Cassegrain v Gerard Cassegrain & Co Pty Ltd

Background facts and the evidence on which Ms Dar relies

1. Ms Dar relies in this application on her affidavit affirmed 17 July 2014 and her affidavit affirmed 5 December 2014, which set out background facts to the claims to which I will refer below and deal with correspondence between the parties and their representatives in respect of her claims. Ms Dar also relies on paragraphs 227 and 228 of Mr Akerman's affidavit sworn 2 April 2015 (Ex P1), which refer to the circumstances in which Mr Akerman caused the Company to pay him director's fees in 2013 and 2014, his evidence that Ms Dar had not opposed the payment of those fees, and to a discussion with an accountant as to the level of those fees, and also refer to the circumstances in which the Company paid legal fees to Mr Akerman's firm in respect of costs described as referable to a "shareholder dispute", which Mr Akerman says were not limited to costs of that character. Ms Dar also relies on paragraphs 1 and 48-51 of her affidavit affirmed 7 May 2015, where she denies having a conversation with Mr Akerman concerning the payment of director's fees to him and also deals with the question of the Company's payment of legal fees to his firm. Ms Dar also tendered documents relating to the relevant transactions (Ex P2).
2. By way of background, Ms Dar and Mr Akerman are brother and sister. Prior to her death, their mother had several property and share holdings with Mr William Marr and Ms Emilie Marr, who are their uncle and aunt. Following their mother's death in about 2001, Ms Dar and Mr Akerman each acquired a 50% shareholding in the Company. Mr Akerman is, and has been since about 2001, the Company's sole director (Dar 17.7.14, [3]-[5] Ex P2, 211-212). Prior to the transactions in issue, and several other transactions, the Company had a 25% interest, Ms Dar had a 12.5% interest, Mr Akerman had a 12.5% interest and Mr and Mrs Marr each had a 25% interest in the three properties at 5, 7 and 9 [address omitted] Bondi.
3. On or about 18 May 2005, 5, 7 and 9 [address omitted] Bondi were put to auction but not sold (Dar 17.7.14 [9], Ex P2, 161-162). Mr Akerman contends that, following the auction, the Company and co-owners of 9 [address omitted] Bondi agreed in principle to sell their respective interests in that property to him on terms that each interest would be valued based upon an agreed value for the whole property of $5m and Mr Akerman would not need to pay the purchase price to the Company until the Company was wound up (Ex P2, 161). Ms Dar and Mr and Mrs Marr subsequently sold their interests in that property to Mr Akerman at that price. Ms Dar contends that no such agreement was reached in respect of the Company's interest in that property, or alternatively that that arrangement was not fair and the Company did not provide its fully informed consent to it.
4. On 1 July 2005, the Company and Mr Akerman entered into (or purportedly entered into) a single page agreement for the sale of the Company's 25% interest in 9 [address omitted] Bondi to Mr Akerman on terms that a contract be entered into on an agreed date in February 2006, which did not occur; settlement was to take place within 6 weeks of exchange; Mr Akerman was entitled to extend the completion date and pay the purchase price within seven days after the liquidation of the Company; and, if such an extension took place, Mr Akerman would pay interest on the purchase price at settlement (Ex P2, 38).
5. Mr Akerman contends that, or about 27 February 2007, the Company and other co-owners of 5 and 7 [address omitted] Bondi agreed in principle to sell their respective interests in those properties to him at an agreed value of $1.525m and on terms that the contract was to be entered into on 28 March 2007 or immediately following the expiration of an agency selling agreement, which did not occur; that payment to the Company could be deferred, at Mr Akerman's option, until the Company was wound up, and the Company would be paid interest on the purchase price at a specified rate (Dar 17.7.14 [29]; Ex P2, 162).
6. On 1 August 2007, the Company and Mr Akerman entered into (or purportedly entered into) a supplementary agreement in relation to the sale of 5, 7 and 9 [address omitted] Bondi on terms that Mr Akerman had the discretion to pay the purchase price in respect of 5, 7 and 9 [address omitted] Bondi at any time up to the winding up of the Company; if the purchase price for 9 [address omitted] Bondi was paid later than 1 March 2006, and the purchase price for 5 and 7 [address omitted] Bondi was paid later than 1 July 2007, Mr Akerman would pay the Company the greater of interest on the balance of the unpaid purchase price from those dates until the date of payment of the purchase price; or the net rent (as defined) received from the properties for that period; and the amount of interest payable by him would be calculated by applying to the amount of the unpaid purchase price the rate paid by Commonwealth Bank of Australia on the security bills held by the Company with the Commonwealth Bank for the period from those dates until payment of the purchase price.
7. By a contract of sale dated 17 December 2009, the Company, Ms Dar and Mr and Mrs Marr agreed to sell their respective interests in 5 [address omitted] Bondi to Mr Akerman and members of his family (Ex P2, 75-90). Clause 12 of the special conditions of that contract permitted the purchasers to extend the completion date and pay the purchase price to within 7 days of the winding up of an associated company, and did not include any provision for payment of interest. By a further contract of sale dated 4 January 2010, the Company, Ms Dar and Mr and Mrs Marr agreed to sell their respective interests in 7 [address omitted] Bondi to Mr Akerman and members of his family, relevantly on the same terms as the contract for 5 [address omitted] Bondi (Ex P2, 91-106]. By a contract of sale dated 19 January 2010, the Company agreed to sell its 25% interest in 9 [address omitted] Bondi to Mr Akerman at the price of $5 million (Ex P2, 107-124). Clause 12 of the special conditions of that contract permitted Mr Akerman to extend the completion date and pay the purchase price within seven days of the Company's winding up of the Company, but did not refer to interest.
8. In March 2010, Mr Akerman lodged transfers of the Company's interests in the properties to him or his family members for registration (Ex P2, 125-131) and, on 24 April 2013, Mr Akerman paid $2,200,000 to the Company as the purchase price, interest and rent payable in respect of the sale of its interests the properties. In April 2013, Mr Akerman also caused the Company to pay him $180,000 on account of director's fees at $30,000 per year for the previous six years (Ex P1 [227]. Ms Dar claims she was not informed of this payment. Mr Akerman also caused payment of legal costs of $69,300 to Mr Akerman's firm and $15,274 for barrister's fees (Ex P1 [228]).

Ms Dar's proposed claim

1. Ms Dar's proposed Statement of Claim seeks a declaration that the Company is entitled to avoid specified contracts as against Mr Akerman, and an order that, as between the Company and Mr Akerman, each such contract be rescinded. Those contracts are each of the contracts to which I referred above. Mr Curtin noted, in submissions, that the application for rescission was made by reason of the observations in Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 that relief by way of a constructive trust would only be available, in respect of an attack on the transfer of a property, if that transfer was effectively avoided or rescinded. The proposed Statement of Claim in turn seeks a declaration that Mr Akerman holds the properties as constructive trustee for the Company, consequential upon its alleged entitlement to rescind the relevant contracts, and an order for the retransfer of Mr Akerman's interests in the properties to the Company. Further or alternatively, it seeks an order under s 1317HA of the Corporations Act for compensation for damage which the Company claims to have suffered by reason of alleged contraventions of ss 180-182 of the Corporations Act or equitable compensation. The proposed Statement of Claim in turn pleads duties alleged to been owed by Mr Akerman as a director of the Company to it, the interests held by the Company in the relevant property, the circumstances of the transfer of the Company's interest in the properties to Mr Akerman and members of his family, and alleges that Ms Dar did not consent, or alternatively did not give fully informed consent, to the transfer of the Company's interest in the properties to Mr Akerman or other purchasers; that Ms Dar did not, as a member of the Company or otherwise, ratify the Company's transfer of its interests in the properties to Mr Akerman or other purchasers; and the Company did not give fully informed consent in general meeting to the transaction.
2. The proposed Statement of Claim also pleads that Mr Akerman caused the Company to incur an obligation to pay him excessive director's remuneration and to pay expenses which were not properly expenses of the Company, including in respect of legal costs in responding to earlier criticisms of the relevant transactions. The proposed Statement of Claim pleads that these matters amounted to breach of director's duties in several respects, and that the Company has suffered loss or damage in consequence, made up of excessive legal fees, amounts paid by the Company in respect of legal fees and, presumably, any loss or damage suffered in respect of the transfer of the relevant properties.

Scope of s 237 of the Corporations Act

1. Ms Dar is a member of the Company and a person entitled to apply to the court for leave to bring statutory derivative proceedings under s 236 of the Corporations Act. In an application for leave to bring such proceedings, Ms Dar needs to satisfy the criteria for the grant of leave specified in s 237(2) of the Corporations Act. In order to grant leave under that section, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. Those matters are that it is probable that the Company will not itself bring the proceedings; Ms Dar is acting in good faith; it is in the best interests of the Company that Ms Dar be granted leave; there is a serious question to be tried; and at least 14 days before making the application, Ms Dar gave written notice to the Company of her intention to apply for leave and of the reasons for applying. Ms Dar bears the onus of establishing that each of the matters specified in s 237(2) of the Corporations Act are satisfied on the balance of probabilities: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [26]. If all the requirements of s 237(2) are satisfied, the court must grant leave to bring the proposed proceedings. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12]-[13]; Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 at [55]-[65].

Whether the Company will bring the proceedings

1. The first requirement for a grant of leave to bring a derivative action, under s 237(2)(a) of the Corporations Act, is that it is probable that the Company will not otherwise bring the proceedings. Mr Curtin points out that, on 29 May 2014, Ms Dar's solicitors wrote to Mr Akerman foreshadowing that she intended to notify the Company of her intention to apply for leave under s 237, and providing a draft of the letter proposed to be sent to the Company, which outlined the nature of her complaints and of the alleged breaches of director's duties by Mr Akerman (Dar 17.7.14 [50], [53]; Ex P2, 194). On 17 June 2014, Ms Dar's solicitors requested the Company to commence an action against Mr Akerman for breach of director's duties (Dar 17.7.14 [53]). The Company has not commenced such proceedings and it is clear that Mr Akerman, the Company's sole director, denies the allegations made against him. There would be no reason for Mr Akerman to cause the Company to commence proceedings against him, where he denies any wrongdoing, and the Company has not brought such proceedings against him over a considerable period. The first requirement for a grant of leave, that it is probable that the Company will not bring the proceedings, is satisfied.

Whether Ms Dar is acting in good faith

1. The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Corporations Act, is that Ms Dar must establish to the Court's satisfaction that she is acting in good faith. Mr Curtin submits, and I accept, that factors relevant to that requirement include whether Ms Dar has an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief, and whether she is seeking to bring the action for a collateral purpose. In Swansson above at [36], Palmer J observed that: "There are at least two interrelated factors to which the courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process."
2. Mr Curtin submits, and I accept, that it is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased: Swansson above at [38]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58]; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Pty Limited [2012] NSWSC 462. Mr Curtin also submits, and I also accept, that the Court does not consider the merits of the claim in deciding whether the applicant has satisfied s 237(2)(b) of the Corporations Act, since the merits are considered in respect of the question whether there is a serious question to be tried, which arises under s 237(2)(d) of the Act: Fitzpatrick v Cheal [2010] NSWSC 717 at [41].
3. Ms Dar's evidence is that she believes that the Company has a good cause of action against Mr Akerman and that that cause of action has reasonable prospects of success (Dar 17.7.14 [48]). Ms Dar is a 50% shareholder in the Company and she also gives evidence that the recovery of the Company's interests in the properties, or damages or other compensation for breaches of director's duties, will substantially improve the value of her shareholding in the Company (Dar 17.7.14 [51]). That proposition is supported by the fact that Ms Dar has obviously devoted significant efforts to this application. Mr Akerman, not having contested the application, necessarily does not allege that Ms Dar is not acting in good faith or that she is acting for a collateral purpose. The requirement that Ms Dar is acting in good faith under s 237(2)(b) of the Corporations Act is therefore satisfied.

Whether it is in the best interests of the Company that Ms Dar be granted leave

1. The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Corporations Act, is that the grant of such leave is in the Company's best interests. In Swansson above, Palmer J noted that that paragraph required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the Company's best interests. In Re Gladstone Pacific Nickel Ltd above, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the Company if the action is unsuccessful. Mr Curtin also recognises that, in order to prove that leave is in the best interests of the Company, the applicant should give evidence of the character of the Company, in the sense of the nature of the Company's operations; the business of the Company so that the effects of the proposed litigation on the conduct of its business may be appreciated; whether there are other means of obtaining the same redress so that the Company does not have to be brought into litigation against its will; and Mr Akerman's ability to meet at least a substantial part of any judgment in favour of the company so that the Court may ascertain whether the action would be of practical benefit to the Company: Ragless v IPA Holdings Pty Ltd (in liquidation) [2008] SASC 90 at [35]
2. Ms Dar's evidence is that the Company is an investment company (Dar 17.7.14 [6]) and now appears to be dormant, pending the resolution of the challenge to its transfer of its interests in the properties and the sale of a further property at Kingsford, and a possible winding up (Dar 17.7.14 [65]). Mr Akerman did not lead evidence to the contrary. Mr Curtin submits that, if leave is granted, the proposed proceedings are unlikely to have any meaningful adverse impact on the Company or its business. I accept that submission, subject to an appropriate indemnity given by Ms Dar as to the Company's costs of the proceedings and any order as to costs that may be made against it in them.
3. Mr Curtin recognises that there are contested issues of fact, particularly in relation to whether or not Ms Dar gave prior consent to the transfer by the Company of its interests in the properties, but submits that the Company has substantial prospects of success if Ms Dar's evidence is accepted at trial. Ms Dar leads little evidence as to the scope of the Company's potential recovery, which depends on the present value of the properties, which is explicable where Mr Akerman has not permitted her access to the properties to obtain a valuation of them. There is little evidence as to the likely costs of the proceedings, but it seems to me that much of the work involved in identifying the issues and preparing evidence has been done for this application, and the contested facts are in relatively narrow scope, particularly as to Ms Dar's and the Company's consent to the transactions. Mr Curtin submits, and I accept, that there are no other available means by which Ms Dar could obtain legal redress for the alleged diminution in the value of her shareholding in the Company. Mr Curtin submits, and I also accept, that the evidence suggests that Mr Akerman has assets that should be available to meet any judgment which may be attained against him, including his 50% shareholding in the Company and his interests in the properties (Dar 17.7.14 [52]. The primary relief sought by the Company, namely declarations that Mr Akerman holds that part of the Company's interests in the properties that were transferred to him on constructive trust for the Company, and an order that Mr Akerman transfer those interests back to the Company, does not depend on the sufficiency of his assets.
4. The existence of an indemnity given by a shareholder who seeks leave to bring the derivative proceedings in favour of the relevant company in respect of costs is relevant to whether it is in the company's interests to bring the proceedings, and I reviewed the relevant authorities in that regard in Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [31]ff. Ms Dar initially did not address the question of any indemnity for the Company's costs of the proceedings, and any orders for costs that may be made against it in respect of the conduct of the proceedings, in written submissions. In oral submissions, Mr Curtin submitted that such an indemnity should not be required but confirmed that, if it was required, Ms Dar was prepared to provide it. Mr Studdy submitted that the Court generally requires an indemnity be granted by a plaintiff to protect the company in respect of the costs it would incur in conducting the claims raised on its behalf. It seems to me that such an indemnity is appropriate, and necessary to allow the Court to conclude that the proceedings are in the Company's best interests, particularly where there are only two shareholders in the Company and, as I noted above, there is a gap in the evidence as to the economic benefit of the Company's regaining control of the properties and the likely costs of the proceedings.
5. On balance, it seems to me that the requirement that it is in the best interests of the Company that Ms Dar be granted leave to bring the proposed proceedings under s 237(2)(c) of the Corporations Act is therefore satisfied, subject to Ms Dar granting the indemnity noted above, and I can more readily reach that conclusion where Mr Akerman did not contend to the contrary.

Whether there is a serious question to be tried

1. The fourth requirement under s 237(2)(d) of the Corporations Act is that there is a serious question to be tried in the proceedings. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson above at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. In Re Gladstone Pacific Nickel Ltd above, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]): "The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163 ; 74 ALR 505 at 509-10: However, applying the "serious question" test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief."
2. I have set out the relevant transactions above. Mr Curtin also drew attention in submissions to the Company's financial statements over the relevant period, and the manner in which they treated the relevant properties and transactions. It is not necessary to do more, for the purposes of this application, than note that that treatment is arguably not consistent with the transactions that the Company seeks to challenge.
3. Ms Dar claims that Mr Akerman caused the Company to transfer its interests in the properties to himself or members of his family in breach of his statutory duties under ss 180, 181 and 182 of the Corporations Act; and his general law duties to exercise his powers and discharge his duties in good faith in the best interests of the Company as a whole and for a proper purpose, to avoid a conflict between his duties to the Company and his self-interest; and to exercise his powers and discharge his duties with reasonable care and skill. Mr Curtin refers to, but I need not address at any length, the well-established authorities as to the existence of these duties. Ms Dar specifically relies on a rule described as the "purchasing rule", with effect that a fiduciary cannot buy from or sell to the person to whom fiduciary duties are owed any property falling within the scope of the fiduciary obligations unless full value is given after the person to whom the duties are owed gives fully informed and independent consent to the transaction; or the fiduciary relationship is founded on terms which give the fiduciary the right to sell or buy. Ms Dar also relies on the application of that rule to a director in Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 403 at [20], where Brereton J observed that a contract between a director and the company is voidable at the instance of the company, except where the director has obtained the company's fully informed consent to the transaction.
4. Mr Curtin contends that the only way in which Mr Akerman can avoid a finding of breach of fiduciary duty, or at least of the purchasing rule, is to show, by way of a defence, that the Company, and Ms Dar as its other shareholder, gave prior and fully informed consent to the transactions. Mr Curtin also submits that informed consent could only be given by the company in general meeting and not just by Mr Akerman, and that no general meeting of the Company was held in respect of the sale of the properties to Mr Akerman and his family. Ms Dar's evidence is that she did not give consent to the transfer of the properties (Dar 17.7.14 [20]) and Mr Akerman contests that evidence. Mr Studdy, in oral submissions, submitted that the question whether Ms Dar and the Company had given informed consent to the sale of the properties to Mr Akerman would be in contest in the relevant proceedings, although I do not understand that proposition is put as a matter that should prevent the grant of leave, as distinct from a matter that will be relevant to the determination of the proposed proceedings on their merits.
5. Ms Dar also submits that Mr Akerman breached his duties in causing the Company to transfer its interests in the properties to him or his family members in circumstances that she contends, inter alia, the purchase prices for the properties was based on market values from three or five years earlier. Mr Curtin submits that Mr Akerman caused the Company to transfer its 25% interest in 9 [address omitted] Bondi in March 2010 (for $1,250,000) by reference to a value of that property as at July 2005, and contends that earlier agreements did not support that course since they were not stamped, and Mr Akerman as a solicitor would have known that they were dutiable transactions under the Duties Act 1997 (NSW). Mr Curtin submits that Mr Akerman also caused the Company to transfer its 25% interest in 5 and 7 [address omitted] Bondi by reference to the suggested value of those properties as at January or February 2007 and also submits that there was no valid and enforceable agreement to sell those properties at that time or prior to the contracts for sale dated 17 December 2009 and 4 January 2010 respectively. Ms Dar also attacks the agreements permitting Mr Akerman and his family members to defer payment of the purchase price, at their discretion, until the winding up of the Company (or an associated company) and Mr Curtis submits that the Company's best interests would have been served by being paid the purchase price upon normal settlement terms, within six weeks of the agreement to sale being formed.
6. Ms Dar also submits that that allowing Mr Akerman the ability to defer payment to the winding up of the Company (or an associated company) gave rise to a deferred payment risk and also criticises the Company's failure to take security for the purchase price. Mr Studdy challenged the relevance of the submission that Mr Akerman had not given security for the purchase price for the properties, on the basis that there was no evidence of any risk that he would become insolvent, and that all money due by him and his family members was paid with interest some time ago. I note that submission, but again I do not understand it was put as a matter that would support withholding leave for the proceedings that are sought to be brought, as distinct from a matter that may be relevant to their determination on the merits. Ms Dar submits that that the interest rate paid by Mr Akerman was not a commercial rate, having regard to the risk involved in an unsecured loan. Mr Studdy drew attention in submissions to an opinion expressed by the Company's accountant to Mr Akerman by letter dated 13 March 2013 (Ex D1) that he considered the effect of the agreement between Mr Akerman and the Company, under which the Company would receive the greater of the share of rental income and interest payable at a specified rate, was to place the Company in the same financial position as if the purchase price had been paid at an earlier time. I give limited weight to that opinion, since the basis on which the accountant formed that opinion is not set out in the letter, and it seems that its correctness would at least depend on the amount of interest and rent actually paid to the company, and the manner in which it would have invested funds had it received them at an earlier time, which are not addressed by that letter. In any event, Mr Studdy made clear that he did not draw attention to that matter as constituting a complete answer to the claims proposed to be brought against Mr Akerman. Ms Dar also attacks the fact that the Company did not have independent legal representation to protect its interests in relation to the proposed transfers of the properties.
7. It seems to me that these contentions support the view that the claim against Mr Akerman raises a serious question to be tried, and it is not necessary or appropriate that I express any view as to their prospects beyond that. I recognise that Mr Studdy submitted, in oral submissions, that there would be complexities in any order for rescission, given the interconnection between the several agreements, but again did not put that matter in opposition to the grant of leave. It seems to me that there may also be complexities in respect of the claim for rescission, so far as the agreements involve parties other than the Company and Mr Akerman, who are presently not sought to be joined as party to the proposed proceedings. However, it is not necessary to address those complexities in dealing with this application, because the Company also seeks compensation in the alternative, and Mr Studdy did not submit that that claim is not properly available to it. Mr Studdy fairly accepted, in oral submissions, that the cost of the Company's bringing its claim for rescission and a constructive trust, together with its claim for compensation, where both claims arose from a common factual substratum, were not likely substantially to exceed the costs of a claim for compensation alone (T30).
8. I have also had regard to whether there is evidence of the Company's ability to do equity, in respect of repayment of the substantial purchase price paid by Mr Akerman to the Company in April 2013, if an order for rescission was made. The Company's financial statements for the 2013 financial year (Ex P3) indicate that its total assets significantly exceed any amount which would be required to be paid by way of restitution, and a substantial part of those assets are current assets. The Company's financial statements also indicate that it has a half interest in valuable property at Kingsford, and it is presently taking steps to seek to sell that property, with expectations of a substantial sale price (Ex P5). Mr Akerman's solicitors had also advised Ms Dar's solicitors by letter dated 22 March 2013 that the Company's assets "far exceed" the amount payable pursuant to the contracts for the sale of the properties, and Mr Akerman did not contend to the contrary in this application. I should therefore proceed on the basis that the Company could fund the amount necessary to be repaid to Mr Akerman, by way of restitution, if the relevant transactions were set aside. Mr Curtin also submits, and I accept for the purpose of this application, that there is a prospect that a Court could fashion a remedy, if the Company were otherwise entitled to relief, to permit restitution to be made to Mr Akerman out of the proceeds of any sale of an interest in the properties, once retransferred to the Company. In any event, the question of the Company's ability to repay the purchase price in order to obtain an order for rescission is also of lesser significance where Mr Akerman does not challenge the availability of an order for compensation if the claim against Mr Akerman is otherwise established. The decision in Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd above at 153, to which Mr Curtin referred, contemplated that an order for equitable compensation could be made in respect of a sale of property in breach of fiduciary duty, where a party suffered loss as a result of the transaction, notwithstanding that the transaction could not be rescinded and a constructive trust could not be imposed, and such a remedy was awarded in that case.
9. Mr Curtin also emphasises, in oral submissions, the fact that Mr Akerman authorised the payment of director's fees and legal fees to himself in about March 2013, after the exchange of contracts in respect of the relevant properties and at about the time transfers of the properties were executed, and shortly before the payment of the purchase price of the properties, rent and interest to the Company in April 2013 (T20). Mr Curtin also identifies a contention that will be put, at the hearing, that Mr Akerman did not have authority to authorise the payment of directors' fees, because that power was vested in the Company's general meeting under the Fourth Schedule to the Companies Act 1961, or alternatively that the resolution to pay such fees was in breach of ss 180, 181 or 182 of the Corporations Act. Mr Curtin also attacks the payment of legal fees to Mr Akerman's firm, so far as those fees, including senior counsel's fees, are alleged to have been incurred in respect of a challenge to Mr Akerman's conduct has director, rather than in respect of the Company's affairs. It seems to me that these contentions also raise a serious question to be tried, and it is again not necessary or appropriate that I express any view beyond that in this application.
10. The requirement that a serious question to be tried exists under s 237(2)(d) of the Corporations Act is therefore satisfied.

Notice

1. The fifth requirement for the grant of leave under s 237 of the Corporations Act is that, at least 14 days before making the relevant application, the plaintiff gave written notice to the company of its intention to apply for leave and for the reasons for applying, or it is appropriate to grant leave although that notice was not given. On 17 June 2014, Ms Dar's solicitors requested the Company to commence an action against Mr Akerman for breach of director's duties and gave notice of her intention to apply for leave under s 237 of the Act (Dar 17.7.14 [53], Ex P2, 204). This requirement is satisfied.

Application under s 247A of the Corporations Act

1. Section 247A(3) of the Corporations Act provides that, relevantly, a person who applies for leave under s 237 of the Corporations Act or is eligible to apply for such leave may apply for an order for inspection of documents under s 247A of the Act. Section 247A(4) in turn provides that, in such an application, the Court may make an order authorising the applicant to inspect books of the company. The term "books" is particularly defined in s 9 of the Act as including records of information, financial reports or records and other documents.
2. The Court is able to make such an order only if it is satisfied that the applicant is acting in good faith and that the inspection of the books is to be made for a purpose connected with the application for leave under s 237 or bringing the relevant proceedings pursuant to leave under that section: 247A(5); Chuen v Laredo Pty Limited [2005] WASC 58. The exercise of the Court's discretion whether to make an order under that section requires the Court to consider both whether it should make such an order and also which of the books of the company should be made available under that order: Majestic Resources NL v Caveat Pty Limited [2004] WASCA 201; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Pty Limited above at [56]. The circumstances in which such an order should be made have also been considered in, for example, Vinciguerra v MG Corrosion Consultants Pty Limited (2007) FCA 503; [2007] 61 ACSR 583.
3. Mr Curtin submits that, until just shortly before Ms Dar filed and served this application, she and her solicitors made several requests to Mr Akerman to supply information, books and records and contracts of other documents so that she could better understand the circumstances surrounding and the validity of the Company's transfer of its interest in the properties to Mr Akerman and members of his family, and he largely refused to accommodate those requests (Dar 17.7.14 [53], Ex P2, 204). Mr Curtin submits that Mr Akerman has largely only provided the requested books and records and documents since Ms Dar commenced this application, and that he continues to deny Ms Dar access to the properties to allow her to obtain valuations of them. The latter issue is not a matter within the scope of s 247A of the Act, although it can no doubt be addressed by orders made by the Court in any proceedings that are now commenced on the Company's behalf. Mr Curtin submits that, where Mr Akerman only offered Ms Dar unrestricted access to the Company's books and records in July 2015 (Ex P2, 231-232), the Court should make an order for inspection in the terms sought by Ms Dar in order to guard against any further change in position by Mr Akerman.
4. Mr Studdy responds that an order under s 247A of the Corporations Act is not necessary. Mr Studdy submits that Ms Dar had previously had access to the Company's books and records in March 2005 and May 2011 and also relies on a letter dated 2 March 2012 from Mr Akerman's firm to Ms Dar's solicitors as an offer of the right to conduct an independent audit of the entirety of the Company's financial affairs since 2001 (Ex P2, 165-166). I give little weight to that offer, which was put in terms, as to the time period of the audit and responsibility for its costs, that would have obviously been burdensome for Ms Dar, so far as she was seeking to investigate the position in respect of particular transactions, which did not require an audit of the entirety of the Company's financial affairs since 2001. Mr Studdy also submitted that Ms Dar had access to the Company's bank accounts until July 2013, although that does not seem to me relevant to her access to documents relating to the impugned transactions. Mr Studdy submits that Ms Dar did not provide particulars to Mr Akerman, after she was requested to do so when she raised issues relating to the Company's financial affairs in November 2012, but, I interpolate, before she had been given any substantial access to the relevant documents.
5. Mr Studdy submits that Mr Akerman agreed to grant access to the Company's books and records by his letter dated 28 July 2015 from his solicitors to Ms Dar's solicitors (Ex P2, 231-232), although I note that that letter was sent a little more than a month prior to the hearing of this application. That letter indicates that the Company's books and records are held by Mr Akerman and the Company's accountant and the accountant has been directed to provide access to those books and records if Ms Dar or her solicitor attends to inspect them, and Mr Akerman is also prepared to allow access to those books and records. I assume that Mr Akerman and the Company's accountant will also permit those books and records to be copied by Ms Dar or her advisers promptly on request, on an undertaking to pay reasonable copying costs. In addressing the risk that Mr Akerman might later change his position if an order under s 247A of the Corporations Act were not made, Mr Studdy rightly submitted that that would be an unwise step on Mr Akerman's part. That submission is plainly correct, particularly where that offer had been relied on to contend the orders sought by Ms Dar were not necessary, and I should not assume that Mr Akerman would act in such a fashion. Mr Studdy also submits that Ms Dar had not inspected the Company's books and records since she was then offered the opportunity to do so.
6. It seems to me that there is presently no necessity for an order under s 247A of the Corporations Act, so long as Mr Akerman maintains the position that Ms Dar may have access to the Company's books and records, and he and the Company's accountant act consistently with that position. I will, however, reserve liberty to apply to Ms Dar, in case any further difficulty arises in that respect, which would likely warrant the making of such an order.

Orders and costs

1. Section 98(1) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the Court and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, subject to Part 42, if the Court makes any order as to costs, the Court is to order that the costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of those costs. Section 242 of the Corporations Act also deals specifically with orders for costs in respect of an application for leave under s 237 of the Corporations Act, and provides that the Court may at any time make orders it considers appropriate about the costs of, inter alia, the person who applied for or was granted leave, the Company or any other party to the proceedings or application, and that an order under that section may require indemnification for costs.
2. Ms Dar sought her costs of the application. Mr Curtin rightly noted that the case law does not adopt an absolute position that the proper order, whether in an application for an interlocutory injunction, or an application of this kind, is that the plaintiff's costs be his or her costs in the cause. He points to the fact that the application was commenced in July 2014 and it was not until mid-August 2015 that Mr Akerman changed his position to neither consenting or opposing the application. He submitted that the minimum order that could be made in Ms Dar's favour was an order that costs be costs in the cause in the substantive application.
3. Mr Studdy submitted, correctly, that Mr Akerman had the onus of establishing the requirements of ss 236-237 and 247A of the Corporations Act to the Court's satisfaction and that the costs incurred by Ms Dar would have been required to allow her to satisfy the Court that it was appropriate for the leave she seeks to be granted. The latter submission seems to me to require qualification, at least to the extent that the costs incurred by Ms Dar are likely to be increased by the fact that Mr Akerman did not indicate that he neither consented to nor opposed the application until shortly before it was to be heard, after a long period in which both parties had prepared substantial evidence in respect of the application. Mr Studdy also submits that Ms Dar provided three versions of the Company's proposed Statement of Claim since the proceedings were commenced, in opposition to an order for costs. I also give little weight to that matter, where the extent of any differences between those versions is not been explored in evidence. Mr Studdy submitted that the costs of the application should be costs in the cause of the substantive proceedings, with liberty to apply for a variation of the order if no substantive proceedings are commenced. He points out that such an approach was taken in Maher v Honeysett & Maher Electrical Contractors above at [56]-[59].
4. In Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 at [19], dealing with an application for leave to bring proceedings under s 237 of the Corporations Act, Sackville AJA observed that: "In my view, the appropriate course is to make costs orders analogous to those commonly made in interlocutory proceedings, whereby the costs of the party succeeding on an interlocutory application are designated as that party's costs in the proceedings. If that party ultimately succeeds in the action and obtains an order that the opponent pay the costs of the proceedings, the final order will cover the costs of the interlocutory proceedings. If, however, the party does not ultimately succeed in the proceedings, it will effectively be required to bear its own costs of the interlocutory proceedings, but will not be required to pay the opponent's costs of the interlocutory proceedings." I followed that approach in In the matter of Staway Pty Ltd (in liquidation) (receivers and managers appointed) (Supreme Court (NSW), Black J, August 2013, unrep) and in Re Imperium Projects Pty Limited [2015] NSWSC 123, where I observed that the applicants for leave in that case should not be entitled to recover their costs of their participation in the application for leave, unless the substantive proceedings were successful.
5. It seems to me that the proper order for costs in this application is that Ms Dar's costs of the application be her costs in the cause of the substantive proceedings, so that Ms Dar would recover those costs if the derivative proceedings are successful. First, Ms Dar's success in the application would be of less significance if the substantive proceedings were not successful. Second, it seems to me likely that much of the evidence on which Ms Dar has relied in this application will be relevant, and will likely be read, in the substantive proceedings, although Mr Curtin made clear that the evidence led in this application is not the only evidence on which Ms Dar will rely in the substantive application. It seems to me that it would be unfair to Mr Akerman to allow Ms Dar her costs of preparing that evidence, so far as she had succeeded in this application, even if she were ultimately unsuccessful in the substantive application. I raised the possibility in submissions that, if I were to accept Mr Curtin's submission that the late change in Mr Akerman's position warranted an order for costs against him, then costs should be ordered in favour of Ms Dar up to the date on which he withdrew his opposition to the application. On balance, I do not consider that I should make a costs order on that basis, because that order would likely allow Ms Dar to recover the costs of preparing a significant amount of evidence on which she will rely in the substantive proceedings, irrespective of the result of those proceedings. Conversely, Ms Dar should not be required to pay Mr Akerman's costs of this application, even if the substantive proceedings fail or are not commenced, because those costs - particularly, in respect of the preparation of evidence - were largely not necessary in this application where his final position was that he neither consented to nor opposed the application.
6. The parties should bring in agreed short minutes of order to give effect to this judgment, including as to the provision of an indemnity for the Company's costs of conducting the proposed proceedings and any orders against it in those proceedings, within 14 days and, in the event of any disagreement between them, their respective draft orders and short submissions as to any differences between them.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 September 2015