Steinier v Sunlea Enterprises Pty Ltd in its own capacity and as TFT Drummond Cove Unit Trust
[2016] WASC 81
•16 MARCH 2016
STEINIER -v- SUNLEA ENTERPRISES PTY LTD in its own capacity and as TFT Drummond Cove Unit Trust [2016] WASC 81
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 81 | |
| Case No: | COR:146/2012 | 21 JANUARY 2016 | |
| Coram: | MARTINO J | 16/03/16 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Payment of costs of actions brought in company's name out of company's assets authorised Application by second defendant for appointment of independent investigator and other orders dismissed | ||
| B | |||
| PDF Version |
| Parties: | PHILIPPE FERNAND LEON RAOUL STEINIER SUNLEA ENTERPRISES PTY LTD in its own capacity and as TFT Drummond Cove Unit Trust (ACN 127 893 145) TREVOR STANLEY JOHN BETTS |
Catchwords: | Corporations Statutory action in the name of company Costs and other orders |
Legislation: | Corporations Act 2001 (Cth), pt 2F.1A |
Case References: | Carpenter v Pioneer Park [2004] NSWSC 1007; (2004) 211 ALR 457 Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189 HPM Pty Ltd v Fear [2002] WASCA 249; (2002) 171 FLR 12 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Roach v Winnote Pty Ltd [2006] NSWSC 231; (2006)57 ACSR 138 Sunlea Enterprises Pty Ltd as Trustee for Drummond Cove Unit Trust v Pollock [2014] WASC 91 Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
SUNLEA ENTERPRISES PTY LTD in its own capacity and as TFT Drummond Cove Unit Trust (ACN 127 893 145)
First Defendant
TREVOR STANLEY JOHN BETTS
Second Defendant
Catchwords:
Corporations - Statutory action in the name of company - Costs and other orders
Legislation:
Corporations Act 2001 (Cth), pt 2F.1A
Result:
Payment of costs of actions brought in company's name out of company's assets authorised
Application by second defendant for appointment of independent investigator and other orders dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr J A Thomson SC
First Defendant : No appearance
Second Defendant : Mr J R Birman
Solicitors:
Plaintiff : Tottle Partners
First Defendant : No appearance
Second Defendant : Birman & Ride
Cases referred to in judgment:
Carpenter v Pioneer Park [2004] NSWSC 1007; (2004) 211 ALR 457
Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705
Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732
Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189
HPM Pty Ltd v Fear [2002] WASCA 249; (2002) 171 FLR 12
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
Roach v Winnote Pty Ltd [2006] NSWSC 231; (2006)57 ACSR 138
Sunlea Enterprises Pty Ltd as Trustee for Drummond Cove Unit Trust v Pollock [2014] WASC 91
Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313
Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570
- MARTINO J:
Introduction
1 The plaintiff, Mr Steinier, is a director of Sunlea Enterprises Pty Ltd. On 19 September 2012 Mr Steinier filed an application under s 237(1) of the Corporations Act 2001 (Cth) (the Act) for leave to commence legal proceedings in the name of Sunlea Enterprises. On 3 October 2012 Master Sanderson gave leave to Mr Steinier to commence legal proceedings in the name of Sunlea Enterprises in its own capacity and as trustee for the Drummond Cove Unit Trust against thirteen named defendants and the directors of two of the corporate defendants named in the order. Master Sanderson's order made no provision for costs. Master Sanderson gave liberty to apply.
The applications before me
2 By a summons filed on 18 November 2015 Mr Steinier applies, subject to undertakings being provided, for orders pursuant to s 242 of the Act authorising the trustee of the Drummond Cove Unit Trust to pay out of the assets of the Drummond Cove Unit Trust all reasonable costs of two actions commenced in this court by Sunlea Enterprises after the order was made by Master Sanderson and approving the payment by Sunlea Enterprises of the sum of $200,000 into court out of funds held on trust for the Drummond Cove Unit Trust in one of those actions. The actions commenced in this court are CIV 2705 of 2012 and CIV 3048 of 2012. The payment into court of $200,000 was made in CIV 2705 of 2012.
3 The second defendant, Mr Betts, is also a director of Sunlea Enterprises. Mr Betts opposes the making of the orders sought by Mr Steinier. By a summons filed on 8 January 2016 Mr Betts applies for orders pursuant to ss 241 and 242 of the Act that Mr Steinier reimburse Sunlea Enterprises for monies paid into court as security for costs in CIV 2705 of 2012, that Mr Steinier indemnify Sunlea Enterprises for all past and future costs of CIV 2705 of 2012 and CIV 3048 of 2012, for the appointment of an independent person to investigate and report to the court on the financial affairs of Sunlea Enterprises, the merits of CIV 2705 of 2012, the prospects of recovery against the defendants to that action and, if the court is prepared to make an order in the terms sought by Mr Steinier, the reasonableness of the costs that have been incurred by Mr Steinier, or that those costs be assessed by a taxing officer, and that Mr Steinier to be liable for the remuneration and expenses of that independent person.
4 At a directions hearing on 15 January 2016 I ordered that Mr Betts' application be heard with Mr Steinier's application dated 18 November 2015. Both applications were heard by me on 21 January 2016.
5 On the hearing of the applications the parties relied upon affidavits filed in this action and also affidavits filed in other actions. The affidavits relied upon were:
Affidavits filed in this action
• Affidavit of Mr Steinier made 19 September 2012.
• Affidavit of Mr Steinier made 27 November 2015.
• Affidavit of Mr Betts made 7 January 2016.
Affidavit filed in CIV 1717 of 2015
• Affidavit of Mr Betts made 12 June 2015.
Affidavits filed in CIV 2206 of 2015
• Affidavit of Mr Steinier made 31 July 2015.
• Affidavit of Mr Betts made 25 August 2015.
• Affidavit of Mr Betts made 31 December 2015.
• Affidavit of Mr Steinier made 13 January 2016.
Affidavits filed in CIV 2705 of 2015
• Affidavit of Mr Steinier made 30 August 2013.
• Affidavit of Mr Steinier made 27 November 2013.
• Affidavit of Nigel Siegwart made 27 November 2013.
• Affidavit of Mr Betts made 8 September 2015.
The parties
6 Sunlea Enterprises is the trustee of the Drummond Cove Unit Trust. It has been trustee of the trust since 15 January 2008. The Drummond Cove Unit Trust was settled on 20 June 2004. When the Drummond Cove Unit Trust was settled Diamo Nominees Pty Ltd was trustee of the trust. It is common ground that Sunlea Enterprises has no assets other than the assets of the Drummond Cove Unit Trust.
7 Mr Steinier owns half of Sunlea Enterprises' shares. The other half of Sunlea Enterprises' shares are owned by Betts Nominees Pty Ltd. Mr Betts and his wife Mrs Ingrid Betts are the directors and shareholders of Betts Nominees. Sunlea Enterprises has two directors. The two directors are Mr Steinier and Mr Betts.
8 Betts Nominees and Orbito Nominees Pty Ltd each hold 100 units in the Drummond Cove Unit Trust. Orbito Nominees is a company associated with Mr Steinier. An ASIC search attached to Mr Steinier's affidavit made on 31 July 2015 in CIV 2206 of 2015 shows that the two directors of Orbito Nominees are Mr Steinier and Christine Simone Heusdains and that Ms Heusdains owns all of the issued shares in Orbito Nominees. Ms Heusdains is the wife of Mr Steinier.
Action CIV 2705 of 2012
9 Mr Steinier commenced in the name of Sunlea Enterprises, as trustee of the Drummond Cove Unit Trust, Supreme Court action CIV 2705 of 2012 on 11 October 2012. There are fourteen defendants to that action, one of whom is Mr Betts. A claim against two persons previously named as eleventh defendants has been discontinued. Mr Betts contends that Mr Steinier was not authorised by the order of Master Sanderson to commence the action in the name of Sunlea Enterprises against the fifteenth defendant Howard Fransz. However that contention does not seem to be correct. Sunlea claims against Mr Fransz that he was a director of Troika Capital Pty Ltd. The order of Master Sanderson gave leave to commence actions against the directors of Troika Capital from time to time.
10 By a written agreement dated 13 August 2005 made between Dreamview Investments Pty Ltd in its own capacity and as trustee for the Dreamview Trust, Diamo Nominees, in its own capacity and as trustee of the Drummond Cove Unit Trust and Sandpiper Asset Pty Ltd, the parties to the agreement agreed that Dreamview Investments and Diamo Nominees would enter into a joint venture to develop land near Geraldton owned by the Drummond Cove Unit Trust. That development was not completed. On 21 June 2010 Sunlea Enterprises gave notice rescinding the agreement dated 13 August 2005. The balance of the land owned by the Drummond Cove Unit Trust was held in the name of Crosswest Corporation Pty Ltd as bare trustee for the Drummond Cove Unit Trust.
11 CIV 2705 of 2012 concerns the joint venture that was agreed to be entered into in the agreement of 13 August 2005. CIV 2705 of 2012 is being managed by Allanson J. On 21 March 2014 Allanson J ordered that Sunlea Enterprises give security for costs in the sum of $200,000.1
12 The claims made by Sunlea Enterprises in the action are summarised by Allanson J at [18] to [37] of his Honour's reasons. Action CIV 2705 of 2012 has been stayed by order of Allanson J made on 20 November 2015.
Action CIV 3048 of 2012
13 On 20 December 2012 Mr Steinier commenced in the name of Sunlea Enterprises CIV 3048 of 2012 against Troika Capital Pty Ltd and Dino Travaglini. In that action Sunlea Enterprises claimed monies held by Troika Capital on the sale of land owned by the Drummond Cove Unit Trust. Mr Steinier was granted leave by the order of Master Sanderson to commence action against Troika Capital in the name of Sunlea Enterprises, but not to commence action against Mr Travaglini, who was the liquidator of Sandpiper Asset Pty Ltd. On 7 March 2013 judgment was entered in CIV 3048 of 2012 in favour of Sunlea Enterprises against Troika Capital in the sum of $436,892.24 plus interest. On 13 March 2013 Troika Capital's solicitors paid to Tottle Partners, the sum of $476,249.73. Tottle Partners hold those monies in its trust account.
Action CIV 2206 of 2015
14 On 3 August 2015 Orbito Nominees commenced CIV 2206 of 2015 seeking the appointment of a new trustee of the Drummond Cove Unit Trust. Betts Nominees, the defendant to that action, supports the appointment of a new trustee to the Drummond Cove Unit Trust, but not the trustee proposed by Orbito Nominees. CIV 2206 of 2015 has been referred to mediation by order of Acting Master Gething made on 22 October 2015.
The receipt of moneys by Sunlea Enterprises from Allstrike Enterprises
15 Tottle Partners act for Sunlea Enterprises in CIV 2705 of 2012 and CIV 3048 of 2012 and they act for Mr Steinier in this action.
16 On 25 August 2014 the firm of solicitors Lewis Blyth & Hooper paid to Tottle Partners the sum of $310,308 for the benefit of the Drummond Cove Unit Trust. Those monies were the proceeds of the sale of seven blocks of land that had been beneficially owned by the Drummond Cove Unit Trust. That land had been purportedly sold in a mortgagee sale by Allstrike Enterprises Pty Ltd. On 28 July 2014 in action CIV 2852 of 2012 in this court by Crosswest Corporation against Allstrike Enterprises consent judgment was entered against Allstrike Enterprises setting aside mortgages and a deed of charge pursuant to which the land had purportedly been sold. Lewis Blyth and Hooper acted for Allstrike Enterprises.
17 From the monies Tottle Partners received from Lewis Blyth & Hooper the sum of $200,000 was paid into court in CIV 2705 of 2012 as the security for costs ordered by Allanson J.
The payment of costs
18 In an affidavit sworn on 27 November 2015 Mr Steinier has deposed that:
1. He authorised the payment of the sum of $200,000 into court on 19 September 2014 as security for costs in action CIV 2705 of 2012 out of Sunlea Enterprises' funds held in Tottle Partners' trust account;
2. Sunlea Enterprises has paid legal costs in relation to CIV 2705 of 2012 and CIV 3048 of 2012 on Mr Steinier's instructions and without Mr Steinier seeking the authority of Mr Betts;
3. When he gave the instruction for the payment of legal costs in relation to those actions by Sunlea Enterprises he believed that he was entitled to do so. In 2015 he was advised that there may be an argument as to whether the order of Master Sanderson made on 3 October 2012 entitled him to give those instructions. As a result of receiving that advice Mr Steinier has reimbursed to Sunlea Enterprises the sums disbursed by Sunlea Enterprises in relation to the legal costs of those actions. That reimbursement has been accounted for as a loan from Orbito Nominees to Sunlea Enterprises.
Deed of Consent to Distribution and Settlement
19 On 10 January 2008 Betts Nominees, Mr Betts, Mr Steinier, Mr Rick Hopkins, who was Sunlea Enterprises' accountant, Sunlea Enterprises and other entities associated with Mr Steinier and Mr Betts entered into a Deed of Consent to Distribution and Settlement. The deed was entered into to resolve disputes between the parties to it.
20 Clauses 3.17 and 3.18 of the Deed provides that a Trustee, other than the Trustee of the Bertram Heights Unit Trust No 2, can only make a decision and do things by a unanimous decision of the directors of the trustee. The term 'Trustee' is defined in clause 1.1. It includes Sunlea Enterprises as trustee of the Drummond Cove Unit Trust.
21 By that deed the parties to it agreed that the financial statements annexed to the deed were true and correct as at 30 January 2007 and were binding upon the parties in relation to the matters contained in those statements, including the balance outstanding for 'Interentity Loans' Clause (4.1). The term 'Interentity Loans' is defined in Clause 1.1 as meaning the loans referred to in Schedule B to the deed. The parties also agreed that the calculation of project interest on the 'Interentity Loans' was as set out in Schedule B (Clause 4.3). Schedule B shows that the Drummond Cove Unit Trust owed the Bertram Heights Unit Trust $592,646 and owed the Bertram Heights Unit Trust No 2 $8,122,533 and that the Bertram Heights Unit Trust No 2 owed the Bertram Heights Unit Trust $4,511,353.
22 In his affidavit made on 27 November 2015 Mr Steinier has deposed that Laika Corp Pty Ltd, a company owned by Mr Steinier as trustee for the Pilou Trust, owns all of the issued units in the Bertram Heights Unit Trust (para 5) and that Laika Corp owns 75% of the units in the Bertram Heights Unit Trust No 2 and that Betts Nominees Pty Ltd owns the other 25% of the units in the Bertram Heights Unit Trust No 2 (para 8).
23 Clause 8.1of the Deed of Consent to Distribution and Settlement provides that the Interentity Loans were only repayable out of the proceeds of 'Project Financing or Net Income' provided that the working capital requirements of the Projects are met, all current liabilities of the Unit Trust have been discharged and the application of funds to repay the Interentity Loans will not render the Unit Trust insolvent. Clause 8.1 also provides that if the Project Financing was insufficient to repay the Interentity Loans then they would be repaid in the order in which they were advanced prior to any distribution being made by a unit trust having any liability in respect of an Interentity Loan.
24 The terms 'Projects' and 'Unit Trusts' are defined in clause 1.1. The Projects are defined as meaning land subdivision projects in Bertram Heights, Parkerville and Drummond Cove. The Unit Trusts are listed in Schedule A, namely Bertram Heights Unit Trust No 2, Bertram Heights Unit Trust No 3, Parkerville Unit Trust and the Drummond Cove Unit Trust.
25 Clause 8.2(a) provides that Project Interest is only payable if and when sufficient funds are available to make payment under clause 8.1 of the Deed or, in the event that the Interentity Loans are not repaid in full by 15 March 2008 then clause 8.2(b) applies.
26 Clause 8.2(b) provides that if the Interentity Loans are not repaid in full by 15 March 2008 then interest at the rate of 8% per annum compounded monthly is payable on the balance of the loans.
27 In his affidavit made on 27 November 2015 Mr Steinier has deposed that there was insufficient Project Financing to repay any part of the loan from the Bertram Heights Unit Trust to the Drummond Cove Unit Trust, the loan from the Bertram Heights Unit Trust No 2 to the Drummond Cove Unit Trust and the loan from the Bertram Heights Unit Trust to the Bertram Heights Unit Trust No 2. Since 30 June 2007 a total of $67,619 has been repaid on the loan from the Bertram Heights Unit Trust to the Drummond Cove Unit Trust, $12,408 has been repaid on the loan from the Bertram Heights Unit Trust to the Bertram Heights Unit Trust No 2 and a total of $152,631 has been repaid on the loan from the Bertram Heights Unit Trust No 2 to the Drummond Cove Unit Trust (paras 19 to 22).
28 Attached to Mr Steinier's affidavit of 27 November 2015 are spreadsheets which state that at 30 September 2015 $976,332 was owing from the Drummond Cove Unit Trust to the Bertram Heights Unit Trust (Annexure PS11), $8,568,069 was owing from the Bertram Heights Unit Trust No 2 to the Bertram Heights Unit Trust (Annexure PS12) and $14,551,541 was owing from the Drummond Cove Unit Trust to the Bertram Heights Unit Trust No 2 (Annexure PS13).
29 Twinside Holdings Pty Ltd was appointed as trustee of the Bertram Heights Unit Trust on 26 August 2011 (para 7 of Mr Steinier's affidavit made 27 November 2015). Springland Pty Ltd was appointed as trustee of the Bertram Heights Unit Trust No 2 on 31 December 2007 (para 9 of Mr Steinier's affidavit made 27 November 2015).
30 ASIC searches attached to the affidavit of Mr Steinier made on 27 November 2015 in this action show that Christine Simone Steinier is the sole director and shareholder of Twinside Holdings and Springland. Ms Steinier is the sole director of Laika Corp, the sole shareholder of which is Orbito Nominees.
31 I understand Ms Steinier to be the wife of Mr Steinier and the same person as Christine Simone Heusdains who is a director and shareholder of Orbito Nominees.
32 Two of the Unit Trusts listed in Schedule A to the deed, namely the Parkerville Unit Trust and the Bertram Heights Unit Trust No 3, have no assets.
33 In his affidavit made 7 January 2016 Mr Betts has deposed that:
1. the Parkerville Unit Trust has no assets and the financier which provided finance to the project has commenced action against Mr Steinier and Mr Betts claiming $3,412,000 plus interest in respect of guarantees they gave to the financier; and
2. the Bertram Heights Unit Trust No 3 has no assets and the financier which provided finance to the project has commenced action against Mr Steinier and Mr Betts claiming $455,790 plus interest in respect of guarantees they gave to the financier.
The financial position of Sunlea Enterprises as trustee for the Drummond Cove Unit Trust
34 Attached to the affidavit of Mr Steinier made in this action on 19 September 2012 was an unsigned copy of a special purpose financial report for Sunlea Enterprises as trustee for the Drummond Cove Unit Trust for the financial year ended 30 June 2011. Mr Steinier deposed that he had been informed by Sunlea Enterprises' accountant and believed that Mr Betts had refused to sign the report's statement by directors. Mr Steinier deposed that the financial report disclosed, and he believed, that Sunlea Enterprises had not yielded any profit for the year ended 30 June 2011, had net losses of $2,541, 145 and had net assets (trust funds) of $11,458,953. One of the assets of the trust shown in those accounts was a loan to Sandpiper Asset of $12,885,001.
35 On 27 August 2010 Sandpiper Asset was under administration. Its administrator reported on that day that the creditors of Sandpiper Asset had negligible prospects of recovering unsecured debts. Sunlea Enterprises wrote off Sandpiper Asset's debt in the financial year ended 30 June 2013.
36 Attached to the affidavit of Mr Steinier made in this action on 27 November 2015 is a draft special purpose financial report for Sunlea Enterprises as trustee for the Drummond Cove Unit Trust as at 30 September 2015. Mr Steinier has deposed that the draft report does not include the value of the claims made by Sunlea Enterprises in CIV 2705 of 2012 and that he believes that the report is true and correct. The balance sheet in those accounts show total assets of $9,540,754, total liabilities of $801,764 and total proprietorship funds of $8,738,990 made up of:
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38 The financial position of Sunlea Enterprises is disputed by Mr Betts. He contends that the true financial position of Sunlea Enterprises is unknown. In his affidavits made on 24 August 2015 and 31 December 2015 in CIV 2206 of 2015 he has deposed that he has not been provided with information as to the financial affairs of the Drummond Cove Unit Trust. In his affidavit made on 31 December 2015 in CIV 2206 of 2015 he has expressed doubt as to the accuracy of the accounts and, in particular assets shown in the accounts of GST refundable of $2,600,845 and non-current receivables of $2,709,476. He claims that the accountant who prepared the accounts has a conflict of interest.
The Undertakings Proposed by Mr Steinier and the orders he seeks
39 By his application for costs orders Mr Steinier proposes that those orders be made subject to the provision of undertakings. In the summons filed on 18 November 2015 he proposed that the undertakings be given by him. In the course of argument on 21 January 2016 counsel for Mr Steinier proposed that the undertakings be provided not by Mr Steinier but by companies associated with him. I made the following directions:
(1) By 29 January 2016 the plaintiff do file a minute of proposed orders on its summons of 18 November 2015 together with written submissions as to that minute.
(2) By 5 February 2016 the second defendant do file written submissions in response.
40 Documents were filed in accordance with that timetable.
41 Following the filing of the Mr Betts' submissions Mr Steinier filed an amended minute of proposed orders and amended submissions on 9 February 2016.
42 By the minute of proposed orders dated 9 February 2016 Mr Steinier proposes the following undertakings being given:
a) Twinside Holdings Pty Ltd in its capacity as trustee of the Bertram Heights Unit Trust providing a written undertaking to the Court to reduce the amount due on loans owed to it by the trustee of the Drummond Cove Unit Trust by an amount that is equal to the total of the reasonable costs paid by the Drummond Cove Unit Trust for the costs of [actions CIV 2705 of 2012 and CIV 3048 of 2012], including any security for costs;
b) Twinside Holdings Pty Ltd in its capacity as trustee of the Bertram Heights Unit Trust providing a written undertaking to the Court to reduce the amount due on loans owed to it by the trustee of the Bertram Heights Unit Trust No 2 by an amount that is equal to the total of the reasonable costs paid by the Drummond Cove Unit Trust for the costs of [actions CIV 2705 of 2012 and CIV 3048 of 2012], including any security for costs; and
c) Springland Pty Ltd in its capacity as trustee of the Bertram Heights Unit Trust No 2 providing a written undertaking to the Court to reduce the amount due on loans owed to it by the trustee of the Drummond Cove Unit Trust by an amount that is equal to the total of the reasonable costs paid by the Drummond Cove Unit Trust for the costs of [actions CIV 2705 of 2012 and CIV 3048 of 2012], including any security for costs.
Part 2F.1A of theAct
43 Section 237 of the Act confers on the court the power to grant leave to bring or intervene in proceedings on behalf of a company to a member, a former member or a person entitled to be registered as a member of the company or a related body corporate or an officer or former officer of the company. The court must grant that leave if it is satisfied that the criteria specified in s 237(2) are satisfied.
44 The section appears in pt 2F.1A of the Act which abolished the exceptions to the rule in Foss v Harbottle2 and created a regime in its place.3 In Wood v Links Golf Tasmania Pty Ltd, Finkelstein said:4
Five conditions must be satisfied to obtain leave. They are: (1) the company will probably not bring the action; (2) the applicant is acting in good faith; (3) it is in the best interests of the company that leave be granted; (4) there is a serious question to be tried; and (5) notice of the application has been given to the company: s 237(2).
45 However s 237(2) is not expressed in terms that all five of the criteria must be satisfied before leave is granted. It provides that the court must grant the leave if all five of the criteria are satisfied.
46 In Fiduciary Ltd v Morningstar Research Pty Ltd, Austin J noted that although the section does not expressly say that all five of the criteria must be satisfied before leave is granted there are obiter dicta to the effect that if the applicant fails to bring himself or herself wholly within s 237(2) the court must not grant leave.5 Austin J did not find it necessary to decide the point in that case because he was satisfied that the five criteria had been met.
47 Master Sanderson did not provide written reasons for his decision to give leave to Mr Steinier to commence legal proceedings in the name of Sunlea Enterprises and there is no transcript of that hearing. I do not know if the Master was satisfied that all or some only of the criteria in s 237(2) were satisfied.
48 The order made by Master Sanderson giving leave to Mr Steinier to commence legal proceedings in the name of Sunlea Enterprises is a final order.6
49 Although an order under s 237 granting leave to commence proceedings in the name of a company is a final order the court, when determining the application, does not normally enter into the merits of the proposed derivative action to any great degree.7
50 Proceedings that are commenced pursuant to leave granted under s 237 must be brought in the company's name.8 They are proceedings of the company, not of the person who was granted leave to commence those proceedings.9 Order 4 r 3(2) of the Rules of the Supreme Court 1971 (WA) requires proceedings commenced in the company's name pursuant to a grant of leave under s 237 to be commenced and carried on by a solicitor.10
51 Section 241 enables the court to make any orders and give any directions that it considers appropriate in relation to proceedings brought or intervened in with leave. The orders that the court can make include an order appointing an independent person to investigate and report to the court on the financial affairs of the company, the facts or circumstances which gave rise to the cause of action the subject of the proceedings or the costs incurred in the proceedings by the parties to them and the person granted leave.11 If the court appoints such an independent person it must make an order stating who is liable for the remuneration and expenses of that person. The persons who may be made liable for that remuneration and expenses are all or any of the parties to the proceedings or the application and the company. The court may vary such an order at any time.12
52 In Ehsman v Nutectime International Pty Ltd,13 Austin J exercised the powers conferred by s 241 to direct that the plaintiff file a statement of claim and to order that the proceedings be referred to mediation.
53 I am unaware of any case in which an independent person has been appointed under s 241(1)(d).
54 The court is given power by s 242 to make at any time orders about the costs in relation to proceedings brought or intervened in with leave of the person who applied for or was granted leave, the company and any other party to the proceedings or the application.
55 Such an order may require indemnification for costs.
56 The person given leave to bring or intervene in proceedings in the name of the company was ordered to indemnify the company in respect of costs in Carpenter v Pioneer Park14 and in Ehsman v Nutectime International Pty Ltd. In each case the order was expressly subject to any order that may be made in the future.
57 A number of decisions in which applicants for leave provided, or were required to provide as a condition of the grant of leave, indemnification for costs were referred to by Barrett J in Roach v Winnote Pty Ltd.15 Barrett J said of those cases:16
It is thus clear that courts are concerned in some cases to ensure that the person granted leave under s 237 should bear, either wholly or in part, the burden of the company's costs in relation to the proceedings in which that person is to represent the company. Measures of that kind are intended to protect the company's financial resources and are merely part of the domestic arrangements within the company as to the basis on which the person concerned will be permitted to act for it.
58 In Ehsman v Nutectime International Pty Ltd, Austin J said that in the case before him the company was essentially a vehicle to pursue the commercial interests of four parties, one of whom was at odds with the other three.17 Those three opposed the bringing of derivative claims. The applicant for leave to bring the proceedings in the name of the company wished to combine derivative claims with personal claims arising same facts. Austin J said that in those circumstances he considered it appropriate to make the order as to costs that he made and that:
If the indemnity were not given, the other three directors would as a practical matter be required to bear the burden of 65% of the company's costs of pursuing derivative claims which they do not want to pursue.
59 The figure of 65% referred to in those reasons reflected the proportion of shares in the company owned by those three directors.18
60 Austin J's statement that if the indemnity were not given the three directors would bear the burden of 65% of the company's costs of pursuing derivative claims suggests that if no indemnity had been given the company would bear the cost of pursuing the derivative action. However there is nothing in pt 2F.1A which expressly provides this consequence.
61 Palmer J appears to have taken a different view in Swansson v RA Pratt Properties Pty Ltd where the applicant for leave to commence the derivative action sought an order that the costs of the derivative action be paid by the company. Palmer J dismissed the application for leave but did consider, obiter, the costs order sought. Palmer J said:19
Before the court can make such an order there must be evidence as to the company's ability to pay the costs of the proposed derivative action at the time that leave is sought.
There was no such evidence in the present case. The only evidence as to [the company's] financial position was its balance sheet as at 30 June 2000 …
I should add, if it be relevant, that if [the company's] present financial position had been shown to be no stronger than it was on 30 June 2000, I would have declined to make an order under s 242 as to the costs of the derivative action, for the reasons that it appears that [the applicant's] means, although not very substantial, are better able to bear the costs of the derivative action than those of [the company]. An order under s 242 that [the company] bear the costs of the litigation would have required the company to sell a substantial part of its assets in order to fund what can only be described as a litigation with questionable prospects of success.
62 Palmer J appears in that passage to express the view that if no order is made as to the costs of the derivative action then the company is not liable for the costs of the action.
63 When a person brings or intervenes in proceedings in the name of a company pursuant to leave granted under s 237 there are two types of costs liabilities that could be incurred by the company - the legal costs and expenses, including court filing fees, incurred in commencing and maintaining the proceedings and the costs it may be ordered to pay to the opposing party. Section 242 allows the court to make orders in respect of both types of costs liabilities and also enables the court to make orders about the costs of the person who applied for or was granted leave.
64 In my view where no order has been made as to the costs of the parties involved then there is no authorisation from that order for the assets of the company to be used to pay legal costs and expenses, including court filing fees, incurred in commencing and maintaining the proceedings. It is inevitable that costs will be incurred in the bringing and maintaining of the proceedings. This flows inevitably from the need to pay court filing fees and for the company to instruct a solicitor. However in my view it does not follow from the fact that it is inevitable that costs will be incurred that the leave to bring or maintain proceedings in the name of the company authorises the person granted leave to use the assets of the company for those proceedings. If the company will not authorise the payment of costs then the person who is given leave to commence the action can make arrangements to pay those costs or seek an order of the court under s 242. However if in the proceedings brought or intervened in the company is ordered to pay the costs of another party to the proceedings then that is a liability that is created without the need for authorisation from the company and the company is liable for those costs so ordered, even if no order has been made under s 242. The court has power under s 242 to order that the company be indemnified in respect of that costs liability.
Conclusions as to the applications
65 Sunlea Enterprises is a trustee company. The only assets it holds are trust assets. A trustee is entitled to claim out of the trust assets an indemnity for liabilities that it incurred in the performance of the trust. That entitlement to an indemnity gives the trustee a beneficial interest in the trust assets.20
66 Sunlea Enterprises is indebted to the Bertram Heights Unit Trust and the Bertram Heights Unit Trust No 2. By reason of clause 8 of the Deed of Consent to Distribution and Settlement the payment of those debts is deferred. However notwithstanding that deferral the indebtedness continues to exist. The ability of Sunlea Enterprises to continue operating the trust may depend upon the trustees of the Bertram Heights Unit Trust and the Bertram Heights Unit Trust No 2 not demanding payment of their loans. However the trustees may not be able to demand payment by reason of the deferral provided for in clause 8 of the deed. Mr Steinier's interests own all of the issued units in the Bertram Heights Unit Trust and 75% of the units in the Bertram Heights Unit Trust No 2. Those trustees are Twinside Holdings and Springland. Mr Steinier's wife is the sole director of those companies. Those companies have not demanded repayment of those loans. If those companies give the undertakings which are proposed by Mr Steinier then they are accepting that the loans would be reduced by the amount of costs. I conclude therefore that if the undertakings are given it is unlikely that the companies will require payment of those loans, even if they are able to do so.
67 I am satisfied that by the Deed of Consent to Distribution and Settlement Mr Betts agreed that at 30 January 2007 the Drummond Cove Unit Trust owed the Bertram Heights Unit Trust $592,646 and owed the Bertram Heights Unit Trust No 2 $8,122,533 and the Bertram Heights Unit Trust No 2 owed the Bertram Heights Unit Trust $4,511,353. The repayment of those loans is deferred, by reason of clause 8, but the indebtedness continues to exist. As a result of the undertakings proposed to be given by Twinside Holdings and Springland the costs paid by Sunlea Enterprises would, in effect, be paid by Mr Steinier because of the company's indebtedness to the Bertram Heights Unit Trust and the Bertram Heights Unit Trust No 2 and the indebtedness of Bertram Heights Unit Trust No 2 to the Bertram Heights Unit Trust.
68 There is a significant dispute between the two directors of Sunlea Enterprises as to the financial affairs of Sunlea Enterprises. I have referred earlier in these reasons to specific matters in the financial report as at 30 September 2015 disputed by Mr Betts. The dispute as to the financial position of the trust has existed for some years, as can be seen from the refusal of Mr Betts to sign the special purpose financial report for Sunlea Enterprises as trustee for the Drummond Cove Unit Trust for the financial year ended 30 June 2011. Those unsigned accounts included as an asset a loan to Sandpiper Asset of $12,885,001. The administrator of Sandpiper Asset reported in 2010 that the creditors of Sandpiper Asset had negligible prospects of recovering unsecured debts. Sunlea Enterprises wrote off Sandpiper Asset's debt in the financial year ended 30 June 2013.
69 In view of that history and the disputes between the directors I am not satisfied that all of the assets shown in the financial report as at 30 September 2015 are assets of the value shown in the accounts. However even if I disregard entirely the assets about which Mr Betts expresses doubt, the accounts show that Sunlea Enterprises has cash of $761,558 which is in the trust accounts of its solicitors Tottle Partners. In addition, the accounts show that Sunlea Enterprises has stock on hand of $2,835,000. The continued operation of Sunlea Enterprises may depend upon the trustees of the Bertram Heights Unit Trust and the Bertram Heights Unit Trust No 2 not making demand for repayment of loans. For reasons I have already expressed I conclude that if the proposed undertakings are given it is unlikely that the trustees will require payment of those loans.
70 Mr Betts has deposed, in his affidavit made in this action on 7 January 2016, that it is his view that the best use of the assets of the Drummond Cove Unit Trust is to develop land owned by the trust. However the lack of cooperation between Mr Betts and Mr Steinier means that the development of trust land is unlikely to take place while the present disputes remain unresolved. I do not consider Mr Betts' belief that the best use of the assets of the Drummond Cove Unit Trust is to develop land owned by the trust is a reason not to authorise the payment of costs.
71 Counsel for Mr Betts has submitted that the terms of the undertakings are unclear. I do not accept that submission. The undertakings are to reduce the amount due on the loans by an amount equal to the total of the reasonable costs paid by the Drummond Cove Unit Trust for the actions. The undertaking means that the indebtedness is to be reduced by that amount.
72 Counsel for Mr Betts has also submitted that as Betts Nominees owns 25% of the units in the Bertram Heights Unit Trust No 2 it is difficult to see how in giving the undertaking Springland would be acting in the interests of the beneficiaries of the trust, having appropriate regard to its obligations to its creditors and discharging its obligations under the Deed of Consent to Distribution and Settlement. However I do not see any difficulty in relation to any of those matters because for the undertaking to be effective Twinside Holdings must give an undertaking to reduce the indebtedness of the Bertram Heights Unit Trust No 2 to the Bertram Heights Unit Trust by the same amount. I can see no disadvantage to Betts Nominees, creditors of the Bertram Heights Unit Trust No 2 or any party to the Deed of Consent to Distribution and Settlement flowing from Springland giving the undertaking.
73 In some cases, when leave is granted under s 237 to commence an action in the name of a company, courts wish to ensure that the person granted leave should bear, either wholly or in part, the burden of the company's costs in relation to the proceedings in which that person is to represent the company. This is intended to protect the company's financial resources and is part of the domestic arrangements within the company as to the basis on which the person concerned will be permitted to act for it.21 In this case there are two sets of interests in the Drummond Cove Unit Trust - interests related to Mr Steinier and interests related to Mr Betts. Mr Steinier has obtained leave to bring proceedings in the name of Sunlea Enterprises because Mr Betts would not agree to those proceedings being brought. Sunlea Enterprises, as trustee of the Drummond Cove Unit Trust, is indebted to trusts in which Mr Steinier has the beneficial interest. He proposes that the authority to use assets of Sunlea Enterprises to pay the costs of actions he has been authorised to commence in the name of Sunlea Enterprises be subject to undertakings being given by trustees of the trusts to which Sunlea Enterprises is indebted. The effect of those undertakings will be that the costs are paid by Mr Steinier's interests because the indebtedness of the trust to those interests will be reduced.
74 Mr Betts has criticised the merits and prospects of recovery in action CIV 2705 of 2012.
75 He points to the following matters:
1. The action was commenced in 2012 but pleadings have not yet closed;
2. Sunlea Enterprises appears to have incurred legal costs in excess of $368,358 in the action;
3. Sunlea Enterprises has been ordered to pay the costs of the application for security for costs which have been described by Allanson J as being roughly one third of the amount of the security ordered to be provided;
4. On 27 March 2015 Allanson J struck out Sunlea Enterprises' statement of claim against the first defendant, granted leave to amend in part only and ordered Sunlea Enterprises to pay the first defendant's costs of the application;
5. On 20 August 2015 Sunlea Enterprises further amended its statement of claim in the face of a further strike out application;
6. From 21 March 2014 to 19 September 2014 the action was stayed due to the failure of Sunlea Enterprises to provide security for costs;
7. The action has been stayed since 20 November 2015;
8. The first, fifth and eighth defendants have ceased to be represented and have no real property within the jurisdiction;
9. On 21 October 2013 the second defendant was placed into administration;
10. In early 2013 the third defendant was declared bankrupt and her trustee in bankruptcy has reported that he did not expect any return to unsecured creditors;
11. On 5 October 2015 the fourth defendant was placed into administration;
12. Mr Betts is impecunious and appears to have a complete defence by reason of clauses 12 and 13 of the Deed of Consent to Distribution and Settlement;
13. The proceedings against Mr Fransz are unauthorised;
14. The ninth defendant is unrepresented and has no apparent assets;
15. The tenth defendant was placed into liquidation on 16 July 2012;
16. Sunlea Enterprises has discontinued the claim against the eleventh defendants;
17. The twelfth and thirteenth defendants have yet to file substantive defences, but in Mr Betts' view they appear to have a valid defence to the claim by a deed of settlement that they entered into with Sandpiper Asset on 30 May 2010; and
18. In approximately February 2010 Mr Steinier provided to the Supreme Court a positive reference for a person who he contends was party to an unlawful conspiracy.
76 There have been two considerations of the merits of Sunlea Enterprises' claims: by Master Sanderson when he granted leave to Mr Steinier to bring proceedings in the name of Sunlea Enterprises and by Allanson J when he determined the application for security for costs.
77 As I have noted, when determining an application for leave under s 237 the court does not normally enter into the merits of the proposed derivative action to any great degree.
78 When determining the application for security for costs Allanson J reviewed issues raised in the action and said it was not possible to resolve them at a preliminary stage. His Honour noted that Master Sanderson must have been satisfied that the application was brought in good faith and that there is a serious question to be tried.22
79 Whether a claim has merit is a factor that is relevant to the costs orders that can be made under s 242. If it turns out that a claim is unmeritorious then a costs order that has been made can be recalled.23 However it is not possible for me to resolve the issues as to the merits of the claim, just as it was not possible for Allanson J to do so. The claims are clearly complex, but there is nothing that leads me to conclude that they are not brought in good faith or that they are hopeless.
80 I do not regard the criticisms of the merits of the claims and the delays in progressing the action justify me not making a costs order in the terms proposed.
81 If it were to be the case, after the claims have been fully explored, that it was established that the claims were unmeritorious then the costs order could be recalled. But that is not established at this stage.
82 Nor do I regard the fact that some of the defendants to CIV 2705 of 2012 might not have assets as justifying not making a costs order. Two of the defendants are companies - Walthamstow Pty Ltd and Troika Capital. There is no evidence that those companies do not have assets. Just as it is not possible to determine the merits of the claims at this stage it is not possible to determine whether or not, there would be any recovery if the claims were successful. However it is unlikely that there is no prospect of recovery. It is clear that at least some defendants have incurred significant expenditure in the defence of the action. It is unlikely that expenditure would have been incurred if those defendants did not have assets that were at risk in the action.
83 I do not accept that the action against Mr Fransz was not authorised by Master Sanderson's order as he is sued as director of Troika Capital.
84 The action against Mr Travaglini as liquidator of Sandpiper Asset in CIV 3048 of 2012 was not authorised by the order of Master Sanderson. However because that action has been resolved in Sunlea Enterprises' favour with a judgment against Troika Capital the inclusion of Mr Travaglini as a defendant in it does not in my view provide a reason not to authorise the payment of Sunlea Enterprises' costs of the action out of the company's assets.
85 The significance of the reference that Mr Steinier provided for the person he contends was party to an unlawful conspiracy is a matter of fact that can only be determined at trial.
86 The court has extensive powers under s 241(1), including the power to appoint an independent person to investigate and report to the court on the financial affairs of the company, the facts or circumstances that gave rise to the cause of action the subject of the proceedings and costs that have been incurred in the proceedings. In this case, as I have mentioned, the claims are complex. An investigation and report on them would be both time consuming and expensive. Any conclusions drawn by the independent person would not be binding upon the defendants to the action. I can see no justification for the appointment of an independent person to report on the merits of the action or the prospects of recovery.
87 Nor do I see any justification for appointing an independent person to report on the costs incurred in the action at this stage. If it were to become necessary to do so the costs incurred in the action can be reviewed in a taxation by a Registrar of this court. A review of the costs, whether by an independent person or a Registrar, would involve expense which I cannot see is justified at this time where the effect of the order I am making is that Mr Steinier is bearing the burden of Sunlea Enterprises' costs of the action by the corresponding reduction of the indebtedness of the Drummond Cove Unit Trust to his interests.
88 I am satisfied that, subject to the proposed undertakings, it is appropriate to authorise the trustee of the Drummond Cove Unit Trust to pay out of the assets of the Drummond Cove Unit Trust all reasonable costs of two actions commenced in this court by Sunlea Enterprises. I am satisfied that in this case that is an appropriate domestic arrangement to make within Sunlea Enterprises as trustee for the Drummond Cove Unit Trust.
89 In relation to the payment into court of $200,000 Sunlea Enterprises has submitted two alternative orders:
1. Sunlea Enterprises Pty Ltd as trustee of the Drummond Cove Unit Trust was authorised to pay the sum of $200,000 into this Honourable Court on 19 September 2014, in satisfaction of Orders made by this Honourable Court on 21 March 2014 in CIV 2705 of 2012, out of funds held on trust for the Drummond Cove Unit Trust.
2. Alternatively, subject to the undertakings of Twinside Holdings and Springland that have been suggested the payment by Sunlea Enterprises Pty Ltd as trustee of the Drummond Cove Unit Trust of the sum of $200,000 into this Honourable Court on 19 September 2014, in satisfaction of Orders made by this Honourable Court on 21 March 2014 in CIV 2705 of 2012, out of funds held on trust for the Drummond Cove Unit Trust is hereby permitted and ratified, nunc pro tunc, pursuant to s 242 of the Corporations Act 2001 (Cth).
90 Mr Betts submits that neither order should be made and that I should order that Mr Steinier reimburse Sunlea Enterprises the sum of $200,000 plus interest.
91 For reasons I have given earlier it is my view that where no order has been made as to costs under s 242 of the Act then there is no authorisation from an order under s 237 giving leave to bring proceedings in the name of a company for the assets of the company to be used to pay legal costs and expenses in those proceedings. It is therefore my view that the payment into court of $200,000 of Sunlea Enterprises' money as security for costs was not authorised by the order of Master Sanderson. Section 242 enables the court to make at any time any order as to costs that it considers appropriate.
92 As I have said I am satisfied that in this case that authorising the payment of costs by Sunlea Enterprises, subject to the undertakings by the trustees of the Bertram Heights Unit Trust and the Bertram Heights Unit Trust No 2, is an appropriate domestic arrangement to make within Sunlea Enterprises as trustee for the Drummond Cove Unit Trust.
93 I am also satisfied that this domestic arrangement is appropriate for the payment into court of $200,000 as security for the defendants' costs in CIV 2705 of 2012. I do not consider it appropriate to require Mr Steinier to reimburse Sunlea Enterprises for that payment
Orders proposed
94 For these reasons I propose to make orders in terms of paragraphs 1, 2, 3(b) and 4 of Sunlea Enterprises' substituted minute of proposed orders and to dismiss Mr Betts' application. I will hear from the parties as to the costs of the applications.
1Sunlea Enterprises Pty Ltd as Trustee for Drummond Cove Unit Trust v Pollock [2014] WASC 91.
2Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189.
3Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 [2] (Finkelstein J).
4Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 [3] (Finkelstein J).
5Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 [16] (Austin J).
6Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 [24] (Palmer J); Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 [15]; Roach v Winnote Pty Ltd [2006] NSWSC 231; (2006) 57 ACSR 138 [16].
7Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 [26]; Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 [6] (Austin J).
8Corporations Act 2001 (Cth) s 236(2).
9HPM Pty Ltd v Fear [2002] WASCA 249; (2002) 171 FLR 12 [24]; Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 [53].
10HPM Pty Ltd v Fear [2002] WASCA 249; (2002) 171 FLR 12 [25].
11Corporations Act 2001 (Cth) s 241(1)(d).
12Corporations Act 2001 (Cth) s 241(3).
13Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705.
14Carpenter v Pioneer Park [2004] NSWSC 1007; (2004) 211 ALR 457.
15Roach v Winnote Pty Ltd [2006] NSWSC 231; (2006)57 ACSR 138 [24] - [28] (Barrett J).
16Roach v Winnote Pty Ltd [2006] NSWSC 231; (2006)57 ACSR 138 [29] (Barrett J).
17Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 [62] (Austin J).
18Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 [13].
19Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 [75] - [76] (Palmer J).
20Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 367.
21Roach v Winnote Pty Ltd [2006] NSWSC 231; (2006)57 ACSR 138 [29].
22Sunlea Enterprises Pty Ltd as Trustee for Drummond Cove Unit Trust v Pollock [2014] WASC 91 [73] - [74].
23Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 [11].
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