Carpenter v Pioneer Park Pty Ltd

Supreme Court of NSW|2004-10-29|Before: Barrett J, Mr J

Background 1 By his amended originating process filed on 25 October 2004, the plaintiff ("Mr Carpenter") seeks leave under s.237 of the Corporations Act 2001 (Cth) to bring proceedings on behalf of the defendant ("the Company"). There is an alternative claim "under the inherent jurisdiction of the Court". The proposed proceedings are proceedings against Australia and New Zealand Banking Group Limited ("ANZ"). 2 Section 236 of the Corporations Act allows a person within any of several categories to bring proceedings on behalf of a company if the person is acting with leave granted under s.237. Mr Carpenter is within two of the specified categories, being both an "officer" (s.236(1)(a)(ii)) and a "member" (s.236(1)(a)(i)), having occupied both positions since 1984. That is sufficient to bring him within s.236(1)(a) but it is relevant to record, by way of background, that Mr Carpenter was the chief executive officer (and a director) of the Company before it became subject to Part 5.3A administration (which led on to creditors voluntary winding up) and, as well as having a small shareholding in the Company, is a director of its holding company. I shall say more about these connections presently. Mr Carpenter and ANZ 3 The proposed proceedings in respect of which Mr Carpenter seeks leave under s.237 are based on the general proposition that ANZ wrongfully terminated certain finance facilities extended to the Company and, without justification, proceeded to call up indebtedness, to appoint administrators under Part 5.3A of the Corporations Act and to sell property in purported exercise of a power of sale under a mortgage. The Company subsequently passed into the form of creditors voluntary winding up that follows on from Part 5.3A. 4 Mr Carpenter was a guarantor of indebtedness of the Company to ANZ. He is a defendant in District Court proceedings in which ANZ sues on the guarantee. Quite separately, Mr Carpenter is a defendant in several proceedings commenced by the Company's liquidator in which the liquidator alleges that Mr Carpenter breached his duties as a director of the Company and claims orders setting aside alleged uncommercial transactions. The last-mentioned proceedings are funded by ANZ and have, according to the liquidator's affidavit, been stayed pending the outcome of Mr Carpenter's claims against ANZ. According to Mr Carpenter's affidavit, however, the stay sought in the District Court is a stay until the conclusion of certain examinations by Mr Carpenter under the Corporations Act have been completed and the stay applications were due to be before the District Court again on 28 October 2004. 5 The examinations to which I have referred are examinations of ANZ personnel by Mr Carpenter under Division 1 of Part 5.9 of the Corporations Act. Mr Carpenter was authorised in writing by ASIC to undertake these examinations and thereby became an "eligible applicant". Affected ANZ personnel later sought from the Federal Court an order reversing ASIC's decision but, in a judgment given on 5 July 2004 (Soper v Australian Securities and Investments Commission [2004] FCA 854), Hely J refused that relief. Examination of certain persons followed, although one examination summons was set aside by Windeyer J. ANZ had earlier sought to have most of the examination summons set aside and was unsuccessful: Pioneer Park Pty Ltd v Carpenter [2004] NSWSC 521 (White J). One ground relied upon by ANZ in that application before White J was an alleged improper purpose of Mr Carpenter, being a purpose of putting pressure on ANZ to discontinue its funding of the District Court proceedings against Mr Carpenter. White J dealt with that as follows (at [17] to [19]): "I should say at once that there is no evidence that Mr Carpenter's purpose in applying for the examination summonses was to apply commercial pressure on the bank to withdraw its funding of the liquidator's claims, or otherwise.

I do infer that part of Mr Carpenter's purpose in applying for the summonses, was to advance his defence of the bank's claim against him in the District Court. In his defence to that claim he alleges that the bank breached its contract of loan with the company by terminating a fixed term facility when it had no right to do so, and thereby caused the company damage. He alleges in his defence, inter alia , that the bank's breach of contract with the company discharged him from his liability as guarantor. An application to strike out that defence was unsuccessful.

I make no comment upon the merits of those allegations. Although I can infer that Mr Carpenter seeks by the examination summonses to advance his own interests, he does so because he relies on matters which, if established, he says, would also advance the company's interests and those of all of its creditors and shareholders."

His Honour also said (at [23]): "The evidence before me does not show that Mr Carpenter's purpose is to use the examination summonses not for the company's purpose except in the most indirect way, but for his own. To the contrary, he seeks to advance his position by advancing, as he sees it, the position of the company." 6 Against this general background, I proceed to the question whether leave should be granted to Mr Carpenter under s.237. There is, however, a threshold issue as to whether Part 2F.1A applies in relation to a company in the course of winding up. Does Part 2F.1A apply to a company in liquidation? 7 There have now been seven cases in which this issue has been addressed. The first was BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2001) 164 FLR 268 where Einstein J expressed the view (without having to decide the question) that Part 2F.1A does not apply to a company in liquidation. His Honour was influenced by the fact that one provision within that Part (s.237(3)(c)) refers to a decision of directors with respect to proceedings that this company may bring. In two subsequent cases - Roach v Winnote Pty Ltd [2001] NSWSC 822 (Santow J) and Brightwell v RFB Holdings Pty Ltd (2003) 171 FLR 464 (Austin J) - it was held that Part 2F.1A did apply in relation to a company in liquidation, there being no contrary indication by reason of the reference to the directors in s.237(3)(c). I expressed agreement with that view in Charlton v Baber (2003) 47 ACSR 31 at [27] and [28]: "My views coincide with those of Santow J and Austin J and I respectfully adopt the approach that commended itself to them. Section 237(3), which refers to decision making by directors, does no more than cause a rebuttable presumption to arise as to one of the matters to be examined by the court under s.237(2). If the facts as found (including as to directors' decision making) cause the case to fit within s.237(3), the presumption arises. If they do not - because directors did not participate in a relevant decision, or for any other reason - the presumption does not arise. In either event, there is no reason why the substantive provisions of ss.237(1) and 237(2) cannot operate perfectly well according to their terms.

The fact that a creditors' voluntary winding up pursuant to s.446A is in progress in respect of NAA therefore presents no barrier to the grant of the leave Mr Charlton seeks under s.237." 8 In the course of recent months, Hely J (Mhanna v Sovereign Capital Ltd [2004] FCA 1040), Einstein J (William Kamper v Applied Soil Technology Pty Ltd [2004] NSWSC 891) and Stone J (Mhanna v Sovereign Capital Ltd [2004] FCA 1252) have all endorsed the view that Part 2F.1A applies to a company in liquidation. The question should now be regarded as settled. The s.237(2) criteria and their interaction 9 The first condition imposed by s.237(2)(a) is that the court be satisfied that it is probable that the company will not itself bring the proceedings. A sound basis for such a finding appears from the liquidator's affidavit filed in the present proceedings. Except for funds provided by ANZ for specific purposes, the liquidator is without financial resources and cannot even obtain legal advice for the purpose of reviewing the proposed claim. He says that it is unlikely that he will ever be in a position to cause the Company to commence the proposed proceedings. Since the liquidator has supplanted the directors in corporate decision making (Corporations Act, s.499(4)), the condition referred to in s.237(2)(a) is satisfied. 10 The second condition is that prescribed by s.237(2)(b), namely, that the court be satisfied that Mr Carpenter is acting "in good faith". There is a degree of overlap between this and not only the third condition (that is, that it is in the best interests of the company that the applicant be granted leave: s.237(2)(c)) but also the fourth condition (that there is a serious question to be tried: s.237(2)(d)). I say this because the strength of the case, at a prima facie level, will have a bearing on the question whether it is in the best interests of the company that the case be run and this, in turn, will reflect on matters of motive and purpose that are relevant to the good faith question. It is therefore appropriate, at this point, to consider more closely the proposed proceeding. The proposed proceedings 11 The proposed claim is pleaded in a draft summons in the Commercial List form included in the exhibits to Mr Carpenter's first affidavit. It runs to 26 pages. The relief sought is, first, a declaration that ANZ was not entitled to enforce its charge or appoint administrators of the Company and that the purported appointment of administrators was ineffective and void; second, a declaration that the Company did not enter into voluntary winding up; third, a declaration that ANZ was not entitled to exercise any power of sale as mortgagee in respect of property of the Company at Tuggerah; fourth, damages for breach of contract; fifth, damages for contravention of s.52 of the Trade Practices Act 1974 (Cth) and s.42 of the Fair Trading Act 1987; sixth, interest under the Supreme Court Act; seventh, orders under s.87 of the Trade Practices Act and s.72 of the Fair Trading Act to compensate for loss and damage including orders declaring void or varying the agreement between ANZ and the Company and the related guarantee. 12 In the section of the draft summons describing the nature of the dispute, there appears the following: "The plaintiff ('Pioneer') claims it was wrongfully placed in liquidation by the actions of the defendant ('ANZ'), its banker, which were in breach of the terms and conditions of the agreement between Pioneer and ANZ, that ANZ was not entitled to enforce and charge and appoint administrators under section 436C of the Corporations Law , that the administrators were not validly appointed liquidators by section 446A of the Corporations Law , and that the defendant [sic], and that Pioneer has suffered damage from the misleading and deceptive conduct of the defendant in contravention of section 52 of the Trade Practices Act , 1974 and section 42 of the Fair Trading Act , 1987." 13 The contentions advanced on behalf of the putative plaintiff in the draft summons are detailed but may be summarised. It is contended that ANZ offered to make finance facilities available to the Company in 1996 and represented the facilities as having a five year term, that the Company accepted the offer in reliance on the representations and provided security to ANZ over its assets, as well as a guarantee and security of Mr Carpenter and his wife, that it was a term of the agreement that the facilities would be available for five years and that ANZ would act in good faith in exercising its powers, do all things reasonably necessary to enable performance of the agreement and not frustrate or prevent performance by the Company or the guarantors, that there were several subsequent variations of the agreement which imported the same terms as the five year duration and performance, that in 1998 ANZ unilaterally required the Company and certain other companies associated with Mr Carpenter to refinance their facilities with another bank or financier failing which ANZ would terminate the facilities, that ANZ later terminated the facilities and in doing so was in breach of contract, that ANZ was not entitled to call up all indebtedness or to appoint administrators or exercise a power of sale (as it subsequently did) and that ANZ committed breaches of contract and made statements that were misleading or deceptive whereby the Company suffered loss and damage. 14 In formulating the claims thus pleaded, Mr Carpenter has had regard to legal advice. He has put into evidence, but with a claim to maintain legal professional privilege, a joint opinion of 7 October 2004 signed by Mr J J J Garnsey QC and Mr B A M Connell of counsel running to no less than 83 pages. Mr Carpenter has also put into evidence a letter of the same date (7 October 2004) from Minter Ellison, solicitors for ANZ, to the solicitors for the Company's liquidator which describes its purpose as twofold: first, to respond to "various allegations and causes of action which have been asserted against [ANZ] by or on behalf of Mr Carpenter in various forums and documents"; and, second, "to demonstrate that the various allegations and proposed causes of action are baseless and have no reasonable prospects of success". The general thrust of this letter may be gathered from its "Executive summary": "2.1 On the proper construction of the facility documentation, Pioneer Park's facilities were at the material time, all subject to annual review, and the Bank was entitled to give notice (as it did) following the annual review of 11 December 1998, requiring repayment of all facilities. 2.2 Further, at all material times Pioneer Park was in default under the facilities entitling the Bank to stop providing the commercial bill facility (even if it was for a fixed term as Mr Carpenter now alleges), require payment of all amounts owned and enforce its securities. 2.3 Material defaults in terms of the facility documentation included: (a) insolvency and failure to pay; (b) material adverse changes in position; (c) breach of contractually fixed gearing ratio as at 30 June 1998; and (d) the failure to furnish signed, audited accounts. 2.4 There is no credible evidence to support the serious yet vague and unparticularised assertions or speculations that: (a) there was a conspiracy within the Bank against Mr Carpenter and his companies: (b) the Bank failed to act in good faith; and (c) the Bank engaged in misleading or deceptive or unconscionable conduct. 2.5 The claim for damages (even if any relevant breach on the part of the Bank were to be established) has no basis or merit, given the absence of any substantiation that Pioneer Park could have: (a) repaid the Bank facilities which were not fixed term facilities on demand; (b) serviced the CBAD Facility (as well as the outside finance necessary to pay out the other facilities); and (c) paid out the CBAD Facility upon the expiry of the fixed term. [This is referred to as the 'causation issue'.] 2.6 The Bank is entitled to rely on the defaults on the part of Pioneer Park in terms of the facility documentation, in answer to the allegation."

As this summary shows, the Minter Ellison letter deals with some matters outside the scope of the draft summons. 15 After receipt of a copy of the Minter Ellison letter from the Company's liquidator, Mr Carpenter obtained further written advice from Mr Garnsey QC and Mr Connell of counsel. A copy of their supplementary memorandum dated 12 October 2004 is in evidence. There is again a privilege claim. 16 It would be inappropriate for me to refer to the content of the two opinions of counsel in any detail. It is sufficient, I think, to observe that the opinions are detailed and meticulous, that they are by no means based, as to factual matters, on unsubstantiated instructions of Mr Carpenter but canvass in considerable detail both available documentary evidence and statements made at the Corporations Act examinations conducted by Mr Carpenter. The factual discussion is very comprehensive, with the result that the opinions cannot by any means be regarded as merely hypothetical or unsupported. They address the several claims and their bases in a methodical and critical way and, in the case of the second opinion, show that issue can sensibly and responsibly be joined on the matters raised in the Minter Ellison letter.

The "serious question to be tried" criterion 17 Dealing with the s.237(2)(d) criterion (serious question to be tried), Palmer J said in Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 that "the court will not normally enter into the merits of the proposed derivative action to any great degree". As his Honour said, the applicant for leave under Part 2F.1A "has the same relatively low threshold to surmount as in the application for an interlocutory injunction". In the present case, the materials to which I have referred are sufficient to satisfy the "serious question to be tried" test. The requirement imposed by s.237(2)(d) is therefore met. The "best interests of the company" criterion 18 It is convenient to consider next the s.237(2)(c) requirement - i.e., that "it is in the best interests of the company that the applicant be granted leave". The first thing to be said in that connection is that, although the proposed proceedings are of a kind contemplated by s.237(3), being proceedings by the Company against a third party (s.237(3)(a)(i)), that section cannot create any rebuttable presumption that the granting of the leave Mr Carpenter seeks is not in the best interests of the Company. This is because s.237(3) is capable of operating to create such a presumption only if the relevant company's decision not to bring the proceedings itself was a decision of the company's directors: see s.237(3)(c). Here, corporate decision-making is no longer in the hands of the Company's directors. Their powers ceased on appointment of a liquidator except so far as continuance of the powers might be approved by a committee of inspection or the creditors: s.499(4). The liquidator has, of course, addressed the question whether the Company should bring the proceedings but absence of resources to enable him to come to any informed view has resulted in his making no decision to do so. 19 It was emphasised by Palmer J in Swansson (above) that the inquiry under s.237(2)(c) as to the "best interests of the company" is not an inquiry into possibility or potential. It must be found that pursuit of the particular legal action will positively serve the "best interests" of the company - which, in the present context, where the company is in liquidation and the liquidator has no funds, focuses attention on the interests of the general body of creditors in the first instance. The question is therefore whether pursuit of the proceedings Mr Carpenter wishes to institute on behalf of the Company presents genuine prospects of benefits to creditors and of enhancement of their welfare. 20 In the present circumstances of the Company, unsecured creditors will receive nothing as all funds in the liquidator's hands have been exhausted. The absence of funds also means that if the Company, through the intermediation of Mr Carpenter, sues and is unsuccessful, any costs order that may be made against the company itself will not be able to be satisfied. And of necessity, pursuit of the proceedings on the Company's behalf will have to be financed by Mr Carpenter. 21 This being so, no disadvantage to the interests the company now embodies can be seen to attend the litigation proposal. That, coupled with the existence of a potential defendant of undoubted financial substance and an arguable case the viability and prospects of which have been favourably assessed in considerable detail in the joint opinions to which I have referred, must, in this particular case, lead to a conclusion that it is in the best interests of the company that Mr Carpenter be allowed to initiate the proceedings.

The "acting in good faith" criterion 22 I return now to the condition prescribed by s.237(2)(b) and the question whether Mr Carpenter is "acting in good faith". In Swansson (above), Palmer J expressed the opinion that two questions will generally be relevant to this issue: first, whether the applicant honestly believes that a good cause of action exists; and, second, whether the applicant is seeking to bring the derivative action for such a collateral purpose as would amount to an abuse of process. The advice Mr Carpenter has from counsel, plus the content of his affidavit, shows that he honestly believes that a good cause of action exists. I proceed therefore to consider the question of collateral purpose. 23 It is obvious that Mr Carpenter personally is locked in extensive litigious combat with ANZ. I have referred to the several proceedings launched against him by either ANZ itself or the Company's liquidator funded by ANZ. I have also referred to Mr Carpenter's authority from ASIC to conduct examinations and the consequences of the grant of that authority - not only ANZ's unsuccessful challenge to ASIC's decision to grant the authority but also ANZ's largely unsuccessful challenges to the examination summonses, together with the steps taken by Mr Carpenter actually to conduct examinations. It is clear that it will suit Mr Carpenter's personal interests to have the Company sue ANZ in the way he wishes. If the Company were successful on all fronts, the substratum of ANZ's action against Mr Carpenter as a guarantor would be removed. In the same way, if the winding up of the Company were terminated or set aside, the liquidator would no longer be in a position to pursue his ANZ funded claims against Mr Carpenter. 24 But pursuit by the Company of the claims Mr Carpenter wishes it to pursue would, if successful, yield benefits over and above benefits to Mr Carpenter himself. The Company would, in that event, recover damages. The evidence does not enable me to come to any view about quantum except that, in the event of total success, damages would be very substantial. 25 Mr Carpenter is not, on the materials before me, a creditor of the Company. He is, as I have said, a director and a shareholder, although I note, in the latter connection, that a search in evidence shows him as holding one ordinary share out of a total of two million with the remaining 1,999,999 held by Retreat Pty Limited, the Company's holding company. Mr Carpenter's share is shown as held non-beneficially. A search of Retreat Pty Limited in evidence contains a list of shareholders which does not include Mr Carpenter but there are several shareholders with the surname Carpenter and I infer that they are members of his family. 26 The circumstances I have just mentioned mean that Mr Carpenter has no direct financial interest in a successful outcome of the proposed proceedings by the Company against ANZ, although, at shareholder level, members of his family would appear to have such an interest, assuming that the proceedings yielded sufficient to see all debts and claims against the Company, as well as expenses of the winding up, discharged in full and to leave a surplus for members. 27 With these factors in mind, I note the following observations of Palmer J in Swansson (above) (at [38] and [39]): "Where the application is made by a current shareholder of a company who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the Court's satisfaction. So also where the applicant is a current director or officer: it will generally be easy to show that such an applicant has a legitimate interest in the welfare and good management of the company itself, warranting action to recover property or to ensure that the majority of the shareholders or of the board do not act unlawfully to the detriment of the company as a whole.

However, where the applicant is a former shareholder or officer with nothing obvious to gain directly by the success of the derivative action, the Court will scrutinise with particular care the purpose for which the derivative action is said to be brought." 28 In Charlton v Baber (above) at [43], I expressed the opinion that a former director, even if likely to receive nothing by virtue of his shareholding, may have motives that go beyond mere personal gain, and that "he may feel a sense of responsibility to creditors who have suffered losses" - an attitude that "would be entirely consistent with the exercise of good faith". 29 It is my opinion that Mr Carpenter has a sufficient interest consistent with the Company's interest to warrant a finding that he is not actuated by an improper purpose in pursuing the present application; and that this is so despite the advantage he will derive from the Company's going on to the offensive against ANZ in relation to issues at stake in ANZ's District Court proceedings against him. My assessment of these matters in the present context coincides with that of White J referred to at paragraph [5] above. Mr Garnsey submitted, and I accept, that it is consistent with the exercise of good faith for Mr Carpenter to be actuated by a desire to have the satisfaction that creditors of a company under his stewardship are not as badly off as they would be without his intervention in the way proposed. I am satisfied that the s.237(2)(a) criterion is met in this case. Notice to the company 30 It remains to refer to the criterion in s.237(2)(d)(i) concerning the giving to the Company of Mr Carpenter's intention to apply for leave. The Company, represented upon the hearing of the application by Mr McCoy, a solicitor instructed by the liquidator, acknowledged that the requisite notice had been given. Should leave be on terms? 31 Having reached, in relation to each of the s.237(2) criteria, a conclusion favourable to Mr Carpenter and his application, I am bound to grant the leave he seeks. This is the effect of the word "must" in s.237(2). It remains to consider a matter on which Mr McCoy made submissions on behalf of the Company and the liquidator, namely, the terms upon which the leave should be granted. 32 The liquidator takes the position that he will not incur any personal liability in connection with the proceedings Mr Carpenter wishes to bring on behalf of the Company. He says in his affidavit: "If Mr Carpenter was granted leave pursuant to provisions of the Corporations Act, or otherwise, I say it should be on terms which: (a) Ensures that the net proceeds of any action are paid to the company; (b) Ensures that the company, and the liquidator are protected, by provision of an appropriate indemnity, including by the provision of security, from any adverse cost orders which are made if the proceedings are unsuccessful; (c) Ensures that decisions in relation to the settlement or compromise of the proceedings are made by the liquidator and not by Mr Carpenter. In particular terms should require Mr Carpenter to waive legal professional privilege, as against me, in the conduct of these proceedings. (d) Require Mr Carpenter to pay my costs of this application." 33 The circumstance that the Company is in liquidation and that the liquidator is without funds prompts these concerns of the liquidator. It is the same circumstance (or, at least, the fact that a liquidator is in office) that causes Mr Carpenter to rely on not only Part 2F.1A but also the inherent jurisdiction of the court in advancing his claim for leave to sue on the Company's behalf. Before addressing the liquidator's concerns, I should say something about that alternative basis. The alternative basis for the grant of leave 34 In BL & GY International Co Ltd v Hypec Electronics Pty Ltd (above), Einstein J expressed the opinion that, in introducing Part 2F.1A, "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". The inherent power to which his Honour referred was described by McLelland J in Aliprandi v Griffith Vitners Pty Ltd (1991) 6 ACSR 250 at p.252: "The form in which orders 1 and 2 are expressed is based on a recognition of the power of the court to order that a creditor or contributory of a company in liquidation be authorised to use the company's name as a plaintiff. This is a matter which I discussed in Wenham v General Credits Ltd (16 November 1988, SC(NSW), unreported). Such a procedure is of respectable antiquity and is sanctioned by high authority. Orders of that kind were made in Re Bank of Gibraltar and Malta (1865) LR 1 Ch APP 69; Re Imperial Bank of China India and Japan (1866) LR 1 Ch App 339; Re Dominion Portland Cement Co Ltd (No 2) [1919] NZLR 478 and Lloyd-Owen v Bull (1936) 4 DLR 273 (Privy Council). The legitimacy of the procedure was also recognised in Cape Breton Co v Fenn (1881) 17 Ch D 198 at 207, 208; Ferguson v Wallbridge (1935) 3 DLR 66 at 83 (Privy Council) and Fargro Ltd v Godfroy [1986] 1 WLR 1134 at 1136-8. It was said by Jessel MR in Cape Breton (at 207) to be 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'. The procedure has the disadvantage that the conduct of litigation in the name of the company is taken out of the control and supervision of an officer of the court. Nevertheless in the present case such a procedure would have advantages in that Mr Aliprandi would be a co-plaintiff and in practical terms the conduct of the litigation would be in the hands of solicitors engaged by him and at his expense and risk. In the light of these matters and the absence of any assets under the control of the liquidator, and the liquidator's apprehension as to Mr Aliprandi's financial position, if any order is to be made in the present application it should be in terms of authorising Mr Aliprandi to use the name of the company rather than directing the liquidator to act. The proper approach of the court in such an application as this has been described by the Privy Council in Lloyd-Owen at 276 in the following terms: 'A judge in winding up is the custodian of the interests of every class affected by the liquidation. It is his duty... to see to it that all assets of the company are brought into the winding up. In authorising proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where... they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company's name under his authority is not vexatious or merely oppressive'. Since in the present case there are no assets, the court should satisfy itself that any action to be taken in the company's name by Mr Aliprandi is not vexatious or merely oppressive, or in other words that it has some arguable foundation." 35 In Roach v Winnotte Pty Ltd (above), Santow J inclined to the view that the Part 2F.1A jurisdiction overlaps with the inherent jurisdiction and that the latter should be invoked by the liquidator. In Aliprandi, it was a shareholder and former director who made the application. Austin J subsequently endorsed the view that the inherent power has survived. In Brightwell v RFB Holdings Pty Ltd (above), he said (at [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." 36 I am also satisfied that the inherent power continues to exist but, having regard to the formulation in Aliprandi, it seems to me that the criteria applicable in deciding whether the court should, in the exercise of that inherent power, allow a creditor or contributory to sue in the name of a company in liquidation are not, in the present context, more onerous, from the applicant's viewpoint, than those made relevant by Part 2F.1A. The positive conclusion with respect to a grant of leave under the statutory provisions therefore amounts, in the particular case, to a positive conclusion with respect to a grant of leave in the exercise of the inherent jurisdiction. The principles applicable to the latter area are, however, useful when it comes to addressing the liquidator's concerns in relation to costs expressed in his affidavit. The liquidator's concerns - paragraph (a) 37 The matter referred to in the liquidator's paragraph (a) set out at paragraph [32] above will be taken care of by the ordinary operation of Part 2F.1A. Exercise of leave granted under s.237 involves the initiation of proceedings "on behalf of" the relevant company and in its name: see s.236(2). While the proceedings may, in a particular case, be so structured that the relevant company is a defendant (see Metyor Inc v Queensland Electronic Switching Pty Ltd [2003] 1 QdR 186; McLean v Lake Como Venture Pty Ltd [2003] QCA 562), there is no reason in this case why the Company would not proceed as plaintiff in the ordinary way. The notion that the person granted leave sues "on behalf of" the company means that the action is brought in the name of the company and for its benefit, but with the person concerned making relevant decisions for the company in place of the normal decision-making instrumentality (here, the liquidator). It must therefore follow that the proceeds of any success are received by the company. The position is no different where a creditor or contributory is granted leave in the exercise of the court's inherent power.

The liquidator's concerns - paragraph (b) 38 The requirement in the liquidator's paragraph (b) is perfectly understandable, particularly so far as any personal liability is concerned. But it is again significant that, in proceedings brought by leave of the present kind, it is the company that sues, with the proceedings brought in the company's name although at the instigation of the person granted leave. The liquidator is not in any sense a party to such a proceeding. The claim brought on the company's behalf is not one in which recourse made available for the benefit of creditors can be sought only by or at the behest of the liquidator: cf Bibra Lake Holdings Pty Ltd v Firmadoor Australia Pty Ltd (1992) 7 WAR 1. As a result, a liquidator personally will not incur any potential exposure to a costs order as in cases such as Re Buena Vista Motors Pty Ltd [1971] 1 NSWLR 72. The position will be as described by McLelland J in Aliprandi v Griffith Vitners Pty Ltd (above) at p.253: "It is to be observed that it is not contemplated that the liquidator himself become a party to any proceedings. In these circumstances I do not consider that there is any prospect of the liquidator becoming personally liable in respect of the defendant's costs in proceedings conducted in the company's name by Mr Aliprandi. With a possible exception where a liquidator has been guilty of misconduct in commencing or prosecuting proceedings, there is in my view no legitimate basis on which a costs order could be made against a liquidator personally in proceedings between the company and a third party to which the liquidator himself is not a party: see Re Wilson Lovatt & Sons Ltd (1977) 1 All ER 274 at 280 Fraser v Brescia Steam Tramway Co (1887) 56 LT 771." 39 The liquidator's paragraph (b) is concerned with not only the possibility of a costs order against the liquidator personally but also the possibility that the Company itself may be required to pay costs. In bringing the present application, Mr Carpenter obviously intends that he should finance the litigation in which he wishes the Company to engage. With the Company's financial position as it is, he can have no other expectation. As a corollary, Mr Carpenter should be required to indemnify the Company against not only costs and expenses he causes to be incurred through suing on the Company's behalf but also any liability for costs incurred by the Company otherwise than at his behest by reason of the derivative action, but with the proviso that if the Company succeeds in recovering damages or other moneys through the derivative action (including by compromise or settlement), he may apply to the court for reimbursement of expenses he has borne. 40 There arises, in this connection, a question about the substance of any indemnity given by Mr Carpenter. I have no direct evidence about his financial strength but I do know that he has expended considerable resources in pursuing the claims he considers the Company to have against ANZ. It was said from the bar table that he has spent $1 million so far. The position is therefore as described by Einstein J in BL & GL International Co Ltd v Hypec Electronics Pty Ltd (above) at [93]: "Insofar as the question of the costs of Hypec Electronics in relation to the Common Law proceedings are concerned the fact is that the indemnity offered by Mr Mead ought not necessarily be regarded as worthless. On the evidence, Mr Mead's personal financial position is so tied up with the prospects of success by the company in the Common Law litigation and/or by the net result in the Family Court proceedings that the Court ought not infer that the indemnity is writ in water or worthless." The liquidator's concerns - paragraph (c) 41 The liquidator's paragraph (c) envisages a role for the liquidator in any decision to compromise or settle the proceedings brought by Mr Carpenter on the Company's behalf. This, to my mind, would be contrary to the legislative scheme. That scheme envisages that the person granted leave will have responsibility for the proceedings to the exclusion of the normal decision makers whose unwillingness or inability to set the company in motion in the ordinary way forms part of the statutory basis for allowing the applicant to become the decision maker in their place. The particular matter of compromise or settlement (as well as discontinuance) is, in any event, dealt with in s.240: " Leave to discontinue, compromise or settle proceedings brought, or intervened in, with leave

Proceedings brought or intervened in with leave must not be discontinued, compromised or settled without the leave of the Court." 42 This provision provides a sufficient safeguard. If Mr Carpenter sought leave to enter into a compromise or settlement on behalf of the Company, the court might well consider it appropriate that the liquidator have an opportunity to make submissions on the question whether leave should be granted. Section 240 does not apply, of course, where a creditor or contributory sues in the name of a company in liquidation, exercising leave granted by the court pursuant to its inherent power. But the court, in granting leave, can impose a term to the same effect. The liquidator's concerns - paragraph (d) 43 As to the liquidator's paragraph (d), I did not understand Mr Garnsey to oppose the making of an order that Mr Carpenter pay the Company's costs of the present proceedings. The orders to be made 44 To the extent that such an order may be necessary because the Company is subject to creditors voluntary winding up, the court will make an order nunc pro tunc that Mr Carpenter have leave to commence the proceedings the subject of the amended originating process filed on 25 October 2004. 45 The court will also make Order 2 in that amended originating process, being an order that Mr Carpenter be granted leave to bring proceedings on behalf of the Company as described in that order. The order will be made both under Part 2F.1A and in exercise of the court's inherent power and will be made upon terms to the following effect: (a) that Mr Carpenter pay and bear (and indemnify the Company against) all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings brought by him on behalf of the Company except to such extent, if any, as the court may in future otherwise direct or allow; and (b) that, insofar as it may not apply of its own force, s.240 of the Corporations Act 2001 (Cth) shall apply to and be observed in relation to the proceedings brought by Mr Carpenter on behalf of the Company. 46 There will be an order that Mr Carpenter pay the Company's costs of the proceedings. 47 There should also be a grant of liberty to apply to both Mr Carpenter and the Company. This will accommodate any need for further directions and the possibility that Mr Carpenter may wish to seek some dispensation from the indemnity in respect of the costs and expenses of the derivative action. 48 I direct that short minutes of orders giving effect to my decision be brought in within seven days. The exhibits may be returned. **********

Last Modified: 11/01/2004 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.

Trade Practices Act 1974(Cth)

CITATION : Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 1007 HEARING DATE(S) : 25/10/04 JUDGMENT DATE : 29 October 2004

CATCHWORDS : CORPORATIONS - derivative action - application for leave to bring proceedings on behalf of company - statutory jurisdiction applicable to companies generally - inherent power of court in relation to companies in liquidation - relevant criteria discussed - position of liquidator qua costs - protection of insolvent company against costs consequences LEGISLATION CITED : Corporations Act 2001 (Cth), ss.236, 237, 240, Parts 2F.1A, 5.3A Aliprandi v Griffith Vitners Pty Ltd (1991) 6 ACSR 250 Bibra Lake Holdings Pty Ltd v Firmadoor Australia Pty Ltd (1992) 7 WAR 1 BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2001) 164 FLR 268 Brightwell v RFB Holdings Pty Ltd (2003) 171 FLR 464 Charlton v Baber (2003) 47 ACSR 31 McLean v Lake Como Venture Pty Ltd [2003] QCA 562 Metyor Inc v Queensland Electronic Switching Pty Ltd [2003] 1 QdR 186 CASES CITED : Mhanna v Sovereign Capital Ltd [2004] FCA 1040 Mhanna v Sovereign Capital Ltd [2004] FCA 1252 Pioneer Park Pty Ltd v Carpenter [2004] NSWSC 521 Re Buena Vista Motors Pty Ltd [1971] 1 NSWLR 72 Roach v Winnote Pty Ltd [2001] NSWSC 822 Soper v Australian Securities and Investments Commission [2004] FCA 854 Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 William Kamper v Applied Soil Technology Pty Ltd [2004] NSWSC 891 Clifford John Carpenter - Plaintiff PARTIES : Pioneer Park Pty Limited (In Liquidation) - Defendant

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