2 of the Constitution of Connective Group.

(c) At all relevant times, Connective Services has appointed the Directors as directors of Connective Group and they have comprised the majority of the directors of Connective Group.

(d) Under clause 36 of the Constitution of Connective Group, Connective Group cannot make a decision to sell or dispose of all or a substantial part of the Connective Business without the prior approval of Connective Services.

37 On or about 31 August 2018, the Directors, in their capacity as directors of Connective Services, decided to commence a process to identify potential buyers for the Connective Business, whether by way of sale of shares in Connective Group or a sale of the business and assets of Connective Group and its subsidiaries, with a view to selling the Connective Business (Sale Process) and:

(a) caused Connective Group to commence that process;
(b)expressly or impliedly caused Connective Services to give its approval to Connective Group to commence that process.

38 On or about 31 August 2018, Connective Group commenced the Sale Process.

39Since on or about 31 August 2018, the Directors, in their capacity as directors of Connective Services, have continued to:
(a) cause Connective Group to undertake the Sale Process;
(b)expressly or impliedly caused Connective Services to give its approval to Connective Group to undertaking the Sale Process,

with the objective of completing a sale of the Connective Business.
40Since on or about 31 August 2018, Connective Group has continued to undertake the Sale Process with the objective of completing a sale of the Connective Business.
41Unless restrained by this Honourable Court, Connective Services will continue to engage in conduct referred to in paragraph 39 with the likelihood that the Connective Business will be sold through the Sale Process.
Further Particulars also provided.

Breach of duties- improper purpose
42A substantial purpose of the Directors, in their capacity as directors of Connective Services, in engaging in the conduct referred to in paragraphs 37 to 39 and in proposing to sell the Connective Business through the Sale Process is Business through the Sale Process is:
(a)to prevent the Court being able to make an order in this proceeding and in proceeding S CI 2011 4332 (the oppression proceeding) to rescind the Restructure and return the direct ownership of the Connective Business in Connective Services and Connective OSN, being relief sought by Connective Services in this proceeding and by Slea in the oppression proceeding;
(b)to limit the relief able to be obtained by Connective Services in this proceeding and by Slea in the oppression proceeding to monetary compensation.

(Second Improper Purpose)
(Particulars are then provided)
43In the premises, the Directors have breached, are continuing to breach and are threatening to breach, their duties to Connective Services referred to in paragraph 6 [being duties to act in good faith and for a proper purpose] by engaging in the conduct referred to in paragraphs 37 to 39 and in seeking to bring about the sale of the Connective Business through the Sale Process.

Acting beyond power
44Further or alternatively, the general power of the Directors to manage the business of Connective Services is subject to the requirements of the Corporations Act.
Particulars
Clauses 2.7 and 23.1 of the Constitution of Connective Services.
45By reason of the grant of leave to Slea to commence these proceedings in the name of Connective Services under section 237 of the Corporations Act, the Directors do not have power to manage this proceeding on behalf of the Connective Services and it is beyond power for the Directors to take action that would prevent Connective Services obtaining relief in the proceeding that is the subject of the grant of leave.
46In the premises, the Directors have acted, are continuing to act and are threatening to act, beyond the power conferred on them by the Constitution of Connective Services by engaging in the conduct referred to in paragraphs 37 to 39 and in proposing to sell the Connective Business through the Sale Process.

Loss and damage
47Connective Services has suffered loss and damage by reason of the conduct referred to in paragraphs 37 to 39.
Particulars
Connective Services holds 75% of the issued shares in Connective Group, which has incurred and is incurring substantial costs in pursuing the Sale Process. Further particulars will be provided after discovery.

In the pleadings, the ‘Directors’ were defined as Mr Lees, Mr Haron and Mr Maloney (and did not include Mr Korda) (see paragraph 6).

The relief sought to be added was:

DA.An order pursuant to s 1324 of the Corporations Act, restraining the Directors, in their capacity as directors of Connective Services, from approving or otherwise authorising the Sale Process or any sale of:
(a)any of the shares in Connective Group held by Connective Services;
(b)Connective Group Pty Ltd’s shareholding interest in the Subsidiaries; or

(c) any part of the Connective Business.
as a result of the Sale Process
DB.Damages in respect of the conduct referred to in paragraphs 37 to 39 under s 1317H or s 1324(10) of the Corporations Act or at law.

Similar allegations were made in the Oppression Proceeding whereby the said conduct was alleged to constitute a further act of oppression.[35]
[35]See paragraphs 50E - 50P and 51(n) of the proposed Second Further Amended Statement of Claim, 18 September 2018 in the Oppression Proceeding; Exhibit JTV-23 to the Affidavit of Justin Taede Vaatstra sworn 13 February 2019.

In oral submission Senior Counsel for Slea and the Connective companies sought to amend the date in paragraph 37 (which would presumably include other corresponding references) in the Derivative Proceeding, to be ‘prior to 31 August’.[36]
[36]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 14 March 2019) 213-4.

Significantly, Senior Counsel ultimately clarified that the time to consider whether there was an improper purpose was at the time of the initial engagement of Mr Korda from about 15 August 2018 (it might be earlier), leading through to 3 September 2018. He further submitted that Slea and the Connective companies were not attacking what Mr Korda did later.[37]
[37]Ibid, 351.

At the Court’s request, Slea and the Connective companies also provided a lengthy particulars document to support the allegation of the ‘Second Improper Purpose.’

They are somewhat unwieldy but open with the statement that ‘the Second Improper Purpose is inferred from the effect of the proposed sale of the Connective Business and the circumstances in which the decision has been taken and the way it has been given effect.’

There then appears to be a long list of matters, which are not grouped in any particular way, as follows:
(i)The relief sought by Connective Services in this proceeding and by Slea in the oppression proceeding includes, alternatively, an order to rescind the Share Purchase Deed and the transactions undertaken pursuant to the Share Purchase Deed (returning all shares held by Macquarie in Connective Group to Connective Services and Connective OSN) and an order to rescind the Restructure (returning the direct ownership of the Connective Business to Connective Services and Connective OSN).
(ii)At all relevant times the Directors were aware of the matters referred to in paragraph (i) by the fact that Connective Services is party to this proceeding and the oppression proceeding and they are defendants to this proceeding.
(iii)Macquarie has been joined as a defendant to this proceeding (which presumably only applies to the Derivative Proceeding).
(iv)The Directors oppose the claims made by Connective Services in this proceeding and by Slea in the oppression proceeding, and oppose the relief sought as referred to in paragraph (i).
(v)The Directors caused Connective Services to oppose the grant of leave to Slea to bring this proceeding in the name of Connective Services against them and appealed the grant of leave to the Court of Appeal.
(vi)The hearing of the appeal in the Court of Appeal occurred on 3 August 2018.
(vii)The Directors commenced their consideration of the proposed sale of the Connective Business after the hearing of the appeal. In so doing, the Directors at all times were conscious of and influenced by the fact of this proceeding and the oppression proceeding, and the relief sought in those proceedings (as was recorded in minutes of meetings of Connective Services and Connective Group dated 3 September 2018).
(viiA)The Directors regarded this proceeding and the oppression proceeding, as preventing Connective Group and its subsidiaries from exploring transactions and discussions with third parties and as effectively freezing them from exploring any M&A transactions for years (Letter from Quinn Emmanuel dated 29 June 2017 – tab 5 of the tender bundle).
(viiB)The process undertaken by the Directors in relation to the proposed sale has been undertaken in a manner that has not been transparent, and key aspects of the process remain unknown to Slea (despite requests for information and the issue of notices to produce and subpoenas seeking such information and the filing by Connective Group and its subsidiaries of Affidavit evidence in answer to an application for injunctive relief concerning the sale process and the proposed sale).
Further particulars to (viiB) were also provided.
(viiC)Notwithstanding the fact that Korda Mentha, 333 Capital and Mark Korda, at the invitation of the Directors, were involved in relation to a sale process for the Business prior to 24 August 2018 and prior to any party being in a position to even consider exploring a potential sale transaction, by email of 10 September 2018 Mr Korda said to shareholders (including Slea) that his appointment had occurred as a result of “a number of unsolicited approaches to explore a possible acquisition or merger of the whole business”. The email did not provide a full picture of the impetus for the sale process (and the status of that process at the time).
(i)The email did not disclose that Korda Mentha had been involved in relation to a sale process since at least 15 August 2018 [sic].
(ii)Contrary to the suggestion in the email that the unsolicited approaches had prompted Connective to consider a sale process, it was not uncommon for Connective Group to receive such approaches (as is recorded in a draft media holding statement prepared by or on behalf of Korda Mentha or 333 Capital in respect of the sale process (REL0000006009.0001 – tab 20 of the tender bundle)).
(viiD)The failure of any Directors to proffer an explanation on affidavit as to the purpose of the sale process at the hearings in the Supreme Court of Victoria on 13 and 14 March [sic] 2019, in circumstances where they were the only persons with the knowledge of the relevant facts concerning, and of all purposes that influenced, the decision to embark upon the proposed sale and as to information provided or not provided to Korda Mentha or 333 Capital.
(viiE)The failure of Connective Group and its subsidiaries, who are controlled by the Directors, when filing affidavit evidence for the hearings in the Supreme Court of Victoria on 13 and 14 March [sic] 2019 to provide a full and accurate history of the sale process in relation to the Connective Business, including Korda Mentha and 333 Capital's involvement in the sale process.
(viii)On or about 31 August 2018, the Directors caused Connective Group to appoint Korda Mentha to explore a sale process for the Connective Business. At that time, notwithstanding numerous representations made in material filed by Connective Group and its subsidiaries, no unsolicited offer or offers had been received by Connective Group.
(ix)On 7 September 2018, the Court of Appeal notified the parties that on 10 September 2018 it would hand down judgment on the appeal and on 10 September 2018 dismissed the appeal, allowing this proceeding to continue.
(x)On 10 September 2018, Korda Mentha informed Slea of its appointment.
(xi)Since that date, the sale process has been actively pursued by Connective Group in an urgent manner, through external consultants and advisers.
(xii)The consequence and purpose of the sale process is to substitute cash for the Connective Business and thereby convert the dispute into a dispute about money thereby limiting the available relief in this proceeding and the oppression proceeding, an admission made by Senior Counsel for Connective Group and its subsidiaries on 8 November 2018 (T12.30-13.10).
(xiii)On 5 November 2018, after a summonses for injunctive relief restraining the sale was filed (on 1 November 2018), Connective Group and Korda Mentha determined to structure the sale process as an asset sale rather than a share sale. It is to be inferred this was done with a view to circumventing the relief sought in this proceeding and the oppression proceeding thereby seeking to distance the sale process from one subject to Slea’s pre-emptive rights if the Restructure was rescinded.
By reason of the foregoing, it can be inferred that the Directors held the Second Improper Purpose.

The document also states that further particulars may be provided following discovery and compliance with notices to produce and subpoenas.

The application to amend was opposed by the Connective Parties and the Directors. Macquarie Bank and Millsave neither consented to, nor opposed, the grant of leave to amend.[38]
[38]Ibid, 341.

In terms of the Derivative Proceeding, there was a further issue raised by the Connective Parties and the Directors. This was that, insofar as the Derivative Proceeding was concerned, the Connective companies were required to, but had not, applied again for leave under s 237 of the Act in respect of the amendments.

It is therefore appropriate to resolve this issue first, before turning to the amendments concerning improper purpose and excess of power.

Preliminary issue re: Derivative Proceeding

In terms of the leave issue, Senior Counsel for the Connective companies placed reliance on s 241 of the Act, which makes provision for the Court to make any orders, and give any directions, that it considers appropriate. In particular, he highlighted that s 241 was cast in very wide terms and that it was not appropriate to impose limitations not found in the express words of the statute.

He expressly excluded any argument that the Connective companies were entitled to leave under s 236 of the Act as an alternative, fall-back position.[39]
[39]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019) 10.

He also submitted that the claims were directly referable to the relief sought in respect of which leave had already been granted.

Senior Counsel for the Connective Parties submitted that the present case was not one where the leave granted was sufficiently flexible to cover the scope of the Connective companies’ proposed amendments as they involved entirely different claims about different facts occurring much later after the grant of leave.

He also took the Court to a number of cases wherein leave to amend was sought and granted on the basis that the amendments were within the terms of the leave:

(a) in MG Corrosion Consultants Pty Ltd v Gilmour[40] the leave given was found to extend to the maintenance of a defence to a cross claim;
[40][2012] FCA 461.

(b) in the case of Cassegrain v Gerald Cassegran & Co Pty Ltd[41] (decided by the NSW Court of Appeal), the leave given by Sackville J was found to cover an alternate case in reply;

(c) in the earlier decision of GeraldCassegrain & Co Pty Ltd v Cassegrain,[42] leave to amend was also found to be generally contemplated by Sackville J’s orders.

[41](2013) 305 ALR 648.

[42][2010] NSWSC 91.

Senior Counsel also took the Court to Hannon v Doyle[43] where the Court noted certain comments of Austin J in Ehsman v Nutectime International Pty Ltd[44] that it was generally undesirable that s 237 leave be granted in restricted terms, so that refinement of pleadings could not be undertaken without further leave since this would be an unnecessary burden for case management. However, a restricted form of leave was appropriate in that case given the express position was taken that certain claims ought be excluded.
[43](2011) 82 ASCR 259, 279 [119].
[44](2006) 58 ASCR 705 at [43]-[44].

Finally, Senior Counsel cited the statements of Barrett J in Goozee v Graphic World Group Holdings Pty Ltd[45] that the Court must not grant leave if any of the prescribed conditions are not satisfied.[46]
[45](2002) 42 ASCR 534.
[46]Ibid, 540-1 [27].

The essence of Senior Counsel’s submission was that the above cases suggested that the terms of the leave mattered such that leave would not be granted if the amendments were outside the leave, absent a fresh application under ss 236 and 237. Further that any such separate application would be ‘vigorously contested’.[47]
[47]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019) 153.

He further submitted that s 241 should be limited by reference to the same criteria and considerations that s 237 mandates, otherwise the limitations contained in s 237 would be subverted.

Resolution
Provisions

Part 2F.1A is entitled ‘Proceedings on behalf of a company by members and others’ and includes s 241.

Section 236 provides for persons who may bring proceedings on behalf of a company which are to be brought in the company’s name. Section 237 then makes provision for applying for and granting leave. Section 237(2) provides that the Court must grant the application if it is satisfied about 5 particular matters.[48]
[48]These being (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) there is a serious question to be tried; and (e) either (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.

Importantly, then, both ss 236 and 237 circumscribe when ‘proceedings’ may be brought. Section 240 also imposes some limits on the circumstances in which such proceedings may be discontinued, compromised or settled, providing that this cannot occur without further leave.

Otherwise, however, there does not appear to be any limitation placed on the management of the proceeding once it has been instituted up to time of finalisation beyond the general powers under s 241.

Thus, s 241 provides:

(1)The Court may make any orders, and give any directions, that it considers appropriate in relation to proceedings brought or intervened in with leave, or an application for leave, including:
(a)interim orders; and
(b)directions about the conduct of the proceedings, including requiring mediation; and
(c)an order directing the company, or an officer of the company, to do, or not to do, any act; and
(d)an order appointing an independent person to investigate, and report to the Court on:
(i)       the financial affairs of the company; or
(ii)      the facts or circumstances which gave rise to the cause of action the subject of the proceedings; or
(iii)     the costs incurred in the proceedings by the parties to the proceedings and the person granted leave.

Analysis

Consistent with the authorities cited by the Connective Parties, a reasonably liberal approach may be taken in considering whether the amendments sought are within the terms of the leave.

As cited already, Robson J granted leave to bring a proceeding substantially in the form set out in the relevant draft statement of claim.

That statement of claim seeks to challenge the transactions constituting the Restructure and Sale on the basis that they were undertaken for an improper purpose. The relief sought included orders for rescission to restore the parties to the position prior to the Restructure and Sale.

The substantive characterisation of the proceeding (in respect of which leave was granted) was therefore a proceeding seeking to challenge and unwind the Restructure and the Sale to Macquarie Bank.

The claims the subject of the amendment (which I propose to allow) further challenge the proposed sale on the basis that a substantial purpose of the sale process is to prevent rescission and limit the relief able to be obtained in the Derivative Proceeding (at paragraph 42).

In circumstances where leave has been given to challenge and unwind the Restructure, it is appropriate to infer that the leave would extend to challenging actions allegedly undertaken to prevent or limit such ‘unwinding.’

Thus, although the form of the amendments encompass further claims, the substance of those claims is essentially defensive in responding to actions which would subvert the relief already sought (and in respect of which leave has already been granted). To require a fresh application for leave in such circumstances would be artificial and would prevent the expeditious resolution of the Derivative Proceeding.

However, even if this is incorrect, I am of the view that s 241 permits the Court to grant the leave in this case, which leave ought to be granted (subject to the considerations, below).

First, the ordinary words of s 241 are wide and contain no restriction or limitation. It is inappropriate to read provisions conferring jurisdiction or granting powers to a court by imposing limitations which are not found in the express words.[49]
[49]Owners of Ship Shin Kobe Maru v Empire shipping Co Inc (1994) 181 CLR 404, 421.

Secondly, I do not consider that this construction would operate to subvert the provisions in s 237. Thus, as highlighted already, the two provisions are concerned with two different matters. Section 237 is concerned with whether a proceeding ought to be issued, while s 241 is concerned with granting the Court general powers to manage proceedings already brought with leave (or on the application for leave).

A natural reading of s 241 therefore does not subvert the ‘gatekeeper’ role played by s 237 in determining whether a proceeding may be brought in the first place.

Thirdly, as highlighted by Austin J in Nutectime, to require any amendments to be subject again to the s 237 criteria would place an unnecessary burden on case management contrary to the overarching purpose. This is underscored in the current case where the parties have already engaged in protracted litigation.

There is, therefore, no warrant to read down s 241 to incorporate the limitations as suggested by the Connective Parties, in circumstances where the ordinary meaning does not undermine the general purpose of s 237.

Finally, I do not consider that the cases cited by the Connective Parties stand against my construction since it does not appear that s 241 was the subject of consideration in any of those cases.

Overall, then, I consider that (if necessary) I have power to grant leave to amend on the merits under s 241.

I further consider that I ought to exercise that power given the nature of the amendments sought (which seek to challenge conduct allegedly taken to limit relief already sought) subject to a consideration of the usual principles, below.

Improper Purpose
Plaintiffs’ Submissions

Slea and the Connective companies submitted that it was sufficient that there was evidence of ‘mere influence’ of improper purpose.

Senior Counsel for Slea and the Connective companies took the Court through material set out in the chronology above and ultimately (on the second day) provided the detailed particulars.

The focus of their submissions was on the decision of the Directors to engage Mr Korda. In this context it was therefore unnecessary to cross examine Mr Korda (as was suggested by the Connective Parties).

Much was made of the chronology above in relation to the so called unsolicited ‘offers.’ This included:

· that Mr Korda was approached prior to TPA obtaining board approval;

· that there were inconsistencies in the material as to whether 2 offers were received and/or whether they were approaches or offers.[50]

[50]E.g. Affidavit of Mark Korda sworn 31 January 2019, [9(a)] states there were 2 unsolicited offers cf. exhibit MK-1 p. 3 which refers to a singular ‘offer’.

Ultimately Senior Counsel posed the following issue:[51]

‘Why is [it] that this particular approach, at the time that it arose, and in the context of the litigation between the parties, required action when others did not?’

Defendants’ Submissions

[51]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 14 March 2019), 348-9.

No issue was raised as to prejudice, nor of a lack of explanation for the amendments sought. This was appropriate given that the amendments were sought after further facts came to light after the initiation of the proceeding, concerning the commencement and progression of the sale process.[52]
[52]Affidavit of Justin Taede Vaastra sworn 13 February 2019, [13].

It was, however, submitted that the amendments were futile with no real prospects of success in circumstances where Mr Korda and Mr Langdon were not challenged by cross examination.

As a general matter, it was submitted that, even at its highest, the matters raised could never give rise to the inferences sought which raised serious allegations. In any event, the evidence of the independent director was against the matters raised.

In terms of the first matter, much of the oral submissions really amounted to a suggestion that the particulars were contrary to the evidence of Mr Korda.

Insofar as paragraph 50F of the proposed pleading in the Oppression Proceeding (paragraph 37 of the proposed pleading in the Derivative Proceeding) was concerned, Senior Counsel for the Connective Parties submitted that the decision to commence the sale process lay with Mr Korda who determined that there ought to be a sale process.

Further, insofar as paragraph 50K (paragraph 42 in Derivative Proceeding) was concerned, a number of matters were raised to challenge the adequacy of the particulars:

· first, the Connective Parties rejected that the effect of the proposed sale would prevent the rescission order or limit the relief to monetary compensation;

· insofar as timing was concerned, there was no reason why the decision might be made at the time alleged rather than at earlier points in the litigation process;

· the document cited at (viiA) did not support the proposition alleged;

· there was no basis for challenging that the offers were ‘unsolicited’ given the evidence of Mr Korda that they were in fact genuine (viiC) Further, that nothing could be made of the semantic debate about the difference between an offer and an approach (viii);

· Jones v Dunkel[53] could not be used to fill gaps (viiD and viiE);
[53](1959) 101 CLR 298.

· there was a mischaracterisation of what Counsel said in particular (xii);

· (xiii) cannot support any improper purpose of the Directors since it was the decision of Korda Mentha to structure the sale as an asset sale rather than a share sale;

· In terms of transparency, (viiB and viiC) there were updates to shareholders, including Slea, in circumstances where there was limited scope given it was a potential buyer.

In terms of the evidence, Senior Counsel for the Connective Parties highlighted that:

· all the evidence was one way;

· there was objective evidence which corroborated various matters, including the genuineness of the offers; and

· by 3 September 2018, the Directors were completely out of the picture given Mr Korda was independently running the process.

Particular emphasis was placed on the resolutions of the Directors of 3 September 2018 which generally supported that there were good commercial reasons for the sale process. It also supported a respect for these proceedings given the involvement of an independent director.

The Directors generally supported and adopted the submissions of the Connective Parties.

Resolution

All parties generally accepted, consistent with authority, that where the Court is considering an objection to a proposed amendment to a pleading, the correct test is whether the amendment raises a claim that has no real prospects of success, in the sense of being fanciful.[54] This also appeared to be consistent with a general submission of the Connective Parties that it is important to consider whether, at their highest, the amendments may support a claim for improper purpose.
[54]Mandie v Memart Nominees Pty Ltd [2016] VSCA 4, [47].

Despite this, however, many of the matters raised appeared to be concerned with an assessment of the evidence, which is not the focus of the Court on an amendment application. I will therefore deal with these matters only briefly, before turning to the form of amendments sought.

Given the focus on the purpose of the Directors prior to 31 August 2018, I do not consider that it was appropriate for there to be cross examination of Mr Korda or Mr Langdon at this stage.

The complaint about paragraph 50F also misconceives the way Slea and the Connective companies are now putting their case (although this was only clarified at the hearing), which is to focus on the intentions of the Directors prior to the appointment of Mr Korda.

Insofar as the ‘effect’ issue was raised, I consider that the effect of any sale would make it more difficult to unwind the relevant transactions so as to limit the relief able to be sought in the proceeding.

In terms of timing, while it is certainly true that there has been a protracted history of litigation, it does appear that steps were taken in early/mid-August to activate a sale process. The fact that this coincided with the time at which the Court of Appeal was hearing the appeal in the Derivative Proceeding against the Directors may, when taken with the other factors, give rise to an inference that the proceeding (and relief sought therein) was a focus for the Directors.

The matters raised about the apparent conflicts in the material concerning whether there were really ‘offers’ and, if so, how many, raise issues that may ultimately be completely explained at trial. However, I do not regard Mr Korda’s opinion that the offers were ‘genuine’ as dispositive of whether the Directors had an improper purpose. Simply because there may have been genuine buyers does not necessarily determine whether they were unsolicited in the first place. Mr Korda was also not a party to the actual communications between the Directors and third parties and largely relies on what the Directors have told him.

It is true that the letter from Quinn Emanuel dated 29 June 2017 (in particular viiA) does focus on the undertaking (rather than the proceeding per se). However, as the undertaking was given in the context of the proceeding, I do not regard the point as substantial for current purposes.

In the relevant transcript cited at (xii), Senior Counsel for the Connective Parties says that the ‘consequence’ of the transaction is to substitute one valuable asset for another. He goes on to highlight that if the transaction goes ahead, the business would hold ‘another valuable asset; it will hold tens of millions of dollars and/or script…’.[55] I see nothing wrong with including this as a particular to an allegation that ‘the consequence and purpose of the sale process is to substitute cash for the Connective Business’, bearing in mind that further particulars are intended to be provided.
[55]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Robson J, 8 November 2018) 12-3.

I do see merit in the suggestion that the decision of Korda Mentha of 5 November 2018 cited in particular (xiii) may be too far removed from any earlier intention of the Directors and have left it out of my consideration, below.

In terms of transparency, I have noted that it is difficult to form any firm views at this point. I further accept that there may be some difficulties with the provision of information in a competitive sale process. Nevertheless, whatever the reason, the full context in which the decision to appoint Mr Korda was made remains unknown at this stage.

Returning then to the real focus, namely the amendments themselves, in an endeavour to identify the real complaints made, I have grouped the particulars into categories as follows (leaving out xiii):

· the objective nature of the proceedings, which include a claim for rescission (i) and (iii);

· the subjective attitude of the Directors to the proceedings, which includes their oppositional stance (ii), (iv), (v) and (viiA);

· the timing of the consideration of the proposed sale and sale process, including that the Directors commenced consideration of the proposed sale shortly after the hearing of the appeal of a proceeding brought against them (vi), (vii), (ix), (x), and (xi);

· Mr Korda was appointed even though no firm offers had actually been received, in unknown circumstances, and where it was not uncommon for approaches to be received (viii) and (viiC);

· there has been a lack of transparency about the proposed sale and in the litigation (viiB), (viiC) and (viiE); and

· the consequence and purpose of the sale process is to substitute cash for the business (which will affect relief sought in the proceeding) (xii).

I have also taken into account the failure of the Directors to give direct evidence rebutting any suggestion of improper purpose (viiD). A Court is thereby entitled to infer that their evidence would not have assisted them and can more readily draw an inference of improper purpose from the other evidence.[56]
[56]J D Heydon, Cross on Evidence, (LexisNexis Butterworths Australia, 11th ed, 2017) 40.

Notwithstanding the seriousness of the allegations, which I have taken into account,[57] I consider that there is a real prospect that the matters raised above, when considered together,[58] in the context of bitterly fought litigation, could give rise to an inference of improper purpose as alleged, on the balance of probabilities.
[57]S 140(2)(c) Evidence Act 2008 (Vic).
[58]Masters Home Improvements Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88 at [101].

The case made certainly carries challenges and the matters raised may well be explained at trial. However, I consider that the case is sufficient to warrant examination at trial and cannot be viewed as futile or fanciful.

It is not appropriate for any extensive consideration of the evidence on an amendment application in circumstances where there appears to be some evidentiary basis for the matters raised. However, for the sake of completeness, I do not accept that the appointment of Mr Korda on 3 September 2018 puts the claims beyond argument. Instead, I consider it is still arguable that the earlier action taken to instigate the process and appoint Mr Korda was taken for an improper purpose.

Senior Counsel for the Connective Parties also sought to raise issues of causation, suggesting that a ‘but for’ test needed to be applied. I accept that a transaction will not ultimately be set aside unless ‘but for’ the breach, the transaction would not have occurred.[59] However, it is premature to consider these factual matters which ought be left for trial in circumstances where no sale has even taken place.
[59]ASIC v Drake (No. 2) (2016) 340 ALR 75, [497]. However it is noted that there may be some doubt whether this test also applies at the stage where it is determined whether a breach of duty occurs. See Edelman J at [498].

It is therefore appropriate to grant the amendments relating to the claims of a ‘Second Improper Purpose’ in order that there be a just determination of all issues in dispute at trial, and having general regard to the overarching purpose and the matters contained in s 9 of the Civil Procedure Act2010 (Vic).

Acting Beyond Power

Senior Counsel for the Connective companies conceded that there was no authority that, because of the grant of leave to commence proceedings in the name of the Connective companies, it was beyond power for the Directors to take action that would prevent those companies from obtaining relief in the Derivative Proceeding.[60]
[60]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019) 134-5.

However, he highlighted that it would not make sense to grant leave to bring a proceeding if the Directors could then remove the subject matter of that proceeding.

Senior Counsel for the Connective Parties submitted that there was no basis at all for these amendments. In particular, there was no valid connection between obtaining leave and having an impact on what the Directors could do. Further, that no contravention of any provision in the Act was identified so as to give rise to the relief claimed (the only relief which could link to the no power claim being DA).

Resolution

As is implicitly accepted by the pleadings and submissions of the Connective companies, the Directors, prima facie, have a general power to manage the business of the Connective companies subject to the requirements of the Act.[61] This would include the power to sell (or, as they allege, to cause Connective Group to sell) the Connective business.
[61]Clause 23.1 of the Constitutions of Connective Services and Connective OSN as cited in particulars to paragraph 44 of the proposed Amended Statement of Claim in Derivative Proceeding; Exhibit JTV-22 to the Affidavit of Justin Taede Vaatsta sworn 13 February 2019. See also further particulars in paragraph 36 to 39.

The issue is therefore whether there is some real prospect of arguing that the grant of leave, per se, under s 237, would somehow curtail these powers.

I am unable to be satisfied that this can be alleged.

First, the fact of leave itself does not impose the limitation suggested. Thus although (where the relevant person is a member) s 236 may ‘carve out’ the responsibility for bringing or intervening in proceedings, there is nothing to suggest that Directors’ powers are otherwise removed.

Secondly, the Connective companies failed to point to anything in s 237, or Part 2F.1A generally, which purports to limit the powers of Directors in the way alleged. This is notwithstanding that the removal of any such powers could have been easily expressed (as is done, for example, in s 198G).

Finally, Part 2F.1A itself clearly makes provision for an injunctive remedy if directors are interfering with the subject matter of the proceeding (as will be addressed below). Thus, s 241(1)(c) provides that the Court may make orders in derivative proceedings ‘directing the company, or an officer of the company, to do, or not to do, any act.’

There is therefore no reason, in such circumstances, to introduce some limitation on the powers of the Directors which does not exist.

Overall, then, in the absence of any authority or justification, I am simply unable to be satisfied that there are real prospects of success with this claim.

The amendments at paragraphs 44 to 46 in the proposed Amended Statement of Claim in the Derivative Proceeding and paragraphs 50M to 50O in the proposed Second Further Amended Statement of Claim in the Oppression Proceeding will not be allowed.

Injunction Application
Preliminary issue

The relevant orders sought in the Amended Summons are sought pursuant to ss 241 and 1323(4) and the inherent power of the Court, and included orders as follows:

· to restrain the sale, transfer or disposal of relevant shareholding interests in Connective Group and the Connective Group Subsidiaries or the sale, transfer of disposal of the Connective Business without the written consent of Slea Pty Ltd or further order (paragraph 2);

· to restrain Connective Services and the directors from ‘approving or otherwise authorising the sale process’ or ‘any sale’ of the relevant shareholding interests or any part of the Connective Business (paragraph 3); and

· that the proceeds of any sale are not to be distributed and are to be held in a relevant account pending final determination of the proceedings (paragraph 4).

On the first day of the hearing, however, following advice that a trial date could be secured on 19 August 2019, Senior Counsel for the Connective Parties gave the following undertakings in Court:[62]
[62]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019), 26 [17]-[28].

Undertaking

3. Subject to paragraph 4 below, our clients undertake to the Court and the Plaintiff in the Proceeding S CI 2011 4332 that:

(a) Connective Services Pty Ltd will not sell, transfer or in any way dispose of its shareholding interest in Connective Group Pty Ltd;

(b) Connective Group Pty Ltd will not sell, transfer or in any way dispose of its shareholding interest in the Fifth to Ninth Defendants in Proceeding S CI 2011 4332; and

(c) Connective Group Pty Ltd and the Fifth to Ninth Defendants in Proceeding S CI 2011 4332 will not sell, transfer or in any way dispose of their business undertaking or any substantial part of their business undertaking,

(i) unless and until all shareholders in Connective Services Pty Ltd and Connective Group Pty Ltd have provided their consent in writing to the sale, transfer or disposal or the Court has made orders sanctioning or approving it.

4. This undertaking may be withdrawn or modified upon giving 28 days’ written notice, with no such notice to be given before 1 September 2019.

Senior Counsel for Slea and the Connective companies however, continued to press the Court to make orders giving injunctive relief notwithstanding this undertaking. In particular, Senior Counsel raised concerns with the reference to the Court making orders to sanction or approve the sale, and sought orders effectively restraining the making of any such application such that it only be made returnable at trial.

If this (‘first’) application was not to be granted, Senior Counsel, in the alternative, sought the relief in the Amended Summons, namely to restrain both the sale process and the sale itself.[63]
[63]Ibid, 45.

In the result, a form of the (first) order cited was produced as order 3 in a General Form of Order handed up in Court on 14 March 2019 as follows:

That any application for an order sanctioning or approving the sale, transfer or disposal of the business undertaking of Connective Group Pty Ltd (Connective Group) and the Fifth to Ninth Defendants in proceeding S CI 2011 4332 (Connective Group Subsidiaries) or a substantial part thereof (Connective Business) be made returnable [before] the Honourable Justice Robson on 19 August 2019.

It is accordingly necessary to consider this first order prior to moving, if necessary, to consider whether the other injunctive relief ought to be granted.

Whether an order ought to be made which places limits on time for making proposed application to sanction the sale process

Senior Counsel for Slea and the Connective companies submitted that the order ought to be made as a case management order to ensure the orderly resolution of the issue by the trial judge.

Senior Counsel for the Connective Parties submitted, on the basis of the affidavit of Mr Langdon, that such an order would have a direct adverse impact on the sale process with bidders lost. Moreover, that it was not a case of case management but an ouster given it was contemplated that the proceeding would be a separate proceeding (with Slea presumably in opposition) for ‘declaratory relief or s 241 relief.’[64] Further, he made clear that the Connective Parties had committed themselves to the self-imposed requirement that no sale will occur absent Court sanction. If it turns out that no approval is granted, then the undertaking would prevent any sale for at least six months.
[64]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 14 March 2019), 315 [3]-[8].

A difficulty with the order sought is that no application has yet been instituted, nor is it clear how or why the Court could intervene and determine whether to sanction an ordinary commercial transaction (not involving, for example, a trustee or a liquidator).

However, be that as it may, I consider that the Connective Parties and the Directors are correct in characterising the order as an effective ouster of the Court’s jurisdiction. To place limits on the circumstances in which any such application/proceeding might be heard in advance would effectively amount to shutting a party out of Court and would only be appropriate where proper grounds were provided.[65] No such grounds were, or could, be provided in circumstances where no such application has even been formulated or instituted.
[65]Rozenbilt v Vainer [2018] HCA 23, [72].

I would add that, even if I was wrong about this, and it is a case management issue, it would not be appropriate to restrict the Connective Parties and the Directors in advance. Although initially attractive (given the multiplicity of applications), I consider that it is premature to make orders restricting the timing of the hearing of any application where its precise ambit is unknown.

I will, however, make orders for notice to be given to Slea of any such application. The application for ‘order 3’ is otherwise rejected.

It is accordingly necessary to consider the claim for injunctive relief in the alternative.

Whether injunctive relief otherwise appropriate
Plaintiffs’ Submissions

Slea and the Connective companies sought to support the injunction on 3 bases:

(a) the alleged improper purpose (pursuant to the amendments above);

(b) the existing pleadings (that the sale and the sale process would subvert the power of the Court to grant the relief sought);

(c) the Directors lacked power (pursuant to the amendments above).

In oral submissions they highlighted that there was no delay, having regard to the fact that the application was made promptly on 1 November 2018.

It was further highlighted that, if the business was transferred, it would make the remedy of rescission ‘extremely difficult’ to obtain and that Slea would have to bring another proceeding against the purchaser.[66]
[66]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019), 82.

Slea and the Connective companies also submitted that damages were not adequate given the purchase of a business was a type of contract that was specifically enforceable because the purchaser has a special interest in the business.[67]
[67]Citing Coulls v Bagot’s Executor and Trustee (1967) 119 CLR 460.

Senior Counsel also proffered an undertaking directly from Liberty.[68]

Defendants’ Submissions

[68]Although it appeared, from correspondence to the Court, that there remained an issue with the form of this undertaking if the Court made proposed order 3.

The Connective Parties and the Directors raised a preliminary ‘nexus’ point to the effect that a sale would not so affect the relief such that the Court needs to act to preserve the subject matter of the proceedings.

In terms of balance of convenience/whether damages were adequate, in written submission they submitted that:

· any sale was likely to be of full market value so Slea would be compensated;

· the suggestion that continued ownership of the business is a form of relief of particular value to Mr Tsialtas ought to be rejected;

· there would be severe and irreversible damage to the Connective Parties if any sale or sale process was stopped;

· there would be prejudice to third parties;

· the continuation of the sale process would produce evidence of market value which would be valuable for any buy-out orders; and

· the suggestion that Slea would sue any purchaser is circular and lacks merit.

In oral submissions, it was further submitted that:

· the undertaking now given worked against ordering an injunction;

· it could impact an independent and arm’s length commercial sale process which was well advanced and could impact on third parties; and

· the claims are weak.

In terms of damages being adequate, it was emphasized that rescission was only an alternative remedy and that Slea was only a shareholder. Further that Slea and Mr Tsialtas’ personal interest was not supported as a matter of evidence, particularly given the involvement of Liberty.

Legal Principles

As highlighted already, Slea and the Connective companies sought relief on a number of different bases (including the general equitable jurisdiction as well as s 241 and s 1324).

Relief was also sought on the basis of the decision of Williams v Minister for the Environment and Heritage[69] as follows:

A 'superior court of record and ... a court of law and equity', such as this court (FCA Act s 5(2)), has inherent or implied power to make an interlocutory order which is necessary to enable it to perform its function as such a court. An example of that power is the power to make an order directed to preserving the subject matter of litigation or to preventing its processes from being frustrated and an available form of proceeding from being rendered nugatory.

[69](2003) 199 ALR 352, [16]-[17] (‘Williams’).

However, it was generally accepted that the elements to be examined were the usual ones, namely:

(a) there is a serious question to be tried (i.e. the plaintiff has made out a prima facie case in the sense that there is a sufficient likelihood of success at trial to justify, in the circumstances, the preservation of the status quo);

(b) the plaintiff will suffer irreparable injury, for which damages will not be adequate compensation, unless the injunction is granted; and

(c) the balance of convenience or justice favours the granting of an injunction.[70]

[70]ABC v O’Neill (2006) 227 CLR 57; recently applied in El Saafin v Franek [2018] VSC 450, [31].

Pursuant to s 1324 of the Act, the Court would also consider whether ‘the injunction would serve some utility, or would serve some purpose, within the contemplation of the Act such as preventing or ameliorating a threatened contravention of the Act.’[71]
[71]Armstrong World Industries (Australia) Pty Ltd v Parma (2014) 101 ASCR 150, [22].

The purpose of an interlocutory injunction is also to maintain the status quo pending the determination of the parties’ rights at trial. As the Court of Appeal noted in Bradto Pty Ltd v State of Victoria:[72]

In our view, the flexibility and adaptability of the remedy of an injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his rights at the trial, or in failing to grant an injunction to a party who succeeds at trial.

[72](2006) 15 VR 65, 73 [35].

These legal principles are not entirely separate and must be examined together. Further, an examination of the merits may affect the balance of convenience.[73]

Preliminary ‘effect’ point

[73]El-Saafin v Franek (n70) [33] citing Optus Networks Pty Ltd v City of Booroondara [1997] 2 VR 318; K-Mart Australia Ltd v Stud Park Investments Pty Ltd (Supreme Court of Victoria Appeal Division, Ormiston, McDonald and Hanson JJ, 14 October 1994), [14]-[15].

Senior Counsel for the Connective Parties maintained that a sale would not frustrate the relief in question. Senior Counsel for the Directors, in submission, appeared to go even further submitting that it was not enough to invoke the Williams jurisdiction if one of the forms of relief would become more difficult or even impossible. Rather, the ‘entire proceeding needs to be rendered nugatory or futile.’[74]
[74]Citing Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2018] WASC 123; Mastipour v Secretary, Department of Immigration and Multicultural and Indigenous Affairs (2004) 140 FCR 137.

Senior Counsel for the Connective Parties also submitted that:

· there were a number of other remedies available to remediate the alleged oppression beyond rescission;

· the impact of rescission on Macquarie Bank meant it would not be done; and

· there was no frustration because Slea was only a shareholder with no rights to a particular form of assets.

I do not accept the submissions raised.

First, although there are other remedies sought, I accept the submission of Senior Counsel for Slea and the Connective companies that a sale (rather than a sale process) would make the rescission remedy ‘extremely difficult.’

Next, whether rescission will ultimately be granted is also not a question for now, but for the trial judge.

Finally, although Slea may not have rights in a particular form of asset, the Connective companies (who formerly established and conducted the business) are the relevant plaintiffs in the Derivative Proceeding. It is also instructive that, in this context, Robson J made a finding (undisturbed on appeal)[75] that it was in the best interests of the Connective companies to bring the Derivative Proceeding. Thus, after noting (at the outset at paragraph 1), that Mr Tsialtas was one of the founders of the business, his Honour stated:[76]

The alleged breach in this case went to the heart of the joint venture between the three parties, Mr Tsialtas, Glenn Lees and Murray Lees. In substance, the pre-emptive rights ensured that each party had the power to control who could participate in the business. The pre-emptive rights clauses were fundamental to the joint venture that the three parties entered into. The best interests of the company include the best interests of the members as members. It is in the best interests of the company and to the shareholders to ensure that rights, qua shareholder, under the constitution as shareholders, be respected and observed by the directors. (Footnotes omitted)(emphasis added).

[75]Connective Services (n1) 342-3, [123].

[76]Re Connective Services Pty Ltd [2017] VSC 609, [158].

Insofar as the Williams jurisdiction is concerned, Slea and the Connective companies did not only support their injunctive claim on the basis of this jurisdiction.

In any event, as is clear from the passage from Williams[77] above, the overriding power is to make an order which is necessary to enable the Court to perform its functions as a Court. Although a situation where proceedings would be rendered nugatory may be an example of this (consistent with the cases cited), the jurisdiction is not restricted to such a situation. [78]
[77]Williams (n69).
[78]See also Equuscorp Pty Ltd v Wilmonth, Field Warne (a firm) [2006] VSCA 123 where an injunction was granted even though the cross appeal was not rendered nugatory.

Moreover, in ACCC v Pacific National Pty Ltd[79] Beach J said:

‘that interlocutory injunctive relief is not required to be limited to causes of action in respect of which permanent injunctive relief is sought in the same terms. The basis for the grant of an interlocutory injunction is to preserve the status quo and to prevent a respondent from acting in a way that will undermine or diminish the efficacy of any final judgment...’

[79][2018] FCA 1221, [64].

Overall, then, I do not consider that there is some fundamental disqualifying ‘effect’ point. Instead, the question of injunctive relief will be considered in the usual way.

Whether injunctive relief ought to be granted

Senior Counsel for the Connective Parties conceded that, for the purposes of the injunction application, no issue was taken with the proposition that there was a serious question to be tried (without prejudice to the matters for trial) in terms of the existing claims.[80]
[80]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019), 76-7.

This is consistent with the statement in the decision of the Court of Appeal that:[81]

‘For the reasons the primary judge gave, there is a serious question to be tried here. We do not consider the contrary to be arguable and we will not grant leave to appeal on this proposed ground.’

[81]Connective Services (n1) 344, [129].

I have also determined that, notwithstanding some challenges, the further ‘Second Improper Purpose’ claims are not futile and have some real prospect of success.

There may be some merit in the suggestion that damages would be adequate in this case. Mr Tsialtas has not had involvement in the management of the business since May 2008. He has also previously attempted to sell his shareholdings and does not appear to have participated in the sale process. The terms of the arrangement with Liberty also give Liberty an option of obtaining the shares if Slea becomes the owner of all the shares. This tends to weigh against a suggestion that the shares have some unique value unable to be quantified by money.

Nevertheless, there was evidence that attempts to sell were consequent on some financial pressure. The arrangement with Liberty was also entered into in 2010 in circumstances wherein Mr Tsialtas was in need of financial support.[82] When the Court raised the alleged non-participation and queried why Slea could not simply buy the business if it really wanted to, Senior Counsel also stated that there were various ‘without prejudice’ communications to be considered, and that the Court should not assume that Slea was not interested in purchasing the business, which was the relief sought.[83]
[82]Re Connective Services (n76) [41].
[83]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 13 March 2019), 22.

As highlighted above, it has also been found to be in the best interests of the Connective companies to bring the Derivative Proceeding to ensure that the pre-emptive rights provisions were observed. As further found by Robson J, those rights were intended to ensure that each of the founders could control who could participate in the business.

I am therefore prepared to accept that damages may not be adequate for the purposes of this application.

However, even weighing the above factors in favour of Slea, the balance of convenience is overwhelmingly against the actual making of orders at this stage.

First, and most significantly, the giving of the undertaking makes it unnecessary for the Court to intervene to prevent a sale (or deal with any sale proceeds). Thus, absent Court (or shareholder) approval, the form of the undertaking means that the earliest a sale can take place is some 6 months from now (on 29 September 2019).

In terms of the foreshadowed application to the Court, as indicated above, it is anticipated that Slea would oppose such an application. It is difficult to determine what steps Slea may wish to take in response to such an application given it is at this point hypothetical and its precise ambit unclear. The terms of any proposed sale are also unknown. However, the Connective Parties should give at least 7 days notice to Slea of the making of any such application. Liberty to apply will also generally be reserved, including for the plaintiffs to make any application they deem appropriate in the event that such notice is given.

It is true that a sale might still take place on the giving of notice after 1 September 2019. However, I consider that, given the fluidity of matters, this matter will be better assessed in 6 months time and no further order is appropriate now. This is particularly so given it is unknown whether any sale will still be pursued at that time (in which case the undertaking may simply continue). Thus, given the evidence of Mr Langdon, the process is to be structured such that no sale will occur at all absent Court sanction.

The reservation of liberty to apply will therefore also enable the plaintiffs to make further application for injunctive relief if notice is given pursuant to the terms of the undertaking on or after 1 September 2019 should this be necessary.

In relation to the sale process, it is true that the prejudice to third parties may not be as high as might ordinarily be the case (given they appear to have been made aware of this proceeding).[84] Further, that the Connective Parties have elected to prosecute a sale though they were put on notice of this application in November last year.
[84]Exhibit MK-1 to Affidavit of Mark Anthony Korda sworn 31 January 2019, p. 174. See information memorandum under heading ‘Litigation Risk’.

Nevertheless, the fact remains that the process is now well advanced and, according to Mr Langdon, there is ‘significant competitive tension between bidders’ which may also have the added benefit of producing evidence of market value. The course which carries the ‘lower risk of injustice’ appears to be to allow that process to continue, rather than render the entire process worthless by stopping it now.

In any event, save for the proposed ‘Beyond Power’ ground (which I have disallowed), it does not appear that the continuation of the sale process would itself impact the remedies sought. This appeared to be conceded by Senior Counsel in reply.[85]
[85]Transcript of Proceedings, Slea v Connective Services Pty Ltd & Ors (Supreme Court of Victoria, Kennedy J, 14 March 2019), 357.

Overall, then, considering the factors together, and particularly in light of the undertakings proffered, I am not satisfied that the Court ought intervene by making the injunction orders sought at this time.

Conclusion

Subject to hearing from the parties on costs, the orders will be:

1. There is leave to file and serve an Amended Statement of Claim, by 4.00 pm on or before 8 April 2019, substantially in the form of exhibit JTV-22 to the affidavit of Justin Taede Vaastra sworn 13 February 2019 in the Derivative Proceeding, save that:

a. paragraphs 44 to 46 will be omitted; and

b. the particulars provided to the Court on 14 March 2019 will be substituted in place of the particulars at paragraph 42.

2. There is leave to file and serve a Second Further Amended Statement of Claim, by 4.00 pm on or before 8 April 2019, substantially in the form of exhibit JTV-23 to the affidavit of Justin Taede Vaastra sworn 13 February 2019 in the Oppression Proceeding, save that:

a. paragraphs 50M to 50O will be omitted; and

b. the particulars provided to the Court on 14 March 2019 will be substituted in place of the particulars at paragraph 50K.

3. Subject to orders 4 and 5, the application for order 3 in the draft General Form of Order filed in Court on 13 March 2019, and orders 2 to 4 in the Amended Summons dated 13 February 2019, is dismissed.

4. That at least 7 days notice is to be given to the plaintiffs of any application for an order sanctioning or approving the sale, transfer or disposal of the business undertaking of Connective Group Pty Ltd and the Fifth to Ninth Defendants in proceeding S CI 2011 4332, or a substantial part thereof.

5. Liberty to apply is generally reserved, including for the plaintiffs to file and serve any application they deem appropriate in the event that notice is given pursuant to paragraph 4 herein, or if notice is given pursuant to paragraph 4 of the Undertaking.

6. The matter is listed for a directions hearing before the Honourable Justice Robson on 12 April 2019.

7. The costs of the parties, of and incidental to the Amended Summons, are costs in the cause.

SCHEDULE OF PARTIES

S CI 2011 04332 (Oppression Proceeding)

BETWEEN:
SLEA PTY LTD (ABN 16 081 276 811)	Plaintiff
AND
CONNECTIVE SERVICES PTY LTD (ACN 107 366 496)	First Defendant
CONNECTIVE OSN PTY LTD (ACN 106 761 326)	Second Defendant
MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097)	Third Defendant
CONNECTIVE GROUP PTY LTD (ACN 162 397 060)	Fourth Defendant
CONNECTIVE BROKER SERVICES PTY LTD (ACN 161 731 111)	Fifth Defendant
CONNECTIVE LENDER SERVICES PTY LTD (ACN 161 731 460)	Sixth Defendant
CONNECTIVE FUNDER SERVICES PTY LTD (ACN 161 732 645)	Seventh Defendant
CONNECTIVE GROUP IP HOLDINGS (NO. 1) PTY LTD (ACN 165 282 084)	Eighth Defendant
CONNECTIVE GROUP IP HOLDINGS (NO. 2) PTY LTD (ACN 165 281 925)	Ninth Defendant
MARK SEAMUS HARON	Tenth Defendant

SCHEDULE OF PARTIES

S ECI 2018 00073 (Derivative Proceeding)

BETWEEN:
CONNECTIVE SERVICES PTY LTD (ACN 107 366 496)	First Plaintiff
CONNECTIVE OSN PTY LTD (ACN 106 761 326)	Second Plaintiff
AND
GLENN ANDREW LEES	First Defendant
MARK SEAMUS HARON	Second Defendant
GRAHAM EDWARD MALONEY	Third Defendant
MACQUARIE BANK LIMITED	Fourth Defendant
CONNECTIVE GROUP PTY LTD (ACN 162 397 060)	Fifth Defendant
CONNECTIVE BROKER SERVICES PTY LTD (ACN 161 731 111)	Sixth Defendant
CONNECTIVE LENDER SERVICES PTY LTD (ACN 161 731 460)	Seventh Defendant
CONNECTIVE FUNDER SERVICES PTY LTD (ACN 161 732 645)	Eighth Defendant
CONNECTIVE GROUP IP HOLDINGS (NO. 1) PTY LTD (ACN 165 282 084)	Ninth Defendant
CONNECTIVE GROUP IP HOLDINGS (NO. 2) PTY LTD (ACN 165 281 925)	Tenth Defendant
SLEA PTY LTD (ABN 16 081 276 811)	Eleventh Defendant
MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097)	Twelfth Defendant

[2019] VSC 201

3 April 2019