M Condon SC (17 February 2023)
DR Pritchard SC/A Macauley (Second Defendant, part 13 December 2022)
Judgment (10 paragraphs)
[1]
Background facts
I now set out background facts which I understand to be undisputed, or at least not capable of being properly disputed. John and Peg were each born in 1924. They had seven children, namely Christine Liddy; Peter; Stephen; Sally-Jane Collignon; John McNamee; Philippa Hardy and Bill. Wonga was incorporated on or about 29 November 1960, and John and Peg were the directors of Wonga from 1 November 1960 to 3 December 2019 or, possibly, 8 August 2020. On or about 28 June 1963, eight trusts were established in respect of the share capital of Wonga. On or about 23 September 1991, MPT was established with Lorebray as its trustee.
From about 2001, Wonga lent money to Lorebray as trustee for MPT, with additional amounts generally being lent in earlier years and the balance of the loan being reduced in later years. The changing running balance of the loans since the 2001/2002 financial year is recorded in at least a balance sheet for Wonga for the financial year ended 30 June 2018. It appears that, as at 30 June 2005, Lorebray's principal asset was a chose in action, being a loan advanced to JMMH as trustee for the Red Hill Property Trust. Peter does not identify any basis to suggest that that loan was not then likely to be recoverable. Lorebray later incurred trading losses; in the 2010/2011 financial year, it had net liabilities of $1,060,420 and trading losses of $722,601; and, in the 2011/2012 financial year, it had net liabilities of $6,622,177 and trading losses of $561,757. The most recent accounts prepared for the MPT, for the year ended 30 June 2020, record a current liability to Wonga (characterised as "Loans-Related Parties") of $9,888,581, slightly reduced from the liability in the previous financial year of $9,888,905, and record the MPT's assets as "[n]on-current Investments" relating to the "Hardy FT & McNamee PT Brooklyn Road Trust & McNamee PT" and a fixed asset comprising "land at cost".
On 13 June 2019, Peg commenced proceedings in this Court in respect of her purported removal as an appointor of the MPT and another trust. Those proceedings were resolved by consent orders made on 3 December 2019. A deed of settlement and release was executed by Wonga, Lorebray, JMMH and other parties. Clause 3.1 of that deed provided for Peg and John to cease to be directors of Wonga, Lorebray, JMMH and other corporate entities and for three directors, Bill, Stephen, and an independent director, Mr Miller, to be appointed to those companies. It is apparent, from earlier litigation in this Court, that Bill and Stephen are aligned with opposing factions within the McNamee family.
On 4 June 2021, Ward CJ in Eq made orders in other proceedings in this Court declaring that Lorebray and Lorebrook Pty Ltd, which were then the trustees of the trusts which held the shares on Wonga, held those shares on bare trust for each of Peter and three other siblings and made consequential orders that Lorebray and Lorebrook transfer said shares to each relevant beneficiary. As a result of that transfer, Peter became the holder of 3,629 shares in Wonga.
On 8 July 2021, Stephen sent an email to Mr Miller in relation to a directors meetings of Wonga and Lorebray to be held on 9 July 2021 and noted that Lorebray currently owed $9,888,905 to Wonga which he contended was "payable on demand." He noted that no interest was accruing on that amount and that Wonga "does not hold any interest securing its entitlement to repayment" and contended that "[t]here is currently no apparent benefit to Wonga in the sum remaining outstanding, and there is an inherent risk of non-payment." He then referred to a demand by Lorebray to JMMH for the repayment of $400,000 and suggested that certain costs were reducing the debt owed by JMMH to Lorebray and "consequently Lorebray's ability to repay Wonga" and that "I consider it to be in Wonga's best interests to make demand on Lorebray for payment of the outstanding sum." That email did not further address Lorebray's assets, liabilities or the value of any right of indemnity held by it to allow an informed assessment of its capacity to repay that amount at that point, or whether any then risk of non-payment by Lorebray existed and would be increased or reduced by a demand for immediate repayment of the loan.
On 9 July 2021, Stephen proposed a resolution at a directors meeting of Wonga that it demand repayment of the loan from Lorebray and that resolution was not supported by a majority of Wonga's directors. The minutes of that meeting record that:
"Brenden Miller enquired of Stephen McNamee as to why he was of the view the money (due by Lorebray Pty Ltd) was payable on demand according to Stephen's e-mail of 8 July 2021. Stephen replied that that was his view of the matter and that he was not going to run through the legalities of it in this meeting. Brenden further enquired as to whether it was potential that the asserted loan was repayable when the Brooklyn and Arnold Avenue developments were completed. Stephen said again that he would not debate the matter and that was the view he had formed and did not wish to take it further. Brenden said he didn't not agree, but wished to understand the basis of Stephen's view that the money was repayable on demand. The matter was not taken any further.
Stephen McNamee voted for the Motion. Bill McNamee and Brenden Miller voted against the Motion. It was NOT RESOLVED that the Company make demand on Lorebray that the Company make demand on Lorebray Pty Ltd forthwith to pay to the Company, or as it shall direct, $9,888,905."
Several things should be noted about that meeting. First, Stephen was there asked to address apparently reasonable questions about the basis of Wonga's claim against Lorebray and declined to do so. Second, a majority of Wonga's board there declined to demand repayment of the loan in a decision this application seeks to outflank. Third, no challenge is brought in the proposed proceedings to the propriety or good faith of Mr Miller's decision not to support the demand upon Lorebray, although Peter seeks to bring a claim for Wonga against Stephen in that respect.
It is common ground that John died on 17 July 2021; on 23 November 2021, probate was granted in respect of his last will dated 5 September 2018; on 7 February 2022, the solicitor acting for Peg as John's executrix caused a Notice of Intended Distribution of Estate to be lodged with the Court; no particulars of any claim against that estate were received within 30 days of the 7 February 2022 notice, including from Wonga or Peter; and John's estate has been fully administered, with all assets transferred to Peg as sole beneficiary.
The parties have since brought several other proceedings in the Court, including proceedings by Peter seeking to wind up Lorebray and (subsequently) to appoint receivers to Lorebray (2021/00071100); proceedings brought by Peg to obtain access to documents (2022/00075956); proceedings brought by the receivers appointed to Lorebray (2022/00166583); and proceedings brought by Peter and other beneficiaries to continue an action commenced, but no longer sought to be pursued by Lorebray, in Lorebray Pty Ltd v Liddy [2022] NSWSC 1633. Ms Whittaker and Mr Condon did not submit the approach taken in that case was relevant to determining the different issues that arise in this case.
[2]
Requirements for leave under s 237 of the Act
Section 237(2) of the Act relevantly provides that:
"(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."
I now turn to the matters to be established to obtain leave under that section and, in doing so, I have drawn on Counsels' submissions and my account of those principles in, inter alia, Re Fishinthenet Investments Pty Ltd [2014] NSWSC 260 ("Fishinthenet"), Re Australian International Yacht Club Ltd [2020] NSWSC 1884, Mount Gilead Pty Ltd & Hobhouse v L Macarthur-Onslow & Ors (2021) 398 ALR 629; [2021] NSWSC 948 ("Mount Gilead") and Re Carbon Copies Composites Pty Ltd [2022] NSWSC 1638. It is common ground that Peter now has standing to bring this application under s 236 of the Act, where he is a shareholder in Wonga. In order to obtain leave under this section, he must establish the five matters specified in s 237(2) of the Act on the balance of probabilities; if the Court is satisfied that he has done so, the Court must grant that leave and, if those matters are not satisfied, leave must be refused; and leave to bring a derivative action should not be given lightly: Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583 ("Swansson") at [26]; Huang v Wang (2016) 114 ACSR 586; [2016] NSWCA 164 ("Huang v Wang") at [57], [65] per Bathurst CJ (McColl JA agreeing) and at [78] per Barrett JA; Mount Gilead at [50]; Brownlee Enterprises Pty Ltd v Wilmen Pty Ltd (2022) 160 ACSR 21; [2022] NSWSC 207 at [65]. Although Peg does not now actively oppose the application, the Court must now determine whether the statutory requirements for the grant of leave under s 237 of the Act are satisfied before it grants that leave.
[3]
Whether Wonga will bring the proceedings
The first matter specified in s 237(2) of the Act is that it is probable that Wonga will not bring the proceedings, absent the grant of leave. It is common ground between the parties that this requirement is satisfied.
[4]
Whether the claim for repayment of the loan to Lorebray is brought in good faith
The second matter specified in s 237(2) of the Act is whether Peter is acting in good faith in bringing the proposed claims. Mr Pritchard helpfully summarised the applicable principles in opening submissions, as follows (omitting citations):
"The requirement that the applicant be acting in good faith has at least two elements. One is that the applicant must honestly believe that the company has a good claim with reasonable prospects of success; the other is that the claim must not be brought for some collateral purpose as would amount to an abuse of process ...
Subsequent cases have confirmed that consideration of whether the applicant is acting in good faith is not limited to those two factors ...
If an applicant is in truth seeking to further their own personal interests (other than as a current or former shareholder of the company), rather than the interests of the company as a whole, the onus of establishing good faith will not have been discharged …
The fact that that the applicant is willing, as a condition of leave, to indemnify the company for costs and any adverse costs order may demonstrate good faith …"
In Swansson, Palmer J (at [36]) 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."
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 at [38]; Re Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432; [2011] NSWSC 1235 ("Gladstone Pacific Nickel") at [58]; Mathews Capital Partners Pty Ltd v Coal of Queensland Holdings Ltd [2012] NSWSC 462.
[5]
Whether the breach of duty claims against Peg (as John's executor and in her own right), Bill and JMMH are brought in good faith
Alternatively, Peter seeks to bring several claims against Peg (in her capacity as John's executrix and in her own right) in respect of breaches of statutory and general law duties pleaded in paragraphs 28 - 45 of the proposed Statement of Claim. Mr Condon submits, without distinguishing between the particular claims, that:
"Those claims have substance. In particular, in circumstances where the Company derived no benefit from the loans, in return for the risk inherent in making unsecured advances, there is a prima facie case that the directors acted negligently in either making the loans or not requiring that they be repaid."
In reply to Peg's written submissions, Mr Condon submits that, as a matter of principle, an applicant is acting in good faith where the gist of the derivative action is aimed at preventing wrongdoing and making the defendants accountable for it. He submits that Peter "seeks to cause the Company to recover money that prima facie ought never to have been lent - and ought to have been called in - through several means." Mr Condon also submits that pointing to a degree of personal animosity towards other shareholders does not necessarily establish a lack of good faith: Re Vicad Pty Ltd; Pottie v Dunkley [2011] NSWSC 166 at [58]. While I broadly accept that proposition, it also seems to me that assertions of good faith in respect of new proceedings need to be approached with a degree of caution in an environment of ongoing litigation between family members.
In reply, Mr Condon also points to White J's observation in McLachlan v Stephen de Vere [2006] NSWSC 959 at [53] that:
"The question of good faith should be considered objectively. The fact that there is a serious question to be tried that the directors have committed breaches of their statutory and fiduciary duties is a major step in demonstrating objectively that the second plaintiff is proceeding in good faith (Maher v Honeysett at [36])."
However, that observation highlights the need to identify the factual basis for the allegations that John and Peg acted in breach of duty in making the loans or leaving them on foot, where Mr Condon rightly does not put that directors of one family company may never authorise, or leave in place, an interest free and unsecured loan to another family company. I return to that question below. Mr Condon also addresses the question of the indemnity offered by Peter for the Company's costs of the proceedings.
[6]
Whether the proposed proceedings are in Wonga's best interests
The third question in an application under s 237 of the Act relates to whether the proposed proceedings are in Wonga's best interests. In Swansson at [55]-[60], 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. In Re Gladstone Pacific Nickel at [57], 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. The "best interests" of Wonga involve its separate and independent welfare, predominantly reflecting the interests of its shareholders: Huang v Wang above at [59].
The case law has also recognised that a relevant and significant matter in determining whether the proceedings are in a company's best interests is the adequacy of an indemnity in respect of the costs to which the company would be exposed by the conduct of proceedings and in the event of their failure: Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137; The App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 at [19] ("Jalal Brothers"); Australian International Yacht Club Ltd above at [15]. In assessing the value of any indemnity given to a company, the Court will also have regard to the financial strength of the party giving the relevant indemnity: Fishinthenet at [31]ff.
Mr Condon submits that it is:
"clearly in the interests of the Company for it to recover close to $10M in circumstances where the basis for the lending of money in the first instance is unclear and where no defence of substance has been clearly identified. In support of this, there is evidence of [Peter's] belief as to the nature of the cause of action and a detailed proposed claim which articulates the nature of the relief which ought to be sought and the basis for it."
[7]
Whether there is a serious question to be tried
The fourth requirement for the grant of leave is that there is a serious question to be tried. 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 at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd (2010) 79 ACSR 293; [2010] FCA 763 at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra (2011) 82 ACSR 367; [2011] FCAFC 31.
In Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534; [2002] NSWSC 640 at [34], Barrett J observed that:
"… a serious question to be tried can be found only by reference to an infringement of some legal or equitable right or the commission of some legal or equitable wrong, with the result that the issue needs to be approached by inquiring whether there exists, in the circumstances and on the evidence, 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.
His Honour also observed (at [35]) that the s 237(2)(d) test is imported from equity's approach to the grant of interlocutory injunctions.
In Gladstone Pacific Nickel, 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."
[8]
Notice
Finally, a question arises as to whether notice has been given of the intent to bring the proceedings, or whether that requirement should be dispensed with. It is common ground between the parties that this requirement is satisfied.
[9]
Orders
For these reasons, I order that Peter's application for leave under s 237 of the Act is dismissed. Ordinarily, costs would follow the event, but I make the following orders as to costs by agreement of the Plaintiff and the Second Defendant:
1 Vacate order 2 made on 13 December 2022.
2 The parties serve and send their written submissions as to costs to Black J within 14 days and their submissions in reply within a further 7 days.
3 The question of costs be determined in chambers.
[10]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 23 February 2023
In Re Lotus Property Fund No 8 Pty Ltd [2020] NSWSC 1349 at [75]-[76], Stevenson J observed that:
"An enquiry as to whether, in these circumstances, [the plaintiff] is acting in good faith involves consideration of these questions:
(a) Does [the plaintiff] honestly believe that [the company] has a good cause of action against [the defendant] with reasonable prospects of success?;
(b) Does [the plaintiff] honestly believe that it is in the best interests of [the company] to bring the proceedings?;
(c) Is [the plaintiff] seeking to bring these proceedings for a collateral purpose or to obtain "some advantage for which the action is not designed".
It is not necessary that [the plaintiff] actually depose to having the beliefs to which I have referred. These matters can be inferred from the nature and circumstances of the case and from the diligence with which [the plaintiff] has sought to assert a desire to bring the proceedings in question."
In opening submissions, Peter submits that:
"[Peter] wishes to, in the first instance, cause [Wonga] to call on and pursue the repayment of the $9,888,905 from Lorebray. He contends that, in addition to [Wonga] have a prima facie case to recover that sum, it also has an arguable case to recover interest thereon calculated pursuant to Civil Procedure Act 2005, s 100 from the date of the advances"
Pausing here, it is plain enough that Peter, as a shareholder in Wonga, wishes to bring the claim for repayment of the loan in order to achieve a commercial result that the board of Wonga has determined not to seek, namely that Lorebray now (as distinct from, potentially, at a later date) repays the loan made by Wonga to it. It also appears that three siblings aligned with him in the family dispute share his view and that Wonga's board constituted under the settlement noted above has reached a different view. It is not apparent whether that course is to his economic advantage as a shareholder in Wonga, where he does not seek to establish that Wonga or its shareholders are likely to achieve a better financial result by insisting on repayment of the loan now and likely bringing about a forced sale of the assets of the MPT and the Red Hill Property Trust, rather than deferring doing so until those assets are realised by Lorebray and JMMH in the future. The uncertainty as to that matter was exacerbated by inconsistencies in Peter's case, where he variously contends that Wonga's loan to Lorebray may now be recoverable or largely recoverable and that Lorebray and MPT have substantial assets that can be realised to pay it back; that the loan is at risk of not being recovered because Lorebray has, since 2010 or 2011 or 2012, not had sufficient assets to pay it back; that the loan became statute-barred long ago, because of a breach of duty on John's or Peg's part; or that the loan will become statute-barred at an unidentified future date unless Peter is now permitted to bring proceedings to recover it on Wonga's behalf.
Ms Whittaker submitted on the first day of the hearing that the fact that Peter is acting in good faith may be established by proffering an undertaking to indemnify the Company and meet the costs of the proceedings. While that may be necessary to his establishing that he is acting in good faith, it is not sufficient to establish that matter without more. I will refer to the adverse effect of Peter's approach on the corporate governance of Wonga and the parties' earlier settlement below, in considering whether the orders sought are in Wonga's best interests, and that matter raises a real question as to whether Peter was acting in good faith. However, I am conscious that Peter was not cross-examined; the proposition that he was not acting in at least subjective good faith was not put to him; and it is not necessary to reach a finding as to that question given the conclusions that I reach below. I will therefore assume, without deciding, in Peter's favour that he seeks to brings this claim in subjective good faith.
I will again assume, without deciding, that the claims are brought in good faith against Peg, Bill and JMMH, at least in the sense that Peter believes in their prospects and they do not subvert the corporate governance structure established by the parties earlier' settlement in respect of any decision made by the board established by that settlement. It is not necessary to decide that question where I find that these claims, as formulated, do not raise a serious question to be tried.
This proposition may require qualification. First, in a closely held family group, it is not self-evident that it will always be in one company's interests to have cash rather than a chose of action reflecting the amount it has lent to another company in the group, which will ordinarily have the same value if that other company has the capacity to repay the loan. Second, whether it will be in a company's interests to make a demand for repayment will depend on matters such as the other company's capacity to repay and the consequences of the demand, including whether it brings about the insolvency of the other company and the impact of on any insolvency on the wider family group. Mr Condon's further submission that "the basis for the lending of money in the first instance is unclear and … no defence of substance has been clearly identified" seems to me to invert the onus of proof, where it is a matter for Peter to articulate, in this application, the basis on which he contends that John or Peg had not properly made the loans at the time they were made. The fact that Peter holds a belief as to the claim does not much assist him, where Wonga's directors did not determine that a demand should be made to repay the loan and Stephen did not articulate a basis for doing so when invited to do so at the directors' meeting. Although the Statement of Claim articulates the claims that are brought, it largely does not identify their factual basis, including any factual circumstances that are said to have made the loans improper at the time they were made.
In reply, Mr Condon submits that it is uncontroversial that Wonga does not trade and, consequentially, the proposed litigation would have no impact on Wonga or its shareholders. I do not accept that proposition, where the commencement of further proceedings in Wonga's name would deepen the morass of litigation surrounding the McNamee family and their associated companies and trusts and potentially make it more difficult to resolve that litigation, if the parties were otherwise inclined to do so. Mr Condon also submits that, without Wonga recovering the money that Peter argues it is owed, there is no further or other means of "resolving" the matters at hand. That proposition also seems to me to be unconvincing, where it depends on a premise that the monies owed by Lorebray should be repaid now rather than potentially later, where Wonga's board including an independent director has taken the contrary view. Mr Condon also points to matters that indicate that Lorebray has substantial assets, including interests in valuable properties, in order to establish the recoverability of a claim against it. Obviously, that proposition does not assist the suggested claim for breach of duty in lending, even on an unsecured basis, to a company that has substantial assets on which it can draw to repay the debt.
As I noted above, it is plain enough that Peter, as a shareholder in Wonga, wishes to bring this claim in order to achieve a commercial result that the board of Wonga has determined not to seek, namely that Lorebray now (as distinct from, potentially, at a later date) repays the loan made by Wonga to it. In submissions, Mr Condon raises the possibility that Lorebray will contend that it is no longer liable to repay the money that Wonga lent to it by reason of ss 14 and 63 of the Limitation Act 1969 (NSW) and he submits, in a highly qualified submission, that "[t]hat contention is not self-evidently correct where Lorebray has acknowledged the debt by (i) making repayments of the loan up until the 2012/ 2013 financial year; and (ii) approving financial statements recording the debt." It is not necessary to determine the strength of such a defence by Lorebray or Peter's response to it in order to determine this application. Peter also submits that:
"Whilst it remains to be seen whether or not that argument is pressed, any extinguishment of any such action would result in a claim capable of being brought by [Wonga] against its directors and controlling minds at the relevant time for failing to act in the interests of [Wonga] in calling in the debt whilst [Wonga] was able to call on the debt."
I am not satisfied, on the balance of probabilities, that this claim is in Wonga's best interests, in the context of the governance arrangements established by the earlier settlement and the continuing disagreement between the two factions of the McNamee family. As I noted above, Peter does not seek to establish, by financial modelling or any analysis of the financial outcomes of alternative course of action, that Wonga or its shareholders are likely to achieve a better financial result by insisting on repayment of the loan now and likely bringing about a forced sale of the assets of the MPT and the Red Hill Property Trust, rather than deferring doing so until those assets are realised by Lorebray and JMMH in the future, and the uncertainty as to that matter is exacerbated by the inconsistencies in Peter's case which I noted in paragraph 32 above.
Second, I bear in mind that well-established principle that the Court will exercise caution in overturning a business judgment of a company's directors. In Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 at 493; 42 ALJR 123, in determining whether an allotment of shares had been made for an improper purpose, the High Court (Barwick CJ, McTiernan and Kitto JJ) observed that "[d]irectors in whom are vested the right and duty of deciding where the company's interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts." Similarly, in Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 at 832; [1974] 1 NSWLR 68 at 74; [1974] 1 All ER 1126; (1974) 3 ALR 448 ("Howard Smith"), Lord Wilberforce (speaking for the Judicial Committee of the Privy Council) observed that:
"... it would be wrong for the court to substitute its opinion for that of the management, or indeed to question the correctness of the management's decision ... if bona fide arrived at. There is no appeal on the merits from management decisions to courts of law nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at."
In Residues Treatment and Trading Co Ltd v Southern Resources Ltd (No 2) (1989) 15 ACLR 770; 7 ACLC 1130, Perry J similarly noted that the court will examine the "objective commercial justification" of a course of action, but only for the purpose of assessing the credibility of assertions by the directors as to their motives. These well-established general law principles are also reflected in s 180(2) of the Act which provides that a director or other officer of a corporation who makes a business judgment, as defined, will be taken to meet the requirements of the duty of care and diligence in s 180(1), and their equivalent duties at common law and in equity, in respect of that judgment in specified circumstances.
Section 237(3) of the Act overlaps with the business judgment rule in establishing a rebuttable presumption that granting leave is not in a company's best interests in specified circumstances, including where the company (implicitly by its board) has decided not to bring specified proceedings. That section would potentially apply at least to the claims against Peg as executrix of John's estate and in her own right, where John and Peg have not been directors of Wonga within the previous 6 months. It appears that Mr Miller informed himself of relevant matters to that decision to the extent that he considered reasonably appropriate, for the purposes of s 237(3)(c) of the Act, and the evidence discloses the inquiries he made in correspondence and at the board meeting in that regard. However, there is no evidence as to the extent to which Bill and Stephen did so and I do not determine this application by reference to the presumption in that subsection.
Third, I bear in mind the well-established principles governing the allocation of responsibility between a company's board and its shareholders. In John Shaw and Sons (Salford) Ltd v Shaw [1935] 2 KB 113 at 134; [1935] All ER Rep 456, Greer LJ observed that powers of management which are vested in the directors under a company's articles of association can only be exercised by the directors and that the only way in which shareholders can control the exercise of those powers is to alter the company's articles of association or not to re-elect the directors. In Howard Smith at 837, Lord Wilberforce cited Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34; (1906) 75 LJ Ch 437; 94 LT 651 as authority that "directors, within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office". The same constraint has been recognised in Australian law in respect of the exercise of shareholder powers in general meeting to seek to make decisions that are properly made by a company's board: National Roads & Motorists' Association Ltd (NRMA) v Parker (1986) 6 NSWLR 517; 11 ACLR 1; 4 ACLC 609; Hopkins Professional Services Pty Ltd v Foyster Holdings Pty Ltd (2001) 39 ACSR 519; (2002) 20 ACLC 396; [2001] NSWSC 915; National Roads & Motorists' Association Ltd (NRMA) v Bradley (2002) 42 ACSR 616; [2002] NSWSC 788; Re Winlyn Developments Pty Ltd (2011) 86 ACSR 197; [2011] NSWSC 1218 at [19]; Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia (2015) 107 ACSR 489; [2015] FCA 785.
I also recognise that the statutory derivative action necessarily qualifies these principles to some extent, since it requires the Court to grant leave to bring a claim that a company's directors have not authorised if the specified statutory requirements for leave are established. However, Mr Condon fairly accepted that he could not point to any case where a Court had in fact authorised a derivative claim where a decision not to bring that claim had been made by a company's board or a company's independent director(s) and where there was no suggestion that the board or independent director(s) were not exercising the decision-making powers vested in them in good faith, although a shareholder had a different view as to the merits of that decision.
Fourth, as I noted above, the parties here reached a settlement of an earlier dispute on the basis that decisions relating to Wonga and other family companies would be made by a board comprising a member of each of the opposed factions of the McNamee family, namely Stephen and Bill, and an experienced solicitor, Mr Miller, as an independent director. It was obviously then foreseeable or likely that Stephen and Bill would disagree as to some or many matters, as they have since done, and Mr Miller has in turn done what that settlement plainly contemplated, namely to exercise an independent vote, in this case not to seek recovery of amounts due by Lorebray to Wonga at this time (as distinct from, potentially, at a future date). I do not need to decide whether Stephen's view (at the board meeting) and Bill's view (reflected in this application) has a reasonable basis, as Mr Condon contends, where the parties' settlement plainly contemplated that a board comprising Bill, Stephen and an independent director, not each individual shareholder, would address that question. It seems to me that it would outflank and undermine the corporate governance regime established by that settlement if, when Wonga's board constituted in that way makes a decision not to bring a particular claim against a family company at that time, as distinct from potentially later, any one of the shareholders can then bring that claim at that time as a derivative action.
I am not satisfied on the balance of probabilities that this claim would be in Wonga' best interests, where its effect would be to arrogate to Peter (or Peter and his siblings) the decision whether Wonga should now (as distinct from potentially later) recover a debt owed to Wonga, where that is a commercial decision that should ordinarily be made by Wonga's directors and not its individual shareholders; Bill and Stephen have disagreed as to that decision and Mr Miller has exercised the deciding vote; there is no suggestion that Mr Miller did not properly assess the relevant commercial and legal considerations or made his decision not to authorise the claim at this point (as distinct from, potentially, later) improperly or unreasonably or other than in good faith; and the proceedings that Peter seeks to bring would, in the particular circumstances, outflank and undermine the decision-making process established by the parties' earlier settlement. The position may have been different had there been a proper basis to challenge the propriety of Mr Miller's decision-making as the independent director on Wonga's board, but Peter did not seek to identify any proper basis to do so or put such a challenge.
It seems to me that, where Wonga's board constituted by the settlement agreement made a decision not to require the repayment of a loan at this time (again, as distinct from potentially later), the best interests of Wonga would not be advanced by a derivative action that reverses the practical result of the board's decision, without showing that it was not properly made. That position is not altered because three other shareholders of Wonga who are aligned with Peter would also prefer a different result to that which the board has reached. At the risk of repetition, it seems to me be contrary to Wonga's and its shareholders' bests interest to sidestep and undermine the governance arrangements established by the settlement to allow a single dissenting sibling or several dissenting siblings to decide now to recover the debt owed by Lorebray to Wonga where, as I noted above, Wonga's board (by majority) have not resolved to call in Lorebray's debt at this point; no challenge is made to the propriety of the independent director's decision-making in that respect; and that course would defeat an important purpose of the appointment of an independent director to Wonga's board to assist in determining questions on which the two factions of siblings have different views.
It is also difficult to see that the other claims are in Wonga's best interests, where I find below that they largely do not give rise to a serious question to be tried in respect of the breach of duty claims against Margaret as John's executrix and in her own right and as against Bill and the accessorial claims against JMMH.
Third, in respect of all of the proposed claims, Mr Pritchard submitted (in opening submissions for Peg prior to her withdrawal) and I accept that the question of best interests generally also involves a question whether it is in a company's interests that the proceedings be brought by the particular applicant, and that it is here not in Wonga's best interests that Peter brings the proposed proceeding on Wonga's behalf. I proceed on the basis that Peter would do his subjective best to advance Wonga's interests, where the contrary has not been put to him. However, it seems to me that the length and extent of the dispute between family members is such that Peter would be practically unable to distinguish Wonga's interests in the proceedings from his interests and those of the siblings that are aligned with him, and his subjective view of Wonga's interests would inevitably coincide with his interests, rather than the interests of the siblings with whom he has been in dispute for several years. That difficulty is exacerbated by the fact that, as Mr Pritchard pointed out, Peter proposes to retain the same solicitors who are acting for him in the several other proceedings to act for Wonga in the proposed proceedings and did not take up a suggestion made by Peg that independent legal representatives be retained to act for Wonga in the proceedings. I should not seek to impose any requirement for independent legal representation on Peter, as a condition of granting leave to him in the proceedings, without his consent, but should determine the application as he puts it. The fact that Peter does not propose to retain independent legal representation to conduct the proceedings for Wonga - where that might have mitigated (although not removed) the risk that he could not distinguish Wonga's interests from his own - is a further reason that he has not established on the balance of probabilities that the proposed proceedings are in Wonga's best interests or that he should be granted leave to bring them in Wonga's name.
I have referred above to the authorities which indicate that the test for a serious question to be tried is a "relatively low threshold": Swansson at [25]; Gladstone Pacific Nickel Ltd at [56]; Jalal Brothers at [29]. An application of this character does not involve a consideration of the underlying merits of the proposed litigation, except to the extent that it is necessary to determine whether there is a serious question to be tried and it will not generally be appropriate for the Court to attempt to resolve disputed questions of fact in such an application: Swansson at [25]; Gladstone Pacific Nickel at [56]; Huang v Wang above at [60]: Re Legal Practice Management Group Pty Ltd (2018) 125 ACSR 513; [2018] NSWSC 527 at [94].
The need for evidence to establish the factual basis of a serious question to be tried was noted in Charlton v Baber (2003) 47 ACSR 31; [2003] NSWSC 745, where Barrett J held that a serious question to be tried in respect of a breach of directors' duties was not established, where an assertion of loans on uncommercial terms and without adequate security was not supported by evidence of the terms of the loans. The need for evidence to support such claims was also emphasised by Gilmour J in Vinciguerra v MG Corrosion Consultants Pty Ltd above at [141], approved in Hannon v Doyle (2011) 82 ACSR 259; [2011] NSWSC 10 at [48].
I will here deal with the several claims that Peter seeks to bring in turn. First, I will assume, without deciding, that the claim for repayment of the money by Lorebray would be seriously arguable. It is not necessary to decide that question or address Mr Condon's complex and subtle submissions about it where I have held that claim is neither brought in good faith nor in Wonga's best interests, so far as it would outflank and undermine the corporate governance regime established by the earlier settlement between the parties.
Second, Peter pleads in the proposed Statement of Claim that John and Peg breached statutory and general law duties in causing Wonga to advance monies to Lorebray as trustee for the MPT, likely between FY2003 and FY2012, since advances were made from year to year over that period (SOC [10]). Mr Condon seeks to put this claim differently in submissions, as a claim that John and Peg failed to "properly consider whether causing the Company to lend money to Lorebray at all was in the Company's best interest" (emphasis added). It seems that the claim, as pleaded or as differently formulated in submissions, is not seriously arguable. Advances were made from year to year over many years over this period and Peter makes no attempt to identify, or plead, the material facts that existed in any relevant year that made it improper to make an additional advance in that year, or any material facts that would support an inference that the directors did not "properly consider" the making of the advance or additional advance before it was made. There is no apparent evidentiary basis for Peter's negative assertion that John and Peg did not "properly consider" that matter, or that they could not have reasonably concluded that the several advances from Wonga to Lorebray were in Wonga's interest, in the context of closely held family companies, at the time they were made, and no attempt to identify the factual circumstances in which they were made. It is not satisfactory to say that is a matter for John and Peg to disprove, when the allegation was not made until after John had died and could not disprove it.
This claim appears to amount in part to a hindsight proposition that, looking back from 2022, it would have been preferable that the advances had not been made between FY2003 and FY2012. That reasoning process is illegitimate and, even if it were legitimate, its factual basis is also not apparent, where (as I noted above) Peter's case shifts between the propositions that the loan may now be recoverable or largely recoverable and Lorebray and MPT have substantial assets that can be realised to pay it back; that the loan is at risk of not being recovered because Lorebray has, since 2010 or 2011 or 2012, not had sufficient assets to pay it back; that the loan became statute-barred long ago, because of a breach of duty on John's or Peg's part; or that the loan will become statute-barred at an unidentified future date unless Peter is now permitted to bring proceedings to recover it on Wonga's behalf. To the extent that it depends on a proposition that directors can never properly authorise loans between family companies or the trustees of family trusts on an interest free or unsecured basis, Mr Condon has not pressed that proposition and I do not consider it to be seriously arguable, and Peter does not plead or establish a claim that a loan could not have been made on that basis, at least until 2010.
In closing submissions, Mr Condon sought to develop an unpleaded claim that the loan should not have been made because the shareholders of Wonga are not identical to those of Lorebray; the directors of Wonga were required to take into account how their actions would affect that company's shareholders; on the winding up of Wonga, its members would be entitled to a pro rata share of the net assets; and those members are merely discretionary objects of the MPT. It is not necessary to determine whether that claim is seriously arguable, where it is not the claim that Peter seeks to make in the proposed Statement of Claim, although I note two obvious difficulties with it. First, it is not apparent why John or Peg should have considered, in 2003, the position in a winding up of Wonga, if they did not intend it be wound up in the foreseeable future, and it has not in fact been wound up in the last twenty years. Second, the making of a loan to a credit-worthy debtor replaces cash on the lender's balance sheet with a corresponding asset, the amount of the debt owed by the borrower. It is also not apparent why the shareholders of Wonga would have been prejudiced by the fact that they retained a right to a pro rata share in winding up (if it ever occurred) of the proceeds of that debt, unless one assumes additional unpleaded facts that Lorebray was not a credit-worthy debtor in 2003.
Third, Peter pleads in the proposed Statement of Claim that John and Peg breached statutory and general law duties in failing, from about 1 July 2010, to obtain a right on the part of Wonga to charge interest on the amounts outstanding to Wonga by Lorebray (SOC [36]-[37], [38(a)(i)]) and failing, from about 1 July 2010, to obtain security for the repayment of the monies owed by Lorebray to Wonga (SOC [29(c)(ii)], [40]-[41]). In submissions, Mr Condon puts that the breach was a failure to "ensure" that any such loan arrangement, if in Wonga's interests, was on commercial terms, including by way of imposing interest commensurate to the risk of an unsecured loan; and to consider whether or not taking of security ought to have occurred in respect of the loan arrangement. The former proposition, consistent with the pleading, is directed to a failure to take a particular action; the latter shifts the case from a failure to take security to a failure to a "consider" the question whether to do so, although Mr Condon points to no evidence capable of supporting an allegation that John and Peg did not consider that question.
Mr Condon refers to Thomas v Arthur Hughes Pty Limited (2015) 107 ACSR 443; [2015] NSWSC 1027 where White J (as his Honour then was) observed:
"The loans were interest-free and were given without security. The company was deprived of its income stream from interest and dividends and was deprived of the prospect of future capital growth of the shares and stapled securities. The transaction was disadvantageous to Mr Lewis as shareholder for the same reasons it was disadvantageous to the company. It did not implement his testamentary wishes, even if that were a legitimate consideration."
Mr Condon also refers to the decision in OLI 1 Pty Limited (in liq) v OLG 2 Pty Limited (No 2) [2022] NSWSC 1199, where the plaintiff lender and the defendant borrower had common directors at the time of the impugned loans, and Chen J observed that:
"In relation to the duty of care and diligence (s 180), and in line with the authorities referred to, this requires an objective and evaluative assessment of the foreseeable risks of harm to any interests of the corporation against potential benefits that could reasonably result, or be expected to accrue, from the transaction entered into between OLI and OLG. Further where - as here - a transaction has the potential for conflict between a director's interest and duty, the duty of care and diligence requires "special vigilance" and demands "scrupulous concern" on the part of those officers who become aware of that transaction to ensure that any necessary corporate approvals are obtained and safeguards put in place: Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 at [372] (Santow J); Re FAL Healthy Beverages Pty Ltd [2017] NSWSC 476 at [55] (Black J); Re Sirrah Pty Ltd (in prov liq) [2021] NSWSC 413 at [77] (Black J).
In my view, having regard to the findings I have made about the nature of the transaction - in short, the loan was without a term, made no provision for repayment, was interest-free and unsecured - and having regard to the fact that no benefit to OLI can be said to have flowed from this transaction (or could conceivably flow to OLI), it follows that a reasonable director would not have caused or permitted OLI to have entered it. No steps at all were taken by Mr O'Day to evaluate, and then decide upon, the benefits of OLI embarking upon this transaction nor were any steps taken to secure or safeguard its interests - by requiring commercial rates of interest and a form of security - under that transaction."
Mr Condon rightly accepts that cases which have found a breach of duty by a lender's directors must, of course, be read by reference to their facts. In closing submissions, Mr Condon also rightly disavowed reliance on any general proposition that the common directors of two proprietary companies in a family group cannot properly authorise one to lend to the other on an interest-free basis and without security, and rightly recognised that this will depend on the particular circumstances of the companies and the loan.
The material facts necessary to establish a breach of directors' duty in the particular circumstances are not pleaded in the proposed Statement of Claim or otherwise identified, either as at 2010 or as at the unidentified dates over the next 10 or so years at which this breach may be alleged to have occurred. The pleading and Peter's submissions do not plead or identify the factors relevant to John's and Peg's consideration, at any particular point in time from 2010 on, whether the position as to Lorebray's net assets then warranted seeking to change the then existing position, that an unsecured and interest-free loan in differing amounts had existed since 2003, by requiring that interest then be paid and security be given by Lorebray, having regard to Wonga's and Lorebray's then circumstances; whether Lorebray had the capacity to pay such interest and give such security; what Wonga should do if Lorebray declined to or could not pay any interest or give any security which Wonga then required; and whether any action then taken by Wonga if such interest or security was not paid or given, for example to wind up Lorebray, would adversely impact on Wonga as a family company and the several trust arrangements. There is also no apparent evidentiary basis for Peter's negative assertion that John and Peg did not consider whether to take security for the loan, or that they could not have reasonably concluded that it was not necessary to do so. As I noted above, it is not satisfactory to say that is a matter for John and Peg to disprove, when the allegation was not made until after John had died and could not disprove it.
It seems to me that Peter's failure to plead or identify the factual circumstances that could establish any breach in 2010, or any unidentified later date, has the consequence that I am not satisfied on the balance of probabilities that this claim is seriously arguable against Peg as John's executrix (so far as a breach of duty is alleged against him) or against Peg in her own right.
Fourth, Peter pleads in the proposed Statement of Claim (SOC [29(a)], [31(b)], [32]) that John and Peg breached statutory and general law duties in failing, from 1 July 2003 (although the particulars to paragraph 29 refer to 1 July 2002), and again from 1 July 2010, to take any action to call in and recover the monies advanced by Wonga to Lorebray prior to any debt becoming statute-barred. Mr Condon summarises these claim in submissions as an allegation that "the directors of the Company failed to … to the extent Lorebray's limitation argument prevails, ensure that the debt was capable of being properly called upon by the Company." This claim has something of a hypothetical character, depending on a finding that the Court may or may not in future make as to whether the loans made at various times are statute-barred. The claim also begs the question how John and Peg, in 2003 or 2010, or at an unidentified later date, could have reasonably anticipated the breakdown of relationships between their children or that one or several of the children might cause Lorebray to take a limitation point in the course of their disputes, many years later.
This claim also does not plead or identify the factual basis on which a failure to take the suggested action was a breach of duty at any time over the twenty years since 2003, which would include at least when that breach was said to have occurred; whether Lorebray then had the capacity to repay the loan when it was called at that time; what Wonga should do if Lorebray did not repay the loan at that time; and whether any action then taken by Wonga if that loan was not repaid, including to wind up Lorebray, would adversely impact on Wonga as a family company and the several trust arrangements. Peter's failure to plead or identify the factual circumstances that could establish any breach in 2003 or 2010, or any unidentified other date, again has the consequence that I am not satisfied on the balance of probabilities that this claim is seriously arguable against Peg as John's executrix (so far as a breach of duty is alleged against him) or against Peg in her own right. I am also not satisfied on the balance of probabilities that this claim is seriously arguable against Peg as John's executrix (so far as a breach of duty is alleged against him) or against Peg in her own right.
It also seems to me that the claim against Peg as executrix of John's estate, in respect of John's conduct, does not give rise to a serious question to be tried, for a further reason. It is common ground that that estate was fully administered, after notice was properly given of an intention to do so, and no notice was received in the relevant period of the claims now sought to be brought by Peter in Wonga's name. In those circumstances, as Mr Pritchard pointed in opening submissions, the claim for compensation against Peg as executrix of John's estate is barred by s 92(2) of the Probate and Administration Act 1892 (NSW); English v Stewart [2022] NSWSC 268 at [47].
It seems to me that the claim against Peg in her personal capacity does not give rise to a serious question to be tried, where its factual basis is not adequately identified and for the reasons noted above in respect of the particular claims. Mr Pritchard also put, in opening submissions, that many or all of the claims against Peg are statue-barred. It is not necessary to decide that question given the findings that I reach on other grounds.
Peter also seeks to have Wonga bring a claim against Bill for breaches of duty to Wonga (under s 180 of the Act) in declining to authorise Wonga to make demand on, or recover money from, Lorebray (SOC [42]-[44]). No corresponding claim is brought against Mr Miller, the independent director on Wonga's board, who also declined to authorise any action by Wonga against Lorebray. It seems to me that the claim against Bill also does not give rise to a serious question to be tried. First, the fact that Wonga could, as a matter of law, arguably have called for repayment of the loan by Lorebray at this time (as distinct from, potentially, later) does not create any inference that its directors should have resolved that it do so at the board meeting on 9 July 2021, which would depend on an analysis of all the relevant circumstances including the extent of other disputes between the parties, and the impact of doing so on those other disputes, which Peter does not seek to undertake. Second, the fact that Bill did not agree with the view put by Stephen's solicitor in his email dated 8 July 2021 does not, in itself, establish an arguable case for breach of duty. Third, the claim for breach of duty on Bill's part is undermined by the fact that Stephen declined to engage with any discussion of the merits of the course that he proposed at the meeting on 9 July 2021, and it is not apparent why Bill breached his duty in not taking as course which Stephen would not discuss at that meeting and which Mr Miller did not support.
Peter also seeks to have Wonga bring a claim against JMMH which is said to be liable as a knowing recipient under the first limb of Barnes v Addy (1874) LR 9 Ch App 244 and to have been involved in Peg and John's breaches of directors' duties under ss 181 and 182 of the Act in making the advances of money to Wonga (SOC [50]), because the monies advanced by Wonga to Lorebray were purportedly on lent by Lorebray to JMMH (SOC [46]-[47]).
It seems to me that the knowing receipt claim against JMMH does not give rise to a serious question to be tried. Broadly, under the first limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244, a person who receives company property will hold it on trust for the company if he or she knows, or the circumstances are such that he or she ought to know, that a director is acting in breach of duty in respect of the relevant transaction. In order to succeed in a claim for knowing receipt, Wonga would need to establish the relevant breach of fiduciary duty by John and Peg; and that JMMH received the relevant property by reason of the breach of duty and, at the time of receiving that property, knew of the "trust" (or duty) and of the misapplication of the relevant property: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 ("Farah"); Grimaldi v Chameleon Mining NL (No 2) (2012) 87 ACSR 260; [2012] FCAFC 6; Gordon in His Capacity as Liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) [2015] NSWSC 397 at [61]. The case which Peter seeks to put for Wonga, at its highest, is that JMMH knew that the loan by Wonga to Lorebray was unsecured and interest free. In closing submissions, Mr Condon was unable to identify any other matter known to JMMH that would indicate a breach of duty. That, without more, is not sufficient to establish a breach of duty.
For the same reasons, it seems to me that the knowing involvement and accessorial claims against JMMH do not give rise to a serious question to be tried. Broadly, a person who assists a fiduciary to breach his fiduciary duties, with knowledge of a dishonest and fraudulent design on the part of the fiduciary, is liable as though they were the fiduciary: Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Farah at [179], [183]; Hasler v Singtel Optus Pty Ltd (2014) 311 ALR 494; 101 ACSR 167; [2014] NSWCA 266; Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307; BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351 at [306]ff. A person involved in a contravention of ss 180-182 of the Act, within the meaning of s 79 of the Act, can also be liable under those sections. That concept includes a person who aids, abets or induces a contravention and also a person who is knowingly concerned in or party to a contravention. Knowing concern, for that purpose, requires that a person is an intentional participant in the contravention, and that he or she have knowledge of the essential elements of the contravention which must exist at the time of the alleged contravention, and constructive knowledge is not sufficient for that propose. The claim against JMMH on these bases also does not give rise to a serious question to be tried, again because the case which Peter seeks to put for Wonga, at its highest, is that JMMH knew that the loan by Wonga to Lorebray was unsecured and interest free. Again, Mr Condon could not identify any other factor indicative of breach of duty known to JMMH in closing submissions. That, without more, is not sufficient to establish a breach of duty.
Importantly, as I have noted above, it is not my role to excise parts of Peter's proposed Statement of Claim that do not give rise to a serious question to be tried, leaving Peter with a remnant of the claims that he sought to bring on Wonga's behalf. Where substantial parts of the claim that Peter seeks to bring do not give rise to a serious question to be tried, leave should not be granted to bring the claim in its present form.