South Johnstone Mill Ltd v Dennis

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FEDERAL COURT OF AUSTRALIA

South Johnstone Mill Ltd v Dennis and Scales [2007] FCA 1448

CORPORATIONS – application for leave to bring proceedings – whether leave may be granted nunc pro tunc – criteria to be applied – whether there is a serious question to be tried

Corporate Law Economic Reform Program Act 1999 (Cth)
Corporations Act2001 (Cth), ss 180, 236, 237, 241, 420A
Evidence Act 1995 (Cth), ss 64(2), 75, 190
Federal Court Act 1976 (Cth), s 51

Advent Investors Pty Ltd v Goldhirsch (2001) 37 ACSR 529 cited
American Express International Banking Corporation v Hurley [1985] 3 All ER 564 cited
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 cited
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 cited
Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 applied
Deangrove Pty Ltd v Buckby (2006) 56 ACSR 630 cited
Donne v Lewis (1805) 32 ER 1221 cited
Ehsman v Nutectime International Pty Ltd (2006) 58 ACSR 705 cited
Emanuele v Australian Securities Commission (1997) 188 CLR 114 applied
Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 cited
Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54 cited
Forsyth v Blundell (1973) 129 CLR 477 cited
Goozee v Graphic World Holdings Pty Ltd (2002) 42 ACSR 534 cited
Herbert v Redemption Investments Ltd [2002] QSC 340 cited
Jeans v Deangrove Pty Ltd [2001] NSWSC 84 cited
Johnston v VintageDevelopments Pty Ltd [2006] FCAFC 171 cited
Karam v ANZ (2000) 34 ACSR 545 cited
Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 cited
Malouf v Malouf (1999) 86 FCR 134 cited
Medforth v Blake [2000] Ch 86 cited
McLean v Lake Como Venture Pty Ltd [2004] 2 Qd R 280 cited
Re Testro Bros Consolidated Ltd [1965] VR 18 considered
Re Varsity Queensland Pty Ltd [2006] QSC 356 cited
RTP Holdings Pty Ltd v Roberts (2000) 36 ACSR 170 cited
State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 cited
Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313 cited
Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646 cited

SOUTH JOHNSTONE MILL LIMITED (ACN 101 695 575) & ORS v RICHARD JOHN DENNIS & MICHAEL SCALES AND NATIONAL AUSTRALIA BANK (ACN 004 044 987)
VID 142 OF 2007

MIDDLETON J
14 SEPTEMBER 2007
MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 142 OF 2007

BETWEEN:

SOUTH JOHNSTONE MILL LIMITED (ACN 101 695 575) & OTHERS ACCORDING TO THE ATTACHED SCHEDULE
Applicants

AND:

RICHARD JOHN DENNIS & MICHAEL SCALES
First Respondents

NATIONAL AUSTRALIA BANK (ACN 004 044 987)
Second Respondent

JUDGE:

MIDDLETON J

DATE OF ORDER:

14 SEPTEMBER 2007

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The parties confer and thereafter file and serve within 7 days draft minutes of orders reflecting these reasons and in respect of costs and any further directions to be sought.

2.The proceeding be adjourned to a date to be…

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Details
Case
[2007] FCA 1448
Decision Date

CaseChat Overview and Summary

South Johnstone Mill Limited v Dennis is a case where the applicants sought leave to bring proceedings on behalf of the company against the receivers and the bank. The company had undergone financial difficulties and had its assets sold off, and the applicants sought to challenge the sale on various grounds. The court was required to determine whether the applicants had standing to bring the proceedings on behalf of the company and whether leave should be granted to do so. The court found that the applicants did have standing to bring the proceedings on behalf of the company, as they were members of the company and entitled to apply for leave under the relevant legislation. The court also found that it was appropriate to grant leave to bring the proceedings against the receivers, but not against the bank, based on the evidence available at the time. The court emphasised the importance of considering the specific circumstances of each case when deciding whether to grant leave to bring proceedings on behalf of a company.

The court's reasoning in this case was based on a number of factors. Firstly, the court found that the applicants did have standing to bring the proceedings on behalf of the company, as they were members of the company and entitled to apply for leave under the relevant legislation. The court noted that there was no requirement for the applicants to seek leave prior to instituting the proceeding, as the legislation allowed for leave to be sought at any time. The court also found that it was appropriate to grant leave to bring the proceedings against the receivers, as the company was effectively incapacitated and unable to respond to any notice that may have been given to it. The court emphasised the importance of considering the specific circumstances of each case when deciding whether to grant leave to bring proceedings on behalf of a company.

The outcome of this case was that leave was granted to the applicants to bring proceedings against the receivers, but not against the bank. The court found that the applicants had standing to bring the proceedings on behalf of the company and that it was appropriate to grant leave to do so. The court noted that the case would now proceed only against the receivers and not the bank, although the possibility of implicating the bank in the conduct of the receivers remained open. The court also emphasised the importance of considering the specific circumstances of each case when deciding whether to grant leave to bring proceedings on behalf of a company.

In conclusion, this case highlights the importance of considering the specific circumstances of each case when deciding whether to grant leave to bring proceedings on behalf of a company. The court found that the applicants had standing to bring the proceedings on behalf of the company and that it was appropriate to grant leave to do so against the receivers, but not against the bank. The court emphasised the importance of considering the specific circumstances of each case when deciding whether to grant leave to bring proceedings on behalf of a company. The case also highlights the need for companies to ensure that they have appropriate mechanisms in place to respond to legal proceedings and to consider the potential implications of failing to do so.

Orders

Orders of the court

1. The parties confer and thereafter file and serve within 7 days draft minutes of orders reflecting these reasons and in respect of costs and any further directions to be sought.

2. The proceeding be adjourned to a date to be fixed.

Background

Background to the litigation

Although the applicants do not expressly state so in their application, it seems clear that the order sought is the grant of leave nunc pro tunc from at least the date proceedings were filed on 20 February 2007. Whilst the position as to the relevant limitation period is not entirely clear (both as a matter of law and fact), the applicants want to secure such leave so that no limitation defence can be raised by the respondents. I will proceed on the basis that the expiration of any relevant limitation period is six years after 21 February 2001, and that if leave is not granted nunc pro tunc, the applicants will at least be at risk of a limitation defence being raised by the respondents.BACKGROUND TO THE PROCEEDINGS The Company is an unlisted public company which was registered in Queensland. The Company owned and operated a sugar mill in North Queensland. For the purposes of this proceeding, the assets it held may be broken down into two broad categories, namely:·milling assets, comprising property such as mill land and buildings, plant and equipment, stock, supplies and shares in sugar industry-related companies, including shares in Sugar Terminals Limited (‘STL’); and·other land known as the Warrami Land. From 1999 to 2001, the Company’s trading position deteriorated seriously. Furthermore, in early 2001, the Company’s mill needed urgent and expensive repairs in order to operate for the upcoming season. Ultimately, the Receivers were appointed on 18 January 2001 by the Bank. On 21 February 2001 the Receivers entered into an agreement with Bundaberg Sugar Limited (‘Bundaberg’) for the sale of what has been broadly described above as the Company’s milling assets for the sum of $15.1 million (‘the Contract’). The Contract settled on 9 March 2001. The Warrami Land was later sold for approximately $5 million. The last of the Company’s directors resigned on 20 February 2004 and it has not had any directors since that time. On 24 September 2004, the Receivers ceased to act in that capacity.STANDING This proceeding was brought not with the authority of the Company, but by the applicants purporting to act on its behalf. I shall hereinafter refer to the applicants other than the Company as “the applicants”. No leave, as was required, was sought by the applicants prior to instituting this proceeding. The Receivers submitted that the applicants had no right at general law to bring proceedings on behalf of the Company, nor did they have a statutory right to do so under s 237, given that leave had not been granted to bring proceedings on behalf of the Company. The applicants rely solely upon the statutory right, and seek leave under s 237 of the Act. No right at general law was asserted. As a threshold matter, there was some debate before me as to whether all of the named applicants had standing to bring the application on behalf of or in the name of the Company. Section 236(1)(a) of the Act lists the persons entitled to apply to the Court for leave to bring proceedings, which includes a member, former member, or a person entitled to be registered as a member, of the Company.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

MIDDLETON J
I turn to the final criterion for the grant of leave (s 237(2)(e)). In my view it is appropriate to grant leave, in this case against the Receivers, even though prior written notice was not given to the Company. Without directors, the Company effectively has no means or capacity to accept and respond to any notice given to the Company. I would not require, nor is it practical for, the applicant to call a general meeting of shareholders for the purposes of receiving and considering the notice. Accordingly, notice would be of no utility in this case.CONCLUSION I should indicate that I have come to the conclusion to grant leave only in relation to the Receivers on the basis of the evidence before me. In view of my findings in relation to the Receivers, the case will now proceed only against the Receivers and not the Bank. It may eventuate that in the course of that case evidence may become available implicating the Bank in the conduct of the Receivers, for instance, evidence showing the Receivers merely followed the Bank’s direction. This is an inquiry which would be relevant in relation to the case against the Receivers, because it may be evidence of a failure to carry out their duties. However, I do not consider that this possibility impacts upon my decision in relation to the Bank. I can only approach the question of leave being granted against the Bank on the evidence available now, and make a determination accordingly. It would not be appropriate to adjourn indefinitely the leave application against the Bank pending further interlocutory steps being taken against the Receivers in order to discount the possibility of the Bank being shown to be implicated in the way alleged by the applicants. If evidence implicating the Bank does become available during the course of the case against the Receivers, then the position in relation to the Bank may need to be revisited, although there will obviously be some potential problems arising due to the effluxion of time. I say nothing more about this possibility, but only mention it as a matter upon which I have given some consideration. Therefore, I will make orders to the effect that the 31 applicants identified in the Company extract from ASIC’s records have leave nunc pro tunc as and from at least 20 February 2007 to bring proceedings against the Receivers, and that the application brought against the Bank be dismissed. I do not propose to limit the grant of leave to only certain claims. It may be that the current pleading will require reconsideration but it is not appropriate at this stage of the proceeding, now that the matter can proceed against the Receivers, to limit the potential claims that may be able to be pursued at trial after the advantage of interlocutory processes. A number of matters need to be addressed, including conditions as to costs in respect of the proceeding, the costs of the application for leave, and further directions for the proceeding, including the proper parties, the pleadings and venue for the hearing. I will, therefore, direct that the parties confer and thereafter each party within seven days, file and serve draft minutes of orders reflecting these reasons, and dealing with conditions as to the costs of the proceedings, costs of the application for leave and any future directions sought. I will adjourn the further hearing of the proceedings to a date to be fixed.

Ratio Decidendi

Legal Principle Established

Established by: MIDDLETON J

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