CASSEGRAIN v CASSEGRAIN

CATCHWORDS: COSTS - CORPORATIONS - Members' remedies - Oppression - Where director caused company to oppose winding up despite legal advice that it was inevitable - Court may make order requiring person to do a specified act under s 233(1)(j) Corporations Act 2001 - More comprehensive than normal costs under s 76 Supreme Court Act 1970 - Costs order made requiring director to indemnify company - Appeal against - Whether appeal lies as of right - Application of s 101(2)(c) Supreme Court Act requiring leave where appeal is as to costs only - Held not to apply to costs indemnity orders made under Corporations Act s 232.

LEGISLATION CITED: Corporations Act 2001 ss233(1)(j), 461(1)(e), (f), (g), (k) Supreme Court Act s101(2)(c), s76

Australian Securities Commission v Austhome Investments Limited (1993) 44 FCR 194 Cassegrain and Anor v CTK Engineering Pty Limited and Anor [2005] NSWSC 495 CASES CITED: Gallo v Dawson (1990) 64 ALJR 58 Jackomarra v Krakouer (1998) 195 CLR 516 Michael v Freehill Hollingdale and Page (1990) 3 WAR 233 Re Minister for Immigration and Ethnic Affairs; Ex parte Li Qin (1997) 186 CLR 622

PARTIES: Claude George CASSEGRAIN Thomas Jean Roger CASSEGRAIN & 2 Ors

Claimant: C J Bevan COUNSEL: 1 & 2: Opponents: R Beech-Jones 3 O: T Tarlakovski

Claimant: Evan Patakas & Associates SOLICITORS: 1&2 Opponents: Thompson Eslick 3 Opponent: Norton White

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40513/05

MASON P IPP JA

Claude George Rene CASSEGRAIN v Thomas Jean Roger CASSEGRAIN & 2 Ors JUDGMENT

1 MASON P: The claimant effectively controlled CTK Engineering Pty Limited through being the holder of an A class share and the sole director of the company at the relevant time. The first and second opponents were B class shareholders who were effectively excluded from any management or other participatory role by virtue of the rights attaching to their shares. The third opponent, Mr Lord, is the liquidator of the company, and he has adopted a submitting stance in this Court. Hereafter references to the opponents is a reference to the two shareholders. 2 On 2 August 2004 the opponents filed process in the Supreme Court seeking an order that the company be wound up pursuant to s233(1)(a) or s461(1)(e), (f), (g) or (k) of the Corporations Act 2001, that is, the opponents sought an order that the company be wound up on either or both grounds, that its affairs were being conducted in a manner which was oppressive to, or unfairly prejudicial to, or unfairly discriminatory against the opponents as members, or contrary to the interests of the members as a whole; or that it was just and equitable that the company be wound up. 3 On 5 and 8 November 2004 there were contested proceedings before Windeyer J that culminated in an order appointing the third opponent as provisional liquidator. The defendants in those proceedings were the company and the claimant, and they were represented by senior and junior counsel. In his reasons delivered on 12 November 2004, Windeyer J said: The second defendant, Mr Cassegrain, does not appear to dispute that it is appropriate to wind up CTK and he has stated that this will be done, although naturally he would prefer a members' voluntary winding up rather than a court ordered winding up. However, he says that two things must be done before the winding up can take place. These are:

(a) to determine the position of a debt claimed owing to CTK by Expressway Spares Pty Limited, and (b) to establish whether or not Mr Dunn is in fact entitled to the 290 B class shares held in CTK in his name, or whether his correct holding is 100 shares. The view of the second defendant is CTK cannot be wound up until all the assets are held in cash and the shareholdings determined. In the meantime he concluded that it was proper to invest the proceeds of the sale of the land in the loans which have now been repaired and in the tea tree business.

4 Other portions of the judgment of Windeyer J confirmed that the interlocutory application was hotly contested and that nothing was said to indicate that the claimant conceded any of the substantive claims or was willing to contemplate consenting to the final relief sought. See also the letter from Priest McCarron dated 27 October 2004. The claimant sought and obtained an order that the opponents pay a substantial sum on account of security for costs in relation to the final hearing. 5 When the provisional liquidator was appointed, the company was carrying on a business of harvesting tea tree oil and mulch. The provisional liquidator decided that the company should no longer continue that business. 6 On 16 December 2004 the claimant advised the provisional liquidator that he would consent to the liquidation of the company. That advice was given immediately after Mr Lord had confirmed to the claimant that he had concluded that the business should no longer be continued. This concession about winding up the company carried no admission that there had been oppression. The company was wound up by consent on the just and equitable ground, and Mr Lord became the liquidator instead of being merely the provisional liquidator. 7 The parties could not agree on the issue of costs and the resolution of that matter was to occupy a further three days hearing before White J in February 2005. In the upshot, the opponents sought and the claimant opposed an order that the company pay their costs up to and including 12 November 2004 and that the claimant pay their costs of the proceedings generally. 8 Since however the opponents knew that the claimant had used company assets to fund his and the company's opposition to the appointment of a provisional liquidator, the opponents sought a further order that the claimant indemnify the company against the costs payable by the company to the opponents, and in respect of costs and expenses incurred by the company in defending the proceedings. These three sets of orders were made after the contested proceedings before White J and for the reasons published by his Honour on 26 May 2005 (see Cassegrain and Anor v CTK Engineering Pty Limited and Anor [2005] NSWSC 495). 9 The claimant seeks to challenge the second and third orders that touch him in these appellate proceedings. Some form of indemnity order referable to costs might perhaps have been sought by way of a Bullock order under the Supreme Court's general discretion as to costs found in s 76 of the Supreme Court Act, but the more extensive indemnity order was in fact sought and granted on an alternative basis, namely s 233(1)(j) of the Corporations Act. 10 Section 233(1)(j) provides:

The Court may make any order under this section that it considers appropriate in relation to the company including an order... (j) requiring a person to do a specified act.

11 Significantly however the gateway to an order under s 233(1) is found in s 232 which provides: 232 Grounds for Court order The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company;

(d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a

member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company. 12 The claimant correctly perceives that the opponents added s 233 to their armoury because they anticipated that the claimant would argue that if only s 76 of the Supreme Court Act were invoked in the circumstances, then the Court might decline to explore too deeply the rights and wrongs of the wider set of issues tendered in the original proceedings to wind up the company. The relevant principles are discussed in Australian Securities Commission v Austhome Investments Limited (1993) 44 FCR 194 at 201 (Hill J), and Re Minister for Immigration and Ethnic Affairs; Ex parte Li Qin (1997) 186 CLR 622 at 624-625 (McHugh J). 13 Be this as it may, I see no reason why these considerations would have precluded the opponents from reaching for a different source of power capable of leading to a more comprehensive remedy, ie ss 232 and 233 of the Corporations Act, even though that entailed them having to establish misconduct falling within s 232(1)(d) and (e), and still facing the exercise of a judicial discretion. After all, if the company picked up the costs tab, then its burden would fall most heavily upon the opponents, given that the company was solvent and the size of the opponents' shareholdings. The third order made by White J appears to go beyond the scope of a Bullock order in that it reaches behind the scenes to include expenses incurred by the company that would not necessarily be costs as between party and party on the surface of the litigation. 14 The claimant was once again represented by senior and junior counsel in the proceedings before White J. He did not consent to any orders being made under s 233. Evidence was led and the claimant was cross-examined on matters relevant to the remaining issues. This was the tip of an iceberg of bitter litigation involving members of this family. No quarter appears to have been sought or given for many years. 15 White J made detailed findings as to the claimant's conduct over many years (see par [31]ff of his reasons). There were several instances of secret transactions involving conflict between the claimant's interests and his duty to the company. The findings also detailed conduct that had the effect of and was entered into with the intent of delaying the winding up of the company. Some instances occurred after the winding up proceedings had commenced (see esp pars [61] and [69], findings that are not challenged in the foreshadowed appeal). 16 White J also found (at [83]-[84]): [83] …At the hearing before Windeyer J the second defendant was only prepared to concede that there was a serious question to be tried that a winding-up order should be made. But it is perfectly clear that if the matter had been fully contested, such an order would have been made.

[84] I consider that the second defendant acted unreasonably in causing the company to defend the litigation. There were very clear grounds for winding up the company not only on the just and equitable ground, but also on the ground that the company's affairs had been conducted in a way which was contrary to the interests of the members as a whole and oppressive or unfairly prejudicial to the B class shareholders. There was a clear case that the affairs of the company were being conducted in a way which, considered objectively by a commercial bystander, was unfair ( Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704). 17 At par [88] his Honour found: [88] I consider that it is practically certain that had the winding-up order not been consented to, I would have found that the order was justified not only on the grounds that a winding-up was just and equitable, but also on the grounds that the affairs of the company had been conducted in a way which was oppressive to and unfairly prejudicial to the B class shareholders including the plaintiffs. 18 The dispositive finding at par 97 was: I am of the view that the plaintiffs have demonstrated that in spending moneys in defence of the proceedings, the second defendant has conducted the affairs of the first defendant in a way which is oppressive and unfairly prejudicial to the B class shareholders, including the plaintiffs. I consider the appropriate remedy is to order the second defendant to indemnify the first defendant against its liability to pay the plaintiffs' costs of the proceedings, and for the costs and expenses the first defendant incurred in defending the proceedings up to the appointment of a provisional liquidator. 19 The costs and indemnity orders affecting the claimant were first challenged by ordinary summons for leave to appeal dated 20 September 2005 and filed on 21 September 2005. This was filed well out of time. An amended ordinary summons filed by leave on 16 December 2005 sought the necessary extension of time. Alternatively, an order was sought that extended the time in which to file an amended notice of appeal in a form annexed, ie an appeal as of right subject to the necessary extension of time. 20 In my view, this was a case in which an appeal lay as of right. It is common ground that well over $100,000 are involved in the indemnity order. 21 The opponents submitted that the case falls within s 101(2)(c) of the Supreme Court Act which relevantly requires leave if the judgment or order appealed from is "as to costs only which are in the discretion of the Court". Here the indemnity order was sought and obtained on the basis of findings that engaged s 232 of the Corporations Act. The point has not been fully or sufficiently argued. Nevertheless, it does seem to me that s101(2)(c) is directed at costs orders made in disposing of proceedings in the Court in reliance upon the common form of discretionary power to award costs in the proceedings. The present situation was not an order of that nature. 22 I think there is some assistance for the conclusion in the analogous situation discussed in Michael v Freehill Hollingdale and Page (1990) 3 WAR 233. I shall therefore assume in the claimant's favour that he is right on this point and that there was an appeal as of right had it been filed in time. Of course, none was. Indeed, a notice of appeal has still not yet been filed because leave to do so is necessary given it is out of time. 23 On this basis the Court needs to address the matter as an application for extension of time and consider among other things the reasons for the would be appellant's default, the injustice to the respondent if leave to extend time is given, and whether the proposed appeal has some prospect of success (see Gallo v Dawson (1990) 64 ALJR 58, Jackomarra v Krakouer (1998) 195 CLR 516 at 521). 24 The claimant gave his then solicitor instructions to appeal on 9 June 2005. A summons document was prepared. An unsealed copy was served by facsimile on the opponent's solicitor on 23 June 2005. There were requisitions from the Court of Appeal registry because the summons was not accompanied by the appropriate white book documents. Registry staff informed the claimant that the summons was being treated as a holding summons. In the period August to September, various steps were taken within the claimant's camp to put the paperwork in order on the assumption then being made that leave to appeal was required. A sealed copy of the summons and white book were not however served until 11 October 2005. 25 There were genuine though inadequate attempts being made by the claimant to invoke the jurisdiction of this Court. Difficulty stemmed in part from the claimant and his previous legal team having parted company. On the other hand, as the opponents point out in their supplementary summary of argument, the claimant has held back from the Court a full account of what was happening during this time. He made no reference in his early affidavits to having retained Stacks Family Law Service for a time. He offers no adequate explanation for not having honoured his promise to provide a sealed copy of the summons served on 23 June 2005 "as soon as it is available", until 11 October 2005. He never told the opponents that the summons initially filed was being treated as a holding summons. He does not disclose the advice, if any, about prospects of appeal that he got from his former senior counsel and solicitor. And the documents now relied upon endeavour to have an each way bet as to the competency of an appeal as of right. 26 All of these matters support the opponents' submission that the claimant treated the rights of the opponents with disdain during the latter months of 2005. 27 I move to consider the viability of the proposed appeal, examining the grounds foreshadowed in the draft notice of appeal, and the affidavits and arguments advanced to show the nature and strength of the appeal if it is allowed to go forward. 28 Since there is very much the flavour of a scattergun in the documentary material, counsel for the claimant was asked to identify his best point to see if that clarified matters. Mr Bevan presented the case clearly and was most helpful in the assistance provided to the Court in this complex matter. His primary complaint was directed at the fact that White J did not confine himself to dealing with costs in accordance with s76 of the Supreme Court Act. This strikes me as an untenable point, given that I can conceive of no reason why an applicant should be shut out from invoking ss232 and 233 of the Corporations Act by reason of the fact that s 76 of the Supreme Court Act may, and I emphasise may, provide an alternative route to the indemnity here sought. 29 I can see no foothold for this argument in the Corporations Act and, as indicated already, I believe that an application for a Bullock order would not have resulted in as comprehensive relief as that provided by the third of White J's orders. In addition, it may well have been refused on grounds unrelated to the gravamen of the opponents' true complaint, which was an objection to the claimant using company funds to further his own interests generally and his interests in stalling the winding up in particular. 30 A variant of this argument was the submission that it was procedurally unfair for White J to have allowed the opponents first to add a claim under ss 232 and 233 at a directions hearing five days in advance of the date fixed for the contested costs hearing. This submission also lacks any persuasive weight. Intention to seek an indemnity order was flagged in correspondence of 22 December 2004. The claimant was represented by experienced senior and junior counsel. No adjournment was sought. The introduction of ss 232 and 233 may have added to the hearing time, but there was obviously much overlap between what was required for its resolution and the matters that were already tendered for consideration in a pure costs contest. 31 Many of the other so called grounds of appeal in the proposed notice of appeal are simply assertions of error without clues as to the basis of the claim or any supporting material to show its genuineness or viability. Others such as the complaint about White J's interpretation of the stance adopted by the claimant in the earlier proceedings before Windeyer J are plainly inconsistent with the submissions recorded by Windeyer J and his Honour's findings. This complaint is also at odds with the obviously combative stance adopted by the claimant in the proceedings before Windeyer J and it does not fit with the terms of the letter written on the claimant's behalf from Priest McCarron dated 27 October 2005. 32 Other grounds make assertions as to what happened during the proceedings before White J that are unsupported by any evidence and highly unlikely to have occurred without any protest from the claimant's lawyers representing him before White J. The assertion that the claimant was prevented from cross-examining witnesses is answered by the evidence that none were required for cross-examination. The clear untenability of many of the claimant's submissions does not encourage the Court to view his unproven claims with any indulgence. 33 Some of the matters raised by the claimant in his affidavit of 31 January 2006 amount to statements that the claimant personally did not fully comprehend all that was happening during the proceedings before White J, or that he now remembers the objective facts differently. This is understandable given the claimant's status as a layman, but it does not in itself enliven a favourable exercise of the discretion when it is appreciated that the claimant was represented by experienced counsel throughout those proceedings. 34 We have been referred to nothing in the transcript before White J to support the claim of denial of procedural fairness or wrongful exclusion of relevant evidence about which the claimant complains in his affidavits. 35 Other complaints are baseless. These include the suggestion that White J misconceived the basis of the orders he made under s 233, the ground asserting that there was a ruling that only the claimant could be cross-examined before White J and the ground asserting that the claimant was refused the opportunity to explain his conduct or his evidence in cross-examination. It is sufficient to observe that I agree with the submissions of the opponents in their supplementary summary of argument that provide chapter and verse as to why these grounds are hopeless. I also observe that several of White J's key findings of oppressive conduct are not challenged at all. 36 Some of the foreshadowed grounds of appeal address the second costs order against the claimant, suggesting that White J erred in the application of the judgments of Hill J and McHugh J referred to above. This argument fails to recognise that both the second and third costs orders were capable of being grounded independently upon s 233 of the Corporations Act. In addition, there is nothing specific identifying the error complained of or justifying the conclusion that this point has any viability or any utility in the attempt to challenge the orders under appeal. 37 For those reasons I am not persuaded that it would be just to grant the extension of time to appeal or, if it had been appropriate, to grant leave to appeal. The summons should be dismissed with costs. 38 I have not overlooked the opponents' application for indemnity costs with reference to some of the events late last year. Since however the opponents were largely kept out of the loop and since I cannot see any real difference between ordinary costs and indemnity costs in the reality of the situation during this time, it seems that the ordinary order for costs is sufficient to do justice to their situation. 39 The third opponent adopted a submitting stance except as to costs and the order for costs in his favour will therefore reflect that situation. 40 IPP JA: I agree. 41 MASON P: Those are the orders of the Court. **********

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