Vigliaroni v Concrete Precast Systems Pty Ltd
[2009] VSC 253
•25 June 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST A
No. 7126 of 2009
IN THE MATTER:
CONCRETE PRECAST SYSTEMS PTY LTD (ACN 082 330 710)
| IVAN VIGLIARONI | Plaintiff |
| V | |
| CONCRETE PRECAST SYSTEMS PTY LTD (ACN 082 330 710) | First Defendant |
| NICHOLAS JOSEPH GARGARO | Second Defendant |
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JUDGE: | DAVIES J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 June 2009 | |
DATE OF JUDGMENT: | 25 June 2009 | |
CASE MAY BE CITED AS: | Vigliaroni v Concrete Precast Systems Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 253 | |
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PRACTICE AND PROCEDURE – Application for leave to bring proceedings on behalf of a company – Whether acting in good faith – Whether proposed proceeding is in the best interests of the company – Whether serious issue to be tried – ss 236 and 237 Corporations Act 2001.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Monichino with Ms Priskich | Goldman Legal |
| For the Defendants | Mr R Randall with Mr A Segal | Harrick Lawyers |
HER HONOUR:
Introduction
The applicant (“Vigliaroni”) seeks leave to bring proceedings on behalf of Concrete Precast Systems Pty Ltd (“CPS”) under ss.236 and 237 of the Corporations Act 2001 (Cth) (“the Act”). Vigliaroni is a director of CPS. The proposed action is against the second defendant (“Gargaro”), who is the other director of CPS, and CPS Construction Group Pty Ltd (“CPSCG”), a company owned and controlled by Gargaro, to seek injunctive and other equitable relief and damages for contraventions of various sections of the Act arising out of the entry by CPS into a service agreement with CPSCG. The basis of the claim against Gargaro is that he breached his fiduciary duties to CPS and statutory duties by causing CPS to enter into the service agreement and to pay excessive service fees to CPSCG. The basis of the claim against CPSCG is that it knowingly participated in Gargaro’s breaches of fiduciary duty and was knowingly concerned in Gargaro’s statutory contraventions.
I am of the opinion that leave should be granted.
Criteria for the Grant of Leave
A person referred to in s.236(1)(a) of the Act may apply to the Court for leave to bring proceedings. On such an application, the Court must grant leave if the criteria set out in s.237(2) of the Act are satisfied.
Section 236(1) provides:
(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a) the person is:
(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii) an officer or former officer of the company; and
(b) the person is acting with leave granted under section 237.
Section 237(1) provides that:
(1)A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
Section 237(2), which contains the criteria for the grant of leave, provides as follows:
(2) The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b) the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and
(e) either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.
If all of the five criteria have been satisfied, the Court is bound to grant the application.[1] In that circumstance, it will have been shown that some real benefit would be gained by the company by the proceeding. The purpose of the criteria for granting leave is explained at [6.32] and [6.33] of the Corporate Law Economic Reform Program Bill 1998 as follows:
These criteria are aimed at preventing potentially vexatious or unmeritorious actions that would be detrimental to the company on whose behalf the action was taken. …
The criteria seek to strike a balance between the need to provide a real avenue for applicants to seek redress on behalf of a company where it fails to do so and the need to prevent actions proceeding which have little likelihood of success.
Thus it is not enough simply to show that the action, if brought, would have some merit.
[1]Carpenter v Pioneer Park Pty Ltd (In Liquidation) (2004) 211 ALR 457, 466 [31] (Barrett J); Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 (Unreported, Austin J, 9 May 2005) [16]; Goozee & Anor v Graphic World Group Holdings Pty Ltd & Ors (2002) 42 ACSR 534, 540 [27] (Barrett J); Magafas v Carantinos [2006] NSWSC 1459 (Unreported, Brereton J, 27 November 2006) [8].
An applicant for leave bears the onus of satisfying the Court on the balance of probabilities that each of the criteria has been satisfied.[2]
[2]Swansson v RA Pratt Properties Pty Ltd & Anor (2002) 42 ACSR 313, 318 [24] (Palmer J); Cassegrain v Gerard Cassegrain & Co Pty Ltd & Anor (2008) 68 ACSR 132, 143 [69] (Sackville AJ); Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 (Unreported, Austin J, 9 May 2009) [15].
Background to the Proposed Proceedings
Gargaro and Vigliaroni are the only two directors of CPS and each have an indirect interest in its shares and in the units of the CPS Unit Trust of which it is trustee. The shareholders of CPS are TGF Investments Pty Ltd (“TGF”) as trustee for the TGF Trust (associated with Gargaro) and Cresthill Investments Pty Ltd (“Cresthill”) as trustee for the Ivan Vigliaroni Family Trust. The unit holders of the CPS Unit Trust are TGF, Cresthill and GDS Corporation Pty Ltd.
Vigliaroni’s evidence, which was not contradicted, was that he and Gargaro orally agreed in about January 2008, during the course of several meetings, to separate the administration of companies in the CPS group[3] of which CPS is a member (on the one hand) from companies in the V&G group[4] (on the other). At the time VVG Construction Services Pty Ltd (“VVG”) a trustee for the VVG Construction Services Unit Trust (“VVGCS Trust”) provided administrative and management services to the CPS group. Gargaro and Vigliaroni are directors and equal shareholders of VVG and own an equal percentage of the units of the VVGCS Trust through their respective family trusts. Since about 1 March 2008, CPSCG has provided those management and administrative services. Vigliaroni is not a director of, and does not have any beneficial interest in, CPSCG or the trust of which CPSCG is trustee (“CPSCG Trust”). CPSCG charges fees to the CPS companies, including CPS, for the services it provides.
[3]The CPS group is a group of related companies comprising CPS, CPS Investment Holdings Pty Ltd, Concrete Precast Systems (SA) Pty Ltd, Concrete Precast Systems (WA) Pty Ltd, Concrete Precast Systems (QLD) Pty Ltd and Innovative Construction Products Pty Ltd.
[4]The V & G group is a group of related companies comprising V&G Investments Pty Ltd, V&G Plant Hire (SA) Pty Ltd, VVG Construction Services Pty Ltd, V&G Concrete Constructions (SA) Pty Ltd, V&G Concrete Constructions Pty Ltd, V&G Plant & Equipment Pty Ltd and V&G (Vic)
Vigliaroni’s evidence was that Gargaro did not disclose to him that he would not be a director of, or have any beneficial interest in, CPSCG or the CPSCG Trust and that Gargaro failed to disclose to him the nature and extent of Gargaro’s beneficial interest in CPSCG and the CPSCG Trust. Vigliaroni said in evidence that he first became aware that he was not a director or shareholder of CPSCG in or about September 2008 when he was informed by his solicitors. He said further that he first learned in February 2009 that CPSCG was the trustee of the CPSCG Trust and that he had no interest in that trust as a unit holder.
Vigliaroni deposed to a belief that the fees charged by CPSCG to CPS for the administrative and management services are excessive. His belief was based on an affidavit of Allan Nahum dated 1 April 2009 filed in Supreme Court proceeding No.5348 of 2009 at paragraph 15(c). There is no paragraph 15(c) in that affidavit but I presume from the context that Vigliaroni intended to refer to paragraph 16(c). Nahum is a chartered accountant who deposed to having reviewed spreadsheets setting out data obtained from MYOB accounts files for companies in the CPS group, including CPS. At paragraph 16(c) Nahum deposed that:
The monthly management fees in respect of [CPS] had remained stable at between $64,000 (approximately) and $69,000 (approximately) over the 2005/06, 2006/07 and the first 8 months of the 2007/08 financial years. By contrast, in the 2008/09 financial year CPSCG is charging $89,435 per month.
Vigliaroni also deposed that he has never seen a copy of the service agreement. Gargaro, in an affidavit in another proceeding deposed that “a written agreement between CPSCG and the CPS Companies for the management and administration of the CPS companies does not exist”.[5] There has been no substantive response to a request for information from Vigliaroni’s solicitors to Gargaro’s solicitors as to the terms of the service agreement.
[5]9 June 2009, Supreme Court proceeding 5348 of 2009, paragraph 48.
In further support of his application, Vigliaroni has referred to four other proceedings pending in the Supreme Court that involve disputes between himself and Gargaro connected with the subject matter of the proposed proceeding, being –
(a)Supreme Court proceeding No.10454 of 2008: Gargaro has instituted proceedings regarding an alleged agreement between Gargaro and Vigliaroni for the sale by Gargaro/TGF of their interests in the V&G group of companies and the sale by Vigliaroni/Cresthill of their interest in the CPS group of companies (which includes CPS) (“the separation agreement proceeding”). Vigliaroni denies that an agreement was reached for the sale of their respective interests to each other;
(b)Supreme Court proceeding No.5349 of 2009: Brayrock Pty Ltd (“Brayrock”), a company controlled by Vigliaroni’s brother Dominic, has instituted proceedings against Vigliaroni, TGF and Gargaro (amongst others) seeking a declaration that TGF holds one third of its shareholding in companies in the CPS group and one third of its unitholding in the trusts of which those companies are trustee on trust for Brayrock (“Brayrock proceeding”);
(c)Supreme Court proceeding No.5073 of 2009: V&G Concrete Constructions (Vic) Pty Ltd (“V&G (Vic)”), a company associated with Vigliaroni, has instituted proceedings against Gargaro alleging that he misappropriated $550,000.00 from V&G (Vic)’s bank account for his own personal benefit, alternatively for the benefit of, amongst others, CPS Property Holdings Ltd and/or the CPS Property Holdings Unit Trust, which are controlled and owned indirectly by Gargaro, in breach of his fiduciary duty as a financial controller of V&G (Vic) (the “misappropriation proceeding”); and
(d)Supreme Court proceeding No.5348 of 2009: Vigliaroni (and other companies in which he has an interest) have instituted proceedings based on claims of oppression and irreconcilable differences between Gargaro and Vigliaroni regarding the CPS companies and seeking the winding up of the CPS companies and the removal of those companies as trustees of the trusts they administer, alternatively the appointment of new trustees and the vesting of the trust assets in the new trustees, the appointment of a receiver to the CPS companies and/or the purchase by one shareholder/unit holder of the shares/units of the other shareholder/unit holder (the “oppression proceeding”).
Proposed Cause of Action
The draft statement of claim pleads that Gargaro, at all relevant times, acted as financial controller and is, and was, a director of CPS which is a member of the CPS group in which Vigliaroni and Gargaro each hold a substantial indirect beneficial interest. The facts in the section headed “Background” include as follows:
Gargaro was financial controller of the CPS group
9.As part of his employment duties with VVG, Gargaro was the Financial Controller of the CPS group of companies, including CPS.
10.At all relevant times prior to February 2008 Gargaro, in his capacity as Financial Controller:
(a)had access to CPS’s computer accounting records, particularly MYOB and directed the entry of accounting information into those records;
(b)had access to CPS’s online electronic funds transfer facility with the National Australia Bank (“NAB”); and
(c)was the only person within VVG or CPS with access to the password which authorised transactions on CPS’s EFT facility.
11.At all relevant times prior to February 2008 Gargaro was a person who:
(a)made, or participated in making, decisions that affected the whole or substantial part of the business of CPS; alternatively
(b)had the capacity to affect significantly CPS’s financial standing.
12.At all relevant times prior to February 2008, Gargaro had access to CPS’s bank account with NAB … for the sole purposes of drawing cheques and making electronic funds transfers in and out of those accounts:
(a)in the ordinary course of the business of CPS; and
(b)which were properly authorised by [Vigliaroni] as co-director of CPS.
CPSCG and CPSCG Trust
13.On or about 1 February 2008 Gargaro caused CPSCG to be incorporated.
…
15.On or about 1 February 2008, Gargaro caused the [CPSCG Trust] of which CPSCG is the trustee, to be established.
…
17.At all relevant times, neither CPS, [Vigliaroni] nor Cresthill had any beneficial interest in the CPSCG Trust.
The draft statement of claim pleads at paragraph 24 that by reason of those matters, Gargaro occupied a fiduciary position of trust and confidence in relation to the affairs and property of CPS. It is further pleaded as follows:
24.By reason of the matters referred to in paragraphs 2, 4, 9-12 above, at all relevant times Gargaro occupied a fiduciary position of trust and confidence in respect of the affairs and property of CPS.
25.Consequently, Gargaro in his capacity as CPS’s Financial Controller, at all relevant times owed to CPS a fiduciary duty:
(a)to act honestly, in good faith, with fidelity, and in the best interests of CPS and for a proper purpose in carrying out his responsibilities in relation to CPS;
(b)not to improperly use his position as Financial Controller to gain an advantage for himself or someone else or cause detriment to CPS;
(c)not to make undisclosed use of CPS’s property for his own benefit or for the benefit of someone else;
(d)not to put himself in a position of conflict of interest with CPS;
(e)to act bona fide for the benefit of CPS in relation to the control and disbursement of its funds;
(f)at all times to exercise his authority and discharge his duties with the requisite degree of care and diligence that a reasonable person would exercise if he or she:
(i)was the Financial Controller of CPS in CPS’s circumstances; and
(ii)occupied the role held by, and had the same responsibilities within CPS as Gargaro.
Particulars
The duties arise by operation of law.
26.Further, Gargaro, in his capacity as director of CPS, at all relevant times owed to CPS a fiduciary duty:
(a) not to improperly use his position as director to gain an advantage for himself or someone else or cause detriment to CPS;
(b)not to put himself in a position of conflict of interest with CPS.
27.Further and alternatively, by reason of the matters alleged in paragraphs 2, 4, 9 and 11 above, Gargaro was, at all relevant times, an officer of CPS for the purposes of sections 180(1), 181(1) and 182(1) of the Corporations [sic] Act 2001.
28.Consequently, at all relevant times, Gargaro was, as a direction and as an officer of CPS:
(a)required by section 180(1) of the Corporations Act 2001 to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in CPS’s circumstances and occupied the office held by and had the same responsiblities within CPS as him;
(b)required by section 181(1) of the Corporations Act 2001 to exercise his powers and discharge his duties in the interests of CPS and for a proper purpose;
(c)prohibited by section 182(1) of the Corporations Act 2001 from improperly using his position to gain an advantage for himself or someone else or to cause detriment to CPS.
28.Further, at all relevant times, Gargaro was, as a direction of CPS, required by sub-sections 191(1) & (2) of the Corporations Act 2001 to give notice to Ivan, as co-director of CPS, of:
(a)the extent of his shareholding in CPSCG; and
(b)the nature and extent of his interest in the CPSCG Trust.
The draft statement of claim then pleads the service agreement, the particulars to which are:
The CPSCG agreement was oral and made by Gargaro acting in his capacity as a director of each of CPS and CPSCG, alternatively it is to be implied from the fact that following 1 March 2008 CPS has paid to CPSCG substantial monies on account of the provision of management and administrative services.
In paragraph 33 it is pleaded that since about 1 March 2008 Gargaro has caused CPS to pay CPSCG management and administrative fees from CPS’s bank account with the NAB that are substantially higher than the fees previously paid by CPS to VVG for the same or similar services.
Vigliaroni is alleged to have breached his fiduciary duties by causing CPS to enter into the CPSCG agreement by:
(a)improperly using his position as director of CPS to gain an advantage for himself and/or TGF through his interest in the CPSCG Trust; and/or
(b) placing himself in a position of conflict of interest with CPS.
It is further alleged that he breached his fiduciary duties by causing CPS to pay excessive service fees in that he:
(a)failed to act honestly, in good faith with fidelity in the best interests of CPS;
(b)improperly used his position to gain an advantage for himself and/or caused detriment to CPS;
(c)made undisclosed use of CPS’s property for his own benefit and the benefit of unit holders in the CPSCG Trust;
(d)failed to act bona fide for the benefit of CPS in relation to the control and disbursements of its funds;
(e) failed to employ the funds of CPS solely for the purposes of its affairs;
(f)failed to exercise his powers and discharge his duties with the degree of diligence and care that a reasonable person would exercise if he or she was a director and/or the financial controller of CPS with the same responsibilities as Gargaro within CPS;
(g)improperly used his position as director of CPS to gain an advantage for himself and/or TGF;
(h)improperly used his position as director of CPS to cause detriment to CPS by causing it to pay substantially higher fees than were previously paid to VVG for the same or similar services; and
(i)placed himself in a position of conflict of interest with CPS.
It is pleaded that CPSCG knowingly participated in Gargaro’s breach of fiduciary duty by entering into the service agreement and receiving payments from CPS. The particulars given are as follows:
Gargaro’s knowledge is to be imputed to CPSCG as CPSCG has benefited from Gargaro’s breaches of fiduciary duty and Gargaro was at all relevant times acting within the scope of his actual or apparent authority as a director of CPSCG.
There are claimed breaches of ss.180(1), 181(1) and 182(1), and alternatively s.191(1) of the Act and accessorial liability of CPSCG in those contraventions.
The relief that is intended to be sought on behalf of CPS includes:
Damages under s.1324(10) of the Act;
Equitable compensation, alternatively a compensation order under s.1317H of the Act;
An account of profits by CPSCG by reason of Gargaro’s breach of fiduciary duty;
Injunctions restraining Gargaro from causing CPSCG to provide management and administrative services to CPS.
Issues Not in Dispute and Issues in Dispute
There was no dispute that Vigliaroni has standing under s.236 to bring the proceedings on behalf of CPS if leave is granted under s.237.
It was also not in dispute that the criterion in s.237(2)(a) is met. That is, that it is probable that the company will not itself bring the proceedings, or properly take responsibility for them.
The issues that were in dispute on this application are as follows:
(1)Gargaro contended that Vigliaroni is not acting in good faith in seeking to bring the proposed proceedings. The basis of the contention is that the proposed proceeding is inextricably linked to the existing proceedings before the Court in which the issues, the subject of these proceedings, are already being ventilated. The determination of those issues is dependent on the outcome of the separation agreement proceeding in that, if Gargaro is successful in that proceeding, the other proceedings will fall away. It was also submitted that one form of relief sought in the oppression proceeding is the buy-out of shares/units by one shareholder/unitholder from the other. It was put in written submissions that “[w]hile the oppression proceedings are on foot and until the determination of the separation agreement proceeding, the Court should be reluctant to grant leave to Mr Vigliaroni to commence further proceedings, which might be seen to be for a collateral purpose”.[6]
(2)Gargaro submitted that the proposed proceedings are not in the best interests of CPS. In particular it was submitted that it is to be brought by only one company in the CPS group, namely CPS, in the circumstance where CPSCG provided services to other companies in the CPS group as well. It was submitted that it was undesirable for CPS to be put forward as a “test case” for the other companies. It was also submitted that in the oppression proceeding Vigliaroni is seeking an order to wind up CPS, which he is now proposing to act on behalf of in the proposed proceeding. Should he be successful in the oppression proceeding, a liquidator would be able to commence the proposed proceeding on behalf of CPS.
(3)Gargaro submitted that there is not a serious question to be tried in that the evidence relied on by Vigliaroni did not support the foundation for the claims in the proposed proceeding and, in particular, the claim that the management fees charged are excessive.
[6]Paragraph 9(b) of the second defendant’s submission.
Good Faith
I do not accept Gargaro’s submission that the Court should infer that Vigliaroni is not acting in good faith in seeking to bring the proposed proceeding.
In Swansson v RA Pratt Properties Pty Ltd, Palmer J identified 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:
36… 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.
37These two factors will, in most but not all, cases entirely overlap: if the court is not satisfied that the applicant actually holds the requisite belief, that fact alone would be sufficient to lead to the conclusion that the application must be made for a collateral purpose, so as to be an abuse of process. The applicant may, however, believe that the company has a good cause of action with a reasonable prospect of success but nevertheless may be intent on bringing the derivative action, not to prosecute it to a conclusion, but to use it as a means for obtaining some advantage for which the action is not designed or for some collateral advantage beyond what the law offers. If that is shown, the application and the derivative suit itself would be an abuse of the court's process: Williams v Spautz (1992) 174 CLR 509 at 526; 107 ALR 635 at 648. The applicant would fail the requirement of s 237(2)(b).
38Where the application is made by a current shareholder of a company who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the court's satisfaction. So also where the applicant is a current director or officer: it will generally be easy to show that such an applicant has a legitimate interest in the welfare and good management of the company itself, warranting action to recover property or to ensure that the majority of the shareholders or of the board do not act unlawfully to the detriment of the company as a whole.
39However, where the applicant is a former shareholder or officer with nothing obvious to gain directly by the success of the derivative action, the court will scrutinise with particular care the purpose for which the derivative action is said to be brought.
…
42If a wrong appears to have been done to a company and those in control refuse to take proceedings to redress it, the court should permit a derivative action to be instituted only by those within the categories allowed by s 236(1) who would suffer a real and substantive injury if the action were not permitted. The injury must be necessarily dependent upon or connected with the applicant's status as a current or former shareholder or director and the remedy afforded by the derivative action must be reasonably capable of redressing the injury.[7]
[7]Cited with approval in Chahwan v Euphoric Pty Ltd (2008) 245 ALR 680; Cassegrain v Gerard Cassegrain & Co Pty Ltd & Anor (2008) 68 ACSR 132.
I am not prepared to infer from the evidence before me that Vigliaroni has a collateral purpose in seeking to bring the proposed proceedings. The fact that Vigliaroni is pursuing other actions, including the oppression proceedings in which one remedy sought is a buy-out of Gargaro’s interest in the CPS group, including CPS, does not, on its face, suggest that Vigliaroni’s motive is to use the proposed proceeding for some purpose other than the purpose of obtaining the relief sought. It points quite to the opposite. The fact that Viglioroni has had other proceedings instituted concerning common subject matter, viz: the oppression and misappropriation proceedings, indicates that Vigliaroni honestly believes that a good cause of action does exist and that the proposed proceeding has reasonable prospects of success. The fact that the success of this action may depend, in the first instance, on the outcome of the separation agreement proceeding does not establish that Vigliaroni is not acting in good faith. He is defending that action on several bases, including that there was no such agreement. Moreover, Vigliaroni, as a current director of CPS, has a legitimate interest in the proper governance of CPS. As an indirect shareholder, there is also a potential indirect gain to him in taking these proceedings. In my view, satisfaction of the good faith requirement can be inferred from the objective facts.
Best interests
The Court must be satisfied that the proposed action is in the best interests of the company. In FiduciaryLtd v Morningstar Research Pty Ltd[8] Austin J made reference to the explanation of the “good faith” criterion in the explanatory memorandum to the Corporate Law Economic Reform Program Bill 1998:
6.38This criterion would allow the Court to focus on the true nature and purpose of the proceedings. It would recognise that a company might have sound business reasons for not pursuing a cause of action open to it and that its management might legitimately have decided that the best interests of the company would be served by not taking action. For example, a decision may be taken in a case where, although it may be clear that there has been a breach of duty by a director, the loss to the company may only be nominal. In this case, the costs of taking proceedings may outweigh any benefit to the company.
As has been held, the expression “best interests of the company” imports the “familiar concept of the interests of the company as a whole”.[9]
[8][2005] NSWSC 442 (Unreported, Austin J, 9 May 2005).
[9]Maher v Honeysett and Maher Electrical Contractors [2005] NSWSC 859 (Unreported, Brereton J, 25 August 2009) [44]; Cassegrain v Gerard Cassegrain & Co Pty Ltd (2008) 68 ACSR 132, 145 [79] (Sackville J).
The proposed cause of action is based on breach of fiduciary and statutory duties by one of the two directors of CPS, causing the company loss. In the absence of other countervailing factors, it generally should follow that prosecution of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by that officer’s breach of duty is in the interests of the company.[10] Although the proposed claim concerns the other CPS companies as well, I do not accept that this militates against a conclusion that the grant of leave would be in the best interests of CPS. If successful, the relief which CPS seeks will be of benefit to it. I also do not accept that in light of the multitude of proceedings already on foot it would not be in the best interests of CPS for this proposed action to proceed. That may have some force if, as the result of this action commencing, the hearing and determination of the other proceedings were delayed or the timely and efficient preparation of those proceedings affected. It was not suggested that this would be the case.
[10]Maher v Honesett and Maher Electrical Contractors [2005] NSWSC 859 (Unreported, Brereton J, 25 August 2009) [52]; Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 (Unreported, Austin J, 9 May 2009) [47].
In addition, if leave is given, Vigliaroni has proffered an undertaking that he will “pay and bear and indemnify [CPS] against all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings … however that the indemnity shall not apply with respect to any final order for costs in the proceeding, except insofar as the Court may in future otherwise direct or allow”. This is a factor to be taken into the consideration of the best interests requirement and the good faith requirement although, as I do not have before me evidence of capacity to meet any cost order, the proffering of the undertaking is not a significant factor. However, as no argument was put on behalf of Gargaro that the undertaking may not be adequate to protect the company against any adverse costs order, some weight should be given to it. Accordingly, I am satisfied that the criterion in s. 237(2)(c) is met.
Serious question to be tried
The issue here is not whether there is a cause of action as pleaded but whether Vigliaroni has sufficient evidentiary basis for the material facts alleged. Although there is no requirement for the Court to make factual determinations, it is necessary for the applicant to adduce enough evidence to satisfy the Court that there is a probability at trial that the company will be entitled to the relief sought in the proposed action. The standard of proof is the standard that applies on an application for an interlocutory injunction.[11]
[11]Swansson v RA Pratt Properties Pty Ltd & Anor (2002) 42 ACSR 313, 318 [25] (Palmer J); Goozee & Anor v Graphic World Group Holdings Pty Ltd & Ors (2002) 42 ACSR 534, 540 [32] – [34] (Barrett J).
Viglioroni swore an affidavit deposing to the management and ownership interests in relation to CPS and CPSCG and the underlying trusts and the provision of management services by CPSCG to CPS. Gargaro did not file any evidence in rebuttal. There is, in my view, sufficient evidence of the facts to show a serious question to be tried on the allegations of breach fiduciary and statutory duties by Gargaro and accessorial liability of CPSCG.
The evidence on which Mr Vigliaroni relies to support the excessive management fees allegation is slight. Nonetheless, for present purposes, I think it is sufficient for the Court to conclude that there is a foundation for the claim, in the absence of evidence from Gargaro. The differentiation in management fees between those charged by VVG and those charged by CPSCG is capable of supporting the inference that the fees are excessive and thus the claim that Gargaro breached the fiduciary and statutory duties as pleaded and that CPSCG knowingly participated in those breaches.
In the circumstances I accept there is a serious issue to be tried.
Conclusion
In my view, Vigliaroni has satisfied the criteria specified in s 237(2)(a)–(d) of the Act. I consider it appropriate to grant leave even though s 237(2)(e)(i) was not satisfied.[12] I propose to grant leave to him to bring proceedings in the name of CPS and to file pleadings in the form of the draft of the proposed statement of claim.
[12]See s 237(2)(e)(ii).
I will hear parties on the form of undertaking and in respect of costs.
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