Brightwell v RFB Holdings

Supreme Court of NSW|2002-08-16|Before: Austin J

Reported Decision : (2003) 44 ACSR 186 (2003) 21 ACLC 355

CITATION : Brightwell v RFB Holdings [2003] NSWSC 7 HEARING DATE(S) : 8, 11 & 23 July, 16 August 2002 JUDGMENT DATE : 29 January 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Application for leave to amend granted, application for leave under s 237 of Corporations Act granted

CATCHWORDS : CORPORATIONS - derivative action to assert company's claim - whether Part 2F.1.A of Corporations Act applies to company in liquidation - whether Court's inherent power to authorise creditor or contributory to assert rights of company in liquidation survives Part 2F.1.A - whether Part 2F.1.A applies where general law derivative action commenced before 13 March 2000 - discretionary considerations under Part 2F.1.A - PRACTICE AND PROCEDURE - application for leave to amend statement of claim - delay and prejudice - new claims - LIMITATION OF ACTIONS - whether amendment with leave relates back to time of filing of summons when no new party is joined Corporations Act 2001 (Cth) ss 236, 237, 477(6), 511 LEGISLATION CITED : Limitation Act 1969 (NSW) s 14 Supreme Court Rules Pt 8 r 2, 8, 11, Pt 20 r 4 Advent Investors Pty Ltd v Goldhirsch (2001) 37 ACSR 529 Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2001] NSWSC 705 Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541 Brunninghausen v Glavanics (1999) 46 NSWLR 538 Cadima Express Pty Ltd v Deputy Commissioner of Taxation (1999) 33 ACSR 527 Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193 Cadwallader v Bajco Pty Ltd [2002] NSWCA 328 Cape Breton Co v Fenn (881) 17 Ch D 198 Chittick v Maxwell (1993) 118 ALR 728 Clough v Frog (1974) 4 ALR 615 Cohen v McWilliam (1995) 38 NSWLR 476 Commonwealth v McLean (1996) 41 NSWLR 389 CASES CITED : Foss v Harbottle (1843) 2 Hare 461 [67 ER 189] Hartigan v International Society for Krishna Consciousness Inc [1999] NSWSC 57 Karam v Australia & New Zealand Banking Group Ltd (2000) 34 ACSR 545 Keyrate Pty Ltd v Hamarc Pty Ltd (2001) 38 ACSR 396 McGee v Yeomans [1977] 1 NSWLR 273 Pace v Antlers Pty Ltd (in liq) (1998) 26 ACSR 49 Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 Re Calgary & Edmonton Land Co Ltd (in liq) [1975] 1 All ER 1046 Roach v Winnote Pty Ltd (in liq) [2001] NSWSC 822 Russell v Westpac Banking Corporation (1994) 13 ACSR 5 Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 40 ACSR 619 Swansson v Pratt (2002) 42 ACSR 313 TCN Channel 9 Pty Ltd v Antoniadis (1998) 44 NSWLR 682 Williams v Minister, Aboriginal Land Rights Act 1983 (1984) 35 NSWLR 497 Anthony Frank Brightwell (P1) Craig Ronald Brightwell (P2) Valda May Brightwell (P3) Donna Louise Gillies (P4) PARTIES : Susan Gai Slater (P5) RFB Holdings Pty Ltd (In liq) (D1) John Albert Shirlaw (D2/XD) Audrey Jean Brightwell (D3/XC) Audrey Jean Brightwell as executrix of the Estate of Ronald Frank Brightwell, late of Collaroy Beach NSW, Deceased (D4) FILE NUMBER(S) : SC 5156/99 Mr R Glasson (P) COUNSEL : Ms R Pepper (D2) Mr L Tyndall (D3, D4) McLaughlin & Riordan (P) SOLICITORS : Minter Ellison (D2) Gregory Falk & Associates (D3, D4)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5156/99 ANTHONY FRANK BRIGHTWELL & ORS V RFB HOLDINGS PTY LTD (IN LIQ) & ORS JUDGMENT 1 HIS HONOUR: This is an interlocutory application for leave to amend a statement of claim, and for leave to proceed under s 237 of the Corporations Act 2001 (Cth). The application raises some difficult legal questions about the scope of Part 2F.1A of the Corporations Act 2001 (Cth), and requires the Court to exercise its discretion in circumstances where the plaintiffs have been misadvised by counsel previously retained by them. 2 The first, second, fourth and fifth plaintiffs are the children of the late Ronald Frank Brightwell ("the Deceased"), who died on 15 December 1995. The third plaintiff is the Deceased's former wife. They are shareholders of the first defendant, RFB Holdings. Mrs Audrey Brightwell, the Deceased's widow, is the third defendant in her capacity as executrix of the will of the Deceased, and the fourth defendant in her personal capacity. She is also a shareholder. The Deceased was the managing director of the company until his death. 3 At the date of the Deceased's death, the issued capital of RFB Holdings comprised 1620 ordinary shares, and the shareholders were · the first, second and fifth plaintiffs, who each held 400 ordinary shares; · the third plaintiff, who held 401 ordinary shares; · the fourth plaintiff, who held 8 ordinary shares; · Mrs Audrey Brightwell, who held 10 shares; and · the Deceased, who held one share. 4 RFB Holdings was formed in 1959 and operated as an investment company until 30 June 1994. It was placed into members' voluntary liquidation by shareholders' resolution on 14 October 1994, and the second defendant (Mr Shirlaw), who was previously the accountant for the company, was appointed its liquidator. Mr Shirlaw was liquidator of the company until 29 May 2001, when he was replaced by the present liquidator, Mr Smith, by an order of this Court made in the present proceeding. 5 Mr Smith prepared a report for the plaintiffs' solicitors dated 22 November 2001, commenting on the affairs of RFB Holdings and the dealings of Mr Shirlaw as liquidator. He had access to records produced by Mr Shirlaw under subpoena in the present proceeding. 6 In his report Mr Smith reviewed some financial evidence, which indicated that RFB Holdings lent the deceased over $405,000 at some time prior to 14 October 1994, when the resolution for winding up was passed. The evidence included a Declaration of Solvency and Statement of Assets and Liabilities for the company as at 10 October 1994, signed by the Deceased and the first plaintiff and filed with the Australian Securities Commission on 13 October 1994. This document showed as assets of the company "loans and advances" of $467,799.03, and identified no liabilities other than the costs of winding up. A balance sheet for the company as at 30 June 1994 showed as current assets loans to Brightset Pty Ltd of $11,542 and to "Directors" of $405,178.07. The 1993 Annual Return for the company showed current assets of $459,615 and non-current tangible assets of $11,989. According to Mr Smith, correspondence in Mr Shirlaw's files pointed to the conclusion that the "loans and advances" identified in the Statement of Assets and Liabilities and other documents were loans to the Deceased. 7 The shareholders' resolution that the company be wound up by members' voluntary liquidation purported to authorise the liquidator to distribute the assets of the company in whole or in part to the members in specie. Mr Smith noted that distribution in specie was not authorised by any power contained in the articles of association of the company, and he expressed the view that in those circumstances, the liquidator did not have authority to distribute assets in specie. 8 Mr Shirlaw prepared a report as liquidator, evidently for the purposes of and prior to the meeting of contributories held on 17 November 1995. Mr Shirlaw's undated report, which is brief, sets out a statement of the distribution of the company's assets to members, "including the return of capital to all shareholders including Ronald F Brightwell who was entitled under the Memorandum & Articles of Association to all available assets and was paid accordingly". The report indicates that the Deceased received a "dividend and capital repayment" of $416,720 in respect of his single share, whereas the other shareholders each received $2 per share. 9 The evidence includes a minute, signed by the Deceased, of a meeting of the members of RFB Holdings held at 12 noon on 17 November 1995. The Deceased, the first plaintiff and Mr Shirlaw were present, and the Deceased held proxies from all other shareholders. The minute says that "the report of the liquidator on the conduct of the liquidation are [sic] receipts and payments together with Dividend, Capital repayment was tabled and accepted." The evidence also includes a minute apparently signed by all seven shareholders, purporting to record a resolution under s 509 of the Corporations Law at a meeting also held at 12 noon on 17 November 1995 in the same place, at which it was resolved that "the liquidators' [sic] final account and report be and is hereby received and adopted." 10 In his report Mr Smith referred to Mr Shirlaw's report and these minutes. He noted that the only shares issued by the company were ordinary shares, and under the company's constitution the rights and entitlements attaching to each of those shares were the same. He expressed the opinion that the surplus assets of the company should have been distributed pro rata to each of the shareholders in proportion to their relative shareholdings. 11 It seems, although the evidence is not clear, that the distribution to the Deceased was made by Mr Shirlaw by applying the amount of the distribution to extinguish the Deceased's debt to the company. It is not clear whether the excess of distribution over debt was paid to him. 12 Mrs Audrey Blackwell was the sole beneficiary of the estate of the Deceased, and received a distribution from the estate of over $600,000. On 20 February 1996 the solicitor then acting for her wrote to the fifth plaintiff, referring to the distribution made to the Deceased by Mr Shirlaw as liquidator of RFB Holdings. He said that Mrs Blackwell had instructed him to reimburse to the shareholders their respective entitlements. He acknowledged that Mrs Blackwell was under an obligation "to ensure that those assets under the control of the Deceased, which are truly yours, are applied to you as soon as she be able." However, Mrs Blackwell did not reimburse any money to the plaintiffs, and later she changed her mind about doing so. 13 The plaintiffs' solicitors took instructions in 1997. They briefed counsel, who advised that an inquiry should be made as to whether the Deceased's debt to the company had been repaid. In 1998 they negotiated with Mr Shirlaw for the recovery of the debt. By June 1998 Mr Shirlaw agreed to take steps to recover the debt, and the plaintiffs agreed to indemnify him. Their solicitors prepared a deed of indemnity but Mr Shirlaw decided in September 1998 not to sign it or to take steps for recovery of the debt, because of his friendship with the Deceased and his widow. He said he had discovered the minutes to which I have referred. The minutes seem to show that the plaintiffs consented to the distribution to the Deceased. 14 The plaintiffs' solicitors consulted counsel again in September 1998. Counsel advised that steps be taken to have a new liquidator appointed in substitution for Mr Shirlaw, so that the liquidator could do what was necessary to recover the debt. On 17 September 1998 they wrote to the solicitor for Mrs Brightwell saying that they intended to have a liquidator appointed to the company to recover the debt. 15 The plaintiffs commenced this proceeding by summons on 22 December 1999. By their statement of claim, settled by counsel and filed in March 2000, they alleged that one of RFB Holdings' assets at the date of commencement of its winding up was a debt owed by the Deceased to it in the amount of $405,178.07. They claimed that the debt was not collected or called in by Mr Shirlaw during the course of his administration as liquidator of the company, and that he wished to resign from his office and be replaced. They alleged that Mrs Audrey Blackwell refused to pay the amount of the debt to Mr Shirlaw. They sought a declaration that she was indebted to the company for $405,178.07 and an order under s 502 or 503 appointing another liquidator in place of Mr Shirlaw. 16 There were several problems with the statement of claim in its original form. First, no relief was sought directly with respect to the validity of the distribution by Mr Shirlaw to the Deceased. That issue was left to arise in reply, in the event that a defence be raised to the effect that the debt had been set off against the distribution. Secondly, no relief was claimed against Mr Shirlaw, although he was a defendant and the statement of claim alleged that he had failed, as liquidator, to collect the debt. Thirdly, the standing of the defendants to obtain declaratory relief about the rights of the company was not obvious, in the absence of some appropriate order. Fourthly, the basis upon which Mrs Audrey Blackwell was said to be liable to pay the debt was not made clear in the pleading. 17 Counsel for the plaintiffs had not, up to this point, advised as to a claim or potential claim against Mr Shirlaw. By letter dated 6 June 2000, the solicitor then acting for Mrs Audrey Blackwell wrote to the plaintiffs' solicitors seeking more time to prepare and file her defence. He said he believed she had a cross-claim against Mr Shirlaw and suggested that the plaintiffs may have a claim against Mr Shirlaw as well. The plaintiffs' solicitors took advice on this prospect from counsel. Counsel advised that Mrs Blackwell's cross-claim would not succeed and the plaintiffs should continue as they were. 18 In June 2000 Mr Shirlaw's solicitors requested particulars of Mrs Blackwell's proposed cross-claim, and threatened an application to strike it out. Counsel for the plaintiffs advised that they should not make any application for the appointment of a liquidator to replace Mr Shirlaw until various interlocutory steps, including threatened interlocutory steps concerning the cross-claim, had been resolved. Eventually, however, in May 2001 the plaintiffs sought an order for the appointment of a new liquidator in place of Mr Shirlaw and, as I have said, the Court appointed Mr Smith. 19 After Mr Smith delivered his report, counsel advised that it would be necessary to widen the relief sought in the proceeding so as to cover the matters raised by Mr Smith. From time to time the plaintiffs raised the question whether they should be seeking relief against Mr Shirlaw, and counsel advised against that course. The plaintiffs made an application to amend the statement of claim to deal with the matters raised by Mr Smith, and Master Macready dealt with that application on 3 December 2001. He granted leave to the plaintiffs to amend the statement of claim to seek orders setting aside the distribution by Mr Shirlaw to the Deceased. It is not clear whether an amended statement of claim was filed pursuant to the Master's orders, but I shall assume that amendments were made in accordance with the notice of motion which was before the Master, and the Master's orders. 20 In December 2001 it became necessary for counsel to return his brief, and new counsel was briefed in his place in mid-January 2002. Having reviewed the case, the new counsel concluded that the plaintiffs should re-plead so as to include claims against Mr Shirlaw for negligence and breach of fiduciary and statutory duties. 21 The plaintiffs filed a notice of motion on 10 April 2002, seeking leave to make comprehensive amendments to the amended statement of claim. They filed an amended notice of motion on 24 May 2002, seeking both leave to amend the amended statement of claim and leave under s 237 of the Corporations Act to bring the proceedings on behalf of and in the name of RFB Holdings. After the initial hearing of the application, the plaintiffs introduced further amendments to clarify their claims against Mrs Audrey Brightwell, and to make further allegations as to the factual basis upon which her liability was said to arise. The current position is that the plaintiffs seek leave to amend the amended statement of claim in accordance with the "third further amended statement of claim" ("TFASC") handed up by their counsel to the Court on 23 July 2002, and they also seek leave under s 237. 22 The TFASC would add RFB Holdings as a plaintiff and remove it as a defendant. It would make changes to the plaintiffs' claims, and introduce claims on behalf of the company, as follows: (1) Following up some observations in the Master's reasons for judgment, the plaintiffs will claim that both the distribution by the liquidator and the resolutions of the members of November 1995 are invalid (TFASC paras 12-14). The grounds for invalidity of the resolutions relate to an alleged lack of information as to the financial affairs of the company and the liquidator's lack of power to make the distribution. The substance of this amendment falls within the Master's reasoning, and therefore the amendment should be regarded as permitted by the leave already granted. (2) The claim for recovery of the debt from Mrs Audrey Brightwell will be revised to make it clear that there are two bases for it. First she is said to be liable in her capacity as executrix of the will of the Deceased, either to RFB Holdings or to the plaintiffs. Secondly, she is said to be liable, either to the company or to the plaintiffs, as sole beneficiary and recipient of the entirety of the estate of the Deceased, with knowledge of the plaintiffs' claim - that is, their claim arising from the distribution of the assets of the company in its liquidation to the Deceased, rather than to them as shareholders. (3) A new claim will be made against Mrs Audrey Brightwell, arising out of loans referred to in the TFASC as the "Liddell" and "Mercier" loans. It appears that the plaintiffs have discovered some evidence, not presented in any detail in the present application, that the Deceased lent $100,000 to Mr Liddell and $90,000 to Mr Mercier, in each case out of the company's funds. The plaintiffs say that interest on these loans was to be paid to the Deceased personally and, after his death, to Mrs Audrey Brightwell. The TFASC will claim that Mrs Brightwell is liable, either in her capacity as executrix or as sole beneficiary receiving the entirety of the estate with notice, to account to RFB Holdings for the interest and any principal received by the Deceased or by her in respect of these loans. (4) Claims will be made against Mr Shirlaw by the plaintiffs personally, for breach of an alleged common law duty of care which he owed to them as liquidator, and on behalf of RFB Holdings, for breach of his statutory duty of care as an officer of a company under the Corporations Act (now s 180). (5) Claims will be made against Mr Shirlaw on behalf of RFB Holdings, and by the plaintiffs personally, for breach of fiduciary duties. (6) A claim will be made against Mr Shirlaw that he breached his statutory duty as liquidator, said to arise by the operation of ss 501 and 506 (3) of the Corporations Act, to distribute the surplus assets of RFB Holdings amongst the members in accordance with their respective rights and interests conferred by the company's constitution. (7) In the alternative, the plaintiffs will apply under s 511 of the Corporations Act for the Court to determine various questions said to arise in the winding up of RFB Holdings, including questions as to whether the debt owed to the company by the Deceased has been extinguished by the liquidator's distribution, whether the distribution and the November 1995 resolution should be set aside, whether Mr Shirlaw has acted negligently or in breach of fiduciary and statutory duties, and whether the plaintiffs and the company are entitled to compensation from Mr Shirlaw. (8) In the alternative, the plaintiffs will claim that the Court should inquire into the conduct of Mr Shirlaw as liquidator of the company under s 536 of the Corporations Act. (9) Pursuant to s 504 of the Corporations Act, the plaintiffs will make an application to the Court for review of the amount of Mr Shirlaw's remuneration. 23 I shall deal first with the application for leave under s 237, and then with the application for leave to amend. Leave under s 237 of the Corporations Act 24 The TFASC makes various claims on behalf of RFB Holdings - namely, a claim to recover the debt from Mrs Audrey Brightwell as executrix or beneficiary, and claims against Mr Shirlaw for breaches of statutory, fiduciary and common law duties. Section 236 of the Corporations Act abolishes the right of a person at general law to bring or intervene in a proceeding on behalf of a company, and sets out the conditions to be satisfied for a person to bring a proceeding on behalf of the company, or intervene in any proceeding in which the company is a party for the purpose of taking responsibility on behalf of the company for that proceeding, or for a particular step in it. There are three conditions. 25 Here the first condition is satisfied because the plaintiffs are members of the company. The second condition is that a proceeding brought on behalf of the company must be brought in the company's name. On the basis that this is properly characterised as a case where a proceeding is being brought on behalf of a company, as opposed to a case where a person is intervening in a proceeding in which the company is a party on the company's behalf, the condition will undoubtedly be satisfied once the amendment is made, because the amendment will make the company a plaintiff rather than a defendant. However, it has been held that this condition is satisfied if the company is a defendant and the proceeding is clearly a representative proceeding: Keyrate Pty Ltd v Hamarc Pty Ltd (2001) 38 ACSR 396. The third condition is that the person must act with leave granted under s 237. Consequently the plaintiffs seek leave under s 237, as well as leave to amend, so that they can proceed under the TFASC. 26 Section 237 provides that a member (inter alias) may apply to the Court for leave to bring or intervene in a proceeding, and the Court must grant the application if it is satisfied of a number of matters. The plaintiffs say that the Court ought to be satisfied about each of the matters stipulated in s 237, and consequently that it must grant their application for leave to assert claims in the TFASC on the company's behalf. The matters stipulated by s 237 (2) are as follows: (a) it is probable that the company will not itself bring the proceeding, or properly take responsibility for it; (b) the applicant is acting in good faith; (c) it is in the best interests of the company that the applicant be granted leave; (d) there is a serious question to be tried; (e) either the applicant gave written notice to the company of the intention to apply for leave and the reasons for doing so, at least 14 days before making the application, or it is appropriate to grant leave even though that notice requirement was not satisfied. 27 As to requirement (a), Mr Smith as liquidator has provided an affidavit in which he says that he does not propose to cause the company to institute proceedings in relation to the matters contained in an earlier (but substantially identical) version of the TFASC, saying that the company does not have any assets or resources to fund any such proceeding. He says that he consents to the plaintiffs intervening in and using the name RFB Holdings in the proceeding, and his affidavit annexes a deed whereby the plaintiffs have indemnified him in respect of the proceeding in consideration of his giving that consent. Requirement (a) is satisfied. 28 As to requirement (b), there is no reason for doubting, on the evidence before me, that the plaintiffs are acting in good faith. 29 As to requirement (c), in Swansson v Pratt (2002) 42 ACSR 313 Palmer J usefully set out some matters about which evidence will normally be given (at para [56-60]). In substance, evidence has been presented to me of the relevant matters. Since the company is in liquidation, the conduct of the proceeding in its name will not affect any ongoing business operations on its part. I am satisfied that it is necessary for the plaintiffs to assert the rights of the company in order for appropriate redress to be achieved. There is evidence that Mrs Audrey Brightwell has received a distribution of over $600,000 from the estate of the Deceased, indicating a prospect that she would be able to meet any judgment in favour of the company against her, and no argument has been advanced that Mr Shirlaw is so devoid of assets that a derivative action against him would be of no practical benefit to the company. 30 Mr Smith expressed the view in his report that Mr Shirlaw did not have the power to distribute the surplus assets of the company otherwise than pro rata to each member based on their respective shareholdings, and that Mr Shirlaw's statement in his report that the Deceased was entitled to all available assets of the company was incorrect. There is, at the very least, an arguable case that these opinions are correct. The constitution of the company, which is in evidence, does not authorise the disproportionate distribution that has been made, and the evidence discloses no other basis upon which the distribution could be justified. If the November resolutions by the members, approving the distribution, were based upon misleading or materially incomplete information, they are open to challenge. On that basis, the company's assets have been misapplied and it is in the interests of the company that appropriate steps be taken to recover the assets and distribute them to the persons entitled to them. 31 It is also in the interests of the company, on the same basis, that appropriate claims be made against Mr Shirlaw for his part in the misapplication. To the extent that the company's assets have been used to make loans to Mr Liddell in Mr Mercier, and instalments of interest (and perhaps instalments of principal) have been paid to the Deceased or Mrs Brightwell, there is an arguable case of further misapplication of company property and it is in the interests of the company that this property be recovered. 32 In all circumstances, I am satisfied that it is in the best interests of the company that the claims proposed to be made on its behalf in the TFASC be permitted. 33 As to requirement (d), I am satisfied, for reasons given below, that there is a serious question to be tried with respect to each of the claims to be made on behalf of RFB Holdings in the TFASC. 34 As to requirement (e), it is not clear from the evidence whether the notice requirement has been satisfied, although it appears that Mr Smith has been aware since at least 23 May 2002 (the date of his affidavit) that the plaintiffs wish to make claims on behalf of the company. In these circumstances it would be pointless to insist upon the notice requirement and I am satisfied that it is appropriate to grant leave even if the 14 days notice has strictly not been given. 35 My conclusion, therefore, is that the ingredients of s 237(2) are satisfied in the present application. Consequently the Court must grant leave under s 237, if Part 2F.1A is applicable. As to the applicability of Part 2F.1A, two issues have been raised in the course of argument, and a third should also be considered.

Was a general law derivative action available before 13 March 2000, capable of being continued thereafter? 36 First, the plaintiffs have raised the question whether a general law derivative action under the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461 [67 ER 189] was initially available in the present case, as the relevant facts occurred before the commencement of Part 2F.1A on 13 March 2000, and if so, whether that action could be continued after that date notwithstanding the introduction of the statutory derivative action. 37 In Karam v Australia & New Zealand Banking Group Ltd (2000) 34 ACSR 545 a proceeding was commenced by shareholders of a company against a third party prior to 13 March 2000. The company had not originally been joined as a party to the proceeding, because of inadvertence on the part of the plaintiffs' solicitor. After 13 March 2000, and outside the limitation period, the plaintiffs applied for leave under Part 2F.1A or, in the alternative, leave to join the company as a party for the purposes of a derivative action under the so-called fifth exception to the rule in Foss v Harbottle. Santow J considered the history of Part 2F.1A and its remedial purpose, and concluded (at 554) that the statutory derivative action had displaced any potential recourse to the fifth (or other) exception to the rule in Foss v Harbottle for the plaintiffs, notwithstanding that the right to invoke it may have accrued. 38 In Advent Investors Pty Ltd v Goldhirsch (2001) 37 ACSR 529 the plaintiffs, who were shareholders in two mining companies, commenced a proceeding in 1997 against the directors of the companies alleging, inter alia, breaches of their statutory duty of care and duties with respect to related party transactions. They sought various remedies including an order that the directors pay damages or equitable compensation to the companies. The defendants applied in 1998 to stay or strike out the statement of claim. By the time the application was heard, Part 2F.1A had commenced. The Master ordered that the proceeding be stayed insofar as the plaintiffs claimed relief on behalf of the companies. Warren J dismissed the plaintiffs' appeal from that decision, holding that s 236(3) applies to existing common law derivative proceedings, and so the action could not proceed in the absence of leave under s 237. She considered (at 539) that Part 2F.1A makes procedural provisions for the enforcement of the company's rights, and is not a substantive law defining rights. That being so, there is no presumption that the new law was not intended to affect existing proceedings. On the contrary, absent any indication of legislative intention that a procedural change is to have only a prospective effect, it will be taken to apply to existing proceedings.

39 In Swansson v Pratt Palmer J considered an application for leave to bring a proceeding under s 237, to complain of acts that occurred in 1994. He observed (at para [19]) that whatever entitlement the applicant had from 1994 onwards to bring a derivative action under any of the general law exceptions to the rule in Foss v Harbottle had been superseded by the provisions of Part 2F.1A. 40 Notwithstanding these decisions, then may be cases where the application of Part 2F.1A to displace an existing derivative proceeding would deprive the plaintiffs of substantive rights, contrary to the remedial purpose of the new provisions. I reached this conclusion in Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193 at paras [236]-[240] (not affected, on this point, by the decision on appeal: [2002] NSWCA 328) and Shum Yip Properties Development Pty Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 40 ACSR 619, 624. In the Karam and Swansson cases the Court was being asked to constitute the proceeding as a derivative proceeding for the first time after 13 March 2000, so there was no question of taking away the plaintiffs' rights to continue with a properly constituted general law proceeding. In Advent Investors Warren J applied the observations of Gibbs J in Yrttiaho v Public Curator of Queensland (1971) 125 CLR 228, 241. Then his Honour conceded that the amendment then before the Court, which precluded any fresh step in proceedings where none had been taken for three years (rather than six years under the previous law), might have affected vested rights if it had applied to cases where the three-year period had elapsed before the amendment took effect. This suggests that Part 2F.1A might be taken not to prevent a general law derivative action from going forward where the action is properly constituted under the general law principles and the subject-matter can be seen to confer rights on the plaintiffs as well as on the company which they seek to represent. 41 Be that as it may, the present case falls within the principle of the Karam, Advent Investors and Swansson cases. The proceeding was commenced by summons filed on 22 December 1999, in which the plaintiffs sought, as against RFB Holdings, Mr Shirlaw and Mrs Audrey Brightwell in her executorial and personal capacities, an order replacing Mr Shirlaw as liquidator, a declaration that Mrs Audrey Brightwell in her personal capacity owed the company the amount of the debt, and a declaration that the money comprising the debt was to be distributed to the company's shareholders in proportion to their respective shareholdings. Nothing in the summons explained the basis upon which the plaintiffs claimed to be entitled to a declaration that the debt was owed to the company. In my opinion, it cannot be inferred from the sheer fact that this order was sought, that the plaintiffs purported to represent the company in seeking it, as shareholders within an exception to the rule in Foss v Harbottle. Therefore the proceeding was not properly constituted as a derivative action at general law, and there can have been no substantive right at stake to continue with the proceeding as so constituted. 42 The original statement of claim was filed on 16 March 2000, after Part 2F.1A had commenced. Although it pleaded that the plaintiffs were shareholders of the company and that they were desirous that the debt be collected and distributed to the shareholders in the winding up of the company, it did not plead that the plaintiffs sought any relief in a representative capacity on behalf of the company. Therefore the original statement of claim, like the summons, was not properly constituted as a derivative action at general law. Although the company has been a party since the outset, the pleadings have not so far explained why it is there. This is a case, like Karam, where the plaintiffs now seek for the first time to reconstitute their proceeding as, in part, a derivative action. In doing so, they must be subject to the requirements of Part 2F.1A.

Does the Court have an inherent power to permit a derivative proceeding to assert a claim by a company in liquidation, notwithstanding Part 2F.1A? 43 The plaintiffs have submitted that, notwithstanding Part 2F.1A, the Court retains an inherent power to permit a proceeding to be taken in the name of a company in liquidation at the instigation of a creditor or contributory (Russell v Westpac Banking Corporation (1994) 13 ACSR 5; Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250), and they contend that the inherent power should be used in this case if Part 2F.1A is inapplicable or its use is found to be inappropriate. In Aliprandi McLelland J said (at 252) that the Court has a power "of respectable antiquity and… sanctioned by high authority" to authorise a procedure based on "the same principle on which a man could always have filed a bill in the old Court of Chancery against his trustee to be allowed to use his name to recover the trust property", and he cited Cape Breton Co v Fenn (1881) 17 Ch D 198, 207 (see also Cadima Express Pty Ltd v Deputy Commissioner of Taxation (1999) 33 ACSR 527). 44 These cases were decided before the introduction of Part 2F.1A. Section 236(3) says that the right of a person at general law to bring proceedings on behalf of a company is abolished. In BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2001] NSWSC 705 at para [69]; Einstein J said it was clear that "the legislature had no intention of removing the well-established inherent power of the Court to permit proceedings to be taken in the company's name where a company was in liquidation". He held (at para [72]) that on its proper construction, s 236 (3) did not address the inherent jurisdiction to permit actions to be taken in the name of the company in liquidation. In Roach v Winnote Pty Ltd (in liq) [2001] NSWSC 822 Santow J (at para [10]) expressed the opinion, without firmly deciding the point, that the statutory jurisdiction overlaps with the inherent power, the latter being exercised in an application by the liquidator under s 477(6) or s 511. 45 I respectfully agree that the inherent jurisdiction has survived after the commencement of Part 2F.1A. Literally s 236(3) abolishes only the right of a person to bring derivative proceedings. Aliprandi and similar cases recognise a discretionary power of the Court which, unlike the true exceptions to the rule in Foss v Harbottle, cannot be said to generate any rights in the applicant creditor or contributory until the discretion is exercised. Nothing in the explanatory memorandum to the Bill that introduced Part 2F.1A (set out at length by Einstein J in the BL & GY case) suggest any intention to remove or qualify the Court's inherent jurisdiction.

Does Part 2F.1A apply when the company is in liquidation? 46 This question is closely related to the previous one. It was not directly the subject of submissions, but it was considered in both the BL & GY International and Roach cases. In the former case Einstein J held (at para [73]) that there are "clear indications" within s 237 to the effect that the section does not extend to a case where the company is in liquidation. He referred to s 237 (3), saying that it contemplated the directors participating in a decision, and he noted that when the company is in liquidation it is the liquidator who is the appropriate party to make that decision. In the Roach case Santow J took a different view. It appears that Einstein J's judgment was not cited to him. Santow J said (at para [10]) that the statutory jurisdiction is available where the company is in liquidation. He regarded s 237 (3) as adjectival to the earlier substantive provisions so that its omission of any reference to liquidators should not be decisive in determining whether the statutory derivative action can apply in liquidation. 47 The issue considered in Ford's Principles of Corporations Law (Butterworths, looseleaf, para [11.270], where the following appears: "Part 2F.1A does not address the effect of liquidation. Under common law principles, once a company goes into liquidation the liquidator decides whether the company should begin or continue proceedings ( Farrow v Registrar of Building Societies [1991] 2 VR 589 and 592); the directors and members ordinarily lose their respective powers to have the company conduct litigation other than proceedings to have a winding up order stayed: Fargo Ltd v Godfroy [1986] 3 All ER 279; Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 17 FCR 344. … Prior to the commencement of Part 2F.1A, a member who was dissatisfied with a liquidator's reluctance to sue or continue proceedings could not rely on exceptions to Foss v Harbottle but could use the statutory procedure to ask the Court to order the liquidator to begin proceedings: ss 477(6), 511. "In addition to its statutory powers, the court also has an inherent power in the course of the winding up of a company to permit proceedings to be taken in the name of the company at the instigation of a member or creditor: Cadema Express Pty Ltd (in liq) v DCT (1999) 33 ACSR 527 at 536 … . "There are differing views concerning whether Part 2F.1A is available when a company is in liquidation. In BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2001) 19 ACLC 1622 at 1643, Einstein J was of the view that Part 2F.1A does not apply to a company in liquidation although it was ultimately unnecessary for him to decide the matter as he was able to make an order allowing a member of the company to intervene in common law proceedings involving the company pursuant to the court's inherent power. In making this order Einstein J considered the specific criteria in s 237 as well as all the facts and circumstances, including the attitude of the liquidator to the application. "A contrary view was expressed by Santow J in Roach v Winnote Pty Ltd (in liq) [2001] NSWSC 822. His Honour expressed the opinion that Part 2F.1A is available where a company is in liquidation. His Honour thought this to be the case even if there is overlap with the inherent power of the court to decide whether the company should begin or continue proceedings and ss 477(6) and 511. His Honour further stated that even if Part 2F.1A does not apply to a company in liquidation, it may be that the court's inherent power to decide whether the company should begin or continue proceedings when it is in liquidation should be applied so that it more closely conforms to Part 2F.1A. This was the approach adopted by Einstein J in BL & GY International Co Ltd , above, who considered the specific criteria in s 237. The order of Santow J was framed in a way which drew upon not only Part 2F.1A, but also the court's inherent power and ss 477(6) and 511." 48 The difficulty of this is question is demonstrated by the fact that two experienced judges of this Division of the Court have disagreed. With some hesitation, I have decided to prefer the view of Santow J to the view of Einstein J. Sections 236(3) and 237 literally apply to proceedings brought on behalf of a "company". That word is defined in s 9 in a manner that extends to a company in liquidation. I respectfully agree with Santow J that s 237 (3) is adjectival. The matters to be taken into account by the Court in exercising its discretion to grant leave are set out in s 237(2). Section 237(3) operates in aid of subsection (2)(c) by creating a rebuttable presumption in specified circumstances. Those circumstances apply to a case where the directors of the company have made a decision of a kind that could not be made by them if the company were in liquidation. But the fact that the rebuttable presumption arising out of s 237 (3) cannot arise in a case where at all relevant times the company is in liquidation should not be taken to imply that where a liquidator is in control the Court cannot exercise its discretion under subsection (2). Each of the criteria specified in subsection (2) is perfectly comprehensible in the case of the company in liquidation. 49 If Part 2F.1A were held to be inapplicable to a company in liquidation because of the wording of s 237 (3) (c), it would be equally inapplicable if a receiver and manager had been appointed to the company. As Santow J observed in the Roach case (at para [4]), it would be an incongruous result if the statutory derivative action were not available where a receiver has displaced the board, as regards its external relations which would embrace litigation. 50 I shall therefore make an order granting leave under s 237. However, following the lead established by Einstein and Santow JJ, I shall frame my orders so as to rely, as well, on the inherent jurisdiction, which appears to have survived Part 2F.1A. In the present case, the exercise of the inherent jurisdiction does not give rise to any considerations other than the statutory considerations prescribed by s 237(2). Leave to amend 51 The Court has discretion to grant leave to amend a statement of claim under Part 20 of the Supreme Court Rules. Part 20 rule 1 states that all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings. The correct approach to an application for leave to amend has been explained authoritatively and often. In Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146, 155, Dawson, Gaudron and McHugh JJ said: "Justice is the paramount consideration in determining an application such as the one in question. Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application."

Some reliance was placed on remarks by McHugh J in Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541 at 551-556 but in my view, to the extent that those observations are relevant, they should now be read subject to the JL Holdings decision. 52 In Commonwealth v McLean (1996) 41 NSWLR 389 at 396 (applied in TCN Channel 9 Pty Ltd v Antoniadis (1998) 44 NSWLR 682, 690), the Court of Appeal of New South Wales said that the Court has a duty to allow proper amendments and the amending party has a correlative right, although that right can be lost through delay or neglect where serious injustice would be occasioned to the opposite party by the amendment. It appears that even a very late amendment falls within this principle: Cohen v McWilliam (1995) 38 NSWLR 476, a case which can "establishes a relative primacy of the claim to have litigation disposed of on a determination of the merits over other considerations" (Hartigan v International Society for Krishna Consciousness Inc [1999] NSWSC 57 (15 February 1999, Bryson J, paragraph 9)). 53 The principal question is whether the granting of leave to amend would cause serious injustice either to Mrs Audrey Brightwell or to Mr Shirlaw. Unless it would, leave should be granted, provided that the amended pleading discloses an arguable cause of action: Clough v Frog (1974) 4 ALR 615; McGee v Yeomans [1977] 1 NSWLR 273, 280. In some of the decided cases the granting of leave to amend would necessitate vacation of hearing dates and deferral of the trial, but that is not so in the present case, as no hearing date has been fixed. Leave is opposed essentially on three grounds: that the plaintiffs have delayed their application for a substantial period causing stress to Mrs Brightwell, and they have frequently altered the proposed pleading during the course of the application; that the TFASC amounts to pleading a new case relying on substantially new assertions of fact; and that some of the claims to be raised in the TFASC are statute-barred and doomed to fail.

Delay and hardship 54 As to delay, I have summarised the plaintiffs' evidence, which shows that, although the case has not proceeded with any great expedition, the main delays appear to be attributable to counsel's advice and his eventual return of the brief. Although Mr Shirlaw was joined as a defendant from the outset, no claim for relief was made against him in the original statement of claim on the advice of counsel. The question whether an amendment should be made to claim relief against Mr Shirlaw was raised with counsel after the filing of the statement claim, and he advised against it. It was only when he was required to return the brief and new counsel was retained, that the claims against Mr Shirlaw were formulated. That, in turn, led to the realisation that some of the claims in the proceedings were strictly claims of the company, and consequently that leave was needed under s 237. 55 A substantial part of the plaintiffs' explanation for the delayed application to amend is that they were advised by the counsel then retained that no claim for relief should be made against Mr Shirlaw, and the view they now take emerged only after new counsel was retained in January 2002. This raises the argument that the defendants should not have prejudice imposed upon them because of a mistake (if it be a mistake) on the part of the plaintiffs' counsel, and that the proper method of redress for the plaintiffs should be to take proceedings against counsel for negligent advice. The proposition that it is open to the amending party to seek relief against a legal adviser did not find favour with Sheller JA in Cohen v McWilliam (and 491), his Honour remarking that this would be "a strikingly inefficient way of dealing with the question" of the respective merits of claim and defence. While the possibility of alternative redress is no doubt a relevant consideration, it seems to me likely that other considerations going to the potential prejudice of the parties are likely to be weightier in most cases. 56 As to hardship, Mrs Audrey Brightwell has given evidence that her confrontations with the plaintiffs and Mr Shirlaw, beginning after her husband's death and leading to the present proceeding, have made her feel frightened, apprehensive and sick in the stomach. She says that she has not had one good night's sleep since her husband's death, and attributes this to her inability to find peace because of the dispute. The delay and lack of resolution of the proceeding is, she says, further exacerbating her feeling of apprehension and fear. The continuation of the proceeding has caused her to put travel plans on hold. As at 1 August 2002 her legal costs amounted to $78,000 and she has been told that she must pay a further $95,000 to defend the matter if the amendments are allowed, increasing to about $125,000 if she finds it necessary to bring a cross-claim against Mr Shirlaw. (I should note that her solicitor has filed an affidavit on her behalf, corroborating the $78,000 figure.) She says that her recollection of financial matters relating to RFB Holdings is becoming dim, and she does not know whether she will be able to undertake proper investigations in relation to the Liddell and Mercier loans having regard to the passage of time since her husband's death and the possibility that records may have been lost. 57 I have some sympathy with Mrs Brightwell's predicament, but it is in her interests, as well as the interests of the other parties, that all relevant matters in dispute be determined at the final hearing. Her evidence, and the evidence of Mr Shirlaw, do not point to any prejudice of a kind that could not be removed by an appropriate costs order. Additionally, it appears that she contributed to some delay in the initiation of the proceedings, by authorising her then solicitor to write indicating that she intended to reverse the effect of Mr Shirlaw's distribution to the Deceased, only to change her mind at a later time. To the extent that she may have thrown away costs in preparing her defence in reliance upon the fact that the plaintiffs' case would be as originally pleaded, an order should be made permitting her to recover those costs from the plaintiffs. A similar order should be made for the benefit of Mr Shirlaw. But, consistently with the authorities, the Court should address prejudice of this kind by an order for costs rather than by refusal of the application for leave to amend.

New case, new allegations of fact 58 The claims against Mr Shirlaw for breach of duty with respect to his distribution to the Deceased arise from substantially the same facts as are already in issue against Mrs Audrey Brightwell. 59 The claims based on the Liddell and Mercier loans are in a different category. There is no specific explanation for the delay in formulating them, although the plaintiffs point to the inadequacy of the company's books and records supplied by Mr Shirlaw, and the difficulty in preparing the evidentiary case. The principal evidence about these loans in the present application is Mr Shirlaw's evidence, which is quite vague. The claims raise new questions of fact which, as far as I can see, do not significantly overlap with the facts relating to the Deceased's debt and Mr Shirlaw's distribution. 60 Nevertheless, in my view, it is desirable to permit amendments with respect to the Liddell and Mercier claims so as to bring about, if possible, the resolution of all aspects of the dispute between the parties. Although I recognise that Mrs Brightwell may have difficulty in recollecting facts relating to these loans, and the evidence with respect to them may well be quite thin, even at the final hearing, I do not regard those considerations as sufficient to prevent the plaintiffs from bringing forward these claims in the present proceeding.

Limitations Act 61 The plaintiffs say that they have an arguable case against Mr Shirlaw, and they make the following points: 1. fiduciary duties may be owed to shareholders in certain circumstances: Brunninghausen v Glavanics (1999) 46 NSWLR 538; 2. a liquidator owes common law duties in negligence to the company and to shareholders: Pace v Antlers Pty Ltd (in liq) (1998) 26 ACSR 49; 3. a liquidator owes the shareholders a statutory and a fiduciary duty to administer the company's assets in accordance with their rights according to law: Re Calgary & Edmonton Land Co Ltd (in liq) [1975] 1 All ER 1046 at 1050; 4. a liquidator owes various duties to the company and shareholders to collect and distribute assets, especially where there is a surplus: McPherson's Law of Company Liquidation (4th ed (1998) by A R Keay), p 363-5; 5. a creditor of a deceased person, or the beneficiary of a trust of assets held by the deceased, may (subject to any statutory protection such as the protection arising from s 92 of the Wills Probate and Administration Act 1897 (NSW)) take proceedings in equity against the administrator of the estate if the estate is distributed without adequate provision for his claim, and, subject to first exhausting his rights against the administrator, he may proceed in personam or in rem against the beneficiaries who have received the distribution: see, for convenience, the summary by RS Geddes, CJ Rowland and P Studdert, Wills, Probate and Administration Law in New South Wales (1996) pp 600 to 616. 62 There may be some room for debate as to the formulation and scope of these legal propositions. Nevertheless, in my opinion the plaintiffs have an arguable case with respect to the matters introduced by the TFASC, as far as the law is concerned. Mr Shirlaw contends, however, that the plaintiffs' claims against him are statute-barred, and therefore that it is futile to permit the plaintiffs' pleadings to be amended so as to assert those claims. 63 The claims against Mr Shirlaw are to be made by the plaintiffs on behalf of RFB Holdings, and by the plaintiffs personally. As I have said, both RFB Holdings and the plaintiffs personally allege breach of fiduciary duties owed to them respectively. There is no statutory limitation period with respect to a claim for breach of fiduciary duty: Limitation Act 1969 (NSW), s 23 (and note that the limitation period with respect to an action for an account is limited by s 15 to an action founded on a liability to account at law); Williams v Minister, Aboriginal Land Rights Act 1983 (1984) 35 NSWLR 497, 508-11; Chittick v Maxwell (1993) 118 ALR 728 at 741; P Parkinson (ed), The Principles of Equity (2nd ed, 2003), paragraphs [1002], [2910] and [2915]; G McGrath and DC Price, Limitation of Actions Handbook (1998) pp 40 to 43. Equity may, and often will, apply the whole or parts of the limitations statute by analogy, but it is less inclined to apply the analogy of the statute strictly in the exclusive than in the auxiliary jurisdiction (Williams at 509-510, per Kirby P) and it retains a discretion in all cases not to do so. Counsel for Mrs Shirlaw presented me with a list of authorities on this point but they are all consistent with the view that the Court has a discretion to decline to apply the statute by analogy. Here the circumstances leading to the claim against Mr Shirlaw not being brought for many years provide an arguable case that the limitation period of the Limitation Act 1969 (NSW) should not be applied, although the equitable principles relating to delay and laches remain relevant. Therefore the limitations point does not make the plaintiffs' case for breach of fiduciary duty unarguable and so it is not an obstacle to the granting of leave to amend, so far as the amendment relates to allegations of breach of fiduciary duties by Mr Shirlaw. 64 However, the claims against Mr Shirlaw for damages for breach of his general law duty of care appear to be subject to the six-year limitation period imposed by s 14 of the Limitation Act 1969 (NSW). To the extent that the TFASC seeks damages for breach of the statutory duty imposed by s 180 of the Corporations Act, it appears that the same limitation period applies. The evidence before me does not permit me to identify, with precision, the time of commencement of these causes of action, but so far as the claim relates to the distribution to the Deceased, it appears that the causes of action arose some time between 14 October 1994 when the liquidation of the company commenced, and 17 November 1995 when Mr Shirlaw's report that he had made the distribution was considered by the members. If the amendments were permitted on the basis that they were to take effect now and not retrospectively, the claims against Mr Shirlaw based on breach of a duty of care could well be statute-barred. If that were so, then it would be futile to allow those amendments to be made. If, however, the amendments, once made, were to relate back to 22 December 1999, the date of commencement of this proceeding, then the claims against Mr Shirlaw for breach of duty of care would be treated as made within the limitation period. 65 The question arises, therefore, whether the amendments, if they are permitted, will be taken to relate back to the date of commencement of the proceeding. The following provisions of the Supreme Court Rules may be relevant: Part 8 rule 8: "Addition of parties 8 (1) Where a person who is not a party: (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceedings may be effectually and completely determined and adjudicated upon, the Court, on application by him or by any party or of its own motion, may order that he be added as a party and make orders for the further conduct of the proceedings. (2) A person shall not be added as a plaintiff without his consent. …" Part 8 rule 11 (3): "(3) Where in any proceedings a party is added otherwise than pursuant to an order under rule 10 [not relevant here] or Part 20 rule 4 (3), the date of commencement of the proceedings so far as concerns him shall be: (a) where he is added as a defendant - the date on which the amendment adding him as a defendant is made or the date of entry of his appearance or the date of filing his defence, whichever is earliest; (b) otherwise - the date on which the amendment adding him as a party is made." Part 20 rule 4: "4 (1) Where any relevant period of limitation expires after the date of filing of a statement of claim and after that expiry an application is made under rule 1 for leave to amend the statement of claim by making the amendment mentioned in any of subrules (3), (4) and (5), the Court may in the circumstances mentioned in that subrule make an order giving leave accordingly, notwithstanding that that period has expired. … (4) Where, on or after the date of filing a statement of claim, the plaintiff is or becomes entitled to sue in any capacity, the Court may order that the plaintiff have leave to make an amendment having the effect that he sues in that capacity. (5) Where a plaintiff, in his statement of claim, makes a claim for relief on a cause of action arising out of any facts, the Court may order that he have leave to make an amendment having the effect of adding or substituting a new cause of action arising out of the same or substantially the same facts and a claim for relief on the new cause of action. (5A) An amendment made pursuant to an order made under these rules shall, unless the Court otherwise orders, relate back to the date of filing the statement of claim. (6) This rule has effect in relation to a summons as it has effect in relation to a statement of claim." 66 I have set out extracts from Part 8 rule 8, but in my opinion the rule does not apply to the present case. It applies only where a person is not a party to the proceeding. In the present case RFB Holdings has been a party since the outset. It appears that an amendment to a statement of claim under which a party theretofore a defendant becomes a plaintiff is governed by Part 20 but not by Part 8. Similarly Part 8 rule 11 (3) has no application here because this is not a case where a party is "added". 67 I have found that, once I make an order granting leave under s 237 of the Corporations Act, the plaintiffs will become entitled to sue in a representative capacity under Part 2F.1A to assert the rights of RFB Holdings against the other defendants. Once that has happened, the prerequisites for jurisdiction to make an order under Part 20 rule 4 (4) will have been satisfied. I shall then be authorised by that rule to make an order granting the plaintiffs leave to make those amendments contained in the TFASC which have the effect that the plaintiffs sue as representatives to assert the rights of the company. I shall be authorised by the rule to make that order notwithstanding that the limitation period in respect of the company's claims against Mr Shirlaw for breach of duties of care may have expired. Subrule (5A) will cause the amendment to relate back to the date of the filing of the summons, namely 22 December 1999. Since I regard that outcome as appropriate, I shall not make any order countermanding the effect of the subrule. In Karam's case Santow J held that Part 20 rule 4 (4) was available and should be used in circumstances that are not materially distinguishable from the present case. In that case, as in the present case, the reason for failure to constitute the proceedings properly within the limitation period was attributable to a mistake by the legal adviser rather than the plaintiffs personally, and the defendants were endeavouring to take advantage of that mistake by opposing the amendments. I respectfully adopt and apply his Honour's reasoning. 68 Part 20 rule 4 (4) is available in respect of the representative claim to assert the company's right to seek recovery for breach of duties of care, but it has no application to the plaintiffs' claim for breach of a duty of care owed to them personally. However, in my opinion the plaintiffs' personal claim falls within Part 20 rule 4 (5), so far as it relates to an alleged breach of duty with respect to the distribution to the deceased. It appears from paragraph 27 of the TFASC that the plaintiffs' personal claim for breach of duty of care relates wholly to the circumstances surrounding the distribution and its disclosure to the shareholders. 69 This is a case where the plaintiffs have made, in the summons and the original statement of claim, a claim for relief on a cause of action arising out of certain facts, and they now seek to make an amendment having the effect of adding a new cause of action arising out of substantially the same facts, and a claim for relief on the new cause of action. The Court therefore has jurisdiction under subrule (5) to make an order granting leave to make that amendment, and under subrule (5A) the amendment will relate back to the date of the filing of the summons on 22 December 1999 unless I order otherwise. For the reasons going to the exercise of discretion that I have already given, I think it is appropriate to make an order under subrule (5) and not to make any order adjusting the effect of subrule (5A). Conclusions 70 I have decided to grant leave under s 237 as sought in the amended notice of motion (revised so as to call in aid, additionally, the inherent jurisdiction that appears to have survived Part 2F.1A), and to grant leave to amend the statement of claim in accordance with the TFASC. The plaintiffs have succeeded in their application, and in my opinion the defendants should be ordered to pay the plaintiffs' costs of the application. However, the need to amend arises out of failure on the plaintiffs' side to make proper and appropriate claims in the original statement of claim. To the extent that the defendants have incurred costs in reliance upon their understanding of the plaintiffs' case as previously pleaded, which will now be thrown away by virtue of the amendments to the plaintiffs' case, they are entitled to an order that the plaintiffs pay those costs. The defendants claim these costs on an indemnity basis. In my opinion this is not a proper case for the award of indemnity costs against the plaintiffs, as they have succeeded in their application to amend. However, it seems to me appropriate in the circumstances to make orders directing that the costs thrown away be assessed and paid by the plaintiff forthwith. 71 It may be that the precise orders to be made concerning costs will need to be refined consistently with these principles. I shall direct the plaintiffs to prepare draft short minutes of orders with respect to the granting of leave and also with respect to costs, and fix a time for the making of orders. **********

Last Modified: 01/30/2003 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.

Wills Probate and Administration Act 1897(NSW)

Corporations Act 2001(Cth)ss 236, 237, 477(6), 511

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