Austin J held that the fifth exception was applicable to the case before him, a conclusion that was apparently not challenged upon the subsequent appeal and cross-appeal: see Cadwallader v Bajco Pty Ltd [2002] NSWCA 328.
39 Reference must also be made to the decision of the High Court in Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Ltd (1910) 12 CLR 513. The judgment of Griffith CJ (in which O'Connor, Isaacs and Higgins JJ concurred) may be quoted in full:
"This is a case in which judgment was given in the Supreme Court of Queensland in an action between parties involving an amount over £300. This Court has jurisdiction to entertain an appeal from that judgment, but, owing to the curious circumstances of the case, it cannot be instituted because those who would be respondents have an equal voice in the company which would be appellants. Under these circumstances there must be some remedy, and I think we ought to apply the analogy of the practice of the Court of Chancery, which is now adopted by the Supreme Court of Judicature, and give leave to some person who is substantially interested to come in and institute the appeal. I therefore think that leave should be given to the applicant to appeal from the judgment on behalf of himself and all other members of the defendant company. Of course the defendant company must be made a respondent. If the judgment is to be regarded as being interlocutory, the leave we now give will cover that also."
40 One of the important themes running through the cases in this area is the reluctance of the courts to interfere in a situation that is capable of being resolved by an appropriate resolution of the members of a company. Where an individual shareholder seeks to assert a claim of the company in relation to some supposed cause of action and the company declines to proceed, the court will be reluctant to assist or to play any role at all unless and until it is seen that the matter cannot be resolved by a resolution of shareholders. The rationale was explained thus by Lawrence Collins J in Konamaneni v Rolls Royce (India) Ltd [2002] 1 WLR 1269 at 1277-1278:
"Where what has been done amounts to a fraud and the wrongdoers are themselves in control of the company, the rule is relaxed in favour of the aggrieved minority who are allowed to bring a minority shareholders' action on behalf of themselves and all others. The reason for this is that if they were denied that right, their grievance would never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue: Edwards v Halliwell [1950] 2 All ER 1064, 1067; the Prudential Assurance Co Ltd case [1982] Ch 204, 211. As Browne-Wilkinson LJ said in Nurcombe v Nurcombe [1985] 1 WLR 370, 378:
'Since the wrong complained of is a wrong to the company, not to the shareholder, in the ordinary way the only competent plaintiff in an action to redress the wrong would be the company itself. But, where such a technicality would lead to manifest injustice, the courts of equity permitted a person interested to bring an action to enforce the company's claim.'"
Particular circumstances of this case
41 Many of the cases about the rule in Foss v Harbottle concentrate on wrongs done (or possibly done) by directors. Others (of which Johnson v Gore Wood & Co [2002] 2 AC 1 is an example) are concerned with distinctions between wrongs suffered by the company which reflect in diminution in share value and wrongs suffered by shareholders, whether directly or less directly because of impacts on the value of shares held by them. Particular features of the present circumstances make much of the thinking in those cases of limited relevance. In the first place, although the owners corporation is made up of persons who are regarded as its members, the present case does not involve any decision of a body or organ analogous to a board of directors. In relation to the relevant matters, the members alone are the decision-makers for the corporation. Second, the subject matter in issue in the District Court proceedings, being the air conditioning unit serving lot 3, is, regardless of the technicalities of ownership of the various components that make up the whole, intended to be enjoyed solely by whichever member of the corporation is for the time being the proprietor of lot 3. The unit as a whole and any parts of it included in the common property are irrelevant to the enjoyment by other lot proprietors of the rights they have as participants in the strata scheme.
42 If the air conditioning unit is faulty and inoperative, the corporation suffers no direct inconvenience although, to the extent that repairs may be needed in relation to any system components vested in it as common property, the corporation may incur a liability to effect repair, renewal or replacement under s.62 of the Strata Schemes Management Act - I say "may" because of the possibility that the particular components that are common property might, in a physical sense and when separately examined in their own right, be found to be perfectly sound even though they do not interact with the other components owned by the lot proprietor in such a way as to function as a fully operating air conditioning system. Importantly, any diminution in value suffered by reason of the system's being inoperative is diminution in the value of lot 3, not diminution in value of the common property.
43 The absence of acts of persons analogous with the directors of a company means that fiduciary duties are unlikely to be at work in a case such as the present. Members of the body corporate, being proprietors of lots, are not, in any obvious sense, charged with a duty to be attentive to the interests of a body of persons whose welfare is placed in their hands except as the statutes expressly require. Such members are, in a sense, co-venturers but, unlike partners and joint venturers (cf United Dominions Corporation Ltd v Brien Pty Ltd (1985) 157 CLR 1), they have not chosen to come together in order to pursue some common interest. The only bond between them is ownership of parts of a building. None chooses to become a member of the corporation because of its nature, its activities or the attributes of the other members. Membership is merely a statutory and compulsory by-product of a decision to acquire particular real property.
44 In these special circumstances (and where the owners corporation occupies, in relation to the relevant property, the purely representative position for which the strata titles legislation makes provision), analogies drawn from company law cases are limited and must be approached with care. Rather than attempting to fit the circumstances within (or to scrutinise them against) company law precedents, the court should deal with their own special reality.
45 Ms Carre says that she was put to expense and loss and suffered inconvenience, discomfort and diminution in the value of her property while the air conditioning unit in question was inoperative. She alleges that responsibility for its defective condition, in the form of legal liability, should be laid at the feet of the Johnsons, Lipman and Positive or some one or more of them. Her attempt to sheet home that perceived liability through proceedings in the District Court suffered a setback when the first the Johnsons and then Lipman said that she is not technically the owner of some parts of the system and that her proceedings must fail unless the owners corporation becomes a party to the action and asserts its own claims in parallel with hers. She attempted to achieve that result by repleading her case and making the owners corporation a defendant so that she might assert the parallel claims on its behalf. That attempt failed. The full reasons are not known, but it should, I think, be inferred that the District Court was unwilling to accommodate or grant the form of equitable relief entailed in allowing proceedings to be reformulated in the way traditionally employed to recognise an exception to the proper plaintiff rule. Ms Carre then sought directly a decision, by resolution of its members, that the owners corporation should become a co-plaintiff. That decision was not forthcoming because the Johnsons, being persons the owners corporation would sue, decide that the owners corporation should not be allowed to initiate claims against them. They were in a position where they could decide conclusively whether or not someone else would sue them. Not surprisingly, their decision was against that person's making them the subject of an attack through litigation.
46 The case is not, it seems to me, likely to be one in which the owners corporation is shown to have suffered other than nominal or modest loss through any negligence or other legal wrong that attended the development and construction of the building and the air conditioning system servicing lot 3 or the design and installation of that air conditioning system. And to the extent that the owners corporation may be shown to have suffered loss, that loss will have been incurred by it in the representative capacity that is the only capacity it has in relation to common property. The real loss attributable to any such wrong done in relation to common property will, in the circumstances of the integrated nature and functions of the air conditioning system, accrue to Ms Carre as the proprietor of lot 3.
47 In these circumstances, there is to my mind, some analogy to be drawn with the case where a trustee holds trust property for the benefit of a cestui que trust but will not take action to protect that property. According to s.24(2) of the Strata Schemes (Freehold Development) Act, Ms Carre has a beneficial interest in the common property vested in the owners corporation, including such of it as consists of components of the air conditioning system servicing lot 3. Each of Mr Johnson and Ms Johnson also has a beneficial interest in the common property although in circumstances where, as I have said, those components are useful only to Ms Carre as the proprietor of lot 3. Ms Carre therefore has a special interest in the assertion by the owners corporation of rights of action it may have in relation to defects in the common property. The owners corporation, by the votes of the Johnsons (two of the persons against whom the rights of action on the part of the owners corporation are seen as lying), has declined to become party to the proceedings in which the rights of action will be asserted in company with the parallel right vested in Ms Carre alone. The owners corporation, which occupies a representative position qua the common property held by it as "agent", has refused to act. The following passage in the judgment of Sir W M James in Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-610 therefore becomes relevant:
"Is it to be permitted that every one of the persons who has
an interest in a thing assigned to a trustee ... should file a distinct bill in a distinct branch of this Court against the debtors to the estate? I had lately occasion to consider that question, and I came to the conclusion, very clearly, that a person interested in an estate or a trust fund could not sue a debtor to that trust fund, or sue for that trust fund, merely on the allegation that the trustee would not sue; but that if there was any difficulty of that kind, if the trustee would not take the proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realization of the trust fund, and then to obtain the proper order for using the trustee's name, or for obtaining a receiver to use the trustee's name, who would, on behalf of the whole estate, institute the proper action, or the proper suit in this Court. That view I still adhere to, and I say it would be monstrous to hold that wherever there is a fund payable to trustees for the purpose of distribution amongst a great number of persons, every one of those persons could file a separate bill in equity, merely on the allegation that the trustee would not sue."
48 In Ramage v Waclaw (1988) 12 NSWLR 84, Powell J surveyed the cases in which courts of equity have recognised special circumstances allowing a beneficiary to sue in his own name in equity or in the trustee's name at law when the trustee fails to institute proceedings. One such case is where "the relation between the executors and the surviving partners is such as to present a substantial impediment to the prosecution by the executors of the rights of the parties interested in the estate against the surviving partners": Travis v Milne; Milne v Milne (1851) 9 Hare 141. In the present case, it is the relation between the Johnsons and the owners corporation, represented by their majority voting power, that has presented a substantial impediment to the prosecution by the owners corporation of the rights of the lot proprietors interested in the common property against the Johnsons and others.