Aliprandi v Griffith Vintners Pty Ltd

Background to the application

1. Mr David James brings these applications for leave to bring derivative proceedings in his capacity as the sole contributory of each of Sundara Pty Ltd (recs & mgrs apptd) (in liq) ("Sundara"), Killara 10 Pty Ltd (recs & mgrs apptd) (in liq) ("Killara 10"), Wine National Pty Ltd (recs & mgrs apptd) (in liq) ("Wine National") and James Estate Wines Pty Ltd (recs & mgrs apptd) ("James Estate") and he was also the sole director of each of those companies. Three of the companies are in liquidation, namely Sundara, Killara 10 and Wine National and applications for leave to bring the proceedings are brought in the Court's inherent jurisdiction in respect of those companies. The application in respect of James Estate, which is not in liquidation, is brought under ss 236 and 237 of the Corporations Act 2001 (Cth).
2. The First Respondent to each of the leave applications and the proposed First Defendant in each of the proposed proceedings is Rabobank Australia Limited ("Rabobank"). Messrs Cussen and Strawbridge, who are receivers appointed by Rabobank to each of the four companies ("Receivers") are the Second Respondents to the leave applications and the proposed Second Defendants in the relevant proceedings. I will refer to Rabobank and the Receivers together as the "Rabobank Parties" in this judgment, where it is not necessary to distinguish their positions. The Third Respondent to each of the leave applications and a further defendant in the proposed proceedings is ROI Lands & Hedging Pty Ltd ("ROI") which purchased real property and other assets sold by the Rabobank Parties in the exercise of rights under the relevant securities. It is not pleaded in the proposed proceedings that ROI was anything other than a good faith purchaser for value in respect of that real property and those assets.
3. Broadly, Rabobank, which was previously known as Primary Industries Bank of Australia, was a lender to companies associated with Mr James from 17 January 2001. It will be helpful to refer briefly to the several transactions between Rabobank and entities associated with Mr James. Rabobank made a loan of $3,500,000 to Sundara and James Estate to repay a loan from National Australia Bank Limited which had been used to acquire a property at Baerami in the Hunter Valley, New South Wales, which included a winery and vineyard. Rabobank subsequently made a further loan to Wine National to acquire the assets of the Hill Wine Group, including the Fernhill property in McLaren Vale, South Australia, on which there was a warehouse, other premises and a small vineyard. In December 2006, Rabobank made a loan to Killara 10 to repay a loan from ANZ Bank in respect of a property at Pokolbin in the Hunter Valley. In July 2009, Rabobank offered to vary its existing facilities to increase its loan to James Estate to $2,400,000 and its loan to Sundara to $3,500,000, and made loans to Wine National of $7,320,000 and $2,000,000, to Liquor National Pty Ltd of $4,600,000 and to Killara 10 of $1,800,000. Sundara, James Estate, Wine National and Killara 10 provided charges by way of security and Sundara and Killara 10 gave mortgages over the Baerami and Pokolbin properties respectively and other charges and guarantees were also given. A restated letter of offer was issued by Rabobank on 12 July 2013; Mr James contends that the companies associated with him accepted that restated letter of offer on 13 August 2013 and that is denied by Rabobank, although it will not be necessary or appropriate to determine that dispute in this application; Rabobank issued an amended restated letter of offer on 14 August 2003, and Mr James contends that the relevant companies also accepted that offer. Rabobank appointed the Receivers on 28 August 2013. By letter dated 10 December 2013, Rabobank demanded payments of amounts guaranteed in respect of various companies, totalling $23,945,841.25 (Ex R1.13).
4. Mr James contends that, as at each of 24 July 2009, 13 July 2013 and 16 August 2013, each of Sundara, James Estate, Wine National and Killara 10 was a "farmer" within the meaning of the Farm Debt Mediation Act 1994 (NSW) ("FDMA"); the debts owing by Sundara, James Estate, Wine National and Killara 10 were "farm debts" within the meaning of the FDMA at each of those dates; and the Sundara mortgage and Sundara charge, the James estate charge, the Wine National charge, the Killara 10 mortgage and Killara 10 charge were each a "farm mortgage" within the meaning of the FDMA at each of those dates. Mr James contends that Rabobank contravened s 8 of the FDMA, to which I will refer below, by taking "enforcement action" (as defined in the FDMA) against the relevant companies, in their capacity as "farmers" (as defined in the FDMA) in respect of the relevant securities, without first giving a notice to those companies under s 8 of the FDMA and that, by reason of s 6 of the FDMA, the enforcement action taken by Rabobank is void.
5. The Receivers appointed by Rabobank subsequently took possession of the Baerami property and the Pokolbin property and of assets under each of the relevant securities. ROI subsequently purchased the Baerami property previously owned by Sundara and the Pokolbin property previously owned by Killara 10 and also entered asset sale agreements to acquire assets used on those properties. Mr James contends that the Receivers' taking of possession of those properties and assets and their sale was also void under s 6 of the FDMA.
6. In the draft pleadings sought to be filed on behalf of the companies and in written submissions, Mr James identifies the causes of action pleaded by the companies, consequential on the alleged invalidity of the enforcement action taken by Rabobank, the appointment of the Receivers and the sale of the properties and assets in trespass and conversion, and contends that the amounts claimed as damages exceed the amounts advanced by Rabobank as at 16 and 28 August 2013, so far as the gross amount claimed in the proceedings exceeds $50 million less realisations in excess of $4.4 million from the two property sales to ROI. Mr James relies on his affidavits dated 7 March 2014, 21 May 2014, 18 June 2014, and 3 September 2015 in support of the application. Mr James' affidavit dated 21 May 2014 sets out the financial position of companies subject to the proceedings, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as evidence of his understanding, to the effect that the net asset position of Wine National at March 2013 was $24,354,040 and the net asset position of Sundara at March 2013 was $7,450,000.
7. The Rabobank Parties rely on the affidavits of the Receivers, Mr Cussen, dated 19 May 2014, 21 August 2014 and 1 October 2015 and affidavits of its solicitor, Mr Peter Harrison, dated 27 May 2014, 24 February 2015 and 10 September 2015, and also tendered Mr James' affidavit of 13 March 2014 which dealt with his present financial position. ROI reads the affidavit of Mr Robert Bounassif dated 2 October 2015 and an affidavit of its solicitor in the proceedings, Mr Hadchiti, dated 1 October 2015.

Whether the Court should grant leave for proceedings in its inherent jurisdiction

1. The Court has power to grant leave to bring derivative proceedings where a company is in liquidation, in its inherent jurisdiction, upon the application of a contributory or creditor. In oral submissions (T43), Mr Cashion, who appears for Mr James, recognised that the Court's power to grant leave to bring proceedings in its inherent jurisdiction is discretionary, whereas the Court must grant such leave under s 237 of the Corporations Act (to which I refer below in respect of James Estate) if the factors specified in that section are satisfied. In oral submissions, Mr Cashion noted that it was common ground that the main matters to be determined in respect of whether the Court should grant leave to Sundara in its inherent jurisdiction was whether the proceedings had some solid foundation, in that they exhibited such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success, the attitude of the liquidator, and whether practical considerations supported the initiation of the proceedings with particular reference to the financial protection of the liquidator and the company by means of an indemnity and, if indicated, security (T53-54).
2. In Chahwan v Euphoric Pty Ltd (trading as Clay & Michel) [2008] NSWCA 52; (2008) 245 ALR 780, the Court of Appeal unanimously held that the statutory derivative action under Pt 2F.1A of the Corporations Act is not available where a company is in liquidation although the inherent jurisdiction is available in that situation. In Re Featherston Resources Ltd; Tetley v Weston [2014] NSWSC 1139; (2014) 101 ACSR 394 at [35], Brereton J noted that the Court's inherent jurisdiction to permit a contributory or creditor to bring proceedings in the name of a company in liquidation, where a liquidator did not do so, was founded in the Court's supervisory jurisdiction over liquidators.
3. In Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577 at [23] - [36], Barrett J (as his Honour then was) helpfully summarised the criteria to be applied in granting leave to bring proceedings on behalf of a company in liquidation (at [34]), in a manner consistent with the common ground identified by Mr Cashion, as follows: "1 The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success. 2 The attitude of the liquidator to the question whether the proceedings should be pursued. 3 The question whether 'practical considerations support the initiation of the proceedings', with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security." His Honour also reviewed earlier authorities and expressed the view (at [30]) that the requirement that a claim had a "solid foundation" involved "as a practical matter, that there are reasonable prospects of success and some tangible benefit is genuinely in prospect".

Whether the Court should grant leave in its inherent jurisdiction for Sundara to bring proceedings against the Rabobank Parties

1. Mr James identifies the first question in respect of leave to grant a derivative action, in the Court's inherent jurisdiction, as whether the proposed proceedings have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success. In oral submissions, Mr Cashion submits that the prospective claims based on Rabobank's alleged non-compliance with the FDMA, so as to establish that the enforcement actions were void, are seriously arguable, and indeed are reasonably strong claims, particularly against the Rabobank Parties. Mr Cashion also relies on the size of the claims as a matter suggesting that it is in each of the company's best interests that leave be granted (T46).
2. In determining whether Sundara's claim has a solid foundation or a serious question to be tried is established in respect of that claim, it is necessary to have regard to the terms and structure of the FDMA, which will also be relevant to Mr James' application in respect of the other companies. Section 3 of the FDMA provides that: "The object of this Act is to provide for the efficient and equitable resolution of farm debt disputes. Mediation is required before a creditor can take possession of property or other enforcement action under a farm mortgage." In Varga v Commonwealth Bank of Australia (1997) NSW ConvR 55-797, Young J (as his Honour then was) noted that the FDMA must be construed to fulfil its purpose and observed that its purpose "was to prevent persons being driven off their farms because of inability to pay debt where it was possible for the debt to be rearranged after a bona fide mediation process", and expressed the view that the overriding purposes of the FDMA should not be defeated by technicalities. In Waller v Hargraves Secured Investments Ltd [2012] HCA 4; (2012) 245 CLR 311 at [28], Heydon J also pointed to the background to the FDMA in the range of difficulties that face Australian farmers.
3. Section 5(1) of the FDMA provides that the FDMA applies in respect of creditors only so far as they are creditors under a "farm debt" (as defined). The term "creditor" is defined in the FDMA as a person to whom a farm debt (as defined) is for the time being owed by a farmer (as defined). The term "farm debt" is defined as a debt incurred by a farmer (as defined) for the purposes of the conduct of a farming operation (as defined) that is secured wholly or partly by a farm mortgage (as defined). The term "farmer" is defined as a person who is solely or principally engaged in a farming operation (as defined) and includes a person who owns land cultivated under a share-farming agreement. I pause to note that definition appears to require an ongoing state of cultivation. The term "farming operation", which is used in the definition of "farm" and "farmer", in turn means: "A farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or any other operation prescribed by the regulations … ." [There are no applicable regulations].

The claim and evidence in respect of Sundara

1. Mr James seeks an order that a previous order made on 11 May 2015 dismissing proceedings brought by Sundara against the Rabobank Parties be set aside. Second, Mr James seeks an order in the Court's inherent jurisdiction that he have leave to bring and prosecute proceedings on behalf of and in the name of Sundara in the form of a draft Statement of Claim annexed to the Interlocutory Process, conditional upon him, or some other acceptable person, giving an undertaking to the Court set out in the schedule to the Interlocutory Process. That undertaking is as follows: "1. [Mr James] will pay and bear all costs of [Sundara] as Plaintiff in the proceedings in the event that leave to proceed is granted. 2. [Mr James] will indemnity and keep indemnified each of the following from and against all liability and all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings in the event that leave is granted, including without limitation any order for adverse orders for costs [sic] that may be made: (a) [Sundara]; (b) Vaughan Neil Strawbridge and Neil Robert Cussen in their capacities as Receivers and Managers of [Sundara]; (c) ROI Lands and Hedging Pty Ltd; (d) Philip Hosking and David Hurst in their capacities as Liquidators of [Sundara]."
2. The proposed Amended Statement of Claim to be brought by Mr James, on Sundara's behalf, names Rabobank as First Defendant, the Receivers as Second Defendants, and ROI as Third Defendant. The Amended Statement of Claim pleads that Sundara became the registered proprietor of land at Baerami, in the Hunter Valley, which it continued to own and acquired two water licences in respect of that land and a producer/wholesaler and package liquor licence attached to the property, and also acquired a herd of approximately 200 cattle on its acquisition of the property on 17 December 1997.
3. Mr James contends that, first, Sundara was a "farmer" for the purposes of the FDMA because it owned the property at Baerami since 1997, on which it maintained a herd of 200 cattle. In its proposed Amended Statement of Claim, Sundara pleads that, between 17 December 1997 and 28 August 2013, it carried on the business of grazing, breeding and selling cattle on and from the Baerami property. It contends that, by reason of that matter, it conducted a "farming operation" upon the Baerami property within the meaning of the FDMA; the Baerami property was a farm within the meaning of the FDMA; and Sundara was a farmer within the meaning of the FDMA.

Whether Sundara's claim against the Rabobank Parties has a solid foundation

1. Mr Cashion did not, in opening submissions, seek to distinguish the strength of the claims under the FDMA in respect of the particular companies. As will emerge below, the factual position differs in respect of the four companies and it is therefore necessary to consider the facts underlying the relevant claims in respect of each of the companies separately. In oral submissions, Mr Cashion noted that Mr James' approach was to have regard to the four companies in respect of which leave is sought, as members of a group of companies carrying on a farming operation which comprised different components. I accept, of course, that the question whether each of the companies is subject to the FDMA is to be determined in its context, including by reference to the activities of other companies within the group. I do not accept, however, that there is any solid basis for a claim that a particular company, which was not itself a farmer, could be treated as a "farmer" for the purposes of the FDMA because other companies within the group were carrying on activities which led to their properly being characterised as a "farmer" or which constituted a farming operation.
2. Mr Cashion also submitted (T102) that the concept of "farming operation" included not only growing or harvesting grapes but also the crushing of the grapes, the fermenting of the wine, the bottling of wine and the distribution or sale of wine. Mr Cashion, at least at some points, indicated Mr James' position was that, if company A operated a farm which produced milk and an associated company B operated a bottling business for milk, then a loan to company B was a "farm debt" because the bottler bottled the milk produced on the farm. It does not seem to me that there is any solid basis for that submission, which seems to me to be inconsistent with the definitions of "farm" and "farming operation" in the FDMA, and would extend the operation of the FDMA well beyond that which is supportable by its terms, or by the authorities which have considered it. There was, however, a degree of ambiguity in Mr Cashion's submission in this respect, since at other points it appeared to be no more than a submission that the Court should consider the status of each company in its context (T105) which I would accept.
3. So far as Sundara is concerned, Mr James submits that the loan from Rabobank to Sundara to repay a loan from National Australia Bank used to acquire the Baerami property and for further funding to develop the vineyard and winery at that property was "clearly a farm debt" at the date of the loan. Mr James also submits that, at all relevant times, including August 2013, Sundara carried on a cattle business on its property at Baerami, the operation of the vineyard and olive growing at Baerami, and he also relies on the cultivation of the property at Pokolbin as noted above.

Whether Sundara's claim against ROI has a solid foundation

1. ROI also opposes the application for leave to proceed against it in respect of Sundara and the other entities. First, it adopts the Rabobank Parties' submissions in opposition to the grant of leave which I have addressed above in respect of Sundara. Second, ROI submits that leave should not be granted for any proceedings to be brought against it, because it is a bona fide purchaser for value of the relevant properties and assets from Sundara and the other companies without notice, and its title to the properties and assets cannot be impeached by reason of any failure of Rabobank to comply with the FDMA. In oral submissions, Mr Assaf, who appears for ROI, adopted Mr Katekar's submissions on behalf of the Rabobank Parties and pointed out that, if the Rabobank Parties were successful in opposing the grant of leave, then the need for determination of particular issues in respect of ROI would not arise. In the event, where I have held that there should not be leave to commence the proceedings against the Rabobank Parties by reason of other matters noted below, then there would also not be such leave in respect of proceedings against ROI. I will, however, also address the issues raised in Mr Assaf's submissions that are specific to whether Sundara's claim against ROI has a solid foundation.
2. I made some preliminary observations as to this question in my judgment dealing with a security for costs application previously brought by the Rabobank Parties and ROI in respect of the costs of this application ([2015] NSWSC 1443). In the relief sought in its proposed Amended Statement of Claim, Sundara seeks a declaration that the sale of the Baerami property by Rabobank exercising a power of sale under the Sundara mortgage to ROI is void; an order that the registered transfer of the Baerami property to ROI be set aside; a declaration that the sale of the property and assets of Sundara by Rabobank to ROI on 10 December 2014 is void and that all sales of the property and assets of Sundara by the Rabobank Parties to ROI be set aside.
3. In my security for costs judgment, I noted that ROI was not itself alleged to have breached the FDMA and its only involvement in the matter is as a purchaser of properties and other assets sold by the Receivers who, on Mr James' case, were invalidly appointed, as a result of transactions which Mr James contends were void. I there noted that Mr James' submissions, on which he also relies in this application, describe the claim against ROI as: "To set aside the transfer of the Baeremi and Pokolbin properties, they also having been void and notwithstanding their subsequent registration."

Whether Mr James is acting in good faith

1. Mr James has sworn that he is acting in good faith in bringing the proposed proceedings. He points out that he is the sole shareholder of Sundara (and also James Estate, Wine National and Killara 10) and would stand to benefit if the proposed proceedings are ultimately successful. In oral submissions, Mr Cashion submits that the inference that Mr James is acting in good faith should be drawn from the fact that he is the sole shareholder in Sundara (also Killara 10, Wine National and James Estate) and that he, and unsecured creditors, stand to benefit from the derivative proceedings if they are ultimately successful (T44-45). Mr Cashion relies on the observation of Palmer J in Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 that it would be relatively easy to satisfy the good faith requirement where an application is made by a current shareholder with more than a token shareholding and invites me to infer from Mr James' pursuit of the matters that he believes that a good cause of action exists and has reasonable prospects of success (T45). I accept that submission, with the significant qualification that a shareholder in the companies would only benefit from the proceedings if the amount recovered was ultimately greater than the amount of the companies' secured and unsecured debts.
2. The Rabobank Parties contend that, by reason of the issues which they raise as to whether the proceedings give rise to a serious question to be tried, Mr James has nothing to gain from bringing the proceedings, and the Court may consider that the proceedings are not being brought for a proper purpose. I do not draw that inference. It is difficult to identify any purpose that Mr James would have in bringing the proceedings, other than the hope of recovery from them, and it seems to me likely that Mr James has a different assessment of the merit of the proceedings than the Rabobank Parties. I consider that Mr James' good faith is sufficiently established to permit the grant of leave to bring the proceedings, if the other requirements for the grant of leave are satisfied.
3. ROI also submits that the Court should infer that Mr James is not acting in good faith in respect of the claim sought to be brought by James Estate, by reason of the poor prospects of success of the proposed proceedings, the proffering of a worthless undertaking, previous failures to comply with directions made by the Court in respect of earlier claims, and other attempts by Mr James and related parties to seek relief in relation to the real property the subject of the application, including an unsuccessful attempt to maintain caveats over the property. On balance, I do not draw that inference, particularly where it is clear that Mr James' conduct of the proceedings has been subject to significant financial constraints.

Whether the proposed proceedings would be pointless

1. The Rabobank Parties also contend that the proposed proceedings by Sundara (and the other companies) would be pointless because any proceeds obtained from them would "circle back" to the Rabobank Parties to cover Sundara's (and the other companies') liability for debts owed to Rabobank. In response to the claim of futility, Mr James submits that the claim by the borrowers and security providers exceeds Rabobank's debt. I have referred to the manner in which Sundara quantifies its damages in paragraphs 45-46 above. It seems to me preferable not to express a view as to whether such damages could be established at a final hearing where it is not necessary to do so given the conclusion that I have reached on other grounds.
2. Mr Katekar also submits that the proceedings are not in Sundara's best interests, since Sundara is a cross-guarantor in respect of debts owed to Rabobank, and the FDMA does not apply to Rabobank's rights of enforcement against Sundara by reason of its cross-collateralisation of a non-farm debt owed by Print National Pty Ltd to Rabobank. So far as its wider claim that the proceedings brought by Sundara and others would be pointless is concerned, the Rabobank Parties submit that Rabobank was entitled to enforce its charge over the other entities' assets due to a default by Print National, whose loan expired on 31 May 2013, and was secured by a charge over the other entities' assets. The Rabobank Parties also submit that s 5 of the FDMA has the effect that the FDMA did not apply to Rabobank's enforcement of the securities given by those entities, by reason of Print National's default, and that Rabobank was not obliged to comply with the FDMA in enforcing collateral securities given by the relevant entities in respect of a non-farm debt. Mr James responds that Print National was not in default in August 2013; a new loan had been entered in August 2013, and no demand was made on Print National so the loan could not be repayable (James 3.9.15 [100]). Ultimately, the evidence on which Mr Katekar relied was not sufficient to establish that there was an act of enforcement by Rabobank in respect of Print National, and the Rabobank Parties' submission as to Print National should therefore be given little weight in the application.

Relevance of dismissal of earlier proceedings brought by Sundara

1. The Rabobank Parties also rely on the fact that earlier proceedings brought by Sundara were dismissed by consent of the liquidators of Sundara on 11 May 2015 and the orders effecting that dismissal were entered on 13 May 2015. Mr Cashion submits that, where the proceedings were previously dismissed other than following a hearing on the merits, and that order has been entered, the Court does not have power to set aside those orders under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), but the proceedings may be recommenced under s 91 of the Civil Procedure Act 2005 (NSW).
2. The Rabobank Parties initially contended that the Court did not have power to set aside the order dismissing the earlier proceedings. Mr Katekar subsequently qualified that submission, by reference to s 91 of the Civil Procedure Act on which Mr Cashion relied. Mr Katekar points out, in oral submissions, that there is authority that, where proceedings are not dismissed on the merits, and are restarted, the Court may stay the second proceedings until the costs of the first proceedings were paid: Riva NSW Pty Ltd v Key Nominees Pty Ltd [2013] NSWSC 1952 at [12]. Had I otherwise been satisfied that leave to bring the proceedings was properly granted in respect of Sundara, I would have only granted that leave conditional upon the payment of the Rabobank Parties' costs of the proceedings which had previously been dismissed in respect of Sundara prior to the commencement of any further proceedings.

Other matters relevant to the grant of leave - practical consideration as to the liquidators' attitude and indemnity

1. Mr Cashion recognises that further relevant questions to the grant of leave include the liquidators' attitude to whether the proceedings should be pursued and whether practical considerations support the initiation of the proceedings, with particular reference to financial protection of the liquidator and the companies' estate by means of indemnity and, if indicated, security. Mr Katekar (for the Rabobank Parties) and Mr Assaf (for ROI) respectively submit that practical considerations militate against leave being granted in respect of the claim against the Rabobank Parties and ROI. Mr Assaf also submits that the Court would not grant leave, in the exercise of discretion, for proceedings against ROI in its inherent jurisdiction.
2. In Carpenter v Pioneer Park above at [31], Barrett J noted that the liquidator's view whether a proceeding should be initiated by a company will be an important consideration where the Court is asked to sanction a course by which a creditor or contributor is given carriage of the proceeding on behalf of the company. Mr James submits that the liquidators of Sundara (and Killara 10), Messrs Hosking and Hurst do not oppose the bringing of the proceedings, and do not seek cash security for their costs other than the indemnity that is proposed in the schedule to the Interlocutory Processes. That submission, with respect, does not properly reflect the position which they have expressed in correspondence, namely that they do not oppose the proceedings, provided an "appropriate" indemnity is granted. They do not, in terms, indicate that they accept that the undertaking offered by Mr James is presently an appropriate indemnity and, for the reasons that I note below, it seems to me that it is not.
3. Mr Katekar submits that a party which seeks leave to bring a derivative action on behalf of a company should bear the burden of the company's costs in respect of the proceedings. In Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No 1) (1987) 6 ACLC 213 at 216-217, Bryson J treated the absence of a proposal for security for an indemnity as a significant matter as to whether such leave should be granted. In Cadima Express Pty Ltd (in liq) v Deputy Commissioner of Taxation (1999) 157 FLR 424; 33 ACSR 527, in the context of a company in liquidation, Austin J at [49] pointed to the relevance of practical considerations, and noted that an applicant typically: "offers to indemnify the company in liquidation and the liquidator in respect of the proceedings, and to conduct the proceedings in such a fashion that liability to pay costs is undertaken by the applicant rather than the company to the extent that it is possible to do so. The Court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected. To these ends, the Court may require that the person who conducts the litigation gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to the litigation." I followed that decision in Re Colorado Products Pty Ltd (in prov liq) above at [10] in the context of a company in provisional liquidation. In Carpenter v Pioneer Park Pty Ltd above at [59], Barrett J similarly held that the company's interests would not be served by a grant of leave, unless suitable and adequate security for the applicant's compliance with such orders were provided, and rejected the argument that a company which had no assets suffered nothing if more liabilities were heaped upon it.

Whether the Court should grant leave in its inherent jurisdiction for Killara 10 to bring proceedings against the Rabobank Parties

1. In proceedings 2014/71396, Mr James seeks an order that an order made on 11 May 2015 dismissing proceedings as between Killara 10 and the Rabobank Parties be set aside. Mr James also seeks an order, in the inherent jurisdiction of the Court, that he have leave to bring and prosecute proceedings on behalf of Killara 10, conditional upon him, or some other acceptable person, giving the undertaking to the Court set out in the Schedule to the Interlocutory Process. The undertaking is in the same form as that proposed in respect of Sundara, which I have addressed above.
2. Broadly, Mr James contends that Killara 10 owned a property at Pokolbin, purchased in 2004, and Wine National grew grapes on that property for the purpose of making wine at Baerami, under the Third SFA. The proposed Amended Statement of Claim in respect of Killara 10 has a broadly similar structure to the Amended Statement of Claim in respect of Killara 10, and pleads that Killara 10 purchased the Pokolbin property in 2004 and that, at the time of the purchase until 28 August 2013, approximately two hectares of the Pokolbin property was planted with grape vines; that between 2004 and 28 November 2006, Killara 10 managed and cultivated that vineyard; and, from 28 November 2006, Killara 10 entered into the Third SFA pursuant to which Wine National cultivated the vineyard.
3. Killara 10 also pleads that, from 28 November 2006 to the appointment of the Receivers on 28 August 2013, the Pokolbin property was a farm property within the meaning of the FDMA and Killara 10 was a farmer within the meaning of the FDMA. Killara 10 pleads that a debt incurred by Killara 10 to Rabobank on 14 December 2006 was a farm debt within the meaning of the FDMA; a fixed and floating charge given by Killara 10 to Rabobank on that date ("Killara 10 charge") was a farm mortgage within the meaning of the FDMA; and a mortgage over the Pokolbin property was also a farm mortgage within the meaning of the FDMA. Killara 10 pleads the same matters in respect of a letter of offer dated 24 July 2009 from Rabobank to Killara 10 and a restated letter of offer dated 12 July 2013 from Rabobank to, inter alia, Killara 10 and an amended restated letter of offer dated 14 August 2013 between Rabobank and Killara 10. Killara 10 similarly pleads that the appointment of receivers by Rabobank under the Killara 10 charge on 28 August 2013 constituted an enforcement action by Rabobank and was void by reason of s 6 of the FDMA and that further steps taken by Rabobank and the receivers were also void by reason of s 6 of the FDMA. Killara 10 pleads that it has suffered loss and damage by unlawful conduct, trespass and conversion by the Rabobank Parties which is particularised as: "The difference between the value of the property and assets of Killara 10 as at 28 August 2013 of approximately $3,608,000 and the amounts realised from the sales of it property and assets by the Receivers and Rabobank."

Whether the Court should grant leave in its inherent jurisdiction for Wine National to bring proceedings against the Rabobank Parties

1. In proceedings 2014/71413, Mr James seeks an order in the Court's inherent jurisdiction that he have leave to bring proceedings on behalf of Wine National in the form of a draft Amended Statement of Claim conditional upon him, or some other acceptable person, giving the undertaking to the Court set out in the Schedule to the Interlocutory Process. That undertaking is in similar form to that offered in respect of Sundara.
2. The proposed Amended Statement of Claim is in broadly similar form to that proposed for Sundara. It relies on the fact that Sundara purchased the Baerami property and pleads that, between December 1997 and July 2002, Sundara and James Estate jointly cultivated the vineyard and between 1991 and 2001 Sundara and James Estate jointly planted and developed further grape vines upon Baerami. Those matters do not, on their face, support a claim by Wine National. The proposed Amended Statement of Claim relies on the Second SFA between James Estate, Wine National and Liquor National and pleads that, between 10 July 2002 and 28 August 2013, Wine National and James Estate jointly and continuously conducted specified operations under the Second SFA including, inter alia, planting, cultivating, fertilizing and maintaining the vineyard at Baerami, as well as other operations in respect of wine making and wine sales. The proposed Amended Statement of Claim also relies on the Third SFA between Killara 10, Sundara and Wine National in respect of the Pokolbin property.
3. The proposed Amended Statement of Claim pleads that, as at the entry into a facility with Rabobank on 24 July 2009, Wine National was a farmer within the meaning of the FDMA, the debt incurred by Wine National was a farm debt within the meaning of the FDMA, the Wine National charge was a farm mortgage within the meaning of the FDMA, and pleads the same matters in respect of a restated letter of offer dated 12 July 2013 from Rabobank to, inter alia, Wine National and an amended restated letter of offer dated 14 August 2013 from Rabobank to, inter alia, Wine National. It is again pleaded that the appointment of receivers by Rabobank and other consequential steps were void by reason of s 6 of the FDMA. A claim is pleaded that Wine National has suffered loss and damage by reason of unlawful conduct, trespass and conversion by the Rabobank Parties, particularised as: "The difference between the value of the property and assets of Wine National and James Estate Wines together as at 28 August 2013 of approximately $35,365,085 and the amounts realised from the sales of their property and assets by the Receivers and by Rabobank." There is no explanation of how Wine National has a basis for recovery of loss suffered in respect of any assets of James Estate. Mr James also pleads that he has suffered loss and damage by reason of demands made on him under an unlimited guarantee. He, of course, requires no leave to bring such a claim.

Whether the Court should grant leave under s 237 of the Corporations Act for James Estate to bring proceedings against the Rabobank Parties

1. By Amended Interlocutory Process dated 1 September 2015, in proceedings 2015/162637, Mr James seeks leave to bring proceedings under ss 236 and 237 of the Corporations Act on behalf of and in the name of James Estate, in the form of a draft Amended Statement of Claim, conditional upon Mr James, or some other acceptable person, giving an undertaking in the form set out in the Schedule to the Interlocutory Process. That undertaking is in substantially the same form as that offered in respect of Sundara.
2. The proposed Amended Statement of Claim relies on Sundara's purchase of the Baerami property and pleads that, between December 1997 and July 2002, Sundara and James Estate jointly cultivated the existing vineyard and, between 1999 and 2001, Sundara and James Estate jointly planted and developed further grapevines upon the Baerami property. The Amended Statement of Claim pleads the Second SFA between James Estate, Wine National and Liquor National and pleads that, between 10 July 2002 and the appointment of the Receivers on 28 August 2013, James Estate and Wine National jointly and continuously conducted specified operations on the Baerami property, corresponding to those pleaded in the claim by Wine National. The Amended Statement of Claim also pleads that, from 10 July 2002 to 28 August 2013, James Estate was a farmer within the meaning of the FDMA; that, as at the entry into a facility with Rabobank on 24 July 2009, James Estate was a farmer within the meaning of the FDMA; the debt incurred by James Estate to Rabobank was a farm debt within the meaning of the FDMA and the James Estate charge was a farm mortgage within the meaning of the FDMA; and pleads the same matters in respect of a restated letter of offer dated 12 July 2013 from Rabobank and an amended restated letter of offer dated 14 August 2013 from Rabobank.
3. The Amended Statement of Claim, in similar form to the other Statements of Claim that I have addressed above, pleads that the appointment of the Receivers by Rabobank and subsequent steps were void by reason of s 6 of the FDMA and pleads that James Estate has suffered loss and damage by reason of unlawful conduct, trespass and conversion by the Rabobank Parties, pleaded as: "The difference between the value of the property and assets of James Estate Wines and Wine National together as at 28 August 2013 of approximately $35,365,085 and the amounts realised from the sales of their property and assets by the Receivers and Rabobank." There is no explanation as to why James Estate should be entitled to recover any difference as to the value of property and assets of Wine National.

Whether James Estate will bring the proceedings

1. The first requirement for a grant of leave to bring a derivative action, under s 237(2)(a) of the Corporations Act, is that it is probable that James Estate will not otherwise bring the proceedings. In oral submissions, Mr Cashion submits that, where James Estate is in receivership, it is to be assumed that the receivers, which were appointed by Rabobank, will not bring the proposed proceedings against themselves and Rabobank (T44). That proposition was not contested and I proceed on that basis.

Whether Mr James is acting in good faith

1. The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Corporations Act, is that Mr James must establish to the Court's satisfaction that he is acting in good faith. Factors relevant to that requirement include whether Mr James 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 he is seeking to bring the action for a collateral purpose. In Swansson 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."
2. It is relatively easy to satisfy this requirement if an application is made by a current shareholder 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: Swansson 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. The Court does not consider the merits of the claim in deciding whether the applicant has satisfied s 237(2)(b) of the Corporations Act, since the merits are considered in respect of the question whether there is a serious question to be tried, which arises under s 237(2)(d) of the Act: Fitzpatrick v Cheal [2010] NSWSC 717 at [41].
3. I have addressed the question of good faith in paragraphs 60-62 above and I consider that I should proceed on the basis that Mr James is acting in good faith and consistent with his belief as to the merit of the claims.

Whether it is in the best interests of James Estate that Mr James be granted leave

1. 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 James Estate's best interests. In Swansson above, Palmer J noted that that paragraph required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in James Estate's best interests. 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 relevant company if the action is unsuccessful. In order to prove that leave is in the best interests of James Estate, Mr James would need to give evidence as to the nature of its operations and its business 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 James Estate does not have to be brought into litigation against its will; and the Defendants' ability to meet at least a substantial part of any judgment in favour of James Estate so that the Court may ascertain whether the action would be of practical benefit to James Estate: Ragless v IPA Holdings Pty Ltd (in liquidation) [2008] SASC 90 at [35]. The existence of an indemnity given by a shareholder who seeks leave to bring the derivative proceedings in favour of the relevant company in respect of costs is relevant to whether it is in the company's interests to bring the proceedings, and I reviewed the relevant authorities in that regard in paragraphs 68-73 above.
2. In this case, it seems unlikely that James Estate could obtain the relief sought without commencing proceedings, and it seems likely that at least Rabobank could meet any judgment against it, although there is little evidence as to the Receivers' or ROI's position. Mr Katekar submits that the proceedings in respect of James Estate are futile, because James Estate is a cross-guarantor in respect of other debts owed to Rabobank, and that Mr James is not in a financial position to protect James Estate in respect of the costs of the proceedings, so that it is not in James Estate's best interests for leave to be given for the proceedings. I do not consider it necessary to decide that question given the findings that I have reached on other grounds. However, the lack of substance in the indemnity offered by Mr James is such that I am not satisfied that it is in James Estate's best interests to grant leave, quite apart from the issues as to whether there is a serious question to be tried noted below. Mr Assaf also submits that it is not in James Estate's best interests to bring the claim against ROI for the purposes of s 237 of the Corporations Act. I accept that submission, for the reasons that I have accepted that submission in respect of the Rabobank Parties.

Whether there is a serious question to be tried

1. The fourth requirement 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 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 Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 at [34], Barrett J noted that the "serious question to be tried" test involved, in the interlocutory context, an inquiry as to whether there was: "a sufficiently cogent showing of some such infringement or wrong to warrant the imposition of an order to preserve the status quo pending full investigation".
2. In Re Gladstone Pacific Nickel Ltd above at [56], Ball J summarised the test as to whether there is a serious question to be tried as follows: "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 [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 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."

Notice

1. The fifth requirement for the grant of leave under s 237 of the Corporations Act is that, at least 14 days before making the relevant application, Mr James gave written notice to James Estate of his intention to apply for leave and for the reasons for applying, or it is appropriate to grant leave although that notice was not given. It is not necessary to determine whether this requirement is satisfied, or leave should be granted, given the conclusions I have reached on other grounds.

Orders and costs

1. For these reasons, the application for leave should be dismissed in each proceeding, although I have reached that result on narrower grounds in respect of Sundara and wider grounds in respect of Killara 10, Wine National and James Estate. Mr James should pay the Rabobank Parties' and ROI's costs of the applications as agreed or as assessed.

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