Cleanfin Pty Ltd v Forest Carbon Methodology Pty Ltd

Solicitor for the Defendant: Henry William Lawyers

Counsel for the Plaintiff: Mr B Roberts KC with Mr T Kentish

Solicitor for the Plaintiff: LK Law

Counsel for the First and Second Defendants: Mr M Bonnell with Ms S Cirillo

Solicitor for the First and Second Defendants: Henry William Lawyers

Counsel for the Third Defendant: Mr D McLure SC

Solicitor for the Third Defendant: Herbert Smith Freehills

BETWEEN: CLEANFIN PTY LTD ACN 061 987 442 Plaintiff

AND: FOREST CARBON METHODOLOGY PTY LTD ACN 145 048 246 Defendant

order made by: O'SULLIVAN J DATE OF ORDER: 10 may 2024

THE COURT ORDERS THAT:

1. The plaintiff has leave pursuant to s 237 of the Corporations Act 2001 (Cth) to add as a respondent to proceedings in the Federal Court of Australia on behalf, and in the name, of Forest Carbon Methodology Pty Ltd (FCM) being action number SAD 87/2022 (derivative proceedings), Geo Carbon Services Pty Ltd and to substitute for Lewis Reginald Devere Tyndall, a respondent in the Derivative proceedings, Shirley Tyndall in her capacity as Executor of the Estate of Lewis Reginald Devere Tyndall in order to make the claims in the form, or substantially in the form, as the claims in the proposed amended originating application and proposed amended statement of claim being annexure ANT-15 to the affidavit of Andrew Nathan Tarnowskyj sworn and filed on 30 April 2024 in action number SAD 87/2022.
2. Subject to further order of the Court, the plaintiff: (a) Is to indemnify FCM in respect of the costs it incurs in the derivative proceedings and have no recourse to FCM; and (b) Is to indemnify FCM in respect of any order for security for costs or adverse costs in the derivative proceedings and have no recourse to FCM.
3. The performance of the indemnity referred to in order 2 herein is guaranteed by Noble Investments Pty Ltd and Timothy Owen Lebbon on the terms set out in the Schedule to these orders.
4. The costs of these proceedings be costs in the cause of the derivative proceedings.
5. Pursuant to r 2.32(3) of the Federal Court Rules 2011 (Cth), the Schedule to this order be confidential to the parties and Noble Investments Pty Ltd and Timothy Owen Lebbon and not available for inspection by other parties without leave of the Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BETWEEN: FOREST CARBON METHODOLOGY PTY LTD ACN 061 048 246 Applicant

AND: JAMES PHILIP SCHULTZ First Respondent

LEWIS REGINALD DEVERE TYNDALL Second Respondent

TERRA CARBON PTY LTD ACN 154 094 470 Third Respondent

order made by: O'SULLIVAN J DATE OF ORDER: 10 May 2024

1. Within seven (7) days the parties are to provide an agreed minute of proposed orders to give effect to the Court's reasons.
2. Forest Carbon Methodology Pty Ltd is to pay 35% of the first to third respondents' costs of and incidental to the application to file an amended originating application and an amended statement of claim.
3. Any application by any party for a different costs order, is to be filed and served by on or before close of business on 17 May 2024. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

O'SULLIVAN J: 1 These reasons deal with two applications. 2 On 3 May 2022, in action number SAD 11/2022, the Court granted leave to CleanFin Pty Ltd to bring proceedings in the name of Forest Carbon Methodology Pty Ltd (FCM) against James Philip Schultz, Lewis Reginald Devere Tyndall and Terra Carbon Pty Ltd. 3 Tyndall passed away on 23 November 2023 and was the second respondent in the derivative proceedings, being action number SAD 87/2022 brought consequent upon leave being granted in SAD11/2022 to bring those proceedings. FCM is the applicant in the derivative proceedings. 4 The first application is in action number SAD 11/2022 and is an application pursuant to s 237 of the Corporations Act 2001 (Cth) by CleanFin for leave to bring proceedings on behalf of and in the name of FCM against Geo Carbon Services Pty Ltd and Shirley Tyndall (Ms Tyndall) in her capacity as Executor of the Estate of Tyndall. 5 The second application is in the derivative proceedings in which FCM seeks leave to file an amended originating application and an amended statement of claim. 6 It is for the reasons which follow that: (a) Leave is granted to Cleanfin pursuant to s 237 of the Act to bring proceedings on behalf of and in the name of FCM against Geo Carbon and Ms Tyndall in her capacity as the Executor of the Estate of Tyndall by substituting Ms Tyndall in her capacity as Executor for Tyndall as a respondent and by adding Geo Carbon as a respondent to the derivative proceedings; and (b) I am prepared to grant leave to FCM to file and serve an amended originating application and amended statement of claim in the derivative proceedings substantially in the form of the proposed documents, however FCM is required to provide particulars as indicated in these reasons prior to filing the documents. The parties are to provide a proposed minute of order reflecting these reasons within seven days.

The application for leave to bring proceedings against Geo Carbon and Ms Tyndall 7 CleanFin reads the affidavits of Timothy Owen Lebbon sworn 4 April 2024 (Lebbon affidavit) and Andrew Nathan Tarnowskyj sworn 30 April 2024 (Tarnowskyj affidavit) filed in support of its application in SAD 11/2022. 8 Leave is sought to bring a claim substantially in the form of the claims in an amended statement of claim being annexure ANT-15 to the affidavit of Andrew Nathan Tarnowskyj sworn and filed 30 April 2024 in action SAD 87/2022 (third Tarnowskyj affidavit). 9 Neither Mr McClure SC, who appeared for Terra Carbon, nor Mr Bonnell, who appeared for Schultz and Ms Tyndall, made submissions on this application. 10 There are five requirements in s 237 of the Act, namely: (a) It is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) The applicant is acting in good faith; and (c) It is in the best interests of the company that the applicant be granted leave; and (d) If the applicant is applying for leave to bring proceedings, there is a serious question be tried; and (e) Either: (i) At least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave in the reasons for applying; or (ii) It is appropriate to grant leave even though subparagraph (i) is not satisfied. 11 In making the orders on 3 May 2022 granting leave to CleanFin to bring derivative proceedings in the name of FCM against Schultz, Tyndall and Terra Carbon, I was satisfied as to the criteria set out in s 237 of the Act. 12 Cleanfin submits that I need not address the criteria in the ordinary way in considering whether I should grant leave to joint Geo Carbon and Ms Tyndall as they were all matters addressed in the original grant of leave and that the addition of these two parties is an expansion of the proceedings falling within the original leave. 13 Ms Tyndall is the Executor of the Estate of the late Mr Tyndall. Accordingly, it is not necessary for me to be satisfied as to the matters in s 237 in relation to Ms Tyndall, but I record that I am so satisfied and there will be an order substituting for Tyndall, Ms Tyndall in her capacity as Executor. 14 As to Geo Carbon, to the extent necessary, I find that CleanFin has satisfied the criteria set out in s 237 such that leave will be granted to CleanFin to bring proceedings on behalf, and in the name, of FCM against Geo Carbon by adding it as a respondent to the derivative proceedings. 15 The grant of leave on 3 May 2022 required that FCM be indemnified and that security be provided for that indemnity. Leave on this occasion is subject to requiring an increase in the amount of security for that indemnity from $2 million to $3 million.

The application for leave to file an amended originating application and amended statement of claim in the derivative proceedings 16 The existing respondents oppose the grant of leave. 17 FCM reads: (a) The affidavit of Andrew Nathan Tarnowskyj, sworn 14 August 2023 (first Tarnowskyj affidavit); (b) The affidavit of Andrew Nathan Tarnowskyj, sworn 25 March 2024 (second Tarnowskyj affidavit); and (c) The third Tarnowskyj affidavit. 18 Mr Bonnell objected to a number of paragraphs of the second Tarnowskyj affidavit, being paragraphs 10, 11, 12, 13, 16, 17, 19, 22, 23, 24, 25, 26 and 27 on the basis that the paragraphs comprise submissions. 19 To the extent there are submissions contained within those paragraphs, I give those submissions no weight. 20 Schultz and Ms Tyndall read the affidavit of Maxwell Thomas Bennett Bonnell affirmed 10 April 2024 (Bonnell affidavit). 21 Terra Carbon reads the affidavit of Emma Lee-Anne Iles affirmed 10 April 2024 (Iles affidavit).

Principles 22 The principles relating to the grant of leave to amend a pleading are well-settled. 23 The power to grant leave is discretionary and there is no dispute between the parties as to the applicable principles. The difference between them is as to the application of those principles to the circumstances of this matter. 24 In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [111]-[112], Gummow, Hayne, Crennan, Kiefel and Bell JJ said: An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in J L Holdings which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court's earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future. A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate. 25 In Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a Firm) [2015] FCA 1098, Gleeson J (as a member of this Court) said: at [127] The principles articulated by the High Court in Aon apply to matters in this Court: Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 ("Cement Australia") at [43]. Relevant matters the Court is to consider include: (1) The nature and importance of the amendment to the party applying for it: Aon at [102]; (2) The extent of the delay and the costs associated with the amendment: Aon at [102]; (3) The prejudice that might be assumed to follow from the amendment, and that which is shown: Aon at [5], [100] and [102]; (4) The explanation for any delay in applying for that leave: Aon at [108]; and (5) The parties' choices to date in the litigation and the consequences of those choices: Aon at [112] and Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 ("Luck") at [44]; (6) The detriment to other litigants in the Court: Aon at [93], [95] and [114] and Luck at [44]; and (7) Potential loss of public confidence in the legal system which can arise where a court is seen to accede to applications made without adequate explanation or justification: Aon at [5], [24] and [30]. 26 On appeal, in Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a Firm) (2016) 332 ALR 199, [2016] FCAFC 2, the Full Court, said at [122]-[129] with reference to Aon: 122 Whilst the power to grant, or refuse, an application to amend the originating application and to further amend the amended statement of claim under rr 8.21(1) and 16.53 of the Federal Court Rules 2011 (Cth) respectively is discretionary, some care is called for, as the plurality in Aon pointed out at [89], in characterising this as a very wide discretion. The discretion is not at large. ... the objectives in s 37M of the Federal Court of Australia Act 1976 (Cth) are to be sought in the exercise of the powers given by r 8.21(1) to amend the originating applications and by r 16.53 to further amend the statements of claim. 123 Section 37M(1) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Section 37M(2), without limiting the generality of subs (1), provides, relevantly, that the overarching purpose includes, as objectives, the efficient use of the judicial and administrative resources of the Court; the efficient disposal of the Court's overall caseload; and the disposal of proceedings in a timely manner. 124 Section 37M(3) and (4) relevantly provide that the Rules of this Court must be interpreted and applied, and any power conferred by them must be exercised, in the way that best promotes the overarching purpose. 27 Recently in KTC v David [2022] FCAFC 60, Wigney J considered some of the relevant principles applying to an application to amend a statement of claim. His Honour said at [110]-[111]: 110 The Court's power to grant leave to amend is broad and has the remedial objective of ensuring that any defect in the pleadings is cured and that the real questions in the controversy are properly agitated: Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 at [20] (Gilmour and Foster JJ); Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [14]. The power must be exercised in a "way that best promotes the Court's overarching purpose to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible": Caason at [19] and the cases cited therein; s 37M(3) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The object of the Court is "not to punish parties for mistakes made in the conduct of their case, but to correct errors with the result that a decision can be made on the real matters in controversy": Clough & Rogers v Frog (1974) 4 ALR 615 at 618, quoting Cropper v Smith (1884) 26 Ch D 700 at 710; Caason at [20]. 111 Leave to amend should generally be granted unless the proposed amendment is futile, including, for example, because the issue sought to be raised by the amendment has no reasonable prospects of success, or would be liable to be struck out as not raising a reasonable cause of action, or where the amendment would cause substantial prejudice or injustice to the opposing party in a way that cannot be compensated by the award of costs: Research in Motion Ltd v Samsung Electronics Australia Pty Limited (2009) 176 FCR 66; [2009] FCA 320 at [21]-[22]; Medich v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8]; Caason at [21].

The proposed amendments 28 The proposed amendments to the originating application and statement of claim are annexed as annexure ANT-15 to the third Tarnowskyj affidavit. As I have noted, the proposed amendments to the originating application are to add Geo Carbon as a respondent and to substitute Ms Tyndall in her capacity as Executor of the Tyndall Estate as a respondent in place of Tyndall. 29 The proposed amendments to the statement of claim are directed to the taking of an account of profits and comprise, principally, [55A]-[55M] which are set out below, although there are other incidental amendments. The respondents' objections are directed to the allegations in [55A], [55B], [55F] and [55M]: 55A. Terra Carbon and Geo Carbon were incorporated by Schultz and Tyndall: 55A.1 for the purpose of the anticipated future commercial exploitation of the Submission; 55A.2 further or in the alternative, to conduct a business akin to that which might otherwise have been conducted by the FGFJV and FCM in relation to the avoidance of carbon emissions and obtaining carbon credits; and 55A.3 further or in the alternative, would not have been incorporated otherwise than for the purpose of the matters pleaded in 55A.1 or 55A.2 55B. Further to the matters pleaded in paragraph 55A, subsequent to the issue of the Determination, as a result of the commercial exploitation of the Determination pleaded in paragraphs 45 to 53, Schultz, Tyndall, Terra Carbon and Geo Carbon: 55B.1 were able to generate profits and further working capital in circumstances where Terra Carbon was making a loss prior to the issue of the Determination; Particulars 55B.1.1 On or around 26 June 2012, Terra Carbon and George Castlereagh Hargraves (Hargraves) entered into a Project Development Agreement pursuant to which Hargraves granted Terra Carbon exclusive legal rights to conduct carbon projects on land over which Hargraves had an estate or interest. 55B.1.2 From around 2013, Terra Carbon entered into Project Development Agreements with landholders pursuant to which the landholders granted Terra Carbon exclusive legal rights to conduct carbon projects on land over which the landholders had an estate or interest. 55B.1.3 For the year ended 30 June 2013, Terra Carbon incurred a net loss of $640,294.95. 55B.1.4 The Determination was made on 23 June 2013. 55B.1.5 Utilising the Determination, Terra Carbon conducted projects on the land subject to the Project Development Agreements referred to in paragraphs 55B.1.1 and 55B.1.2 above. 55B.1.6 For the year ended 30 June 2014, Terra Carbon made a net profit of $3,293,911.72. 55B.1.7 Terra Carbon has earned a profit in each subsequent year since the Determination was made. 55B.2 were able to market the business of Terra Carbon and Geo Carbon as having expertise generally in relation to the commercial exploitation of methodology determinations issued pursuant to the CFI Act, particularly in areas of avoided deforestation or reforestation; and 55B.3 were able to exploit at least the following methodology determinations issued pursuant to the CFI Act: 55B.3.1 Carbon Credits (Carbon Farming Initiative - Animal Effluent Management) Methodology Determination Variation 2022; 55B.3.2 Carbon Credits (Carbon Farming Initiative - Avoided Clearing of Native Regrowth) Methodology Determination 2015; 55B.3.3 Carbon Credits (Carbon Farming Initiative - Emissions Abatement through Savanna Fire Management) Methodology Determination 2015; 55B.3.4 Carbon Credits (Carbon Farming Initiative - Measurement of Soil Carbon Sequestration in Agricultural Systems) Methodology Determination 2018; 55B.3.5 Carbon Credits (Carbon Farming Initiative) (Human-Induced Regeneration of a Permanent Even-Aged Native Forest - 1.1) Methodology Determination 2013; 55B.3.6 Carbon Credits (Carbon Farming Initiative) (Reduction of Greenhouse Gas Emissions through Early Dry Season Savanna Burning - 1.1) Methodology Determination 2013; 55B.3.7 Carbon Credits (Carbon Farming Initiative) (Reforestation by Environmental or Mallee Plantings - FullCAM) Methodology Determination 2014; and 55B.3.8 Carbon Credits (Carbon Farming Initiative-Avoided Clearing of Native Regrowth) Methodology Determination 2015 (Compilation No. 1). 55C. Terra Carbon has been issued, and will be issued in the future, with a substantial number of ACCUs pursuant to the CFI Act as a result of projects that have utilised the methodology determinations referred to in paragraph 55B.3. Pending discovery, the best particulars that FCM can provide of the projects that have or will result in the issue of ACCUs to Terra Carbon as a result of projects that have utilised the methodology determinations referred to in paragraph 55B.3 are as set out in Schedule 3. 55D. Geo Carbon and Terra Carbon have earned, and will earn in the future, fees for consulting in respect of projects that utilised the methodology determinations referred to in paragraph 55B, which pending discovery, FCM cannot particularise. 55E. Terra Carbon and Geo Carbon earned significant profits as a result of the issue of ACCUs and obtaining of consulting fees as a result of projects that utilised the methodology determinations referred to in paragraph 55B, which FCM cannot further particularise pending discovery. 55F. As a result of the commercial exploitation of the Determination pleaded in paragraphs 45 to 53 and the matters pleaded in paragraphs 55B.1 and 55B.2, Schultz, Tyndall, Terra Carbon and Geo Carbon, were able to exploit at least the following methodology determinations issued pursuant to voluntary carbon schemes: 55F.1 Methodology for Accounting Reduction in Nutrient Run-Off Through Managed Fertiliser Application Version 1.1 approved by Eco-Markets Australia; 55F.2 Method of Accounting for Reduction in Sediment Run-Off Through Gully Rehabilitation Version 1.4 approved by Eco-Markets Australia; 55F.3 Method for Accounting for DIN Reduction in Wastewater Through Managed Algal Bioremediation Operations Version 1.3 approved by Eco-Markets Australia; 55F.4 PWRM0001, Plastic Waste Collection Methodology, v1.0 approved by Verra; and 55F.5 NaturePlus Standard version 1.1 2023. 55G. Terra Carbon has been issued, and/or will be issued in the future, with a substantial number of voluntary carbon credits (VCCs) pursuant to voluntary carbon schemes as a result of projects that have utilised the methodology determinations referred to in paragraph 55F, which pending discovery, FCM cannot particularise. 55H. Geo Carbon and Terra Carbon have earned, and will earn in the future, fees for consulting in respect of projects that utilised the methodology determinations referred to in paragraph 55F, which pending discovery, FCM cannot particularise. 55I. Terra Carbon and Geo Carbon earned significant profits as a result of the issue of VCCs and obtaining of consulting fees as a result of projects that utilised the methodology determinations referred to in paragraph 55F, which FCM cannot further particularise pending discovery. 55J. On 4 September 2018, Terra Carbon Holdings Pty Ltd was incorporated. The initial directors of Terra Carbon Holdings were Schultz, Tyndall, Murray Bleach and Peter Salisbury and the shareholders of Terra Carbon Holdings were Tyndall, Bleach and entities controlled or associated with Schultz and Salisbury. 55K. In or around 2018, Terra Carbon Holdings Pty Ltd acquired all of the shares in Terra Carbon and Climate Fund. 55L. On 21 April 2020, Green Climate Co II Pty Ltd and Green Climate Co Pty Ltd were incorporated. Green Climate Co II Pty Ltd acquired the shares in Terra Carbon Holdings Pty Ltd, Green Climate Co Pty Ltd acquired the shares in Green Climate Co II Pty Ltd and Schultz and Tyndall acquired shares in Green Climate Co Pty Ltd. 55M. Further, Schultz and Tyndall have personally profited from an increase in the value of their shareholdings in Green Climate Co Pty Ltd, referable to the commercial exploitation of the Determination pleaded in paragraphs 45 to 53 and matters pleaded in paragraphs 55A to 55I, as reflected in the investments made by KKR of approximately $100M in 2020 and by the Ontario Teachers' Pension Fund in 2021 of approximately $250M for a 33 percent stake and a further investment in 2023 to take its total ownership to 96.5 percent. 30 The amendments are important to FCM and constitute a more detailed basis for an account of profits which had been sought in the existing statement of claim.

Terra Carbon's submissions and consideration 31 Terra Carbon submits that FCM has not provided a sufficient basis to persuade the Court that leave should be given for its proposed amended statement of claim on four grounds.

The proposed amendment is futile 32 First, Terra Carbon submits the proposed amendment is futile since: (a) It is dependent upon CleanFin being granted leave pursuant to s 237 of the Act to bring proceedings in the name of FCM against Geo Carbon and Ms Tyndall; and (b) FCM has not agreed to provide security for costs. 33 As to the first basis, whereas I accept that absent leave being granted the proposed amendments are futile, in circumstances where I am prepared to grant leave this basis falls away. 34 As to the second basis, the question of security for costs may be relevant but in this case security for costs has already been provided in these proceedings by those standing behind CleanFin. The respondents are able to apply for further security, if so advised. 35 I do not consider the proposed amendment is futile.

The proposed amendment is liable to be struck out on various grounds 36 Second, Terra Carbon submits the proposed pleading is liable to be struck out on the ground that the proposed pleading fails to disclose a reasonable cause of action contrary to r 16.21(1)(e) of the Federal Court Rules 2011 (Cth) (FCR) and is evasive or ambiguous contrary to FCR 16.21(1)(c). 37 Since the respondents filed their written submissions, FCM filed a revised proposed amended statement of claim (ANT-15 to the third Tarnowskyj affidavit) which it says addresses the respondents' concerns. I have considered the parties' written submissions, however as I understand the submissions, some of the matters about which the respondents complain in those submissions have been addressed in that revised version. In any event, I also heard oral submissions on this application.

No factual or legal basis for the amendments/evasive or ambiguous 38 Terra Carbon submits as part of this ground that there is no legal or factual basis for the contentions in the proposed amendments. 39 Terra Carbon points to the allegations in [55A] which it submits is in effect, an allegation that Terra Carbon and Geo Carbon were incorporated as a business in competition with that conducted by FCM and the First Growth Forests Joint Venture (FGFJV): see [20] of the existing statement of claim. 40 Terra Carbon then refers to the pleading in [55B] that "as a result of the commercial exploitation of the Determination pleaded in paragraphs 45 to 53, Schultz, Tyndall, Terra Carbon and Geo Carbon" a number of matters occurred. 41 Terra Carbon points to the pleading [55B.2] that Schultz, Tyndall, Terra Carbon and Geo Carbon "were able to market the business of Terra Carbon and Geo Carbon as having expertise generally in relation to the commercial exploitation of methodology determinations issued pursuant to the CFI Act [Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth)], particularly in areas of avoided deforestation or reforestation". [brackets provided] 42 Terra Carbon submits that there is a pleading of a causal link from the preamble in [55B]-[55B.2] but it is not pleaded how the respondents were able to market the business as having expertise nor what they did given the pleading at [41] and the subsequent pleading at [58] and [59] - that both Terra Carbon and Geo Carbon were knowing recipients within the first limb of Barnes v Addy (1874) LR 9 Ch App 244, 251-252. 43 Knowing receipt liability is based on receipt of misapplied trust property in circumstances in which the respondents knew or ought to have known that to be the case: Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 396. 44 Whereas I accept there is a causal link and an allegation of knowing receipt, I do not accept the pleading does not contain the factual basis for the allegations in [55B.2] nor that it is evasive or ambiguous. 45 It is perfectly clear on the pleading that as a consequence of the matters pleaded in the preamble to [55B], which includes the allegations pleaded in [45]-[53] and which in turn cross-references [55A], that the respondents engaged in the conduct pleaded in [55B.2]. The allegation is one which alleges the actions by the respondents (i.e. marketing the business of Terra Carbon and Geo Carbon). Those actions are pleaded subsequently as being in breach of fiduciary duties by Schultz and Tyndall and their consequent liability as well as the liability of both Terra Carbon and Geo Carbon as their corporate alter egos. Complaints about what was done and how it was done are matters for evidence. 46 Next, Terra Carbon points to the pleading [55B.3] that the respondents were able to exploit a number of methodology determinations issued pursuant to the CFI Act. 47 Terra Carbon submits it is not pleaded how it is that Terra Carbon and Geo Carbon were able to exploit a number of methodology determinations in consequence of the breach of fiduciary duty. It submits that the pleading is silent on material facts in circumstances where there are grave allegations made. 48 FCM submits that the matters about which complaint is made are the best that can be given pending further discovery and refer to the observations of Doyle J in Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd & Ors [2020] SASC 161 at [26]-[27] that courts routinely permit parties to plead cases with full particulars not provided until after discovery and that the appropriateness of that course in a given case depends upon the circumstances of the case and is a matter of fact and degree. 49 Although I accept FCM's submissions, nonetheless, there is some force in Terra Carbon's submission. Unlike the pleading in [55B.2] where it is pleaded that Terra Carbon and Geo Carbon were able to market their business as having expertise in relation to the commercial exploitation of methodology and thereby identify a particular type of activity (marketing), in [55B.3] it is pleaded that the respondents were able to exploit a number of methodology determinations issued pursuant to the CFI Act. 50 Accepting that the exploitation in question is commercial, what form that exploitation took is not explained and no particulars are provided. Unlike [55B.2], the use of the phrase in this subparagraph that Terra Carbon and Geo Carbon "were able to exploit at least the following methodology determinations issued pursuant to the CFI Act" without adequate particulars is such as to require the respondents to guess as to what form that exploitation took. 51 Accordingly, I would not allow an amendment to include [55B.3] as currently drafted and particulars are required. FCM should be given that opportunity prior to filing the document. 52 The same point may be made in relation to [55F], which is the third matter about which Terra Carbon complains under this ground. That paragraph also pleads a causal connection between the commercial exploitation of the determination as pleaded in [45] to [53] and [55B.1] and [55B.2]. It refers to the exploitation by the respondents of a number of methodology determinations issued pursuant to voluntary carbon schemes but does not provide any particulars as to the form of that exploitation, whether that be for example as contactor, sub-contractor or consultant etc. 53 Accordingly, as with [55B.3], I would not allow an amendment to include [55F] as currently drafted and further particulars are required. FCM should be given that opportunity prior to filing the document.

Delay in making the amendment 54 Third, Terra Carbon submits there was delay in making the application to amend with that delay being unexplained. 55 Terra Carbon submits it was apparent on the defence it filed in this matter that Geo Carbon was specifically named as earning fees for consulting in respect of projects that utilised the Determination (as defined) such as to put FCM on notice. 56 FCM refers to the second Tarnowskyj affidavit, in which Mr Tarnowskyj deposes that FCM has been seeking discovery from Terra Carbon in relation to "fees for consulting or project development earned by the Third Respondent in respect of projects that utilised the Determination" and "fees for consulting or project development earned by Geo Carbon in respect of projects that utilised the Determination": at [8], and that on 8 and 14 March 2024, Terra Carbon disclosed, amongst other things, profit and loss statements for Terra Carbon: at [9]. 57 In Terra Carbon's defence filed 29 July 2022, Terra Carbon pleads at [52] that "… Geo Carbon has earned fees for consulting in respect of projects that utilised the Determination". 58 A consideration of Terra Carbon's profit and loss statements reveals a number of payments by Terra Carbon to an entity identified in the profit and loss statements as "GCS". 59 Terra Carbon disputes FCM's contention that the mere reference of Geo Carbon was insufficient to put FCM on notice and that it was not until FCM received Terra Carbon's profit and loss statements in discovery that it became aware of its role in this matter. 60 FCM submits that it was not until discovery had been made that the extent of Geo Carbon's involvement became apparent. It observes that discovery occurred after the exchange of witness affidavits. 61 I do not accept Terra Carbon's submissions and in particular, I do not accept FCM has delayed in making the application as that any delay is unexplained. First, it is all too easy for a party to point to a short reference in a pleading and assert that a course of conduct said to arise from it should have been embarked upon by the opposing solicitors. Second, I accept FCM's submission that it was only after a consideration of recent discovery, in particular Terra Carbon's profit and loss statements, that alerted it to the role Geo Carbon may have played in this matter.

The proposed amendment is likely to cause prejudice and delay in the proceeding 62 Fourth, Terra Carbon refers to ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) (FCA) and FCR 16.21(1)(d) (the amendments would be struck out as likely to cause prejudice, embarrassment, or delay in the proceedings). 63 Terra Carbon refers to the steps required should the amendments be allowed. I accept that some further steps will be required but it is five months before trial and there is sufficient time for those steps to be accommodated, including any further lay evidence. 64 To the extent expert evidence is due shortly, that can also be accommodated within the existing time. Further, as FCM point out, the expert evidence in this matter deals with liability, quantum having been referred to a referee, and the proposed amendment is directed to the taking of an account of profits. As to the latter point, I do not accept the distinction is as clear as FCM would have it because there is a causation point which is intertwined with both liability and quantum, however there is sufficient time to deal with the issue. 65 As to any further discovery, that can occur within this timeframe. 66 Accordingly, I do not accept that any steps required cannot be undertaken within the five months before the commencement of the trial and in particular, I do not accept that the parties cannot be ready for trial in five months' time.

Schultz's and Ms Tyndall's submissions and consideration 67 Schultz and Ms Tyndall adopt Terra Carbon's submissions. 68 Apart from those submissions, they submit the pleadings are so poor that they should be rejected. 69 They point to a number of inconsistencies within the existing pleading which I accept exist. Nonetheless, those inconsistencies are not matters which have prevented a defence being filed in the past and which are not so substantive as to warrant that the proposed pleading if filed in its current form, would be struck out. They are, nonetheless, matters that FCM should be given the opportunity to address. 70 As with Terra Carbon, they submit there is no explanation for the delay in bringing the amendments and make reference to the fact Geo Carbon was named in the defences which have been filed. 71 I do not accept that submission for the same reasons I did not accept it when made by Terra Carbon. 72 Schultz and Ms Tyndall also refer to the delay in pleading [55M] which is an allegation of an investment made by KKR in Green Climate Co Pty Ltd of approximately $100 million in 2020. Green Climate Co Pty Ltd became the ultimate holding company for Terra Carbon. 73 They submit that knowledge of the investment by KKR did not come from discovery but that Mr Lebbon knew of it in 2020 and that the delay is also unexplained. 74 The submission necessarily assumes the significance of the investment and that Mr Lebbon was fully aware not just what Terra Carbon's profit and loss statements revealed but the whole transactional relationship as it is now proposed to be pleaded at [55J]-[55M] inclusive. I am not prepared to make that assumption. 75 Accordingly, I do not accept that submission. 76 The first and second respondents point to the fact that Tyndall passed away in November 2023 and submit that the response to the allegations now sought to be made is lost and cannot be restored. They submit further that it is no answer that Schultz can respond in that his evidence is not Tyndall's evidence. 77 There is force in that submission, however the allegations sought to be introduced on the amendment are directed to an account of profits. The allegations in the proposed amendments allege to what the respondents were able to do and the profits they were able to make as a result of the alleged breaches of fiduciary duty by Schultz and Tyndall. The allegations as to breach of duty have not changed. 78 Further, there is no suggestion that there is no documentary trail and whilst accepting that Schultz's evidence is not that of Tyndall, nonetheless he was a co-director of Geo Carbon at the relevant time. 79 That is not to say that I do not consider Ms Tyndall, as Executor of Tyndall's Estate, will not sustain any prejudice. However, it is a question of balancing that prejudice against steps which can be taken to alleviate that prejudice, the prejudice which FCM will suffer by not being granted leave to file the proposed statement of claim, and the reasons as to why the proposed amendments are brought forward at this time. As to this last point, I have accepted the explanation for the timing of the application to amend and do not consider there has been delay. 80 As to the steps required should FCM be granted leave to file an amended statement of claim substantially in the form of the proposed amended statement of claim, it is for the reasons I have set out above that I do not accept that those steps cannot be undertaken in the five months prior to the commencement of the trial.

Other matters 81 Both parties made reference to the requirement for an increase in security for costs. It remains open to them to apply for an increase in the amount of any security for costs if it cannot otherwise be agreed. 82 I have dealt with the issues of delay, the explanation for any delay and any prejudice arising from the amendment, the nature and importance of the amendment to FCM, and the choice not to add Geo Carbon before this time.: Tamaya at [127]. 83 As to the other matters identified by Gleeson J in Tamaya at [127], there is no suggestion of any detriment to other litigants in the Court and I do not consider there to be any. So too, I do not consider there is any potential loss of public confidence in the legal system arising out of the amendments.

Conclusion 84 In action SAD 11/2022, there will be an order granting leave to CleanFin to bring proceedings in the name of FCM against Geo Carbon by adding it as a party to the derivative proceedings and adding Shirley Tyndall in her capacity as Executor of the Estate of Lewis Reginald Devere Tyndall by substituting her as a party for Tyndall. 85 In action SAD 87/2022, I am prepared to grant leave to file an amended originating application and amended statement of claim substantially in the form comprised in annexure ANT-15 to the affidavit of Andrew Nathan Tarnowskyj sworn 30 April 2024 subject to FCM providing further particulars of the allegations in [55B.3] and [55F]. To the extent there are any other minor amendments that require attention, those matters can also be addressed. 86 The parties are to provide a proposed minute of order within seven days reflecting these reasons. 87 On the question of costs, the respondents have enjoyed some limited success. In the circumstances, FCM is to pay 35% of the first to third respondents' costs of and incidental to the application to file an amended originating application and an amended statement of claim. 88 Any application by any party for different costs order is to be filed and served within seven days. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan.