Chahwan v Euphoric Pty Ltd trading as Clay & Michael & anor

(CTH) Corporations Act 2001 s 237 LEGISLATION CITED : (NSW) Civil Procedure Act 2005 s 64(1), s 64(2), s 64(3), s 65, s 65(2)(a), s 65(2)(c) (NSW) Contracts Review Act 1980

Alexander v Perpetual Trustees WA Ltd [2004] HCA 7, (2003) 216 CLR 109 Baldry v Jackson [1976] 1 NSWLR 19 Brickfield Properties Ltd v Newton [1971] 3 All ER 328 Brinds Ltd v Chapmans Ltd (Supreme Court of New South Wales, Needham J, 24 September 1985, unreported) Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 Chatsworth Investments Ltd v Cussins (Contractors) [1969] 1 All ER 143 Hayim v Citibank NA [1987] AC 730, [1987] 3 WLR 83 CASES CITED : Ishac v David Securities Pty Limited (No 9) (Supreme Court of New South Wales, Young J, 5 June 1992, unreported) Lidden v Composite Buyers Ltd (1996) 139 ALR 549 McGee v Yoemans [1977] 1 NSWLR 273 Ramage v Waclaw (1988) 12 NSWLR 84 Shang v Zhang [2007] NSWSC 856 Stainton v Carron Co (1854) 18 Beav 146, 52 ER 58 Stephenson v Garnet [1898] 1 QB 677 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Yassim v Australian Mid-Eastern Club Ltd (1989) 15 ACLR 449

Elie Chahwan (plaintiff) PARTIES : Euphoric Pty Ltd t/as Clay & Michael (first defendant) Bycoon Pty Ltd (in liq) (second defendant)

COUNSEL : Mr R McKeand SC (plaintiff) Mr G Lucarelli (first defendant)

SOLICITORS : Simon Diab & Associates (plaintiff) Blake Dawson Waldron (first defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1787/05 Elie Chahwan v Euphoric Pty Ltd t/as Clay & Michael & anor JUDGMENT (ex tempore) 1 HIS HONOUR: Although originally the proceedings were differently constituted when they were commenced by summons filed on 4 March 2005, the current state of the pleadings is that by Amended Statement of Claim filed on 24 May 2006 the plaintiff Elie Chahwan claims, in substance, a declaration that the second defendant Bycoon Pty Limited - a company in liquidation in respect of which leave to proceed has previously been granted by Barrett J, and in and which Mr Chahwan is the sole shareholder - holds two lots in Unanderra upon resulting trust for him, he having provided the purchase moneys; secondly, a declaration that a mortgage given by Bycoon to the first defendant Euphoric Pty Limited was given in pursuance of breaches by Mr Chahwan's sister Ms Ayoub of fiduciary and statutory duties owed by her to Bycoon, of which she is a director, and of which breaches it is said that Euphoric had notice; and thirdly, a declaration that Euphoric holds the benefit of that mortgage upon constructive trust for Mr Chahwan - or alternatively for Bycoon, and that Bycoon in turn holds it on trust for Mr Chahwan. 2 On 28 September 2006, Barrett J refused Mr Chahwan leave to bring the proceedings in the name of and on behalf of Bycoon pursuant to Corporations Act, s 237, as his Honour was not satisfied that Mr Chahwan was acting in good faith in the relevant sense for the purposes of s 237, nor that it was in the best interests of Bycoon that he be given leave to bring the proceedings on its behalf [Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002]. However, his Honour did not dismiss or strike out the Amended Statement of Claim, and it remained on foot. The Court of Appeal upheld his Honour's decision, on the additional ground that s 237 was not available in respect of a company in liquidation [Chahwan v Euphoric Pty Ltd [2008] NSWCA 52]. There has been no formal application to have the proceedings dismissed, and though in the course of argument before me a submission to that general effect was made, there is before the Court no application for summary dismissal or striking out of the Amended Statement of Claim. 3 Mr Chahwan, having failed to obtain leave under Corporations Act, s 237, to sue in the name of and on behalf of Bycoon, seeks to maintain the proceeding in his own name and right under the "exceptional circumstances" jurisdiction pursuant to which equity permits a beneficiary to enforce a cause of action for the benefit of a trust, where the trustee will not itself bring the proceedings. In order to make explicit the basis upon which he now claims standing, Mr Chahwan seeks leave to amend the Amended Statement of Claim by adding to the existing pleading two further paragraphs, as follows: 22. By reason of the fact that all material times Bycoon held the properties on trust for the plaintiff, the plaintiff is entitled to the benefit of any relief available to Bycoon, as against Euphoric, that Bycoon is entitled to because of its ownership of the properties.

23. As sole beneficiary in the resulting trust of the properties, the plaintiff is entitled to enforce the rights that Bycoon has against Euphoric in relation to the properties. 4 The proposed Further Amended Statement of Claim also makes minor amendments to the relief sought, in claims 9 and 10, by adding claims to the effect that Bycoon's interest in the mortgage or any compensation to which it might be entitled, is in turn held by Bycoon upon trust for Mr Chahwan.

5 Leave to amend is opposed by Euphoric, on three main grounds. The first is that it is said that the claim as amended cannot succeed for a number of reasons: first, that the plaintiff cannot establish a breach of fiduciary or statutory duty of which Euphoric had notice; secondly, that the claim is statute barred; and thirdly, that by reason of Bycoon's failure to bring forward such a claim in related District Court proceedings at an earlier time it ought not be permitted now to make that claim. The second main ground on which leave to amend is opposed is one analogous to estoppel, as to which it is said that the present application could and should have been made, if not in 2000 in the proceedings in the District Court, at least in 2006 in connection with the s 237 application, and that by reason of the failure to bring this application forward then, Mr Chahwan ought not be permitted to maintain it now. The third main ground of opposition is that, as a matter of discretion - having regard to the history of the proceedings, and the prejudice which would be occasioned to the defendant from a grant of leave to amend - leave should be refused. 6 The proceedings have more than a little history. For the purposes of present application, the factual background is concisely summarised in the judgment of Tobias JA in the Court of Appeal, relevantly as follows: The factual background

[11] In about November 1998, Bycoon acquired and became the registered proprietor of the properties with funds allegedly provided to it by the appellant. The appellant contends he provided the sum of $565,000, said to be the whole of the purchase price paid by Bycoon for the properties. Whether or not those funds were provided only by way of loan will be relevant to whether the appellant is entitled to the declaration sought in para 1 of the relief claimed under the ASC (that Bycoon holds its interest in the properties upon trust for the appellant). The properties were used for commercial purposes, there being a warehouse erected thereon. At no time were they involved in or used for the service station or fuel distribution operations of Bycoon referred to below.

[12] At the time of their purchase and until 2 February 1999, the appellant was the sole director of Bycoon and from 29 May 1997 was the owner of all the issued shares in that company. For the purpose of s 236(1)(a) of the Act it was therefore common ground that he was a member of Bycoon and so entitled to apply to the Court for leave under s 237 to bring the proceedings the subject of the ASC on behalf of Bycoon in its name: see s 236(2).

[13] Mrs Ayoub is the appellant's sister and was the sole director of Bycoon from 2 February 1999 to May 2002 when she ceased to hold that office and the appellant once again became the company's sole director.

[14] At all material times Euphoric was a wholesaler of fuel under the Mobil brand and, prior to July 2000 had sold fuel to Madallah Trading Pty Ltd (Madallah) which operated a service station outlet from a fuel distribution operation for other retailers in the area from premises owned by My Five Star Holdings Pty Ltd at Nos. 13-15 Glastonbury Avenue, Unanderra. Mrs Ayoub was the sole director of that company and she and her four children held its issued shares equally.

[15] The day-to-day dealings between Euphoric and Madallah were conducted through Mrs Ayoub's husband, Mr Michael Ayoub, who was employed as the manager of the service station and who had been made bankrupt in 1991. At all material times the sole director and shareholder of Madallah was a Mr Camille Nasr, who is Mr Ayoub's cousin.

[16] In late May or early June 2000, Euphoric became concerned that Madallah had accumulated a substantial, albeit disputed, debt to it for fuel purchased in an amount of $293,339.62 (the Madallah debt). Euphoric therefore ceased supply to Madallah, causing Madallah to cease the service station business on or about 30 June 2000. The Madallah debt remained unpaid.

[17] However, Mr Ayoub desired to continue to operate the service station and fuel distribution business from Nos. 13-15 Glastonbury Avenue. To that end he proposed to Euphoric the use of Bycoon as the corporate vehicle to facilitate those operations. Although Mrs Ayoub had originally been the sole shareholder of the four issued shares in Bycoon, her shareholding had ceased in 1997, after which the appellant was shown in the relevant records of the company as being its sole shareholder and was such in 2000. However, Mrs Ayoub was Bycoon's sole director at this time. [18] Apart from the unpaid Madallah debt, Euphoric was reluctant to supply fuel to Bycoon as it had previously lost a considerable sum of money in unpaid fuel supplied to a company which had gone into receivership and of which Mr Ayoub's brother was a director and shareholder. It was also concerned as to the family relationship that Mr Ayoub had with Bycoon through his wife.

[19] Ultimately Euphoric agreed to supply fuel to Bycoon on credit on certain conditions. First, that Bycoon agree to the transfer to it of, and take responsibility for, the Madallah debt; second, that Mrs Ayoub, as the sole director of Bycoon, guarantee to pay Euphoric any money due if Bycoon defaulted; and third, that Bycoon give a first registered mortgage to Euphoric over the properties as security for any unpaid amounts.

[20] Mrs Ayoub completed a credit application and guarantee on 28 June 2000. The transfer of the Madallah debt to Bycoon was the subject of an undated instrument which was referrable to an amount owing by Madallah to Euphoric as at 7 July 2000. Mrs Ayoub signed on behalf of Bycoon and Mr Nasr on behalf of Madallah. Mrs Ayoub executed the mortgage on the same day. Euphoric thereupon commenced the supply of fuel to Bycoon with the first order being made on 7 July 2000.

[21] Bycoon proceeded to trade uneventfully until 31 October 2000 when the first of a series of loads of fuel extending to 17 November 2000 was delivered. A number of invoices were issued by Euphoric with respect to those loads, but Bycoon denied ever having received the invoices or the fuel to which they related. Payment of the invoices was therefore not made. In the result, faced with its refusal to pay the outstanding Madallah debt and the new invoices, Euphoric ceased supply of fuel to Bycoon.

[22] On 16 August 2001 Euphoric instituted proceedings in the District Court against Mrs Ayoub on her personal guarantee and for the unpaid fuel supplied to Bycoon (the District Court proceedings). It later joined Bycoon to those proceedings. The amount claimed was $668,072.96, comprising the Madallah debt of $290,380.41 and the unpaid invoices, which themselves totalled $377,692.55.

[23] The District Court proceedings were heard by his Honour Acting Judge Hungerford who, on 31 March 2004, found in favour of Euphoric and entered a verdict and judgment against Mrs Ayoub and Bycoon on a joint and several basis in the amount claimed plus interest of $234,136.24 resulting in a total judgment amount of $902,209.20. An appeal to this Court by Mrs Ayoub and Bycoon was dismissed on 15 December 2004 ( Ayoub & Anor v Euphoric Pty Ltd [2004] NSWCA 457) and the High Court refused their application for special leave on 9 September 2005. Bycoon was wound up by court order on 14 November 2005 and Mrs Ayoub was placed into bankruptcy on 13 December 2005.

[24] Mrs Ayoub and Bycoon's primary defences were, first, that the Madallah debt did not exist, and, second, that neither any fuel nor any of the invoices relating to that fuel were received. Both defendants maintained that all fuel purchased by Madallah and Bycoon had been paid for. His Honour rejected those defences.

[25] Mrs Ayoub also raised issues with respect to her personal guarantee, arguing that she was unaware that what she was signing was a guarantee and that she was therefore entitled to be relieved from any liability thereunder pursuant to s 7 of the Contracts Review Act 1980. Judge Hungerford also rejected this defence.

7 It will be apparent that central to the present dispute is the transaction of 7 July 2000 whereby, through the intervention of Mr Chahwan's sister Ms Ayoub, Bycoon assumed responsibility to Euphoric for the Madallah debt; Bycoon acquired the service station business previously carried on by Madallah; Ms Ayoub gave Euphoric a personal guarantee in respect of the Madallah debt; and Bycoon gave a mortgage over the land, the subject of these proceedings, to Euphoric as security for the Madallah debt. 8 In the proceedings before Hungerford DCJ, referred to in the passages of Tobias JA's judgment set out above, Euphoric sued Bycoon and Ms Ayoub on their guarantees for the Madallah debt and, as his Honour described, the primary defences raised were, first, that the Madallah debt did not exist, and secondly, that neither the fuel said to have been sold by Euphoric to Madallah, or Bycoon, nor any invoices relating to it, had been received, and that all goods received had been paid for. Ms Ayoub, in respect of her guarantee, also raised a Contracts Review Act defence, contending that she was unaware that she had signed a guarantee. Hungerford DCJ rejected those defences; an appeal to the Court of Appeal was unsuccessful, and the High Court refused special leave to appeal. 9 On 4 March 2005, the present proceedings were instituted by summons, at which time the plaintiffs were Mr Chahwan, Ms Ayoub and Bycoon; the first defendant was Euphoric, and the second defendant was a firm of solicitors who had acted for Bycoon in the District Court proceedings. Relevantly, that summons claimed a declaration that Mr Chahwan was the beneficial owner of the two Unanderra lots in question, or had an equitable charge over them to the value of his contribution to the purchase price; a declaration that Ms Ayoub had executed the mortgage to Euphoric, a further declaration that Euphoric had made an unauthorised alteration to it to add lot 39 to the security; a declaration that the mortgage in its original form and as altered was void and unenforceable, and an order setting it aside. The proceedings continued on pleadings. The Statement of Claim was filed on 3 June 2005. 10 However, on 14 November 2005, an order was made in other proceedings that Bycoon be wound up, and consequently it went into liquidation. It was following that that, by the Amended Statement of Claim to which I have referred, the proceedings were, in May 2006, reconstituted. Relevantly, the only remaining plaintiff is Mr Chahwan - Ms Ayoub having, in the meantime, become a bankrupt; the solicitors having been removed as defendants and the proceedings against them discontinued; and Bycoon having been removed as a plaintiff and joined as second defendant. 11 After leave to file the Amended Statement of Claim was granted, application was then made for leave, under Corporations Act, s 237, for Mr Chahwan to bring the proceedings in the name and on behalf of Bycoon, which Barrett J decided on 28 September 2006. His Honour reached a number of conclusions which are relevant for the purposes of the present application - though, in the context of an interlocutory application, not necessarily conclusive for present purposes. His Honour found that, notwithstanding that proceedings of the type now sought to be sustained on behalf of Bycoon against Euphoric could have been brought, and logically ought to have been commenced, in connection with the District Court proceedings (by seeking the removal of the District Court proceedings into the Supreme Court), nonetheless the absence of jurisdiction in the District Court under the Corporations Act, and its limited equitable jurisdiction, meant that any failure to do so was not manifestly unreasonable such as to create an Anshun estoppel; at least, it was not sufficiently obviously so as to warrant the summary dismissal of the proceedings at that stage. Next, his Honour was satisfied, and it was not seriously in dispute, that Bycoon's liquidator would not proceed with the claim against Euphoric. Thirdly, his Honour concluded that, for the purposes of s 237, there was a sufficiently serious question to be tried. 12 However, his Honour concluded - decisively - that Mr Chahwan's application was not made in good faith. In this respect, his Honour referred to the delay in mounting any such application since February 2001 when Mr Chahwan first became aware that the relevant mortgage had been granted, and to the absence of any complaint about it at an earlier stage - in particular, that no such complaint was raised in connection with or at the time of the proceedings in the District Court - and that it was not raised until Ms Ayoub herself had become bankrupt and was thus in a sense shielded from any proceedings when she might otherwise have been the person primarily answerable to such a claim. His Honour said (at [38]): I am not satisfied as to Mr Chahwan's bona fides. It is for him to show affirmatively that he is acting in good faith in what he proposes to have the company do now. The evidence suggests to me that he is seeking to have the company run a case now that it could - and should logically - have run several years ago in the context of the litigation brought by Euphoric, that he desisted from doing so for reasons which may well have been improper from the point of view of his duties as a director of Bycoon (i.e, unwillingness to expose his sister to the allegation of direct liability) and that he would never have bothered to resurrect the matter had Bycoon not failed in its attempt to defend the action brought by Euphoric in the District Court. His motive, briefly stated, is to attempt, after the event, to have Bycoon mount now a cross-claim that it should have mounted years ago - and to do so, moreover, by way of collateral attack on the District Court judgment. That he did not see fit to have Bycoon do this at the time but professes to consider it appropriate now at a point when he can arguably bring it without harm to his sister calls in question the motivation to such an extent to preclude the necessary finding of good faith in terms of s.237(2)(b).

Having concluded that Mr Chahwan was not acting bona fide in the relevant sense, his Honour also concluded that it was not for the purposes of s 237 in the best interests of Bycoon that he be permitted to bring the proceedings on its behalf. 13 As I have said, the Court of Appeal upheld his Honour's decision. However, the Court of Appeal dealt with the good faith question rather differently. The conclusion of Tobias JA, with whom Beazley and Bell JJA agreed on this question, was as follows: [84] In these circumstances it is unnecessary to deal either with Euphoric's submissions on the issue of good faith based upon the absence of any enquiry of or communication with Mr Nasr or with those of the appellant that the primary judge's finding that the appellant's delay in seeking to bring proceedings called into question his motivation. It is sufficient for present purposes that the appellant was applying to the court for leave to institute proceedings in the name of Bycoon which, if successful, would only benefit himself in a capacity unrelated to his status as a former shareholder or director of that company.

It will be seen that the decision of the Court of Appeal in this respect thus depended on the conclusion that the proceedings, if successful, would benefit Mr Chahwan as beneficiary of the alleged trust, and not the company as a whole, and that the benefit to him was unrelated to his status as former shareholder and director of the company, but exclusively in his capacity as a beneficiary of the alleged trust. 14 For similar reasons, the Court of Appeal upheld the conclusion that it was not in the best interests of Bycoon that Mr Chahwan be permitted to bring the proceedings. Tobias JA said: [92] In other words, if there are assets of the company other than the properties to which the class of unsecured creditors are entitled, then any distribution to those creditors from the sale of those assets will only be reduced if Euphoric loses its security and joins that class. The only party who will benefit from the exercise will be the appellant.

[93] The same result follows in the event that the appellant fails on his primary claim but succeeds on his alternative claim for an equitable charge in that, as the appellant himself submits, he will become a secured creditor of Bycoon. As on his case he is not a creditor of Bycoon at present, then the effect of the appellant's success on his alternative claim would be that the properties will be subject to a charge in favour of the appellant rather than Euphoric. In other words, one secured creditor will be substituted for another. This will not enhance the position of the unsecured creditors. On the contrary, they will be further prejudiced because even on the appellant's alternative claim, if successful, Euphoric will become an additional unsecured creditor thereby diminishing the distribution to which the existing unsecured creditors will be entitled.

15 The Court of Appeal then proceeded to hold - overruling in this respect the judgment of Barrett J and other first instance judgments - that s 237 was not available in the context of a company in liquidation, and that Barrett J's refusal of leave should, therefore, be upheld on that additional basis also. 16 Having failed to obtain leave to bring the proceedings in the name and on behalf of Bycoon, Mr Chahwan, as I have foreshadowed, seeks now to sustain them in the "exceptional circumstances" jurisdiction [as to which see Ramage v Waclaw (1988) 12 NSWLR 84 (Powell J); see also Hayim v Citibank NA [1987] AC 730, [1987] 3 WLR 83; Ishac v David Securities Pty Limited (No 9), 5 June 1992, Young J unreported; Alexander v Perpetual Trustees WA Ltd [2004] HCA 7, (2003) 216 CLR 109 [55]]. In this jurisdiction, equity will permit a beneficiary who can establish exceptional circumstances to sue on a cause of action against a third party which belongs to the trustee, if the trustee fails to sue to protect the trust property. Young CJ in Eq, as his Honour then was, summarised the position in Shang v Zhang [2007] NSWSC 856, as follows: [11] As is said in Ford and Lee, Principles of the Law of Trusts (Loose-leaf edition) [1790] at p 1-10055 of Update 28: If the trustee does not sue to protect the trust property, the beneficiary may in 'exceptional circumstances' … sue to enforce the trustee's right of action against the third person for injury to the trust property, joining the trustee as defendant in the proceedings.

That statement is fully supported by the authorities such as Ramage v Waclaw (1988) 12 NSWLR 84 (Powell J) and Lidden v Composite Buyers Ltd (1996) 67 FCR 560 (Finn J). See also Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109 at 129.

[12] In Hayim v Citibank NA [1987] AC 730, 748, Lord Templeman, giving the decision of the Privy Council said: A beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owned by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.

The present circumstances seem to me to be within the "special circumstances" referred to by the House of Lords and by the two eminent Australian judges whom I have mentioned. 17 Although the cases refer to "exceptional circumstances", the relevant exceptional circumstances seem to involve no more than a failure by the trustee - excusable or inexcusable - to sue on a cause of action against the third party in performance of the duties owed by the trustee to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate. 18 As Finn J explained in Lidden v Composite Buyers Ltd (1996) 139 ALR 549, under the judicature system it is no longer the case that this doctrine applies only to proceedings in the exclusive jurisdiction of equity; it is now available in respect of all causes of action which a trustee may have against third parties. However, it must always be borne in mind the action brought by a beneficiary in such a case is no more and no less than the action that the trustee would and could have brought against the third party. It is a claim brought, albeit by the beneficiary, in the right of the trustee [Stainton v Carron Co (1854) 18 Beav 146, 52 ER 58; Ramage v Waclaw, Hayim v Citibank and Ishac v David Securities, 9.3; Lidden v Composite Buyers, 552.05; Hayim v Citibank, 747C]. 19 In the present case, as I have recorded, Barrett J found that the liquidator would not bring Bycoon's claim against Euphoric. As the liquidator is and remains in control of Bycoon, and in the absence of any evidence that the circumstances have changed or are different since Barrett J's decision, and of any serious contention to the contrary, it is at least sufficiently arguable that the liquidator (who controls the trustee) will not bring such proceedings, that a Court could at a final hearing find that the trustee would not bring such proceedings and thus that exceptional circumstances were relevantly established. That is all the more so where, as is contended on behalf of Mr Chahwan, he is the only beneficiary of the relevant trust, and where his failure to obtain leave under s 237 was intimately connected with the circumstance that the proceedings were really brought for his benefit as beneficiary of the trust, as distinct from the benefit of the company as a whole. 20 It is true that Barrett J found, and the Court of Appeal upheld, that Mr Chahwan was not acting in good faith. However, that finding has to be seen in the light of, first, the circumstances that on an application for leave under s 237 an applicant must affirmatively demonstrate that he or she is acting in good faith, and that the concept of good faith in s 237 is commensurate with that of "bona fide in the interests of the company as a whole", which informs many areas of company law. That is manifestly the basis upon which the Court of Appeal upheld the finding of lack of good faith; the basis upon which the Court of Appeal found that Mr Chahwan was not acting in good faith was quite different from that found by Barrett J, and quite irrelevant to the present application, in which no question of acting in the interests of the company arises. 21 The first basis upon which it was contended that leave should be refused was that the claim as amended could not succeed. The first leg on which this submission was put was, as I have foreshadowed, that Mr Chahwan would not be able to establish that there was a breach of fiduciary or statutory duty of which Euphoric had relevant notice. The relevant allegations are made in paragraphs 13 and 14 of the amended Statement of Claim in the existing pleading. They are not amended by the proposed further amended pleading. As I have already recorded, Barrett J found that there was a serious question to be tried in respect of this allegation. The evidence before me is not entirely the same as was before Barrett J. Mr Chahwan was cross-examined, and he conceded that some of the allegations in the particulars to paragraph 13 were inaccurate, in that it was not correct to say that Bycoon received no benefit for its assumption of liability for the Madallah debt, and it was not correct to say that Madallah was released from liability for its debt for no consideration - since, in return for assuming liability for the debt, Bycoon acquired the service station business previously carried on by Madallah. 22 The crucial element in the case that would be made against Euphoric is to be found in the allegations in paragraph 14 that Euphoric knew that Bycoon's granting of the mortgage was not in Bycoon's best interests for a proper purpose, but resulted from Ms Ayoub abusing her position as a director. It would, no doubt, be an important step in that argument to show that, as alleged in particular 2 to paragraph 14, relevant officers of Euphoric knew that the mortgage was not only not in the best interests of Bycoon, but adverse to Bycoon's interest, and in the interests of others including Ms Ayoub, directly or indirectly. That would, no doubt, be more readily shown if there was no benefit at all received by Bycoon for its assumption of the Madallah debt. But it does not follow that it cannot be shown if there was in fact, as appears from the evidence, some consideration for the assumption of that debt, as it may for example transpire that it was self-evident that the Madallah service station business was practically worthless - after all, it is known that it had apparently accrued an indebtedness of approximately $200,000 which it had not been able to pay. Or it may become apparent that the service station business was not trading at a profit, and was therefore not of value to a purchaser such as Bycoon. The circumstance that it is now apparent that there was some as distinct from no consideration for Bycoon's assumption of the debt does not exclude the possibility that it could be shown at a final hearing, first, that the transaction was adverse to Bycoon's interests and, secondly, that officers of Euphoric knew it to be so. 23 Reference was made to findings made by Hungerford ADCJ about the state of knowledge of Euphoric's relevant officers. However, none of those findings touch on their knowledge of whether or not the transaction was for the benefit of Bycoon. That is unsurprising, because the issues raised by the defences advanced in the District Court proceedings did not require examination of that question. It is once again important to bear in mind that these allegations already stand, in the existing version of the Amended Statement of Claim; Mr Chahwan does not need leave to amend to raise them. If I refuse leave to amend, the allegations in paragraphs 13 and 14 will still stand in the Amended Statement of Claim, and Euphoric - on an application for summary dismissal - would still have to show that they could not be proved at trial, even with further evidence that might emerge on discovery or in answer to interrogatories. As I have mentioned, there is not before me an application for summary dismissal of the claim on the basis that it cannot succeed; the leave to amend sought is to add a couple of paragraphs to explain the basis upon which Mr Chahwan claims standing, notwithstanding the refusal of leave under s 237. Even if, in this respect, Mr Chahwan's case on behalf of Bycoon might not at this stage look particularly strong, discovery has not yet been had, and it cannot be said what would ultimately be elicited by discovery - or even at trial by cross-examination. That proof of the allegations may be difficult does not mean that they are incapable of proof. I am not satisfied that the allegations in paragraph 13 and 14 cannot be proved, nor that the proceedings are doomed to fail on that account. Nor do I think that that is a material consideration in the context of the particular amendment sought, which does not concern those paragraphs. 24 The next basis upon which it is said that the amended claim would be doomed to fail is that it is barred by a limitation period. The statutory causes of action have a limitation period of six years, and the equitable causes of action probably have a six year limitation period by analogy. However, for Mr Chahwan it is submitted that the equitable causes of action involve allegations of equitable fraud, to which a twelve year limitation period would apply. This is at least arguable, and according to Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, at least where the question is arguable, limitation points should not be decided at a preliminary stage such as this. 25 Assuming, however, that a six year limitation period applies, one turns to Civil Procedure Act, s 64 and s65. Section 64 relevantly provides as follows: Amendment of documents generally

(1) At any stage of proceedings, the court may order: (a) that any document in the proceedings be amended, or (b) that leave be granted to a party to amend any document in the proceedings. (2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.

(3) An order under this section may be made even if the amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings but, in that case, the date of commencement of the proceedings, in relation to that cause of action, is, subject to section 65, taken to be the date on which the amendment is made.

26 Section 65 relevantly provides as follows: Amendment of originating process after expiry of limitation period (1) This section applies to any proceedings commenced before the expiration of any relevant limitation period for the commencement of the proceedings. (2) At any time after the expiration of the relevant limitation period, the plaintiff in any such proceedings may, with the leave of the court under section 64 (1) (b), amend the originating process so as: (a) to enable the plaintiff to maintain the proceedings in a capacity in which he or she has, since the proceedings were commenced, become entitled to bring and maintain the proceedings, or (b) to correct a mistake in the name of a party to the proceedings, whether or not the effect of the amendment is to substitute a new party, being a mistake that, in the court's opinion, is neither misleading nor such as to cause reasonable doubt as to the identity of the person intended to be made a party, or (c) to add or substitute a new cause of action, together with a claim for relief on the new cause of action, being a new cause of action that, in the court's opinion, arises from the same (or substantially the same) facts as those giving rise to an existing cause of action and claim for relief set out in the originating process. (3) Unless the court otherwise orders, an amendment made under this section is taken to have had effect as from the date on which the proceedings were commenced. (4) This section does not limit the powers of the court under section 64. (5) This section has effect despite anything to the contrary in the Limitation Act 1969 .

27 Section 65(2) covers three categories of amendment: first, an amendment to enable a plaintiff to maintain proceedings in a capacity in which the plaintiff has become entitled to sue since the proceedings were commenced; secondly, to correct a mistake in name (which is not presently relevant); and thirdly, to add or substitute a new cause of action that arises from the same or substantially the same facts as those giving rise to an existing cause of action. Section 64(3) applies only where the amendment would add a new cause of action. Thus, resort is required to s 65(2)(c) in respect of an amendment made or sought to be made after a relevant limitation period has expired, only if that amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings. To my mind the amendments proposed in the Further Amended Statement of Claim do not add or substitute a new cause of action at all. They add a couple of matters - as to the distinction between matters and causes of action in this context, see Baldry v Jackson [1976] 1 NSWLR 19. Such "matters" might be material facts in a cause of action already pleaded, but the cause of action for a declaration that the mortgage is held by Euphoric on trust for Bycoon is already pleaded, as are the facts necessary to sustain that cause of action. All that the amendment would add are a couple of matters to make explicit the basis upon which the plaintiff says he has standing. I do not think that is to add or substitute a cause of action at all. Accordingly, I do not think that s 64(3) applies to the proposed amendment, which therefore would if permitted relate back to the date of commencement of the proceedings, so that resort to s 65(2)(c) is not necessary. 28 However, if it were necessary to resort to s 65, then the purpose of the amendment is to demonstrate that the plaintiff is entitled to sue in his own name, in right of Bycoon as trustee. That is a circumstance which has arisen after the proceedings commenced, by reason of Bycoon's liquidation, and its ceasing to be a plaintiff and joinder as a defendant. Prior to the liquidation of Bycoon, when Bycoon was under the plaintiff's control, it could bring the proceedings itself, and it was not necessary for the plaintiff to plead facts showing a basis upon which he had a capacity personally to bring the proceedings. It was only as a result of the subsequent liquidation that the "exceptional circumstances" arose. That would attract the operation of s 65(2)(a). 29 Moreover, if I am wrong in the view that the amendment does not add a new cause of action, then any new cause of action added is one that plainly arises from substantially the same facts as those giving rise to the cause of action already pleaded, so as to be within s 65(2)(c). The cases establish that it is not necessary that there be a precise correspondence of the material facts which constitute the two causes of action [Chatsworth Investments Ltd v Cussins (Contractors) [1969] 1 All ER 143; McGee v Yeomans [1977] 1 NSWLR 273, 284-285; Brickfield Properties Ltd v Newton [1971] 3 All ER 328, 342]. 30 For all those reasons, I do not accept that the proceedings would be doomed to fail, nor that leave to amend should be declined, by reason of the expiration of any limitation period. 31 As to the suggestion that the further amended claim would be doomed to fail by reason of an Anshun estoppel arising from the failure to raise it as a defence in the District Court proceedings, even if only on removal of the District Court proceedings into the Supreme Court - a submission which might be fortified by the circumstance that Mr Chahwan made a deliberate decision at that time on behalf of Bycoon not to raise it - Barrett J has already decided that there is no sufficiently clear-cut Anshun estoppel, given the District Court's lack of corporations and limited equitable jurisdiction, to justify a conclusion at this stage that the proceedings be doomed to fail on that ground. I see no good reason for revisiting that conclusion now. 32 I turn then to the second main basis upon which it was contended that leave should be refused - namely, that the law requires parties to bring forward their whole case and not to prosecute it on a selective basis keeping points and issues in reserve, and that the time for the present application to be made was, at the latest, in conjunction with the s 237 application. 33 This submission proceeded by reference to a misconception that what was being sought was not leave to amend an existing pleading, but leave to bring proceedings in a particular capacity - namely, in the exceptional circumstances jurisdiction on behalf of Bycoon. As an examination of the cases to which I have referred reveals, it does not appear to be the law, and there certainly does not appear to be any practice, that in respect of proceedings brought in the "exceptional circumstances" jurisdiction, the plaintiff must first apply for leave or permission to bring those proceedings. What a plaintiff bringing such proceedings has to establish, is that the trustee will not do so, such as to amount to exceptional circumstances; if the plaintiff fails to establish that, then the plaintiff will fail at the final hearing. But in none of the cases to which reference has been made does there appear to have been any interlocutory application for permission to bring the proceedings on behalf of the delinquent trustee. In Ramage v Waclaw, an order was made at the final hearing appointing the plaintiff to sue on behalf of the trustee and deeming him to have done so. 34 As there is no need to make any application for leave to bring proceedings in the "exceptional circumstances" jurisdiction, the argument that such an application should have been made if at all in conjunction with the s 237 application is misconceived: a plaintiff could not be precluded from making an application by failing to bring one that it was not required to bring. I accept that it may be an abuse of process to relitigate, at least in the absence of a change of circumstances, an issue already litigated and decided, even on an interim basis [Stephenson v Garnet [1898] 1 QB 677; Brinds Ltd v Chapmans Ltd (Needham J, 24 September 1985, unreported); Yassim v Australian Mid-Eastern Club Ltd (1989) 15 ACLR 449, 451-452]. But that doctrine applies to relitigation of an issue that has already been litigated and decided, albeit on an interlocutory basis. The extension of the wider Anshun doctrine requiring parties to bring forward the whole of their case to interlocutory applications should be approached with great caution. Interlocutory decisions do not ordinarily create estoppels. Courts do not necessarily expect parties to approach interlocutory applications on a "once and for all" basis. At the highest, the question is one of degree and discretion as to whether in particular circumstances it will be an abuse of process to mount what is, in effect, a collateral attack on an earlier interlocutory decision by a further interlocutory application. 35 In the present case, where the Amended Statement of Claim is already on foot, I am quite satisfied that no abuse of process is involved in an application for leave to amend it by clarifying the basis upon which the plaintiff claims standing, notwithstanding that an earlier application under s 237 for leave to bring the proceedings on a different basis has failed. 36 Finally, then, I turn to questions of discretion. The main matters urged against the grant of leave were, first, the matters already referred to in respect of bringing the application after the unsuccessful s 237 application - an argument I have already found misconceived; secondly, the deliberate decision not to raise the issue earlier in 2002 - but that must largely be answered by the finding already made by Barrett J that it was not sufficient to give rise to a clear-cut Anshun estoppel; thirdly, delay in the passage of time since then; fourthly, the vexation that would be involved by requiring relevant witnesses, who have already given evidence before Hungerford ADCJ to give evidence again; and fifthly, the waste of costs involved. But it is yet again necessary to recall that the question before me is not whether the plaintiff should be able to pursue the cause of action pleaded in the Amended Statement of Claim; the cause of action is already pleaded, and pleaded on any view within time. The burden borne by a defendant who seeks to have such proceedings dismissed or stayed on the basis they are vexatious or prejudicial is a notoriously high one. That burden has not been undertaken, let alone discharged, by the defendant in this case. 37 In those circumstances, I am unable to see how an amendment to clarify the basis upon which standing is claimed for a cause of action already pleaded would occasion any additional prejudice to the defendant over and above that which was occasioned when leave to file the current Amended Statement of Claim was granted in 2006. 38 For those reasons, discretionary considerations do not warrant refusing leave to amend as sought. 39 A final matter to which I shall refer is that, as the defendants have pointed out, the pleading does not explicitly allege that Bycoon will not bring the proceedings. That point is, I think, well made, and although it is quite plain that that is what the plaintiff's case is, the final version of the Further Amended Statement of Claim should include an allegation to that effect. 40 I grant leave to the plaintiff to further amend his Statement of Claim by filing a document in the form of the Further Amended Statement of Claim comprised in Annexure A to the affidavit of Mr Chahwan sworn 4 September 2008, subject to the addition thereto of a paragraph 22, to the effect "Bycoon has not and will not sue to enforce its rights against Euphoric". 41 Although I will hear counsel on the question if they wish, it seems to me that, properly viewed, the present application involved a relatively minor amendment to the pleadings. Ordinarily, the plaintiff would pay the costs of the indulgence of having an amendment. However, the application has encountered substantial and extensive opposition, which has exacerbated the costs of the amendment and which has been unsuccessful. Balancing the ordinary consequences of an application for leave to amend against the exacerbation of its costs by the unsuccessful opposition to it, it seems to me that the proper course is that there be no order as to costs of the application, to the intent that each party bear its own costs. 42 [COUNSEL ADDRESSED ON COSTS] 43 On an application for leave to amend which succeeds, one starts from the position that the successful applicant for leave to amend pays the unsuccessful respondent's costs, the amendment being an indulgence granted by the Court, the costs associated with which could have been avoided had the applicant got the pleading right or complete in the first place. But the court may depart from that ordinary position, in particular where the opposition to the amendment is unreasonable, or where the opposition is on such a scale and to such an extent that it adds unnecessarily to the costs of the application. In such a case, the position involves balancing the relative responsibility of the respective parties for the costs associated with the amendment and the process of seeking leave to amend. 44 In the present case, it does not seem to me that justice in respect of the present application would be achieved by making the costs of this application either party's costs in the ultimate proceedings, or for that matter costs in the proceedings generally. That is because this has been a discrete part of the litigation, and one initially occasioned by the plaintiff's need to have the indulgence of an amendment. I think both parties bear some responsibility for the costs that have been incurred on this application. It is impossible to say that they have equal responsibility or sensibly to apportion responsibility. I remain of the view that the better course is that each party be left to bear its own costs of the application. 45 I adjourn the proceedings to Monday 6 July 2009 at 9.15 before the Registrar in the Corporations List. **********

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.