Denis Cassegrain v Gerard Cassegrain & Co Pty Ltd

CATCHWORDS : CORPORATIONS - derivative action - application for leave to bring proceedings in the name of a company against controlling shareholders - whether applicant is acting in good faith - whether proposed proceedings are in the best interests of the Company - whether proposed proceedings involve a serious issue to be tried - leave granted.

Corporate Law Economic Reform Program Act 1999 (Cth) Corporations Act 2001 (Cth), ss 236, 237, 242 LEGISLATION CITED : Limitation Act 1969 (NSW), ss 23, 27(2), 47(1) Real Property Act 1900 (NSW), s 42 Uniform Civil Procedure Rules 2005 (NSW), r 5.3

Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286 Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Blair v Curran (1939) 62 CLR 464 Bogdanovic v Koteff (1988) 12 NSWLR 472 Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193; (2001) 189 ALR 370 Cadwallader v Bajco Pty Ltd [2002] NSWCA 328 Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 Charlton v Baber [2003] NSWSC 745; (2003) 47 ACSR 31 CASES CITED : Cohen v Cohen (1929) 42 CLR 91 Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 Goozee v Graphic World Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 Karam v Australian and New Zealand Banking Group Ltd [2000] NSWSC 596; (2000) 34 ACSR 545 Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 Scarel Pty Ltd v City Loan & Credit Corporation Ltd (No 2) (1988) 17 FCR 344 Spies v R (2000) 201 CLR 603 Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 Walker v Wimborne (1976) 137 CLR 1

Denis Cassegrain (Plaintiff) PARTIES : Gerard Cassegrain & Co Pty Ltd (First defendant) Felicity Cassegrain (Second defendant)

COUNSEL : Mr B W Collins QC, Mr G B Colyer (Plaintiff) Mr C J Bevan (Defendants)

SOLICITORS : McCabe Terrill, Sydney (Plaintiff) Evangelos Patakas & Associates, Sydney (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

6064 of 2007 DENIS CASSEGRAIN -v- GERARD CASSEGRAIN & CO PTY LIMITED & ANOR

JUDGMENT 1 HIS HONOUR: This is an application by the plaintiff, Denis Cassegrain, for leave to bring proceedings in the name of the first defendant, Gerard Cassegrain & Co Pty Ltd, against Claude Cassegrain and Felicity Cassegrain. 2 The plaintiff (Denis) and Claude Cassegrain (Claude) are brothers. They are both shareholders in the defendant (the Company), although Claude as a director of the Company effectively controls it. Felicity Cassegrain (Felicity) is Claude's wife. Felicity is named as the second defendant in the application for leave to bring proceedings in the name of the Company. 3 Denis wishes to bring proceedings in the name of the Company seeking relief against Claude for what are alleged to have been his 'fraudulent act[s] entirely against the interests of the [Company]'. The acts are also alleged to have breached Claude's fiduciary duties to the Company. Denis wishes to join Felicity to the proposed proceedings because (so it is said) Claude fraudulently transferred a dairy farm of which the Company was the registered proprietor to himself and Felicity as joint tenants. Felicity's interest in the dairy farm (including Claude's share, which was subsequently transferred to her for a nominal consideration) is said by Denis to be subject to the Company's equitable interest. 4 Denis brings his application for leave to bring proceedings in the name of the Company pursuant to s 236(1)(a) of the Corporations Act 2001 (Cth) (the Corporations Act). The Company resists the application on the basis that several of the statutory criteria governing the grant of leave have not been satisfied. 5 After the hearing of the leave application concluded on 5 September 2008, the parties handed up consent short minutes of order in the following terms: '1. Until further order, grant leave to the Plaintiff to file the Statement of Claim annexed to these Orders in the name of the Defendant Company. 2. The leave pursuant to order 1 be revoked if the Plaintiff's Originating Process filed in this proceeding on 18 December 2007 is dismissed. 3. Stay the Proceedings commenced pursuant to order 1 until the determination of the Plaintiff's Originating Process filed 18 December 2007 and further order.' 6 As was explained to me, the purpose of orders in this form is to protect Denis and the Company from the possibility that the limitation period prescribed by s 27(2) of the Limitation Act 1969 (NSW) will expire before I deliver judgment on the leave application. Section 27(2) provides a limitation period of 12 years on a cause of action to recover land, such period running from the date the cause of action first accrues to the plaintiff. The transfer of the dairy farm to Claude and Felicity took place on 14 September 1996. Consequently, but for the orders made by consent, the 12 year limitation period prescribed by s 27(2) may have expired on 14 September 2008. The Legislation 7 Prior to the Corporate Law Economic Reform Program Act 1999 (Cth) (CLERP), the entitlement of a minority shareholder to bring a so-called derivative action in the name of or on behalf of a company was governed by the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189, and by the exceptions to that rule: see Scarel Pty Ltd v City Loan & Credit Corporation Ltd (No. 2) (1988) 17 FCR 344 at 347-350 per Gummow J. CLERP introduced Pt 2F.1A into the Corporations Law, now the Corporations Act: see Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at 317 [19]-[20] per Palmer J. 8 Part 2F.1A provides for a member of a company and certain other persons to bring a derivative action in the name of a company (s 236(1)), but requires the person bringing the proceedings to obtain the prior leave of the Court (s 236(1)(b)). The right of a person under the general law to bring proceedings on behalf of a company has been abolished (s 236(3)). 9 The relevant provisions of Pt 2F.1A are set out below:

' 236 Bringing, or intervening in, proceedings on behalf of a company

(1) A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:

(i) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or

(ii) an officer or former officer of the company; and

(b) the person is acting with leave granted under section 237.

(2) Proceedings brought on behalf of a company must be brought in the company's name.

(3) The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.

(1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

(2) The Court must grant the application if it is satisfied that:

(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

(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 to be tried; and

(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied. …

The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section:

(a) the person who applied for or was granted leave;

(c) any other party to the proceedings or application.

An order under this section may require indemnification for costs.' Course of Events 10 The Company was incorporated in 1960 and was used as the vehicle for a successful logging business conducted by Gerard Cassegrain, the father of the warring siblings. Gerard also conducted businesses through other corporate vehicles that were within the same group. Gerard died on or about 29 October 1993. 11 It appears that for several years the Company has not been carrying on any active business. The latest available accounts are those incorporated in a Special Purpose Financial Report prepared in respect of the year ended 30 June 2005. 12 Claude and his wife, Felicity, currently hold 50 of the 90 'A' class shares and 20 of the 30 ordinary shares in the Company. Denis and each of the three siblings who are supporting him in these proceedings hold 10 'A' class shares in the Company and have done so since 1962. 13 Claude was appointed a director of the Company in 1987 and a brother, John, was appointed in 1988. Another brother, Patrick, was appointed in 1988, but resigned in 1999. 14 In July 1987, the Company entered into a 'Collaborative Research Agreement' with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) to develop what was described as 'soil slotting technology'. The technology was to be applied to land on which the Company proposed to conduct a vineyard. By 1992, however, the commercial relationship between the Company and CSIRO had broken down. In that year, the Company initiated legal proceedings against CSIRO and the joint venture company that had been established by the parties (Cassiro). 15 On 5 May 1993, Claude wrote to the Chairperson of CSIRO detailing 'our demands … from a practical rather than legal viewpoint'. The total claim amounted to about $56 million, including $5 million in respect of: '[d]amage to the name, reputation and standing of [the Company], Cassegrain Family name, Cassegrain Group of companies, and Claude Cassegrain and his family as a result of being publicly associated with a failed venture involving bitter litigation and disruption to the family and their associated companies' business activities.' 16 On 29 June 1993, the Company's solicitors gave notice to CSIRO that they had been instructed to amend the proceedings to include counts in defamation and injurious falsehood. A draft Second Further Amended Statement of Claim was prepared which incorporated claims based on defamation and injurious falsehood. However, the draft pleading did not include Claude as a plaintiff. 17 On 2 July 1993, Sir Laurence Street concluded mediation discussions between the parties. Sir Laurence later prepared a memorandum recording that the discussions had resulted in a 'proposed settlement involving a payment of $9,500,000 by CSIRO to [the Company]'. Sir Laurence noted that the settlement was subject to approval on both sides but that, in his opinion, was a 'soundly based commercial compromise'. 18 On 6 July 1993, Gerard and Patrick Cassegrain signed a letter to the Company's solicitors. The letter recorded a resolution passed at an Extraordinary General Meeting of the Company held several days earlier, to the effect that it would accept an offer in settlement of: · $5.25 million to the Company, comprising $4.32 million in respect of damages and $0.93 million in respect of the sale of the Company's shares in Cassiro to CSIRO; and

· $4.25 million 'personal damages payable to Claude Cassegrain.

On the same day, Claude wrote to the solicitors stating that he was prepared to accept in settlement $4.25 million in 'personal damages'. 19 On 9 July 1993, a firm of accountants advised that any money payable to the Company as compensation for loss sustained by reason of CSIRO's failure to discharge its duty of care would be regarded as a taxable capital gain, but that moneys paid to an individual for defamation would not be subject to capital gains tax (CGT). The proposed division of the settlement moneys was, however, rejected by the CSIRO. It advised the Company's solicitors that, in its view, Claude could not properly receive more than about $500,000 as the consideration for the releases he was to provide as part of the overall settlement. 20 On 27 September 1993, the Company, Claude, CSIRO and Cassiro entered into a Deed of Settlement and Release (Deed). The Deed provided for CSIRO to pay $9.5 million to or at the direction of the 'Cassegrain Parties', allocated as follows: · $8,835,083 for the full and final discharge of all liabilities in damages or costs that any party otherwise would have had and for the benefit of the various covenants and releases contained in the Deed;

· $658,667 for the transfer of certain technologies and contractual entitlements; and

· $6,250 for the value of certain merchandise. 21 The Company and Claude provided extensive releases in respect of any future claims arising out of specified agreements and dealings, as well as in respect of any claims arising out of matters that had been referred to in correspondence between the parties. 22 Settlement duly took place. Of the settlement moneys, some $8.3 million was paid to the State Bank of New South Wales to reduce the indebtedness of the Company and $1.17 million was paid in respect of the Company's legal fees. A small amount was held in trust to meet a tax liability of Cassiro. 23 As already noted, on or about 29 October 1993, Gerard Cassegrain died. 24 On a date that is not entirely clear from the evidence, but was no later than 31 October 1993, a loan account was created in the books of the Company. This showed that $4.25 million of the settlement moneys received by the Company from CSIRO had been received on behalf of Claude and lent by him to the Company. 25 At about this time Claude commenced drawing upon funds in the loan for regular living and other personal expenses. 26 On 2 September 1996, a meeting of directors of the Company, attended by Claude and Anne-Marie Cameron (Claude's older sister), resolved to sell a dairy farm owned by the Company to Claude and Felicity. The price was to be $1 million, supported by a valuation from the Valuer-General. In addition, the Company was to transfer livestock, plant and equipment to Claude and Felicity at the written down value in the Company's books. Payment was to be made by debiting Claude's loan account with the sale price of the land, livestock, plant and equipment. 27 On or about 14 September 1996, the transfer of the dairy farm to Claude and Felicity was registered in the Land Titles Office. A directors' report of March 1998 records that the livestock, plant and equipment was sold for a total of $270,684.88. The amounts payable by the purchasers were debited to Claude's loan account, as contemplated by the resolution. As at 30 June 1997, that account had a balance of $2,584,417, compared with a balance at 30 June 1996 of $4,075,618. 28 On 23 December 1997 a meeting of the Company's directors, attended by Claude and Anne-Marie Cameron, noted that the Company had not paid Claude any interest on the balance in his loan account and that he reserved his right to charge interest. 29 In the meantime, on 9 July 1996, Denis and three of his siblings (John, Patrick and Catherine) had commenced proceedings in the Federal Court (the oppression proceedings). The respondents were the Company and other companies within the Cassegrain Group, together with Claude, Anne-Marie Cameron and Francoise Cassegrain (the mother of the five Cassegrain children). 30 By an amended application filed on 13 August 1997, the applicants sought, among other relief: · a declaration that the affairs of the 'Cassegrain Companies' were being conducted in a manner that was oppressive to the applicants;

· a declaration that Claude held that proportion of the money which exceeded his entitlement to an equal share, on trust for all other family members;

· an order for the taking of accounts to ascertain the assets and liabilities of the Cassegrain Companies, including group loans; and

· an order for the payment of such compensation as between members of the Cassegrain Companies that was fair and equitable. 31 The applicants' case in the oppression proceedings was pleaded in a lengthy further amended statement of claim (FASC) filed on 9 March 1998. The FASC contained allegations about the consequences of the litigation between the Company and CSIRO. In particular, it was alleged that following the payment made by the Company to the State Bank out of the settlement moneys: 'purported entries were caused to be made in the books of [the Company] which purportedly reflected the creation of a loan in favour of Claude Cassegrain in the amount of $4.25 million payable to [the Company], notwithstanding that no such monies were ever lent.'

The effect of the entries was said to be: 'to render [the Company] obliged to Claude Cassegrain in the sum of $4.25 million and thereby purportedly reduce the net value of the assets of [the Company] for the benefit of Claude Cassegrain.' 32 The applicants alleged that the entries were made without proper authority, purported to confer benefits on Claude in breach of his fiduciary duty to the Company and were not in the interests of the Company. 33 The FASC also pleaded that in 1997 the dairy farm owned by the Company had been transferred to Claude and Felicity. The transfer was said to have been carried out in breach of the fiduciary duties Claude owed to the Company as a director. 34 On 9 February 1998, prior to the filing of the FASC, the applicants served on the respondents a draft further amended application (DFAA). The DFAA sought an order authorising and requiring the Company to institute proceedings against Claude in connection with the Company's alleged indebtedness to him of $4.25 million, on terms that the applicants would have the conduct of the proceedings. Presumably this order was sought under the general law as CLERP had not yet been enacted. The DFAA also sought an order restraining the Company from paying any money to Claude in purported satisfaction of the alleged indebtedness. For reasons that have not been made clear, the DFAA was never filed, although it seems to have been handed up during the hearing of the oppression proceedings. 35 The hearing of the oppression proceedings commenced before Davies J on 13 October 1997. Claude gave evidence in the proceedings and was cross-examined by senior counsel for the applicants about the apportionment of the settlement moneys paid to the Company by CSIRO. The cross-examination was partly directed towards establishing that Claude was intended to hold the loan account in trust for members of the family. 36 In final submissions in the oppression proceedings, senior counsel for the applicants submitted that the appropriate course was to wind up the Company and distribute such of its assets as might be available. Counsel suggested as an alternative that the Court could authorise proceedings 'to resolve the [$]4.25 million issue'. This was apparently a reference to one of the forms of relief claimed in the unfiled DFAA. However, counsel observed that the applicants' preferred position was to declare that the loan account could not be maintained and should be 'expunged' from the Company's records. 37 Davies J delivered judgment in the oppression proceedings on 15 July 1998. The judgment dealt with numerous matters connected with the management of the Cassegrain Companies. 38 Davies J specifically addressed the events relating to the creation of Claude's loan account with the Company. The findings made by his Honour included the following:

· it was probable that Claude and Gerard (his father) looked on the apportionment of the proceeds of the CSIRO settlement as a 'tax reduction device';

· Claude's evidence that he considered the $4.25 million to be his share of the settlement could not be accepted;

· the apportionment was agreed to between Claude and his father with a view to reducing the CGT otherwise payable on the $9.5 million;

· Gerard and Claude 'did not at that time regard the sum of $4.25m as Claude's money';

· no genuine estimate was ever made of a sum representing Claude's personal claim;

· Claude's actions in drawing upon the funds of the Company through the loan account for personal expenses were 'wrong' and the appropriate course was for him to have arranged for a fair remuneration for his contribution to the affairs of the Company;

· the purchase of the dairy farm: 'was not a transaction of which the approval of the shareholders was sought, Claude taking the view that the $4.25m was his and, furthermore, that he was entitled to receive a home as he has had to sell a home to support [the Company] during the time of its worst financial difficulties.'

· there was never any agreement between Claude and the Company concerning interest on the loan account and there was no justification for the resolution recording Claude's right to demand interest. 39 Davies J concluded this part of the judgment as follows: 'Claude's actions in arranging for the purported division of the $9.5 into $5.25m for [the Company] and $4.25m for Claude, his drawing upon that sum at his will as if it were his entitlement to do so and his arranging for the passing of the resolution which made provision for the payment of retrospective interest was exemplary of oppressive behaviour. It is a very plain illustration of conduct by a person who, in practical control over the affairs of a company, has acted to benefit himself to the detriment of the other persons who are interested in the company. The mere purported division of the $9.5m may not, of itself, have amounted to oppressive conduct for it was a step taken to reduce the tax liability of the company. It was the subsequent use of the money by Claude as if it were his own and the pretence that there had been some agreement for the payment of interest thereon which constituted oppression of the other shareholders.

I do not say that, on a taking of accounts, a generous allowance should not be made to Claude for the time and effort spent by him on the CASSIRO project, on achieving the settlement and for participating in the settlement by giving his personal release. I assume that such an allowance would be made. However, I do not consider it to be the function of the Court in these proceedings to enter into the taking of accounts as between Claude and [the Company].

Counsel for Claude has submitted that I should not enter into the issue as to whether Claude's actions in relation to the $4.25m loan account amounted to oppressive conduct. Counsel submitted that the matter was not raised in any formal application which had been filed and that, if it had been raised, other witnesses such as the mediator and counsel may have been called. In my opinion, all counsel in these proceedings were ultimately content to proceed without arguing about amendments to the formal application and this particular issue was clearly raised and litigated. In my view, all appropriate witnesses were called and all relevant documents are before the Court.

In my opinion, the events which occurred in relation to the settlement moneys provide a clear instance of oppressive conduct and I shall make a declaration accordingly. However, I do not think that I should make any other order with respect to [the Company]. These proceedings were not instituted because of anything that was happening in [the Company]. It was Claude's conduct in relation to Expressway Spares and Cassegrain Vineyards [other Cassegrain companies] which caused the applicants to institute these proceedings. If the applicants wish to claim that Claude should repay moneys to [the Company], those proceedings can be taken and an order for the taking of accounts as between Claude and [the Company] can be sought. I do not think that these present proceedings are concerned with that. Indeed, shareholders' rights have never loomed large in family discussions or thought. That is probably why the applicants at one stage sought a declaration that Claude held his interest in the $4.25m loan account on trust for all the members of the family equally. There was, of course, no basis for that claim.' 40 Davies J went on to reject the applicants' contention that the actions of Claude, Anne-Marie and Mrs Cassegrain in relation to certain other Cassegrain Companies also constituted oppression of the minority shareholders. In addition, his Honour also rejected the applicants' contention that the Company should be wound up. His Honour took the view that it would be wrong to isolate one or two companies within the Group for winding up, when the applicants had resisted the winding up of all the Cassegrain Companies. 41 The only relief granted by Davies J was a declaration that: 'the actions of the first respondent, Claude George Rene Cassegrain, in treating the $4.25m loan account with [the Company] as his entitlement to be drawn down at his will, in drawing upon the loan account as he saw fit and in causing the passing of a resolution of directors allowing for the payment of retrospective interest thereon were actions which were oppressive of and unfairly prejudicial to the members of the company.'

Otherwise his Honour dismissed the proceedings. Each party was to bear his, her or its own costs of the proceedings. 42 On 15 June 1999, the Commonwealth Bank of Australia (CBA) appointed a receiver and manager to the Company. The receiver and manager ceased to act on 21 December 2004. 43 On 24 March 2000, Claude transferred his joint interest in the dairy farm to Felicity for an expressed consideration of $1. 44 On 8 August 2000, the Australian Taxation Office (ATO) issued an amended assessment to the Company, the effect of which was to assess the whole of the settlement moneys paid by CSIRO as a taxable capital gain. 45 The Company objected to the amended assessment, but the ATO disallowed the objection on 7 November 2002. The Company then sought review of the ATO's objection decision in the Administrative Appeals Tribunal (AAT). 46 On 15 December 2004, Felicity and Claude entered into an agreement with the Company whereby they agreed to lend the Company the funds it required to dispute the ATO's amended assessment. The moneys so advanced were to attract a commercial rate of interest. 47 On 18 January 2005, the AAT affirmed the objection decision. The AAT concluded that the Company had received a capital gain of $4.25 million on the disposal of an asset that had been vested in Claude - that is, his right to a share of the settlement sum. The AAT found that the purported division of the $9.5 million was not intended to have legal effect and that the purported apportionment agreement was a sham. 48 The Company filed a notice of appeal on a question of law against the decision of the AAT. 49 On 11 October 2005, the ATO issued a notice to the Company showing an amount payable at that time, inclusive of interest and penalties, of $3.84 million. 50 On 5 September 2006, Denis filed a summons in this Court seeking an order for preliminary discovery against the Company pursuant to Uniform Civil Procedure Rules 2005 (UCPR) r 5.3. The documents sought, apart from the Company's financial statements for the year ended 30 June 2004, do not appear to relate to Claude's loan account of $4.25 million. 51 On 22 March 2007, McLaughlin AsJ made an order for preliminary discovery, apparently without opposition from the Company. On 18 September 2007, his Honour made an order against the Company requiring it to pay Denis' costs of the preliminary proceedings. 52 On 23 March 2007, Lindgren J of the Federal Court delivered a judgment in which he allowed the Company's appeal from the decision of the AAT. His Honour set aside the decision and remitted the matter for determination by the Court according to law. Lindgren J held that the AAT had correctly regarded the apportionment agreement as a sham. However, his Honour also held (at [134]) that the AAT had erred by failing: 'to identify all of the disposal of assets provided for in the Deed [between the Company, Claude and CSIRO], and to determine how much of the sum of $8,835,083 might be reasonably attributed to those by [the Company] (and, it would follow, by a process of arithmetical subtraction, those disposed of by Claude Cassegrain).' (Emphasis in original.) 53 Lindgren J observed (at [120]) that whatever may have been the true value of any existing claim that Claude had for defamation, 'it was nowhere near $4.25 million'. His Honour described the task facing the AAT on remitter as follows (at [143]): 'Determining the matter according to law will require the [AAT] to acknowledge the distinction between the disposals of amounts consisting of the releases and surrenders in respect of potential causes of action on the one hand, and those consisting of the giving of contractual undertakings on the other hand; acknowledging that each of [the Company] and Claude Cassegrain disposed of assets of both classes; and determining how much of the sum of $8,835,083 may reasonably be attributed to the disposals of the assets by [the Company].' 54 The AAT has not yet heard the proceedings remitted to it. 55 On 18 December 2007, Denis filed the originating process in these proceedings seeking leave under s 237 of the Corporations Act to commence a derivative action against Claude and Felicity in the name of the Company. 56 Orders have been made by a Judge of this Court restraining Felicity from disposing of or encumbering the dairy farm pending final determination of the application for leave to commence the derivative action in the name of the Company. The Proposed Pleading 57 The case that Denis wishes the Company to make against Claude and Felicity is set out in a draft statement of claim (DSC). 58 The DSC pleads that Claude and the Company were both respondents to the Federal Court proceedings determined by Davies J on 15 July 1998 (pars 7-9). The DSC refers to the declaration made by his Honour (par 11) and pleads that certain facts were 'necessarily decided by the prior judgment of [Davies J]' (par 12). The 'facts' so decided include the following (I have retained the numbering of sub-paragraphs in par 12 of the DSC): '(y) The 9.5m was paid to [the Company] and received by it in settlement of its claim against CSIRO and no attempt was ever made genuinely to estimate a sum for any personal claim by Claude …

(z) The split was agreed to between Claude and his father with a view of reducing the capital gains tax otherwise payable on the $9.5m.

(aa) Gerard and Claude did not at the time regard the sum of $4.25m as Claude's money.

(bb) In Gerard's lifetime, expenditure from the loan accounts did not occur without his approval.

(cc) Claude could not have drawn down the $4.25m unless his father had agreed to that course.

(dd) Except as to legal expenses and perhaps other like matters, he did not do so during his father's lifetime.

(ee) Claude subsequently took the view that the $4.25m was his.

(ff) Since Gerard's death, Claude has drawn upon the funds of [the Company] both by way of regular living expenses of $3,000 per month and for other personal expenses such as school fees. These sums have been debited to the loan account.

(gg) Claude acquired a dairy farm and residence from the company by debiting the $4,25m.' 59 The DSC pleads (par 14) that Claude's assertion against the Company that he was personally entitled to the $4.25 million of the settlement moneys:

'amounted to a fraudulent act entirely against the interests of the [C]ompany (" The first fraudulent act ").' (Emphasis in original) 60 The particulars to this plea are as follows:

'i. Gerard and Claude did not regard the sum of $4.25m as Claude's money;

ii Following Gerard's death, Claude took the view that the $4.25m was his; and

iii. There was no intervening honest reason to depart from the position that the $4.25m did not belong to Claude.' 61 The DSC next pleads that Claude's use of his position of control within the Company to cause it to acknowledge that it had an actual liability to him of $4.25 million amounted to: 'a fraudulent act entirely against the interests of the [C]ompany (" The second fraudulent act ").' (Emphasis in original) 62 The DSC does not specify precisely when Claude is said to have committed the allegedly fraudulent acts. However, in his opening, Mr Collins said that the first fraudulent act related to Claude's assertion of his entitlement in the letters of 6 July 1993, while the second fraudulent act related to the creation of the loan account on or about 31 October 1993. 63 There was also some discussion during the hearing as to the meaning of the proposed pleading insofar as it alleges fraud. Denis' position, as ultimately put by Mr Collins, is that Claude, at the time he created the loan account and at the times he drew on it, did not genuinely believe that he was entitled, as against the Company, to $4.25 million of the settlement sum of $9.5 million paid by CSIRO to the Company. It is in this sense that Claude's conduct is alleged to be fraudulent. 64 The DSC pleads the transfer by which Claude and Felicity became the joint registered proprietors of the dairy farm (pars 16, 17). It is alleged that at all material times prior to the transfer Claude: 'relied on the first and second fraudulent acts to create the false impression that, in exchange for transferring its legal interest in the real property, the [C]ompany would receive the benefit of a reduction in an existing liability to Claude Cassegrain.' (par 18). 65 Claude is said to have fraudulently obtained the transfer from the previous registered proprietor and Claude and Felicity are said to have been registered as proprietors through fraud (pars 19, 20). 66 The DSC alleges that on 24 March 2000, Claude transferred his interest as joint tenant to Felicity for an acknowledged consideration of $1 (par 21). Felicity is said to have derived that interest from a person registered as proprietor through fraud and otherwise as a transferee bona fide for valuable consideration (par 22). She is said to have taken her legal estate subject to 'the equitable claim of the Company' (par 27). 67 Claude is also alleged to have breached the fiduciary duty he owed to the Company by: · dishonestly asserting against it that he was personally entitled to repayment of the $4.25 million or any part of it (par 24);

· engaging in a dishonest course, amounting to a conscious misuse of power, to ensure that the Company acknowledged the existence of a corresponding current liability to pay him $4.25 million (par 25); and

· relying on the matters pleaded in par 25 to obtain a transfer of legal title from the Company (par 26). 68 The relief Denis intends to seek on behalf of the Company includes: · an order requiring Felicity to execute a transfer of the dairy farm to the Company;

· declarations that Claude breached his fiduciary duty to the Company;

· an injunction restraining him from further breaches;

· an inquiry to determine the extent of Claude's drawings against the loan account; and

· equitable compensation. Common Ground and Issues in Dispute 69 Section 237(2) of the Corporations Act specifies five criteria. It is common ground that if each criterion is satisfied, the Court must grant the application, but that if any one criterion is unsatisfied the Court must refuse the application: Goozee v Graphic World Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 at [27] per Barrett J; Charlton v Baber [2003] NSWSC 745; (2003) 47 ACSR 31 at [31] per Barrett J. Denis bears the onus of satisfying the Court on the balance of probabilities that each of the requirements has been satisfied: Swansson v RA Pratt Properties Pty Ltd at [26] per Palmer J. 70 There is no dispute between the parties as to the following matters:

(i) Denis is the holder of ten A class shares in the Company and thus has standing under s 236(1)(a)(i) of the Corporations Act to apply under s 237(1) for leave to bring proceedings on behalf of the Company.

(ii) If leave is granted, the proposed proceedings will be brought in the name of the Company and thus will satisfy s 236(2).

(iii) The Company will not itself agree to bring proceedings against Claude because he controls the voting shares in the Company and will not authorise proceedings against himself. Accordingly, the requirement in s 237(2)(a) is satisfied.

(iv) Denis gave notice to the Company on 30 November 2007 of his intention to apply to the Court for leave to proceed in the name of the Company and of the reasons for so applying. This notice complied with the requirements of s 237(2)(e). 71 There is also no dispute that ss 236 and 237 of the Corporations Act apply to causes of action that had already accrued at the time CLERP came into force. Thus: · the statutory derivative action displaces potential recourse to any of the exceptions to the rule in Foss v Harbottle , notwithstanding that a right to invoke one of the exceptions may already have accrued by the time CLERP came into force; and

· the statutory derivative action is available in respect of causes of action based on events that occurred prior to CLERP coming into force.

Karam v Australian and New Zealand Banking Group Ltd [2000] NSWSC 596; (2000) 34 ACSR 545 at 553-554 [25]-[31] per Santow J; Swansson v RA Pratt Properties Pty Ltd at 317 [19] per Palmer J (and authorities cited there). (There may be an exception for cases in which proceedings based on the rule in Foss v Harbottle had actually been commenced at the date CLERP came into force, but any such exception cannot apply in the present case: cf Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193; (2001) 189 ALR 370 at [240] per Austin J (reversed on other grounds, Cadwallader v Bajco Pty Ltd [2002] NSWCA 328.) 72 The issues that are in dispute on this application are as follows:

(i) The Company submits that Denis is not acting in good faith and thus has not satisfied s 237(2)(b) of the Corporations Act . Among other things, the Company argues that Denis is in truth a nominee of the three siblings who were his co-applicants in the oppression proceedings). It also contends that the real purpose of the proposed proceedings is not to reverse the transactions entered into by the Company, but to pursue ' an ongoing family vendetta against Claude '.

(ii) The Company maintains that the proposed proceedings are not in the best interests of the Company and that therefore Denis has not satisfied s 237(2)(c). In particular, the Company says that Denis has not demonstrated that reversal of the impugned transactions will result in an improvement in the Company's commercial position.

(iii) The Company submits that Denis has not established that there is a serious issue to be tried in the proposed proceedings and that, accordingly, he has not satisfied the requirements of s 237(2)(d). An Indemnity 73 The Company's written submissions, filed in advance of the hearing, emphasised that Denis had not proffered an indemnity for the costs that would be incurred by the Company in pursuing the derivative proceedings, should the Court grant him leave to do so. At the hearing, Mr Collins proffered an undertaking on Denis' behalf that, if the Court granted leave for him to bring the proceeding in the Company's name, Denis would: 'pay and bear and indemnify [the Company] against all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings.'

Even in the absence of such an undertaking, s 242 of the Corporations Act would empower the Court hearing the derivative action to make an order requiring Denis to indemnify the Company against any adverse costs order. 74 Denis' evidence establishes that his siblings, John Cassegrain, Patrick Cassegrain and Catherine Dunn, and his nephew, James Dunn, have agreed to assist him financially in pursuing the leave proceedings and, should leave be granted, the derivative proceedings in the Company's name. The siblings are parties (along with Denis) to a costs agreement with Denis' solicitors. The arrangement is that each will contribute equally to the costs of the proceedings, with the intent that costs will be paid as and when they fall due. I accept that, if leave is granted to Denis to maintain the derivative proceedings in the name of the Company, the costs incurred by the Company in conducting the proceedings will be met by Denis with the assistance of his siblings. 75 Denis gave uncontradicted evidence that, although he could not fund both the derivative proceedings entirely on his own, he has unencumbered assets substantially exceeding $1 million in value, including $280,000 on deposit. I find that if Denis is given leave to bring proceedings in the Company's name, the indemnity he has proffered will adequately protect the Company against the risk of an adverse costs order, should the derivative proceedings fail. The form of the indemnity is appropriate to prevent Denis having recourse to the Company's funds to reimburse him for any portion of the costs incurred by him on the Company's behalf. 76 In making this finding, I have taken into account that Denis himself will incur a liability to pay costs under the agreement with his solicitors and that his assets will be reduced to the extent of the liability. I have also taken into account the estimate given by Mr Patakas, the Company's solicitor, that the parties to the derivative proceedings are likely to incur costs amounting, in all, to some $2.5 million. As Mr Patakas recognised in his evidence however, estimating the costs of future proceedings is not a precise exercise and depends to a considerable extent on the issues in dispute and the way in which the parties conduct the litigation. In my view, Mr Patakas' estimate that Claude and Felicity, if successful in the derivative proceedings, would be entitled to recover about $1 million in costs from the Company, is likely to be a significant overestimate. It seems to me that the evidentiary issues in the derivative proceedings, should they proceed, are likely to be more confined than they were in the oppression proceedings. On the evidence before me, Denis' proffered indemnity is likely to be adequate to protect the Company against any adverse costs order made against it in the derivative proceedings. Best Interests of the Company 77 Section 237(2)(c) of the Corporations Act requires this Court to be satisfied that the proposed derivative action is in the best interests of the Company. As Palmer J pointed out in Swansson v RA Pratt Properties Pty Ltd at [55] this provision imposes a far higher threshold requirement than a test which merely requires that the proposed derivative action appear to be in the interests of the company concerned: see Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 at [85] per Tobias JA, approving Palmer J's comments. 78 The expression 'best interests' is concerned with the Company's 'separate and independent welfare': Charlton v Baber at [52] per Barrett J; Chahwan v Euphoric Pty Ltd at [88] per Tobias JA. In Charlton v Baber, Barrett J interpreted the best interests of a company in liquidation as reflecting the interests of its creditors: at [53]. 79 The New South Wales Court of Appeal has now held (albeit by way of dicta) that Pt 2F.1A of the Corporations Act does not apply to a company in liquidation: Chahwan v Euphoric Pty Ltd at [122], [124]. Nonetheless, the expression 'best interests of the company' imports the 'familiar concept of the interests of the company as a whole': Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 at [44] per Brereton J; Chahwan v Euphoric Pty Ltd at [88]. This concept, in turn, is capable of embracing both the interests of the shareholders and the creditors of the company: Walker v Wimborne (1976) 137 CLR 1 at 6-7 per Mason J (with whom Barwick CJ agreed); Chahwan v Euphoric Pty Ltd at [89]; cf Spies v R (2000) 201 CLR 603 at [93]-[95] per Gaudron, McHugh, Gummow and Hayne JJ. 80 The Company submits that Denis has not demonstrated that if the transactions he wishes to impeach are reversed, the Company will be in a better commercial position than at present. It argues that the evidence has not established that the Company's solvency will be assured, having regard to its liability for CGT, even if the dairy farm is retransferred and Claude is required to repay his drawings from the loan account. 81 The evidence as to the Company's true financial position is incomplete. As I have noted, the latest financial statements prepared for the Company appear to be those incorporated in the Special Purpose Financial Report prepared in respect of the year ended 30 June 2005 for use by directors and members of the Company. The report records that as at 30 June 2005 the Company was not trading (it having come out of receivership on 31 December 2004) and that its principal activity was 'running the appeal against the Commissioner of Taxation in the Federal Court'. 82 Neither party adduced any expert evidence as to the Company's true financial position. Denis gave evidence that he had formed the view that because of the Company's likely CGT liability, and because it had sold shares in a related company (CaTTO) at what he considered to be an undervalue, the Company faced the prospect of being placed in liquidation. However, his oral evidence suggested that he did not have a good grasp of the Company's prospects in relation to its appeal against the CGT assessment and that he had made no detailed enquiries as to the Company's true financial position. No claims relating to the CaTTO sale have been incorporated in the proposed derivative proceedings, although Denis claimed that he was still considering whether to take any action in relation to that sale. 83 In the absence of more detailed evidence, it is difficult to know what to make of the Company's financial accounts. There is a recorded deficiency in the balance sheet of $9,614,268. However, this is largely accounted for by a non-current liability of $9,374,239 to a wholly owned subsidiary, Clos Farming Estates Pty Ltd ('Clos'). The balance sheet values the Company's shares in Clos at only $2, apparently because the accounts were prepared on the basis of historical cost. I was not taken to any evidence as to Clos' financial position, so I am unable to make any finding as to the true value of the Company's investment in Clos. 84 The deficiency recorded in the balance sheet also includes the sum of $2,249,786 said to be due by the Company to Claude under his loan account. If the foreshadowed derivative proceedings are successful, the debt to Claude through his loan account will or may be expunged. On the other hand, the balance sheet does not record the Company's liability to the ATO, which stood at $3.84 million in October 2005. 85 The Company has not been placed in liquidation. It appears that the Company has not traded since it came out of receivership and that its only external creditor is the ATO. The precise amount of the Company's indebtedness to the ATO will depend on the outcome of the appeal against the objection decision that has been remitted to the AAT. Based on the comments of Lindgren J in his judgment on the appeal to the Federal Court from the original decision of the AAT, there may well be a reduction in the Company's liability, but it is likely to be only a relatively small reduction in percentage terms. 86 Clearly enough, if the proposed derivative action does not give rise to a serious question to be tried, it would be difficult to conclude that it is in the best interests of the Company to grant leave to Denis to bring proceedings in the name of the Company. However, it is appropriate to consider the best interests issue on the assumption that the derivative action does give rise to such a question. On this assumption, I am satisfied that it is in the best interests of the Company that Denis be granted leave to institute proceedings in the name of the Company. I reach that conclusion because, although there can never be certainty about the outcome of the derivative action, if the action is successful the Company's assets will increase substantially and its liabilities will decrease substantially. 87 The factors I have taken into account in reaching this conclusion include the following: · the foreshadowed derivative action, if successful, will recoup some $2 million from Claude, with a realistic possibility that this sum will be augmented by an order that he pay interest and that he or Felicity account to the Company for any increase in the value of the dairy farm since the date of its transfer to them;

· success in the derivative proceedings will prevent Claude maintaining that the Company owes him the balance standing in his loan account (at present some $2.2 million) and will relieve the Company of any potential liability to pay interest to Claude on that balance;

· the Company's indebtedness to the ATO may be reduced if the pending application to the AAT is successful in whole or in part;

· the derivative proceedings will be funded by Claude, with assistance from his siblings;

· the Company will be adequately protected from any adverse costs order in the derivative proceedings by the indemnity proffered by Denis;

· there has been no suggestion that Claude or Felicity will be unable to satisfy any judgment against them and such evidence as there is suggests otherwise; and

· the Company does not suggest that the redress sought through the derivative proceedings would be available to Denis by a means not requiring the Company to engage in litigation against its will. 88 On the evidence, I cannot say whether success in the derivative proceedings will prevent the Company going into liquidation. However, on the limited material before me it is fair to conclude that there is a real prospect that this will be the consequence. In any event, success in the proceedings will substantially increase the assets of the Company and substantially reduce its liabilities and thus enure to the benefit of the Company's external creditor, the ATO. 89 The Company submits that a grant of leave would not be in its interests because the effect would be to divert attention away from the prosecution of the taxation proceedings at the AAT. The evidence suggests that, despite the terms of the agreement of 15 December 2004, it is Felicity rather than Claude who has provided the funds to enable the Company to pursue its tax appeal and that she has borrowed funds for the purpose. In his oral evidence Denis disclaimed any intention of personally funding the AAT proceedings. 90 Neither Felicity nor Claude gave evidence before me. Denis acknowledged in his oral evidence that if the derivative proceedings are instituted the effect may be to divert resources from the AAT proceedings. However, Claude has an independent interest in pursuing these proceedings even though they involve the Company, since he maintains that $4.25 million of the settlement moneys effectively is his. In the absence of direct evidence from Claude or Felicity, I am not prepared to infer that the institution of the derivative proceedings will lead to the abandonment of the AAT proceedings. 91 In any event, the abandonment of the proceedings would not cause me to reach a different conclusion as to whether to the grant of leave would be in the best interests of the Company. As I have explained, derivative proceedings, if successful, will result in a substantial increase in the Company's assets and a substantial reduction in its liabilities. This justifies concluding that the Company's best interests would be served by a grant of leave to commence the derivative proceedings. Good Faith 92 In Swansson v RA Pratt Properties Pty Ltd, Palmer J warned against attempting to formulate a compendious list of the factors to be taken into account in determining whether an applicant for leave is acting in good faith, as required by s 237(2)(b) of the Corporations Act. However, his Honour identified (at 320 [36]) two interrelated factors to which the Courts will always have regard: '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. These two factors will, in most but not all, cases entirely overlap: if the court is not satisfied that the applicant actually holds the requisite belief, that fact alone would be sufficient to lead to the conclusion that the application must be made for a collateral purpose, so as to be an abuse of process. The applicant may, however, believe that the company has a good cause of action with a reasonable prospect of success but nevertheless may be intent on bringing the derivative action, not to prosecute it to a conclusion, but to use it as a means for obtaining some advantage for which the action is not designed or for some collateral advantage beyond what the law offers. If that is shown, the application and the derivative suit itself would be an abuse of the court's process...' 93 In Chahwan v Euphoric Pty Ltd, Tobias JA referred (at [73]) with approval to the following passage in the judgment of Palmer J in Swansson v RA Pratt Properties Pty Ltd (at [42]): 'If a wrong appears to have been done to a company and those in control refuse to take proceedings to redress it, the court should permit a derivative action to be instituted only by those within the categories allowed by s 236(1) who would suffer a real and substantive injury if the action were not permitted. The injury must be necessarily dependent upon or connected with the applicant's status as a current or former shareholder or director and the remedy afforded by the derivative action must be reasonably capable of redressing the injury.'

Tobias JA said (at [74]) that he took Palmer J: 'to be saying that an applicant will only be acting in good faith for the purpose of s 237(2)(b) where, as a current or former shareholder or director of the company, he or she would suffer a real and substantive injury if a derivative action were not permitted provided that that injury was dependant upon or connected with the applicant's status as such shareholder or director. It might be a positive indication of the good faith of a shareholder if he or she sought to institute a derivative action which would have the effect, if successful, of restoring value to his or her shares in the company.' 94 Mr Bevan cross-examined Denis with a view to establishing that his real motivation for the proposed derivative action is not to recover assets of the Company (or to diminish its liabilities) but to pursue a family vendetta against Claude and Felicity. If Denis' true purpose is to pursue a private vendetta he would not be acting in good faith: Swansson v RA Pratt Properties Pty Ltd at 321 [41]. 95 I consider Denis to have given his evidence honestly. I accept his evidence that he honestly believes that the Company has a basis for pursuing claims against Claude and Felicity and that he wishes the Company (and the minority shareholders) to benefit from the relief that would be sought in the proposed action. It is abundantly clear that there has been a long history of bitter disputation between Denis and Claude and that the members of the family have divided into apparently irreconcilable factions. But I accept Denis' denial that his motivation for seeking leave to proceed in the Company's name is to pursue some sort of vendetta against Claude and Felicity. I also accept Denis' evidence that the primary reason for the very long delay in bringing the leave application was that the Company was in receivership from 1999 until the end of 2004 and that he considered that proceedings were not feasible during that period. 96 Denis' evidence suggested that his grasp of the Company's financial position is not by any means complete. His evidence was confused on some points, particularly his understanding of the current status of the dispute between the Company and the ATO relating to the Company's liability to CGT. However, in my opinion, this does not detract from the genuineness of Denis' belief that the Company has causes of action available to it against Claude and Felicity. 97 I do not accept the Company's submission that Denis is not acting in good faith because he is merely a nominee of the three siblings who are supporting his application. It is true that the siblings are providing financial support to Denis and have chosen not to join in the application themselves. But Denis is a shareholder in the Company. He has standing to bring the leave application and, like other shareholders, potentially will benefit from the proposed derivative action. The fact that he is receiving support from family members who have a common interest in the proceedings does not establish that he is simply their 'nominee' or that he is not acting in good faith. 98 For these reasons, I am satisfied that Denis is acting in good faith in bringing the application. Serious Issue to be Tried 99 In Swansson v RA Pratt Properties Pty Ltd, Palmer J noted (at [24]) that it is clearly the intent of Pt 2F.1A of the Corporations Act that leave to bring a derivative action must not be given lightly. However, his Honour also noted (at [25]) that in order to ascertain whether there is a serious question to be tried, the Court will not normally enter into the merits of the proposed derivative action to any great degree: 'The applicant has the same relatively low threshold to surmount as in the case of an application for an interlocutory injunction: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622.' 100 In Goozee v Graphic, Barrett J observed (at [34]), by reference to the decision of the High Court in Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, that: 'a serious question to be tried can be found only by reference to an infringement of some legal or equitable right or the commission of some legal or equitable wrong, with the result that the issue needs to be approached by inquiring whether there exists, in the circumstances and on the evidence, a sufficiently cogent showing of some such infringement or wrong to warrant the imposition of an order to preserve the status quo pending full investigation.' 101 The parties made extensive submissions on the substantive issues raised by draft pleadings prepared on Denis' behalf for the derivative action. The Company submitted that the evidence adduced in these proceedings is insufficient to show that there is a serious issue to be tried in the proposed derivative action. 102 Mr Collins submitted in response that the Company is entitled to rely on the findings made by Davies J in the oppression proceedings on 'many of the same facts'. This submission reflects the terms of the DSC, which seem to be drafted on the basis that the Company, as plaintiff in the derivative action, will be able to rely on the key findings made by Davies J as having created an issue estoppel between the parties. 103 The relevant principle concerning issue estoppel was stated by Dixon J in Blair v Curran (1939) 62 CLR 464 at 531-532: 'A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.' 104 As this passage indicates, for an issue estoppel to arise it is not necessary that the cause of action relied on in each proceeding be the same. However, it is only that which is 'legally indispensable to the conclusion' that is finally foreclosed by an issue estoppel: 'In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established.'

Blair v Curran , at 532. 105 There is little doubt that Davies J's judgment creates an issue estoppel in relation to some findings of fact made by his Honour. For example, the findings that Claude was responsible for dividing up the settlement moneys received from CSIRO into $5.25 million for the Company and $4.25 million for himself and that he drew upon the latter sum at will as if it was his entitlement to do so, would seem to have been essential to the declaration made by Davies J. Whether all of the findings identified in the DSC are the subject of an issue estoppel is a much more debatable proposition, as it would seem not all were necessarily legally indispensable to the conclusion reached by Davies J. 106 Whether or not Davies J's judgment creates an issue estoppel to the extent suggested on behalf of Denis in these proceedings, in my opinion the evidence is sufficient to establish that there is a serious question to be tried as to whether Claude: · breached his fiduciary duty to the Company; and

· committed fraudulent acts in the manner alleged in the DSC. 107 Extensive documentation was admitted into evidence that bears on each of the issues. The documentation relates to the settlement of the claim against CSIRO; the making of the purported apportionment agreement; the correspondence relating to the purported apportionment; the creation of the loan account of $4.25 million; Claude's subsequent drawings on the loan account; the acquisition of the dairy farm by Claude and Felicity; and the debiting of the loan account to pay for the dairy farm. 108 In the absence of evidence from Claude or Felicity, in my opinion the material before me suggests that there is a serious issue to be tried on the allegations of fraudulent conduct made in the DSC. This is not to say that the allegations will necessarily be made out. However, documentary evidence is capable of supporting an inference that Claude set up the loan account and drew from it without having a genuine belief that he was entitled to do so. A fortiori, the material is capable of supporting an inference that Claude breached his fiduciary duties in the manner pleaded in the DSC. 109 The case against Felicity, as pleaded in the DSC is more problematic. It does not seem to be alleged that Felicity herself acted in a fraudulent manner and, in any event, there does not seem to be evidence of dishonest conduct on her part. The case against her, appears to rest on the basis that she acquired her registered title as joint proprietor of the dairy farm through Claude's fraud and, for that reason, is not entitled to the indefeasible title that she would otherwise acquire as the registered proprietor pursuant to s 42 of the Real Property Act 1900 (NSW) (Real Property Act). Similarly, the DSC appears to proceed on the basis that the transfer to Felicity of Claude's joint interest occurred 'through fraud' and thus was also ineffective to create an indefeasible title in Felicity upon registration. The DSC does not expressly allege, however, that Claude was Felicity's agent. 110 The foreshadowed claim by the Company against Felicity may encounter obstacles. One is that it is by no means obvious that the statutory exception to the indefeasible title of registered proprietors of land in the case of fraud (s 42 of the Real Property Act) applies where the registered proprietor herself has not been fraudulent or has not had knowledge of the fraud brought home to her or to her agents: Woodman and Nettle, The Torrens System in New South Wales (2nd ed 2003), at [42.160]. Another potential obstacle is the decision of the New South Wales Court of Appeal in Bogdanovic v Koteff (1988) 12 NSWLR 472, that a volunteer who has become registered as the proprietor of land can take the benefit of the indefeasibility provisions of the Real Property Act. 111 The DSC does not specifically plead that knowledge of Claude's fraud (assuming it to be proved) was brought home to Felicity. Nor does the DSC expressly plead that Claude should be regarded as Felicity's agent for the purpose of determining whether her registered title was obtained by fraud. The evidence suggests, however, that Claude carried out or caused to be carried out all the relevant transactions. These include the creation of the loan account; the transfer of the dairy farm to himself and Felicity jointly; the debiting of the loan account to cover the purchase price; and the transfer of his interest in the dairy farm to Felicity for a nominal consideration. In the absence of evidence from Claude and Felicity, in my view there is a serious issue to be tried as to whether Claude is to be regarded as Felicity's agent for the purpose of determining whether her otherwise indefeasible title is affected by fraud. Given that the DSC alleges fraudulent conduct on Claude's part and is ambiguous as to how Felicity might be affected by Claude's alleged fraud, I think it appropriate to regard the derivative proceedings in respect of which leave is sought as potentially including a claim against Felicity along the lines I have outlined. 112 The proposed derivative action faces formidable obstacles beyond those I have mentioned. In particular, a question is likely to arise as to whether the pleaded causes of action are barred because of the operation of the Limitation Act or by reason of equity applying limitation periods by analogy to the causes of action founding the claims for equitable relief: Limitation Act, s 23. This question will arise if (as is highly likely) the limitations point is pleaded by Claude and Felicity as a defence to the derivative action. 113 In Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286, the Court of Appeal held that, in the circumstances of that case, the relevant analogy for an equitable claim based on a breach of fiduciary duty was the six year limitation period applicable to a cause of action in contract or for professional negligence: at [22]. However, the Court appeared to recognise that there may be circumstances in which a fiduciary will not be permitted to plead a limitation defence: at [21], citing Cohen v Cohen (1929) 42 CLR 91 at 99-101 per Dixon J. 114 The limitation period applicable to a cause of action in respect of fraud or a fraudulent breach of trust, is 12 years from the date the plaintiff or a person through whom the plaintiff claims, first discovers or could with reasonable diligence have discovered the facts giving rise to the cause of action: Limitation Act, s 47(1)(a), (e). The same limitation period applies to a cause of action to recover trust property or property into which trust property can be traced: s 47(1)(c), (e). 115 Assuming a limitations defence is pleaded in the derivative action, the Company (as plaintiff) intends to argue that the cause of action to recover the Company's beneficial interest in the dairy farm is not barred because the relevant facts could have been ascertained with reasonable diligence only in the course of the oppression proceedings ultimately determined by Davies J in 1998. It seems to me that there may well be difficulties in the path of the Court accepting these answers to the likely limitations defences. However, at this stage I cannot conclude that the answers are without any merit. Consequently, I do not think that the likelihood that Claude and Felicity will rely on limitation defences detracts from the conclusion that the proposed derivative action gives rise to a serious issue to be tried. 116 Mr Bevan submitted that the derivative action could be met with pleas based on res judicata or Anshun estoppel. I cannot at this stage by any means conclude that such defences would be bound to succeed bearing in mind the different focus of each set of proceedings. Accordingly, they, too, do not detract from the conclusion I have reached. Conclusion 117 In my view, Denis has satisfied the criteria specified in s 237(2) of the Corporations Act. I therefore propose to grant leave to him to bring proceedings in the name of the Company and to file pleadings in the form of the DSC. It will be a matter for the Judge dealing with those proceedings to determine whether leave should be given to amend the DSC. The grant of leave will be subject to the undertaking proffered by Denis. 118 This is the latest episode in a long-running dispute between factions of the Cassegrain family. It is a matter for them to decide how long and at what cost the disputation continues. As long ago as 13 October 1997, on the first day of the hearing of the oppression proceedings, Davies J pointed out to the parties that the problems faced by the family cannot be resolved by the law. His Honour observed that the court could not do: 'anything nearly as useful as your getting together and working this out for yourselves.'

Eleven years later, the truth of his Honour's observation has been amply borne out. 119 I shall give the parties the opportunity to make written submissions on costs. Orders (1) Leave be granted pursuant to the Corporations Act 2001 (Cth) s 237, to the plaintiff to bring proceedings on behalf of the first defendant in the form of the Draft Statement of Claim located at page 1 of the plaintiff's tender bundle;

(2) The plaintiff to file written submissions in relation to the costs of the leave application within seven days; (3) The defendants to file written submissions in reply on costs within a further seven days. **********

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