The App Shop Pty Ltd v Jalal Brothers Pty Ltd

[2019] NSWSC 490

Supreme Court

New South Wales

Medium Neutral Citation:	The App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490
Hearing dates:	26 March 2019; 15 April 2019
Date of orders:	18 April 2019
Decision date:	01 May 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Leave granted to The App Shop Pty Ltd to bring proceedings on behalf of Pixl Pty Ltd under s 237 of the Corporations Act 2001 (Cth).
Catchwords:	CORPORATIONS – statutory derivative action – application by plaintiff to bring proceedings on behalf of company – where plaintiff provides undertakings as to the company’s costs of conducting the proceedings – where defendant accepts that the proposed claim generally is seriously arguable – whether it is in the company’s best interests that the plaintiff be granted leave – whether the proposed proceedings involve a serious question to be tried – whether leave should be granted to plaintiff to commence proceedings.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 237, 237(2), 237(2)(a), 237(2)(b), 237(2)(c), 237(2)(d)
Cases Cited:	- Blakeney v Blakeney [2016] WASCA 76; (2016) 113 ACSR 398 - Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132 - Huang v Wang [2016] NSWCA 164 - Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 - Mathews Capital Partners Pty Limited v Coal of - Queensland Holdings Limited [2012] NSWSC 462 - MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367 - Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 - Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 - Re Akierman Holdings Pty Ltd [2015] NSWSC 1395 - Re Fishinthenet Investments Pty Ltd and Coastal - Waters Seafood Pty Ltd [2014] NSWSC 260 - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 - Re Legal Practice Management Group Pty Ltd [2018] NSWSC 527 - Re Mycorp Group Pty Ltd [2013] NSWSC 1344 - Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293
Category:	Procedural and other rulings
Parties:	The App Shop Pty Ltd (Plaintiff) Jalal Brothers Pty Ltd (Defendant)
Representation:	Counsel: D Studdy SC/D Smith (Plaintiff) S Keizer (Defendant)   Solicitors: Lionheart Lawyers (Plaintiff) Media Arts Lawyers (Defendant)
File Number(s):	2018/319000 (002)

Judgment

1. By Summons filed on 15 October 2018, The App Shop Pty Ltd (“ASPL”), inter alia, sought a declaration that it was entitled to all revenue received by the Defendant, Jalal Brothers Pty Ltd (“JBPL”) in respect of advertising on social media accounts and sought certain interlocutory relief on an ex parte basis. ASPL claimed that it and JBPL are the two shareholders in another company, Pixl Pty Ltd (“Pixl”), on the terms of a shareholders agreement, and that ASPL’s (or Pixl’s) function is to derive revenue through a program known as the “Ad Breaks” program on Facebook. ASPL contended, broadly, that JBPL or persons associated with it had diverted that revenue to itself or themselves. In dealing with an application for interlocutory relief brought by ASPL on 15 October 2018, McDougall J recognised a fundamental difficulty with ASPL’s claim, namely that ASPL, as a shareholder in Pixl, had no right to enforce Pixl’s contractual entitlements, unless it sought to do so by a derivative action under s 237 of the Corporations Act 2001 (Cth). His Honour nonetheless granted an interlocutory injunction which, by consent orders made on 22 October 2018, was discharged on the basis of certain undertakings given between the parties.

2. By Notice of Motion filed on 29 October 2018, ASPL sought an order that it be granted leave to bring proceedings on behalf of Pixl under s 237 of the Corporations Act. That application was part heard on 26 March 2019; the matter was then adjourned to allow ASPL to address matters that had arisen in the course of that hearing, and, following a further hearing on 15 April 2019, I indicated that I would grant the leave sought on terms and deliver reasons for judgment in due course. These are my reasons for judgment.

The affidavit evidence on which the parties rely

3. In support of that application, ASPL relies on an affidavit dated 18 October 2018 of Mr Anthony George Khalil, who refers to the incorporation of Pixl and JBPL and the entry into a shareholders agreement between Pixl, ASPL and JBPL; describes Pixl’s business and refers to the manner in which Pixl was financed and the operation of Facebook’s Ad Breaks programme from which Pixl derived revenue. ASPL also relies on a second affidavit of Mr Anthony George Khalil dated 22 November 2018 which also refers to the shareholders agreement in respect of Pixl; the revenue from Facebook’s Ad Breaks programme; Pixl’s funding and addresses matters relevant to whether the requirements for leave to bring derivative proceedings are satisfied.

4. ASPL also relies on an affidavit of Mr Kai-Chi Chan dated 23 November 2018 which refers to draft financial accounts of Pixl, which recorded a loan to JBPL, although the existence of that loan is disputed and depends on matters of which it appears that Mr Chan has no personal knowledge.

5. ASPL also relies on an affidavit dated 25 March 2019 of Mr Anthony Khalil (as distinct from Mr Anthony George Khalil) which refers to a recent transaction by which the previous holder of 50% of the shares of App Holder Pty Ltd, which holds the shares in ASPL, sold those shares to a company associated with Mr Anthony Khalil and his wife. Mr Anthony Khalil also referred to a deed of indemnity executed by ASPL, himself and Mr Anthony George Khalil, purportedly indemnifying Pixl for any costs, including adverse costs orders that may be ordered against it, in respect of the proceedings. There were difficulties with the form of that deed of indemnity, which I need not address further, and ASPL now relies on personal undertakings given by Mr Anthony George Khalil and Mr Anthony Khalil in respect of Pixl’s exposure to costs in relation to the proceedings, to which I refer below. Mr Anthony Khalil also referred to a line of credit and to his not anticipating any change of circumstances that would prevent him being able to satisfy the indemnity.

6. ASPL also relied on an affidavit dated 5 April 2019 of Mr Nazih Touma, who is a solicitor acting for ASPL in the proceedings. Mr Touma referred to his professional background; identified the matters which he expected to be in dispute in the proceedings; and noted that he was instructed by Mr Anthony Khalil and Mr Anthony George Khalil that they and ASPL would:

“undertake to the Court, jointly and severally, to pay and bear and indemnify [Pixl] against all costs, charges, liabilities and expenses of and incidental to the bringing and continuation of the derivate claims for which leave is granted.”

7. Mr Touma also noted that, where Pixl was deadlocked and unable to instruct solicitors, it would not itself incur any legal fees in respect of the proceedings; that any relevant books and records of Pixl could be obtained by ASPL’s representatives at its expense; and that it did not appear that Pixl would incur any costs or expenses of the proceedings other than, potentially, adverse costs orders in respect of the proceedings. Mr Touma noted that the indemnity now proposed extended to security for costs that may be ordered against Pixl in the proceedings, and referred to his advice to Mr Anthony Khalil, Mr Anthony George Khalil and ASPL to that effect. Mr Touma also set out his estimate of the costs of the proceedings, and noted that Mr Anthony Khalil had transferred the sum of $250,000 into his firm’s trust account as security for the indemnity which he and Mr Anthony George Khalil and APSL had offered and had instructed him that that sum was to be held on trust pending the outcome of the proceedings. A further undertaking was sought by JBPL and given by Mr Anthony Khalil and Mr Anthony George Khalil in respect of the treatment of those funds.

8. By his further affidavit dated 5 April 2019 Mr Anthony Khalil provided substantial information as to his financial position, including his taxable income in the two previous financial years; and confirmed his undertaking to the Court to pay and bear and indemnify Pixl against all costs, charges, liabilities and expenses of and incidental to the bringing and continuation of the derivative claim for which leave was granted, including any order for security for costs; and confirmed the transfer of the amount of $250,000 to his solicitor’s trust account and the instruction to his solicitors to hold those monies pending the outcome of the proceedings for the purposes of satisfying the indemnity. Mr Anthony Khalil also referred to matters concerning the Khalil Family Trust; another company; and his and his wife’s interest in two properties which was referred to as a “beneficial” ownership and may not allow direct enforcement against those properties. That affidavit was, however, sufficient to displace any suggestion that Mr Anthony Khalil is impecunious.

9. JBPL in turn relies on the affidavit dated 13 December 2018 of Mr Mariwan Jalal, who sets out his account of Pixl’s business and of JBPL’s business and indicates the nature of JBPL’s defence to the proceedings, including that Pixl’s business is separate from that of JBPL and that, in any event, the intellectual property to which Pixl lays claim is not owned by JBPL and was not within the scope of any obligation or ability of JBPL to assign it to Pixl. Mr Jalal confirms that he would not support the commencement of the proceedings by Pixl against JBPL and indicates his concern as to costs that Pixl would incur in funding the proceedings. It now appears to be common ground that Pixl itself would incur no such costs, albeit it would potentially be exposed to an adverse costs order if it was unsuccessful in the proceedings.

10. JBPL relies on a further affidavit dated 25 March 2019 of Mr Jalal which refers to the deed of indemnity on which ASPL had previously sought to rely and noted that he had not been consulted as to the suggestion that Pixl should be party to that deed together with ASPL and the Messrs Khalil. It is not necessary to address that evidence further, where ASPL no longer relies on that deed of indemnity.

11. JBPL also relies on an affidavit dated 11 April 2019 of its solicitor, Mr David Vodicka who generally agrees with the characterisation of the issues in dispute in the proceedings as set out in Mr Touma’s affidavit and agrees that it does not appear that Pixl itself would incur any costs or expenses in the proceedings, other than costs orders. Mr Vodicka reaches a significantly higher estimate of the costs of these proceedings than Mr Touma, on the basis of a longer estimate as to the length of the proceedings.

Requirements for the grant of leave

12. Mr Studdy, who appeared with Mr Smith for ASPL, put submissions as to the factual background and scope of the claim proposed to be brought by ASPL, on behalf of Pixl, against JBPL. Mr Keizer, who appeared for JBPL, also refers to the factual background to the proceedings and to issues as to construction of the shareholders agreement, including as to the scope of Pixl’s “Business” and “Contract Materials” as defined in that agreement. Both counsel refer to the principles applicable to the grant of leave of under s 237 of the Corporations Act, which are largely common ground between them. I have drawn below on Counsels’ submissions and my summary of those principles in Re Legal Practice Management Group Pty Ltd [2018] NSWSC 527 at [50]–[54].

13. In an application for leave to bring such proceedings, ASPL needs to satisfy the criteria for the grant of leave specified in s 237(2) of the Corporations Act. In order to grant leave under that section, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. Those matters are that it is probable that Pixl will not itself bring the proceedings; ASPL is acting in good faith; it is in the best interests of Pixl that ASPL be granted leave; there is a serious question to be tried; and at least 14 days before making the application, ASPL gave written notice to Pixl of its intention to apply for leave and of the reasons for applying, or the Court should dispense with that requirement. ASPL bears the onus of establishing that each of these matters is satisfied on the balance of probabilities: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [26]; Huang v Wang [2016] NSWCA 164. If all the requirements of s 237(2) are satisfied, the Court must grant leave to bring the proposed proceedings. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12]–[13]; Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 at [55]–[65].

Whether Pixl would bring the proceedings

14. It is common ground that the first of the requirements for a grant of leave to bring a derivative action under s 237(2)(a) of the Corporations Act, that it is likely that Pixl would not itself bring the proceedings, is satisfied. That is plainly the case where Mr Jalal’s evidence is that he would not support the commencement of the proceedings and the board would therefore be deadlocked.

Whether the Plaintiff is acting in good faith

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

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

16. It is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding, as ASPL has, and the derivative action seeks recovery of property so that the value of the applicant’s shares would be increased: Swansson v R A Pratt Properties Pty Ltd above at [38]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58]; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Pty Limited [2012] NSWSC 462. JBPL does not contest that ASPL is acting in good faith, where it has a shareholding in Pixl which would benefit from a successful claim, and I am satisfied of that matter.

Whether the proceedings are in Pixl’s best interests

17. The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Corporations Act, is that the grant of such leave is in Pixl’s best interests. This was the primary issue in contest between the parties, although that contest narrowed when the hearing resumed on 15 April 2019. The relevant principles were summarised in Swansson v R A Pratt Properties Pty Ltd above at [55]–[56], where Palmer J noted that that provision required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the relevant company’s best interests. In order to prove that leave is in the best interests of the company, an applicant should generally give evidence of the character of the company, in the sense of the nature of the company’s operations; the business of the company so that the effects of the proposed litigation on the conduct of its business may be appreciated; whether there are other means of obtaining the same redress so that the company does not have to be brought into litigation against its will; and the proposed defendant’s ability to meet at least a substantial part of any judgment in favour of the company so that the Court may ascertain whether the action would be of practical benefit to the company: Swansson v R A Pratt Properties Pty Ltd above at [57]–[60]. In Re Gladstone Pacific Nickel Ltd above, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the company if the action is unsuccessful.

18. The question of an adequate indemnity to be given by ASPL and those standing behind it in favour of Pixl in respect of, relevantly, the costs to which it would be exposed if the proceedings were unsuccessful, and in respect of any amount which they may be ordered to pay by way of security for costs, is also relevant to whether the proceedings are in Pixl’s best interests. Such an indemnity is a means of addressing the risk of prejudice to Pixl from the commencement of the proceedings, should they ultimately prove to be unsuccessful, and the risk of exposure to costs and expenses of litigation including costs orders. In Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 at [108], Austin J observed that:

“One of the issues for the Court to consider is whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order. That problem is often addressed by the court making a conditional order, by which the granting of leave is conditional upon the applicant undertaking to the court to pay and bear and indemnify the company against all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims for which leave is granted: see, for example, Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91. In my opinion, such a condition is appropriate here, because the bringing of derivative claims is an aspect of the overall dispute between the plaintiff and Mr Ekstein, and therefore the plaintiff, rather than Companies in which she has only a minority interest, should be required to bear the costs of the litigation, including any adverse costs order that might be made if the claims are unsuccessful.”

19. The importance of such an indemnity was also recognised in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293; Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [31]; and Re Legal Practice Management Group Pty Ltd above.

20. Mr Studdy submits that Pixl is currently not engaged in any business, other than in respect of this dispute, and the proceedings would not disrupt but would facilitate the resumption of its business; that Pixl is the proper plaintiff in respect of the proceedings, although I note that an oppression action would arguably also have been available to ASPL as a shareholder in Pixl; that the prospect that JBPL would be able to meet a substantial money judgment is supported by the undertakings previously given to the Court; and Mr Studdy also points to a comparison between the significant monetary claims and the likely costs incurred, and refers to the Messrs Khalil’s willingness to indemnify the company, now reflected by the personal undertakings to which I have referred above. It seems to me that these matters tend to support a conclusion that the commencement of the proceedings is in Pixl’s best interests.

19. Mr Keizer emphasised the significance of an indemnity in determining whether the proceedings are in Pixl’s best interests, initially advancing submissions in respect of the deficiencies of the deed of indemnity that was initially offered by ASPL. Those submissions have been displaced by the offer of personal undertakings by the Messrs Khalil and ASPL and I need not address them further. Mr Keizer also points out that ASPL’s draft financial statements (I interpolate, for what little such draft statements would be worth) indicated significant losses in 2017 and 2018 and substantial net liabilities and that its bank statements show that it rarely has significant funds on hand. That matter is of lesser weight where the Messrs Khalil each now offer personal undertakings in respect of the costs to which Pixl would be exposed in the conduct of the proceedings.

20. By supplementary written submissions prior to the hearing on 15 April 2019, ASPL relied on an indemnity offered by APSL, Mr Anthony George Khalil and Mr Anthony Khalil to the Court, and noted that an indemnity in similar terms had been accepted by the Court in Re Mycorp Group Pty Ltd [2013] NSWSC 1344 at [13] and a marginally narrower indemnity had been accepted by the Court in Cassegrain v Gerard Cassegrain & Co Pty Ltd above and several subsequent decisions. ASPL relied on the amount securing that indemnity paid into its solicitor’s trust account and the instructions given by Mr Anthony Khalil that that amount was to be held on trust pending the outcome of the proceedings for the purpose of satisfying the indemnity. Those instructions have now been supported by a further undertaking offered to the Court. ASPL also relied on Mr Anthony Khalil’s affidavit setting out his financial position, to which I have referred above.

21. By supplementary written submissions prior to the hearing on 15 April, Mr Keizer noted that a number of the assets identified in Mr Khalil’s evidence were owned through companies and trusts, rather than by him personally, and some of the real properties were held in discretionary trusts of which Mr Khalil was not the only beneficiary. Mr Keizer submitted that evidence of the value of two assets owned by Mr Khalil personally was unsatisfactory, where further amounts could be drawn down on a loan facility secured by the relevant properties, and where Mr Khalil holds both properties as joint tenant with his wife. It does not seem to me that those matters have the result that Mr Khalil is impecunious, so as to raise any question as to the adequacy of a personal undertaking given by him, particularly where that indemnity is supported by the deposit of funds to which I refer below.

22. Mr Keizer accepts the relevance of the amount of $250,000 deposited by Mr Khalil to ASPL’s solicitor’s trust account, and submits that any grant of leave should be made conditional on Mr Khalil giving undertakings to the effect that he would not, for example, withdraw the instructions as to how those monies should be treated in the future, or give instructions to his solicitor to use those monies for other purposes. An undertaking to that effect was given by Mr Khalil to the Court.

23. Mr Keizer also noted an issue as to whether the amount of $250,000 deposited into that trust account was sufficient to fund the cost of the proceedings, having regard to Mr Vodicka’s evidence. I do not consider it necessary to address Mr Vodicka’s evidence as to the quantum of the likely costs of the proceedings in detail, in the manner which the Court might do in dealing with a security for costs application, in order to determine whether the proceedings are in Pixl’s best interests. There would be significant difficulties with such an approach including, most obviously, that the question of the likely length of the proceedings would be impossible to determine reliably at this early stage, and would ordinarily be addressed in a security for costs application by ordering that security be provided on a staged basis, so that the amount of security required could be reviewed as events developed in the proceedings. It seems to me that amount is sufficient for that purpose where, on either the smaller costs estimate given by Mr Touma or the larger costs estimate given by Mr Vodicka, that amount would be sufficient to fund Pixl’s likely exposure to security for costs, or to costs, calculated on an ordinary basis. Mr Vodicka estimates that an amount exceeding the amount of $250,000 paid into that account would be recovered if costs were assessed on an indemnity basis. However, Mr Studdy points out, and I accept, that no basis has been shown why it is likely that an indemnity costs order would be made.

24. The relevance of a potential liability for security for costs, in determining whether a company should be granted leave to bring derivative proceedings, was also recognised by the Court of Appeal of the Supreme Court of Western Australia in Blakeney v Blakeney [2016] WASCA 76; (2016) 113 ACSR 398 at [73]–[74]. However, the evidence in this case, and particularly the deposit of funds into ASPL’s solicitor’s trust account, suggests that this is not a situation where, if an application for security for costs was successfully made, then no security would be provided, or Pixl would then be exposed to liability for JBPL’s costs incurred up to that point in consequence.

25. Mr Keizer also submitted that leave under s 237 of the Act should be subject to JBPL having leave to apply to the Court to seek an increase in the amount held on trust in support of Mr Khalil’s indemnity, or seek a stay of the proceedings or that leave be revoked, should the amount held in trust in support of that indemnity become inadequate. While there was reference to such a possibility in the course of submissions in Re Legal Practice Management Group Pty Ltd above, it seems to me that the grant of leave should be determined on a once and for all basis. It remains open to JBPL to seek security for costs, and to do so on a staged basis, and seek a stay of the proceedings of further security is not provided when ordered.

Whether there is a serious question to be tried

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

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

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

29. JBPL initially did not contest that there is a serious question to be tried, although that question depends on contested factual issues, most significantly as to the scope of Pixl’s business and whether JBPL had rights to the relevant intellectual property. It seems to me that concession was fairly made, and I note also that McDougall J had granted interlocutory relief on Pixl’s application at the commencement of the proceedings, albeit on an ex parte and interim basis. That initial position was somewhat qualified in Mr Keizer’s supplementary written submissions prior to the further hearing on 15 April 2019, where he noted that JBPL accepted that there was a serious question to be tried among the allegations now sought to be put forward in the Statement of Claim, but went on to advance several criticisms of aspects of ASPL’s pleaded claim. In response, Mr Studdy fairly accepted that the Court must be satisfied that there is a serious question to be tried on the balance of probabilities and JBPL’s concession as to that matter is not necessarily determinative of that question: Re Akierman Holdings Pty Ltd [2015] NSWSC 1395 at [13]. I also recognise that, as Mr Studdy also accepts, the strength of Pixl’s prima facie case may be relevant to the question whether the commencement of the proceedings is in Pixl’s best interests. However, Mr Studdy also points out, and I accept, that the question whether there is a serious question to be tried is to be determined at a “relatively low threshold”: Swansson v R A Pratt Properties Pty Ltd above at [25]. Mr Studdy also submits, and I also accept, that it is not appropriate for the Court to attempt to resolve disputed questions of fact in determining an application for leave under s 237 of the Act: Re Gladstone Pacific Nickel Ltd above at [56].

30. In the course of oral submissions on 15 April 2019 (T8–9), Mr Keizer fairly accepted that the reference, in s 237 of the Act, to whether there was a serious question to be tried in the proceedings caused difficulty for an attempt to apply that test to particular aspects of the claim, where JBPL conceded that the proceedings as a whole raised a serious question to be tried. Mr Keizer ultimately accepted that he should not press the criticisms of particular parts of the claim, where he could not withdraw the concession that the proceedings generally were seriously arguable, and at least Pixl’s fundamental claims that it has copyright in the relevant videos and that it is entitled to any income or revenue earned in respect of them were seriously arguable (T9).

31. I recognise, as Mr Keizer pointed out, that I addressed the question whether several different claims raised a serious question to be tried separately in Re Fishinthenet Investments Pty Ltd above, and held that only one of the proposed claims was seriously arguable and could potentially be in the company’s interests. That decision is, however, not authority that the Court would decline leave for part of a claim, where it is accepted or established that the whole of the claim is seriously arguable. To put that proposition another way, there may be cases where the deficiencies in the parts of the claim are such that the whole is not seriously arguable, but the concession made by JBPL and my finding that concession was properly made has the result that this is not such a case. Where JBPL here conceded, and continues to concede, that the proceedings in fact raise a serious question to be tried, irrespective of its criticisms of the several paragraphs, and I am satisfied that concession was well-founded, it seems to me that the requirement for a grant of leave that there exists a serious question to be tried is satisfied. It is therefore preferable that I do not address JBPL’s criticisms of particular paragraphs of the pleading, which may or may not ultimately be the subject of an application for summary dismissal or a strike out application. I am satisfied that the fourth requirement, under s 237(2)(d) of the Corporations Act, that there is a serious question to be tried in the proceedings is satisfied.

Notice requirement

32. JBPL does not contest that the requirement for 14 days’ written notice of ASPL’s intention to apply for leave would be dispensed with, in the relevant circumstances.

Determination

33. I am satisfied, for the purposes of s 237 of the Corporations Act, that it is probable that Pixl will not itself bring the proceedings, which was common ground between the parties; that ASPL is acting in good faith in seeking to bring the proceedings, where it would potentially benefit financially from a recovery in the proceedings, as a substantial shareholder in Pixl; that it is in the best interests of Pixl that it be granted leave to bring the proceedings, where they would generate a substantial recovery if successful, it will not be exposed to the cost of conducting the proceedings, and the undertakings given by the Messrs Khalil should protect it against exposure for adverse costs orders in the proceedings and address any security for costs ordered in the proceedings; there is a serious question to be tried in the proceedings; and it is appropriate to grant leave although ASPL did not give 14 days’ written notice of its intention to apply for leave. Where each of those matters is satisfied, the Court must grant leave to bring the relevant proceedings.

34. I indicated that view at the conclusion of the hearing on 15 April 2019. The parties then agreed short minutes of order to give effect to my judgment, which I made in chambers on 18 April 2019. Those orders provided, inter alia, that, upon specified undertakings, ASPL has leave to bring a proceeding on behalf of Pixl in the form of the proposed Statement of Claim annexed to the affidavit of Mr Touma dated 5 April 2019.

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Decision last updated: 02 May 2019