"[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 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."
16 It appears that the Company's legal advisers sought to address the concern raised by Sackville AJ about the indefeasibility of title provisions, inter alia, by making the application for determination of separate questions that was dealt with by Barrett J and dismissed by his Honour on 29 May 2009. The amendments now proposed are evidently a further response to his Honour's comments. The proposed amendments include new paras 20A, 22A, 22B and 26A, which expressly assert that Claude was Felicity's agent in certain specified respects. The draft evidently also responds to some submissions made by senior counsel at the hearing of the separate questions application, which were critical of the statement of claim in the derivative proceedings.
17 In the absence of consent to the amendments, the Company now seeks leave to amend. There is no contest between the parties with respect to most of the proposed amendments, which merely insert particulars that have already been supplied by the Company to the defendants in solicitors' correspondence. However the defendants object to paras 20A, 22A, 22B and 26A, which make the allegation of agency.
18 Leaving aside questions of prejudice, an application to amend should be allowed "unless [it] is so obviously futile that it would be struck out if it appeared in an original pleading …": Horton v Jones (No 2) (1939) 39 SR (NSW) 305, 310 per Jordan CJ; see also Intagro v ANZ Banking Group (2004) 50 ACSR 224 at [64], per McDougall J. Having considered the submissions of the parties, I have reached the conclusion that leave to amend should be granted.
19 The subject matter of the pleading, the Company's case against Felicity, is of some complexity and the legal issues are not straightforward, perhaps especially the issues relating to indefeasibility. As that question was raised and discussed by Sackville AJ in the passage I have quoted, in a manner impliedly critical of what was then the draft statement of claim, it is hardly surprising that the Company's legal advisers would endeavour to remove the perceived difficulty by amendment. As far as I can see, the controversial part of the proposed amendments, relating to the proposed allegation that Claude was Felicity's agent, is an understandable and perhaps predictable response to Sackville AJ's observations, especially given that the application to determine the indefeasibility question as a separate question has failed.
20 Indeed, para [111] of the judgment is almost an invitation to the pleader to amend, with some strong hints as to how to do it. Thus (his Honour implied), there needed to be a "specific" pleading that would bring home to Felicity knowledge of Claude's fraud (assuming it to be proved). This was perceived to be necessary for the purpose of establishing that her otherwise indefeasible title had been affected by fraud. The objective could be achieved, according to Sackville J's reasoning, by alleging that Claude was Felicity's agent in relevant respects. Such an allegation would raise a serious issue to be tried, in his Honour's view, but the allegation had not been expressly made and the draft pleading was ambiguous at that stage. The implied hint is that the drafting should be fixed up by an express pleading of agency. Moreover, his Honour's finding that there was a serious question to be tried seems to have assumed that there was an implied allegation of agency already buried in the ambiguous pleading.
21 After publication of Sackville AJ's reasons for judgment on 23 September 2008, the defendants probably should have anticipated that the Company would seek to allege that Claude was Felicity's agent. Claude and Felicity seek to place some reliance on identical letters dated 28 November 2008 from the Company's solicitors to him and to solicitors representing Felicity. After referring to a directions hearing two days earlier, the solicitors said "the plaintiff will not be amending its statement of claim", and then they give notice of some additional particulars of fraud against Claude.
22 This evidence does no more than to indicate that the Company and its legal advisers had a change of heart. In the absence of evidence of some detrimental reliance on the representation that there would be no amendment, or other prejudice arising out of it (such as might arise if a change of heart were to be communicated only just before the trial), I can see no reason why a party to litigation, having expressed an intention in correspondence, cannot later change it. We are still at a fairly early stage in the proceedings. It does not seem to me that the defendants will be prejudiced by the introduction of the proposed amendments. No real prejudice was identified in the submissions or evidence.
23 Claude referred to the overriding purpose of the Civil Procedure Act 2005 (NSW), including the power to grant leave to amend in s 64, which is expressed in s 56(1): that is, "to facilitate the just, quick and cheap resolution of the real issues in the proceedings". Section 56(1) is a general provision, which must be read together with s 58(1), which applies in a number of specific cases including where the Court is to decide whether to order the amendment of a document, and simply requires the Court to seek to act in accordance with the dictates of justice. Assuming, however, that the "just, quick and cheap" criteria of s 56(1) are not ousted by s 58(1) in the present circumstances, my view is that granting leave in the present case is likely to fulfil all three objectives of s 56(1).
24 This is not a case where the plaintiff's conduct has given rise to questions about the efficient disposal of the business of the Court or the efficient use of available judicial or administrative resources. This is a case where the plaintiff seeks, at an early stage in the proceedings, to respond to judicial observations criticising the ambiguity of its pleading by making a clarifying amendment. In the absence of evidence of prejudice, it is obviously just to allow the amendment to be made. Further, clarifying the meaning of the pleading, after a judge has found it to be wanting, will assist the Court and the parties to identify the real issues in dispute and improve the prospects of speedy determination. Such clarification should also lead to less expense than if the pleading were left ambiguous, because an ambiguous pleading would at the very least attract additional, avoidable submissions, as well as potentially create false issues and perhaps even lead to the expense of a subsequent interlocutory application.
25 Claude's submissions invoked the High Court's decision in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27. But none of the factors bearing on the reasoning in that case is present here. The amended pleading will not make a new, substantial claim, for Sackville AJ was prepared, at any rate for the purpose of determining whether there was a serious question to be tried, to regard the draft pleading as containing or implying an allegation of agency (at [111]; see the analysis above). This is not a case where the application to amend is brought after commencement of the hearing, or even after the allocation of a hearing date.
26 Claude and Felicity submitted that in the derivative leave proceedings, and also at the hearing of the separate questions application, Denis disclaimed any allegation of fraud against Felicity, and the Court determined those applications on that basis. Therefore, according to Claude, Denis should not be permitted to allege fraud against her now. It seems to me to be correct that, before filing his application for leave to amend, Denis had disclaimed any allegation of fraud against Felicity (see the transcript of the hearing of the separate questions application, pages 13-14, 16, 25 and 29). But a careful reading of the proposed amendments shows that no such claim is contemplated in the amended pleading.
27 The unamended pleading makes various allegations of fraud against Claude (e.g. paras 14, 15, 18), which are retained in the amended pleading. In paras 20A, 22A and 22B the pleader asserts that Claude was relevantly Felicity's agent for specified purposes. It is evidently intended to impute to Felicity knowledge of Claude's fraud so as to overcome the indefeasibility problem identified by Sackville AJ (I do not mean to express final view as to whether the pleading succeeds in this respect). As I understand the statements made by senior counsel on behalf of Denis, he was disclaiming an allegation that any conduct perpetrated by Felicity personally was actually fraudulent. An allegation that the knowledge and conduct of her agent is to be imputed to Felicity as principal seems to me to be consistent with senior counsel's statements to the Court.
28 Para 26A is different because it alleges that Felicity had knowledge of Claude's breaches of fiduciary duty. The particulars to that paragraph refer to her "actual knowledge", which is alleged to be "by reason of Claude Cassegrain being her agent and acting on her behalf for the purpose of registering Felicity Cassegrain's title to the real property …". Once again the rationale seems to be that the agent's knowledge is imputed to the principal. There is, in summary, no pleading that Felicity herself engaged in any fraudulent conduct.
29 In oral submissions senior counsel for the Company accepted that para 26A could have been "more eloquently drafted", and proposed amendments as follows:
"26A. Felicity Cassegrain acquired her registered title to the real property with imputed knowledge of Claude Cassegrain's breaches of fiduciary duty pleaded in paragraphs 24, 25 and 26 above.
Particulars
Actual Imputed knowledge by reason of Claude Cassegrain being her agent and acting on her behalf for the purpose of registering Felicity Cassegrain's title to the real property pursuant to Real Property Act Transfers 2892535B and 6724658B."
30 In his judgment Sackville AJ expressly contemplated (at [111]) that the Company's case would include a claim that Claude was Felicity's agent. It cannot be said, therefore, that the amendment would give rise to a case disclaimed by Denis at the derivative leave hearing.
31 Since, in my view, the amendments that will plead agency do not constitute pleadings of fraud against Felicity, the proposed amendments are not to be assessed by recourse to the requirements for pleading fraud, as stated, for example, in Minister v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201, 203-5 per Kirby P, Meagher and Handley JJA.
32 Senior counsel for Felicity submitted that, as the plaintiff Company's evidence in chief has closed, the Court is in a position to assess whether the proposed amendment to the pleading should be permitted in light of the proofs to be offered. He contended, correctly in my view (for the reasons given above), that Felicity was not a party to the Federal Court proceedings. It seems to follow (as Barrett J held in his judgment on the separate questions application, at [20]) that there is no issue estoppel that would prevent her from denying any of the matters that were the subject of the decision in those proceedings.
33 The submissions filed on behalf Felicity carefully traced through the other evidentiary matters comprising the Company's evidence in chief, contending that none of that evidence is evidence of fraud on the part of Felicity, or evidence that Claude was Felicity's agent for the purpose of having land transfers registered. I agree that the Company's evidence in chief does not tend to prove any actual fraud on the part of Felicity.
34 I am less sure that there is no evidence at all tending to prove agency. Evidence that Felicity is Claude's wife obviously does not establish that he had authority to act as her agent with respect to the transfer of real property. But his evidence in reply before Sackville AJ, which is before me on the application, indicates that he may have regarded the property registered in her name as his for the purpose of supporting an undertaking to indemnify the Company, and therefore he, at least, may have believed that he had authority to deal with the property on his wife's behalf. The transfer from Claude and Felicity as joint tenants to Felicity alone was signed by Claude in the presence of a solicitor, who then signed for Felicity as transferee. Absent other evidence, that might be taken to suggest that the solicitor received his instructions from Claude, who was therefore acting as Felicity's agent in providing those instructions. I do not say that these matters are substantial proof of agency, but only that in light of them, the Court would be reluctant to conclude that the Company's allegation of agency is hopeless.
35 Therefore, as Felicity is not bound by issue estoppels arising from the Federal Court judgment, and the Company's evidence in chief does not tend to prove even a prima facie case of actual fraud on her part or that Claude was her agent, senior counsel for Felicity urged the Court to conclude that the case proposed to be pleaded against Felicity is hopeless, and therefore the amendment should not be allowed.
36 Senior counsel for the Company responded to the submission that Felicity was not party to the Federal Court proceedings by submitting (written submissions in reply, para 12):
"It cannot legitimately be said that the proceedings against Felicity Cassegrain are manifestly hopeless (or obviously futile) simply because she was not a party to the earlier Federal Court proceedings before Justice Davies. There are obviously other ways for the plaintiff to prove its case against Felicity Cassegrain. At the pleading stage, the plaintiff is not required to adduce evidence to prove its case."
37 He responded to the allegation that there is no evidence of the pleaded agency in the Company's evidence in chief by saying (para 13):
"Once again, the plaintiff will obviously need to lead evidence concerning that issue in order to succeed at trial. But it cannot legitimately be said that the proposed amendment should be disallowed at this stage because they are manifestly hopeless."
38 These submissions by senior counsel for the Company seem to me to imply that the Company intends to adduce further evidence, including evidence to prove agency, if the application to amend succeeds. The Company may need the Court's leave to serve further evidence after having closed its evidence in chief, but it seems to me likely, at this stage in the proceedings, that such leave would be forthcoming in respect of evidence directed to proving the new pleaded allegations. The Court is not at present in the position to determine that the Company's attempt to prove the alleged agency will be hopeless.
39 In the result, the defendants' submissions specifically directed against the application for leave to amend have been unsuccessful, and therefore leave should be granted. The written submissions made on behalf of Claude dated 13 November 2009, paras 8-15, raise three other issues, each of which seems to me inappropriate to the amendment application that is presently before the Court. The issues are revocation of the leave order, security for costs and change of circumstances. I shall address these matters in turn.
Revocation of the leave order
40 First, Claude submits in paras 8-11 that the order made by Sackville AJ granting leave under s 237 was made on a false basis. His Honour took into account (judgment, at [75]) evidence given by Denis as to his personal assets, according to which at that time he had unencumbered assets substantially exceeding $1 million in value. Denis' evidence, given in re-examination before Sackville AJ, was to the effect that there were three principal components to his assets: his residence worth about $450,000, $280,000 on deposit, and his shares in Expressway Spares Pty Ltd ("ESPL") with an estimated value of between $500,000 and $600,000.
41 That evidence was relevant to the derivative leave application, because Denis proffered an undertaking to indemnify the Company against all costs of and incidental to the derivative proceedings (judgment, at [73]), and the order granting leave was made upon the giving of that undertaking. The undertaking, and Denis' ability to discharge it should the derivative proceedings fail, were taken into account by his Honour for the purpose of determining whether the bringing of the derivative proceedings would be in the best interests of the Company (judgment, at [87], fourth, fifth and sixth points).
42 Claude's contention is that Denis' evidence about his assets was false in two respects. First, according to a title search, the registered proprietor of the residence to which Denis referred is Denis' wife Margaret, and there is a registered mortgage to Bendigo and Adelaide Bank.
43 It is very unfortunate that Denis appears to have given evidence in the derivative leave application that was at least formally inaccurate, when he treated the residential property as his asset. But the problem has been partly addressed by Margaret giving an undertaking at the hearing before me, equivalent to the undertaking that had been given by her husband to Sackville AJ: Ex 4647-A/2. In the result, the Company has the same level of protection (as regards access to the residence for enforcement of the indemnity undertaking) as it would have had if the property had been in the name of Denis.
44 The mortgage was not adequately addressed at the hearing before me. The evidence does not disclose the amount outstanding to the mortgagee. If there is nothing or a small amount owing, then Margaret's equity is close to the figure to which Denis deposed. Therefore it is not clear to me that the evidence of Denis on the derivative leave application, though strictly untrue so far as it treated the residence as unencumbered, was substantially incorrect as to the effect of the mortgage on the value of assets available to support the indemnity.
45 As to the shares, the constitution of ESPL is in evidence. It contains a pre-emption clause to the effect that no share is to be transferred to any person other than a member unless the Company is first given the option in writing for a period of 60 days of finding a purchaser at the same price as the proposed selling price.
46 Claude's solicitor, Mr Oliveri , gave evidence that he had received instructions that the ESPL shares would not have any value as security unless there were a pre-agreed and irrevocable resolution by the board of ESPL that in the event of default of payment of Claude's costs in the proceedings, Denis' shares could be sold without any pre-emptive restrictions. It seems to me that the instruction given to Mr Oliveri is probably wrong. The pre-emption clause in the constitution of ESPL merely gives the company the opportunity to find another purchaser at the price negotiated by the seller. I do not see why that restriction would deprive the shares of all or substantially all of value. Further, Denis' evidence does not specify whether his estimate of value takes into account or overlooks the pre-emption clause.
47 In addition to the pre-emption article, there is an article purporting to permit the directors to refuse to register a transfer of shares without assigning any reason for their refusal. That would not prevent a sale of beneficial ownership, and moreover, the substantial case law on the effect of such a clause indicates that the directors' power is subject to judicial review: see Wallace and Young's Australian Company Law and Practice, 1965, page 324-6. Again, the directors' power to refuse registration would not deprive the shares of all value and again, Denis' evidence does not indicate whether he took into account or overlooked this clause in giving his estimate of value.
48 Denis said in re-examination that the ESPL shares produced a yearly income of about $50,000. A valuation simply capitalising that income stream would probably be under $500,000, but a valuation in the vicinity of $500,000 may not fanciful if, say, the company has strong growth prospects. The problem is, of course, that valuation is a matter for expert opinion evidence, and there is none before me. In the result, Denis may have been somewhat hopeful in his valuation of the shareholding, but Claude has not established that the correct figure is substantially lower.
49 If the Court were dealing with an application by Claude for revocation of the order granting leave under s 237, on the ground that it was made on a false basis, I would dismiss the application because for reasons given, that ground has not been established by the evidence. But there is no such application before the Court. This is not merely a technical point. The absence of a proper application by interlocutory process probably explains the noticeably limited evidence before the Court (e.g., absence of evidence of the amount outstanding to the mortgagee of the residence, and the absence of expert opinion evidence of the value of the shares). That leaves the Court ill-equipped to decide the issue. It also gives rise to concern that the Company and Denis were not given notice of a serious allegation about false evidence and therefore they have not had an opportunity properly to respond.
50 I have looked carefully at the evidence upon which Claude relies, according to the written submissions made on his behalf. The affidavit of Mr Oliveri, his lawyer, made on 12 May 2009, refers to Denis' evidence in re-examination and annexes the transcript in which Denis said that his residence was his asset and that it was unencumbered, and that the shares in ESPL were worth $500,000-$600,000. But Mr Oliveri does not challenge the evidence about the residence, and he only challenges the evidence about the value of the shares by referring to the pre-emption article in the manner considered above. His affidavit would not have put Denis or the Company on notice of an allegation that Denis gave false evidence before Sackville AJ such that the granting of leave should be revoked.
51 On 12 October 2009 Mr Oliveri wrote to McCabe Terrill (who act for the Company, Denis, Catherine, John and Patrick) saying that in both proceedings Claude would rely on affidavits by Mr Oliveri made on 12 May 2009 and "title searches of Denis Cassegrain's house". It does not appear that the title searches were annexed to the letter. The letter does not give any indication that those materials were to be relied on to support a case for the revocation of the leave order.
52 The letter indicates that Claude would seek to show, on the hearing of the application, three matters not evidently bearing on the contention that the leave order should be revoked. The first matter was that Catherine, John and Patrick had not formally confirmed their support for the applications or agreed that their undertakings would extend to the proceedings as might be reconstituted should the application succeed. That issue was addressed by McCabe Terrill in their reply dated 26 October 2009, by confirming that Catherine, John and Patrick supported the applications and understood that their undertakings would extend accordingly. The second issue was that Denis, Catherine, John and Patrick had thus far resisted mediation. That is obviously not relevant to an argument in favour of revocation of the leave order, or even to the application for leave to amend the statement of claim. I shall make some observations about mediation later. The third issue raised in Mr Oliveri's letter was that none of Denis, Catherine, John or Patrick had offered any security for costs. But the letter did not demand such an offer or threaten an application security for costs if it were not received. The issue of security for costs is quite different from the proposition that the leave order should be revoked.
53 In the absence of any other evidence, I am left to infer that Claude's claim, that Denis gave false evidence to Sackville AJ and consequently that the leave order should be revoked, was first raised in the written submissions prepared on Claude's behalf and dated 13 November 2009. That was only 7 days before the hearing of the application. The legal advisers to the Company appear to have taken the view, reflected in their outline submissions in reply dated 20 November 2009, that the question of revocation of the leave order was not properly before the Court, and they submitted that the matters raised on behalf of Claude did not relate to any issue currently before the court. I think that is correct.
Security for costs
54 On 3 April 2009 Oliveri Lawyers wrote to McCabe Terrill requiring that their client (apparently meaning Denis rather than the Company) provide an amount of $70,000 as security for costs. That figure was based on an estimate of the costs of a three-day hearing for the determination of the proposed separate questions. When security was not given, Claude made an application, by notice motion filed on 16 April, for the plaintiff in the derivative proceedings (identified in the notice of motion as Denis rather than the Company) to provide security for costs in the amount of $70,000. I infer that the application, like the letter, was directed towards the determination of separate questions, which was then in contemplation.
55 Barrett J heard the separate questions application on 27 May 2009, but he did not deal with security for costs in that hearing, standing the security for costs application over until 29 May. On 29 May his Honour published his judgment on the separate questions application, dismissing that application. He also made orders in accordance with short minutes, by which he noted certain undertakings to the Court and upon those undertakings being given, he ordered that the notice of motion for security for costs be dismissed. It appears that he was invited to make the orders in the short minutes by consent. The undertakings, which were tendered at the hearing before me and became Ex 4647-A/2, included an undertaking to the effect that Denis, Catherine, John and Patrick jointly and severally agreed to indemnify the Company against any order for costs made against it in the derivative proceedings.
56 I take it that Mr Oliveri's affidavit made on 12 May 2009 was prepared in support of the security for costs application. I say this because he begins by annexing his letter of 3 April 2009 on the subject of security for costs, and the bulk of the affidavit is taken up with his estimate of Claude's future costs and evidence concerning Denis' financial circumstances. It is striking (I note in passing) that costs estimated as $70,000 up to conclusion of the estimated three-day hearing for determination of the separate questions at $70,000, had risen, in the affidavit, to a figure approximately between $800,000 and $900,000 for a 3-4 day hearing (presumably a final hearing).
57 As mentioned above, in his letter 12 October 2009 Mr Oliveri raised the question of security for costs by merely noting that none of Denis, Catherine, John or Patrick had to that time offered any security for costs that might be ordered in favour of the defendants in either the derivative proceedings or the oppression proceedings. There appears to have been no reply to that part of the letter, perhaps because on its face, it did not call for a reply.
58 In the same letter Mr Oliveri said that Claude would rely, at the hearing of the application for leave, on Mr Oliveri's affidavit of 12 May 2009. As I have said, that affidavit appears to have been made in support of the notice of motion filed on 16 April, which was dismissed on 29 May 2009. In my view, the letter of 12 October 2009 did not convey any intention on the part of Claude that he would resuscitating the question of security for costs at the hearing of the application for leave to amend the statement of claim. I have not been directed to any other correspondence that might be taken to have done so. I therefore conclude that the first indication received by Denis and his lawyers that the question of security for costs would be raised at the hearing of the application for leave to amend was in the written submissions made on behalf of Claude and dated 13 November 2009.
59 In those written submissions, para 4, Claude seeks (inter alia) an order revoking Sackville AJ's order granting leave under s 237 (considered above) and in the alternative, an order that the continued operation of Sackville AJ's order be made subject to a condition that Denis, Catherine, John and Patrick jointly and severally provide security for the costs of the plaintiff Company and the defendants in the proceedings.
60 Claude's submissions treat the application for security for costs as an alternative to an order revoking the granting of leave, because both forms of relief are said to be based on the alleged falsity of the evidence given by Denis as to his assets in the proceedings before Sackville AJ. The submission is that in light of the falsity of that evidence, the Court could no longer be satisfied that adequate provision has been made for the costs of the proceedings by Denis and those members of the Cassegrain family standing behind him (that is, presumably, standing behind him by virtue of the undertakings given to Barrett J on 29 May 2009). But for the reasons I have given under the previous heading, I do not accept Claude's submission that the evidence given by Denis in the derivative leave proceedings has been shown to be false. Therefore the premise of the argument for security for costs has not been made out.
61 The submissions note that no security has been given in support of the undertakings given to Barrett J, and that the Court has no reliable information about the nature, extent or availability of the respective assets of those who had given undertakings. The latter assertion is not true because Denis gave some evidence about the assets of those supporting him, in his evidence in reply before Sackville AJ. Reference is also made to the "predisposition of Denis" and those who support him to expand the scope of the two sets of proceedings. I shall return to this claim under the next heading; here I note that my view, the claim is untrue with respect to the derivative proceedings, where the application for amendment of the statement of claim is, in my view, a clarifying amendment only.
62 The security for costs application was dismissed, apparently without opposition from Claude, when undertakings were given to Barrett J on 29 May 2009. I am not persuaded that there has been any change in the conduct of the derivative proceedings that would render arrangements, apparently judged satisfactory on 29 May, to be no longer satisfactory as regards the derivative proceedings (see, also, my discussion under the next heading). It is plain, in my view, that the proposed amendment to the statement of claim is not a significant change in terms of the nature of the proceedings or matters affecting costs. I shall address the oppression proceedings below, but for reasons I shall give, much the same conclusion applies to those proceedings.
63 If, therefore, a security for costs application were properly before the court now, I would be inclined to conclude that there was insufficient evidence to warrant an order, having particular regard to the support given to the Company by the undertakings given by Denis to Sackville AJ and by him, Catherine, John and Patrick to Barrett J.
64 Perhaps more importantly, it appears to me that no application for security for costs is before the court in the derivative proceedings at the present time, and that in those circumstances it would be unfair to the Company, Denis, Catherine, John and Patrick to make any determination now that security for costs is to be provided. It is sometimes feasible for the Court to entertain an application orally made, particularly in the interests of speed and reduction of costs, but that obviously should not be done where (as here) affected parties have not been given proper notice of the application and would in all probability wish to adduce evidence concerning it.
65 As with the question of revocation of the order granting leave under s 237, the submissions regarding security for costs do not appear to have in fact put the Company and Denis on notice that they would have to deal with that question in the context of the application for leave to amend the statement of claim. In their outline submissions in reply, counsel for the Company merely observe that the matters raised in (inter alia) paras 12-14 of Claude's written submissions do not relate to any issue currently before the Court. I agree with that view. If they believed the question of security for costs was to be addressed on this application, they would undoubtedly have said rather more on that subject.
66 My conclusion is that it would be inappropriate to make any order for security for costs in the context of the application presently before the Court. If, contrary to my view, it were appropriate to consider the matter, I would not be persuaded on the evidence currently before the Court that a security for costs order to be made.
Change of circumstances
67 The argument made on behalf of Claude in para 15 of his written submissions is that, since the time when Sackville AJ made his order granting leave under s 237, Denis has "dramatically altered, and seeks to dramatically alter" the context in which the proceedings must be viewed.
68 It is true that the institution of the oppression proceedings, two months after the granting of leave under s 237, has changed the overall circumstances concerning the parties' disputes, but in my view not in a way that would justify any of the relief that Claude's submissions advocate. Denis has sought to change the ambit of the oppression proceedings to some degree by making the application in those proceedings that is considered below, but it once again, not in a way that would warrant any such relief. I do not agree with Claude's submission that the application for leave to amend the statement of claim in the derivative proceedings is an alteration of circumstances, dramatic or otherwise, or that the proposed amendments would introduce an "allegation of (vicarious) fraud against Felicity". I have dealt with this issue above.
Conclusions as to leave to amend the statement of claim in the derivative proceedings
69 In my view there are good grounds to support the application for leave to amend the statement of claim in the manner proposed, and no persuasive grounds against doing so. Further, there are no persuasive grounds for the Court to revoke the order granting leave under s 237, or (having regard to the undertakings given to Barrett J on 29 May 2009) to vary the terms upon which Denis is entitled to maintain the derivative proceedings.
70 My order will be as follows:
"Order pursuant to s 64 of the Civil Procedure Act 2005 (NSW) that leave be granted to the plaintiff to amend its statement of claim:
(a) in the manner set out in the draft that is Annexure F to the affidavit of Andrew Lacey made on 10 August 2009 and read in support of the plaintiff's interlocutory process filed on 10 August 2009; and
(b) subject to the changes to para 26A set out in para 29 of the Court's reasons for judgment published on 19 February 2010."
71 Senior counsel for the Company conceded in oral argument that it would be appropriate for the Court to order his client to pay the costs thrown away by reason of the amendment. I shall do so, but I was informed from the bar table that this will account for only a small part of the defendants' costs of the application.
72 As to costs of the application more generally, a principal basis for objection to the proposed amendments was that the defendants were reading the proposed clauses as amounting to an assertion of actual knowledge on the part of Felicity of the wrongdoing pleaded against Claude. As I have said, at the hearing of the application senior counsel for the Company conceded that para 26A and its particulars were badly drafted and should be amended to make it clear that the allegation was that Felicity had imputed knowledge by virtue of the agency, rather than actual knowledge. If that concession had been made before the hearing, a significant part of the hearing time and associated preparation would probably have been saved. However, since that was not the only basis for objection, it cannot be inferred that if the concession had been made before the hearing of the application, the hearing would have been unnecessary, and therefore the Company's concession should not lead to an order against it for the costs of the application as a whole.
73 In my view the correct costs outcome is as follows:
"Order that:
(a) the plaintiff pay the defendants' costs thrown away by reason of the amendment; and
(b) subject thereto, the costs of the application be costs in the cause."
74 While I have made a detailed determination of the application in the derivative proceedings, and could immediately make orders, it is convenient to direct the Company to prepare draft short minutes of order to reflect these reasons for judgment, given that it is necessary to do so in the oppression proceedings.
The oppression proceedings: plaintiff's application for leave to amend statement of claim, bring derivative claims and join an additional defendant
75 The application presently before the court was made by notice of motion filed in the oppression proceedings on 23 July 2009, by which Denis seeks:
an order under s 64 of the Civil Procedure Act 2005 (NSW) granting leave to amend his statement of claim in various ways, including amendments that would assert causes of action of the Company rather than Denis personally, and would add Anthony Sarks as a defendant;
consequently, leave under s 237 of the Corporations Act to bring derivative claims on behalf of the Company; and
an order under UCPR 6.24 granting leave to him to join Mr Sarks as a defendant in the proceedings.
76 At the present time Denis is the sole plaintiff in the oppression proceedings (though he is receiving financial support from Catherine, John and James) and the defendants are the Company, Claude and Felicity. The evidence before me indicates that Denis initiated the oppression proceedings in November 2008, after having already procured leave under s 237 and having initiated the derivative proceedings, because he had concerns arising out of the Company's sale to Felicity, in January 2005, of its shareholdings in Cassegrain Tea Tree Oil Pty Ltd ("CaTTO") and Oceanic Agriculture Pty Ltd ("OAL"). It is important to note that the factual allegations in the oppression proceedings, though they relate to Claude and Felicity, are quite separate from the factual allegations in the derivative proceedings.
77 In summary, the claims of oppressive etc conduct and omissions primarily stem from a set of minutes of meetings of directors of 21 December 2004 and 12 January 2005, and financial statements of CaTTO and OAL, which according to Denis have demonstrated that the Company failed to properly value shares in the two companies before selling them to the wife of one of its directors.
78 Denis claims declarations that the various acts and omissions stipulated above were contrary to the interests of members of the Company, oppressive, unfairly prejudicial and unfairly discriminatory against minority shareholders, and that Felicity participated in that conduct. He seeks orders including, in the alternative:
an order that would return the CaTTO and OAL shares to the Company; or
an order that would require Claude and Felicity to sell their shares in the Company to Denis, Catherine, John and Patrick at a price to be determined by the Court; or
an order that would require Claude and/or Felicity to acquire the shares in the Company held by Denis, Catherine, John and Patrick at a price to be determined by the Court upon the assumption that the company would retain ownership of the CaTTO and OAL shares.
79 During the period from April to July 2009, after the defendants had filed their defences, Denis was granted access to a significant body of subpoenaed material. According to the submissions made on his behalf, the subpoenaed documents disclosed for the first time that CaTTO had been conducting a valuable business at the time the Company sold its half share to Felicity at a price determined by reference to book values that did not include the value of the business. It is said that the subpoenaed materials provide a basis for making allegations regarding the knowledge and conduct of Mr Sarks, who was a director of the Company and CaTTO at the time of the sale of shares. Denis also submits that the subpoenaed materials disclosed for the first time that the financial statements of OAL used for the purpose of valuing the Company's shareholding did not disclose that OAL had made more than $9.9 million in loans to another company called Agricultural and Rural Finance Pty Ltd ("ARF"), and consequently those loans were assets of OAL that should have been taken into account in valuing its shares. It is said that the subpoenaed materials provide a basis for making allegations regarding the knowledge and conduct of Mr Sarks, who is director of the Company and ARS at the time of the sale.
80 Consequently Denis now seeks to amend the statement of claim in the oppression proceedings so as to reflect this new information. If, as asserted by Denis, the Company has accepted a price for it shares in the two companies based on an assessment of value that excludes valuable assets of those companies of which the directors were aware, then the facts point to breaches of duty by the directors of the Company, and not merely to act or omissions that constitute oppression of the minority shareholders. Therefore, not surprisingly, Denis seeks to amend the statement of claim so as to plead breach of directors' duties as well as oppression. The decision to expand the statement of claim in that way has two important consequences. The first is that leave will be required under s 237 of the Corporations Act because the directors' duties are owed to the Company rather than to a minority shareholder such as Denis. The second is that, if the evidence of breach of duty implicates another director, as Denis alleges, then it is appropriate to join that director as a party to the proceedings. Hence Denis seeks to join Mr Sarks.
81 The defendants object to the application under s 237 and the application to join Mr Sarks, and they object to at least part of the amendments proposed to the statement of claim. I shall deal first with the amendments going to the statutory derivative claims, and then with the derivative claims and joinder of Mr Sarks.
Amendments other than statutory derivative claims
82 Assuming it is found appropriate to join Mr Sarks as a party, there is no objection to paras 9A and 9B, which plead that Mr Sarks was a director at the relevant times and is Felicity's father. Nor is there any objection to:
paras 9C-9G, which plead material facts concerning CaTTO, including the assertion that at relevant times Mr Sarks was a director and the shareholders were Claude and the Company, holding 50% each;
paras 9H-9L, which plead material facts concerning OAL, including that Claude was a director at relevant times and that OAL was a wholly owned subsidiary of the Company;
paras 9M and 9N, which plead that Mr Sarks was a director of ARF at relevant times;
all other proposed amendments, except the amendments dealing with the Company's claims to breaches of directors' duties and the amendments to which specific objection is recorded below.
83 Paras 13A and 28A plead that Claude and Felicity were conducting a partnership under the name of "Claude GR & Felicity M Cassegrain". Paras 13B and 28B contend that Claude was Felicity's agent for the purpose of negotiating the purchase of the Company's share in CaTTO. Para 13C says that the transactions and dealings between Felicity and the Company and/or its directors, which were recorded in minutes of its meeting on 21 December 2004, were conducted by Felicity through her husband and agent, Claude. There are substantial particulars to para 13C, referring to the minutes of the meeting of 21 December which indicate some negotiations and offers on the part of Felicity, who was not recorded as being present at the meeting.
84 Senior counsel for Felicity objected to these paras on the grounds that:
(i) the partnership between Claude and Felicity would be irrelevant unless Claude's actions were said to be within the scope of and for the benefit of the partnership;
(ii) the allegation of agency in para 13B/28B is wholly unparticularised;
(iii) para 13C and the particulars to it do not support the allegation of agency, because Felicity was not a member of CaTTO and was not entitled to attend any meeting of its directors, and consequently any offer she made had to be communicated to the meeting, but this could not support any assertion of general agency on the part of Claude.
85 I agree with the submission in (i). The fact that Claude and Felicity were in partnership does not come to bear on the case pleaded by Denis unless there is some further pleading that makes the link between the partnership and the matters at issue in the proceedings. There is no attempt to establish such a link. Indeed, in oral submissions senior counsel for Denis conceded that para 13A had no work to do and could be excised. There will need to be some consequential adjustments to other parts of the amendments (I have in mind the allegations that Felicity was Claude's "business partner", in paras 34, 38, 49 and 54).
86 While particulars are not presently given of the allegation of agency in para 13B/28B, it seems to me reasonably plain that para 13C and the particulars to it should be seen as particulars to paragraph 13B/28B as well. That this is the construction intended by the pleading is confirmed by the written submissions in reply made on behalf of Denis, where it is contended that the minutes of the meeting of 21 December 2004 provide an arguable basis for establishing that an implied agency existed.
87 What the minutes show is that various offers or undertakings and agreements were made on behalf of Felicity: an offer of a large amount to "retire" the receivers appointed to CaTTO; undertakings to deposit the purchase price for the CaTTO share and the OAL shares into the Company's bank account; and an agreement to lend a specified sum to the Company. Those matters were obviously communicated to the meeting by someone who was there. Claude was there, and it seems to be accepted that Felicity was not. It seems to me there is a reasonable prospect, when all the evidence is in, that the Court will infer that the communications were made on Felicity's behalf by Claude.
88 When all the evidence is available, it is possible that the Court will find it insufficient to prove the pleaded agency. As senior counsel for Felicity contended, she was not entitled to attend the meeting and so someone had to communicate her offers, undertakings and agreement. Accordingly, while there was probably an agency for the limited purpose of communication, the more important question is whether there is a more general authority of the kind Denis alleges. If additional evidence is before the Court of the final hearing, for example evidence showing that Felicity was accustomed to delegate decision-making on her behalf to her husband, then the Court may be prepared to infer the pleaded agency.
89 It is premature at this stage to decide that Denis will be unable to prove the pleaded agency at the trial. There is a plausible possibility that he will succeed. In my view the amendments in paras 13B/28B and 13C should be allowed.
90 In para 32 Denis proposes to allege that the transfer by the Company of its share in CaTTO and its shares in OAL constituted an alienation of property with intent to defraud creditors, within the meaning of s 37A of the Conveyancing Act 1919 (NSW). That section provides as follows:
"37A(1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.
(2) This section does not affect the law of bankruptcy for the time being in force.
(3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors."
91 Senior counsel for Felicity submitted that the impeached conveyance can be declared void under this section only when a creditor sues (citing Brady v Stapleton (1952) 88 CLR 322, 333-4 per Dixon CJ and Fullagar J; Noakes v Harvy Holmes & Son (1979) 26 ALR 297, at 303-4 per Brennan J). Denis had not suggested that he sues in the capacity of creditor of the Company, and therefore, it was submitted, he has no standing to assert a claim under s 37A.
92 There is evidence indicating that Denis is a creditor of the Company in the amount of $64,451.10, pursuant to judgment entered in this Court on 5 March 2009 (Ex 5702-A/2). This exhibit was tendered to prove that Denis is a creditor of the Company, but not the amount of the debt. I accept that, though there may be countervailing orders against Denis, the tendered evidence is sufficient to establish reasonable grounds asserting that Denis is a creditor. On that basis, he has standing to sue. It seems to me that Denis' status as a creditor should be pleaded, but that I should grant leave to permit the pleading to be made.
93 It was also submitted on behalf of Felicity that even if Denis had standing, an order made under the section would not lead to re-conveyance of the property transferred by the Company, but instead Felicity as transferee would stand seised of the property to satisfy the claims of all creditors. There is authority that if an application under s 37A is successful, the conveyance is void only against creditors, and only to the extent necessary to satisfy the claims of all creditors, and for every other purpose it is good: Curtis v Price (1804) 12 Ves 89, 103 (33 ER 35, 40) per Sir William Grant MR. The conveyance therefore continues to bind the immediate parties to it: Noakes (supra) at 303-4.
94 I agree with those submissions. It seems to me that in consequence, there probably need to be some changes to the wording of the prayers for relief in paras 9-15. Paras 9 and 10, seeking declarations that the transfers by the Company of the CaTTO share and the OAL shares to Felicity were voidable transactions pursuant to s 37A, may remain, as may para 11, seeking a declaration that the transfers are voidable at the instance of Denis. However, the words proposed to be inserted at the beginning of para 12 ("In the alternative to 9, 10 and 11 above") appear to be nonsensical as a preface to a prayer for an order that the Company do all things necessary to avoid the transfers, as s 37A does not lead to that relief. It may be that what is needed is to remove those prefatory words to para 12, and insert another paragraph in the prayers to relief, seeking a declaration that the transfers are void as against all creditors of the Company to the extent necessary to satisfy their claims.
Amendments to introduce statutory derivative action
95 The proposed amendments make parallel allegations against Claude and Mr Sarks, first with respect to the Company's sale of the CaTTO share to Felicity, and then with respect to its sale of its OAL shares to Felicity.
96 The thrust of the allegations as to CaTTO is that Claude and Mr Sarks, who were directors of the Company, were aware at relevant times that the sale of the Company's share to Felicity was occurring at a significant undervalue, particulars of which are given as follows:
Claude and Mr Sarks were directors of CaTTO, and Claude owned 50% of the issued share capital of CaTTO;
for the purposes of the sale to Felicity, the Company's share in CaTTO was being valued on the basis of historical accounting values appearing in CaTTO's financial statements to June 2004;
CaTTO owned the Wynne Property, for which there were various specified valuations of up to $1.83 million, which was much higher than book value;
CaTTO took over a business associated with a tea tree plantation and distillery on the Wynne property in December 2004.
97 In the alternative, it is pleaded that at the time they caused the Company to dispose of the share to Felicity, Claude and Mr Sarks should have been aware that the sale was occurring at a significant undervalue.
98 The thrust of the allegations as to OAL is that Claude and Mr Sarks, who were directors of the Company, were aware at relevant times that the sale of the Company's share to Felicity was occurring at a significant undervalue, particulars of which are given as follows:
Claude was sole director of OAL;
OAL was owed some $9.9 million by ARF, together with interest accruing at the rate of 7.5% per annum from January 2003;
Mr Sarks was a director of ARF.
99 These pleadings lead to allegations that, in respect of both CaTTO and OAL, Claude and Mr Sarks contravened ss 181 and 182 of the Corporations Act.
100 In the alternative, it is pleaded that at the time they caused the Company to dispose of the share in CaTTO and the shares in OAL to Felicity, Claude and Mr Sarks should have been aware that the sales were occurring at a significant undervalue, and consequently they have each contravened s 180.
101 It is pleaded against Felicity (paras 46 as to CaTTO and 62 as to OAL) that she received the benefit of the breaches of fiduciary duty by Claude and Mr Sarks with knowledge of those breaches. The knowledge is particularised as follows:
(i) actual knowledge by virtue of Claude being her agent;
(ii) a wilful shutting of her eyes to the obvious;
(iii) knowledge of circumstances which would indicate the facts to an honest and reasonable person.
102 It seems to me that the reference to "actual knowledge", found in paras 46(i) and 62(i), will need to be amended to "imputed knowledge", having regard to the concession made by senior counsel for the Company and Denis in the derivative proceedings, and the consequent alteration to para 26A of the proposed amendments in those proceedings. Senior counsel for Felicity submitted that para (ii) is embarrassing and meaningless. It seems to me, however, reasonably clear in meaning, though further particulars seem to be needed as to the alleged factual basis, and should be supplied if reasonably requested. Similarly the circumstances referred to in para (iii) would seem to be amenable to further particularisation.
103 It is also pleaded, in relation both CaTTO and OAL, that Felicity was involved in Claude's breaches of s 181 and 182 by virtue of s 79(c) of the Corporations Act (paras 47 and 53). "Knowing concern" in a contravention for the purpose of s 79(c) requires actual knowledge: Yorke v Lucas (1985) 158 CLR 661. Since actual knowledge is not now to be alleged, in my opinion paras 47 and 53 should not be permitted.
104 For the purpose of supporting these pleadings, and the associated applications under s 237 of the Corporations Act for leave to bring the derivative claims and under UCPR 6.24 for leave to join Mr Sarks as a defendant, senior counsel for Denis submitted that the subpoenaed documents disclosed (amongst other things) the following matters for the first time:
(a) whereas Claude caused the Company to sell its share in CaTTO in late 2004 on the basis that it was not conducting any business at the time of the sale, in late March 2005 he caused CaTTO to submit a business plan to the Holiday Coast Credit Union in which it was asserted that CaTTO took control of the business associated with a tea tree plantation and distillery located on the Wynne property (owned by CaTTO) on the very day that the Company's board met to consider the sale of its share in CaTTO;
(b) Claude was personally responsible for CaTTO issuing invoices for the sale of in excess of $150,000 of tea tree related product shortly after his wife acquired the Company's shares in CaTTO;
(c) by 23 March 2005 at the latest, CaTTO was budgeting for a gross profit of $443,400 on sales of $1,034,200 for the period 1 January to 31 December 2005;
(d) by 23 March at the latest, CaTTO was budgeting for a gross profit of $602,500 on sales of $1,152,600 for the period 1 January 2006 to 31 December 2006;
(e) whereas Claude caused the Company to dispose of its half share in CaTTO to his wife in late 2004 for $60,423 on the basis that the Wynne property was worth $962,418 at the time of the sale, he subsequently caused CaTTO to make an application for finance in which it was asserted that the unimproved value of the Wynne property was $1.83 million prior to the date of the sale;
(f) whereas Mr Sarks caused the Company to sell all of the shares in its wholly-owned subsidiary OAL to his daughter Felicity for $71,450, at the date of the sale (when he was also a director of ARF), it was the fact that ARF owed OAL in excess of $9.9 million that was not accounted for in the sale price that his daughter paid.
105 Consequently, senior counsel for Denis submitted, the subpoenaed documents provide a basis to allege that the sale of the CaTTO and OAL shares to Felicity occurred in circumstances where Claude and Mr Sarks as directors of the Company were aware that:
(i) the sale of the CaTTO share occurred at an undervalue of at least $794,214; and
(ii) the sale of the OAL shares occurred in circumstances where the Company failed to attribute any value to OAL's ability to recover the debt of $9.9 million owed by ARF.
106 These submissions are supported by the affidavit evidence before me on the application, and by the documents to which the affidavits refer. I am persuaded that the evidence gives rise to a plausibly arguable case for the derivative claims.
107 As a member of the Company, Denis has standing under ss 237(1) and 236(1)(a)(i) to make an application for leave to bring the derivative claims. It is unnecessary in this case for me to give any general exposition of the requirements to be satisfied for the granting of leave under s 237, as explained in the case law. In their written submissions counsel for the parties referred to Chahwan v Euphoric Pty Ltd trading as Clay & Michel [2008] NSWCA 52, Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313, [2002] NSWSC 583, Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534, [2002] NSWSC 640, Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 and Fiduciary v Morningstar Research (2005) 53 ACSR 732, [2005] NSWSC 442. I would add the useful summary of the relevant principles contained in the judgment of Sackville AJ in the derivative leave proceedings referred to above: Denis Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976. Of course, there is now a large number of helpful first instance decisions on the meaning of the requirements.
108 I have reached the conclusion that the requirements of s 237(2) are satisfied in the present case. I shall first give my reasons for that conclusion, in terms of the five requirements of the subsection. I shall then address two issues of difficulty that have arisen in this case, relating to whether it is necessary for the Company to appear as plaintiff if leave is granted, and whether it is appropriate to join derivative and oppression claims in a single set of proceedings.
109 The question raised by s 237(2)(a), relevantly to the facts of this case, is whether it is probable that the company will not itself bring the proceedings. That requirement is satisfied here, because the contemplated claims are primarily directed against the interests of the individual who controls the Company through his majority shareholding and his place on the board, and against his wife and his co-director. That conclusion is consistent with Sackville AJ's finding in the derivative leave proceedings. There is evidence that the Company actively opposes the application for leave to bring derivative claims (namely, a letter from Claude's solicitor to Denis' solicitors dated 31 July 2009).
110 The question raised by s 237(2)(b) is whether the applicant is acting in good faith. In Swansson's case, Palmer J said (at 320[38], cited in Chahwan at [70]):
"Where the application is made by a current shareholder of the company who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the court's satisfaction."
111 Denis holds 10 shares out of a total of 120. If his claims are made out, the Company is likely either to recover shares that are very considerably more valuable than the value of the purchase prices paid in 2005, or else compensation of a very significant amount. Each of those outcomes would materially increase the value of his shares, a matter to which he deposes in his affidavit made on 14 August 2009.
112 I accept the submission made on behalf of Denis that if leave were not granted, he would be likely to suffer a "real and substantive injury" (see Chahwan, at [74] and [76]). The injury would arise because he would be deprived of the opportunity of pursuing derivative claims for which, in my view, there are reasonable grounds in the evidence currently before the Court. True it is that in the absence of leave, he would be able to continue with his statutory oppression case, which (if successful) might address his injury in another way. However, it seems to me that the matters Denis wishes to complain about, in light of the subpoenaed material, are primarily about alleged wrongdoing by the directors of the Company in breach of their fiduciary and statutory duties, together with the consequent advantage obtained by Felicity, and if the case is established a natural remedy would be compensation orders against each director and Felicity. Denial of the application for leave may well prevent Denis from having access to that form of relief.
113 There is no evidence before the Court that Denis, in seeking to bring the derivative claims, is motivated by any subjective improper purpose. On the contrary, it seems on the evidence that the amendments that would introduce derivative claims are the product of his lawyers obtaining additional information from the subpoenaed material. The subpoenaed material gives additional dimensions to Denis' case in relation to transactions that he was already challenging in the oppression proceedings, namely the transfers of the CaTTO share and the OAL shares by the company to Felicity. This is a case where the applicant is adding to the evidentiary case for impugning transactions already identified, rather than setting out in an entirely new direction. In summary, the circumstances giving rise to the application for a leave to bring derivative claims, by way of amendment to existing proceedings in which the relevant transactions are already under challenge, tends to militate against any conclusion that the applicant is acting in bad faith in seeking the amendment.
114 Under s 237(2)(c), the question to be addressed is whether it is in the best interests of the company for the applicant to be granted leave. It seems to me that this criterion is satisfied in the present case. The derivative action will be of practical benefit to the Company, particularly as it seeks, inter alia, the recovery of compensation from the directors and Felicity. The evidence indicates that the Company is not carrying on any business that would be affected by the litigation, a matter treated as significant in Swansson (at [59]).
115 As mentioned above, Sackville AJ required an undertaking on the part of Denis to indemnify the Company in respect of all costs, charges and expenses of and incidental to the bringing and continuation of the derivative proceedings, except so far as the Court might in future otherwise direct or allow. Subsequently Denis' wife gave an equivalent undertaking (Ex 4647-A/1), and then in the hearing before Barrett J on 29 May 2009, Catherine, John and Patrick jointly and severally undertook to indemnify the Company in the derivative proceedings in approximately similar terms (Ex 4647-A/2).
116 It seems to me that the Court should require similar undertakings as a condition of granting leave to Denis under s 237 to bring the derivative claims that are the subject of the present application. That will provide some assurance that the Company's interests will be protected upon the bringing of the derivative claims on its behalf. That is, the Court should require that Denis, his wife Margaret, Catherine, John and Patrick jointly and severally undertake to the Court to pay and bear and indemnify the Company against all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims in paras 33-62 and claims for relief para 16 of the draft amended statement of claim which is Annexure D to the affidavit of Kathryn Rose dated 22 July 2009.
117 As I understand their position, Denis and his wife would not object to giving such undertakings. Catherine, John and Patrick made such undertakings to Barrett J on 29 May 2009 for the purposes of the derivative proceedings. They also gave some undertakings for the purposes of the oppression proceedings at that time, but of course the proposal to extend to the oppression proceedings so as to make derivative claims did not arise until later. Not surprisingly, therefore, the undertakings of Catherine, John and Patrick given to Barrett J are no longer sufficient. They need to be supplemented by an undertaking to indemnify, in the terms mentioned above. Since, however, they have given such an undertaking in the derivative proceedings, I take it there will be no difficulty in doing so again for the purposes of the derivative claims in the oppression proceedings.
118 As to s 237(2)(d), I am satisfied that there is a serious question to be tried as to the allegations proposed to be made against Claude, Mr Sarks and Felicity. The threshold to be surmounted is the same relatively low threshold as in the case of an application for an interlocutory injunction: Swansson, at 318; Maher at [19]. Much of the evidence currently before the Court to support the application for leave is documentary evidence about which there does not seem at present to be much scope for controversy (such as the deed of July 2005 between OAL and ARF and the various financial statements of CaTTO and OAL). There will undoubtedly be further evidence at the trial, going to such matters as the state of knowledge of the directors and Felicity and the question whether Claude was relevantly Felicity's agent, but it seems to me that major factual components of Denis' case will arise out of the documents: e.g., the book value of net assets, the method of calculation of the purchase price, and the directors' failure to take into account the tea tree business and the ARF loan. On the evidence currently before the Court, my view is that the threshold set by s 237(2)(d) is very comfortably crossed.
119 The requirement of s 237(2)(e)(i) of written notice to the Company has been satisfied by the letter of McCabe Terrill to Oliveri Lawyers dated 4 August 2009, copied to Peter Condon & Associates under cover of a letter bearing the same date. McCabe Terrill's letter said that the plaintiff thereby gave notice to the Company of his intention to apply for leave under s 237, on the basis there set out.
120 I mentioned earlier that there were two matters requiring special attention in the present case. The first is that the amendments to introduce the derivative claims are proposed in proceedings in which the company is the first defendant rather than plaintiff. Section 236(2) says that proceedings brought on behalf of a company must be brought in the company's name. But s 236(1) applies not only to a case where a person wishes to bring proceedings on behalf of a company, but also where the person wishes to intervene in proceedings in 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. Here Denis does not seek leave to bring proceedings on behalf of the Company, because the oppression proceedings are already under way. Being already the plaintiff in the oppression proceedings, in which the Company is a party, he seeks to make a further intervention for the purpose of taking responsibility on behalf of the Company for certain particular steps, namely those concerning bringing and prosecuting the derivative claims. Since this is not a case where leave is sought to bring proceedings on behalf of the company, s 236(2) does not apply to require the Company to become a plaintiff.
121 My conclusion on this point is supported by authority. In Metyor v Queensland Electronic Switching Pty Ltd (2002) 42 ACSR 398; [2002] QCA 269, McPherson JA (with whom Williams JA and Wilson J agreed) said (at [15]):
"Joining the company as defendant was always the procedure adopted in actions for fraud on the minority under the general law, and its use was recently sanctioned by Santow J in granting leave under s 237 of the Act in Keyrate Pty Ltd v Hamarc Pty Ltd (2001) 38 ACSR 396 at 398-400. As his Honour there pointed out, it has the advantage previously noticed of producing a judgment that is binding on the company. I would respectfully adopt his Honour's reasoning, and, if the plaintiffs are otherwise entitled to succeed on this application, they should be at liberty to take proceedings on behalf of JV Co by joining it as co-defendant in the action rather than as co-plaintiff. The practice, as Mr Bathurst QC suggested in his submissions for the plaintiffs, is analogous to the procedure by which a beneficiary may bring proceedings in his own name for administration of a trust upon his joining the trustee as a party to proceedings: see Ramage v Waclaw (1988) 12 NSWLR 84 at 91, where the principles are discussed. There is no reason why it should not apply to proceedings under ss 236 and 237 of the Act, which are not in terms confined to authorising proceedings to be brought on behalf of the company as plaintiff. Indeed s 236(1)(a) enables a person to 'intervene' in proceedings on behalf of a company, which is an expression that is capable of referring to an appearance on either side of the record."
122 If it were necessary for the Company to be plaintiff, to the extent that the amended proceedings would make derivative claims, the result would be absurd. The same entity would, as plaintiff, be under the effective control of the minority shareholder for the purpose of prosecuting derivative claims, and under the effective control of the majority shareholder for the purpose of dealing with the oppression claims. At the very least, that would lead to complexity in the hearing of the case and in making appropriate costs orders. Further, opposing solicitors would be required to act for the Company in its respective capacities, and if the oppression proceedings are successful, the Court might be required to make orders against one plaintiff for the benefit of the other. If conversely, the Company is allowed to remain as first defendant, it can be treated for practical purposes as only a nominal party, the real protagonists being the plaintiff who asserts personal claims for relief under the statutory oppression ground, and derivative claims for relief that will go for the benefit of the Company; and his real opponents will be clearly identified as the second and subsequent defendants, against whom substantive relief is sought both on the oppression and the derivative grounds.
123 That leads me to the other matter of contention in the submissions of the parties. The defendants claim that derivative proceedings under Part 2F.1A cannot be brought in the same proceedings as claims under Part 2F.1 (oppression etc). In my opinion, there is no absolute bar to combining derivative and oppression claims in the same proceedings. The issue is to be assessed as a matter of practicalities, having regard (in this jurisdiction) to the overall requirement in s 56(1) of the Civil Procedure Act, which is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. The essential complaint raised by Denis is that Claude and Mr Sarks, as directors of the Company, have allowed the Company's valuable property to be transferred away at a gross undervalue to a person who is the wife of one of them at the daughter of the other. That complaint has been expressed legally in two causes of action. One is a minority shareholder claim to the effect that the directors have acted on behalf of the Company in a manner that is contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to, and unfairly discriminatory against, Denis as a member of the Company. The other will be a derivative claim in which Denis, by leave, asserts the Company's right to complain that the transfers of its property were made by the directors in breach of their duties to it. But the factual subject matter of the causes of action is essentially the same, and so it is appropriate under s 56(1) to allow the two causes of action to be brought in a single set of proceedings.
124 The authorities indicate that it is possible to bring derivative and oppression claims together in the same proceedings, and appropriate to do so if that is the best practical way to resolve the real dispute between the parties: see Keyrate Pty Ltd v Hamarc Pty Ltd (2001) 38 ACSR 396, [2001] NSWSC 491, at [16]-[19]; Lakshman v Law Image [2002] NSWSC 888; Metyor v Queensland Electronic Switching, above; Ehsman v Nutectime (2006) 56 ACSR 705, [2006] NSWSC 887, at [26]-[27]; Matyear v Prismex Technologies Pty Ltd [2008] NSWSC 677. I am satisfied that combining the oppression and derivative claims concerning the transfer of the CaTTO and OAL shares will be the most effective way of addressing the real dispute within the Cassegrain family concerning those transactions.
125 In the result, I am persuaded that Denis has made out his case for leave under s 237 to bring the derivative claims against Claude, Mr Sarks and Felicity set out in paras 33-62 of the draft amended statement of claim (subject to some amendments discussed elsewhere in these reasons for judgment) and to seek the relief in para 16 of the prayers for relief. It is a consequence of this conclusion, and the grounds upon which I have reached it, that leave should be granted to add Mr Sarks as a defendant, under UCPR 6.24.
Conclusion as to application made in oppression proceedings
126 I have decided to make orders granting leave to amend, leave under s 237, and leave to join Mr Sarks as a defendant. There will have to be some amendments to the draft amended statement of claim to reflect these reasons for judgment, before the orders can be made. It will also be necessary for Catherine, John and Patrick to give the undertakings to the Court that I have described, and for the sake of clarity it would be useful if Denis and his wife could restate the undertakings they will offer for the purpose of procuring the orders. I will therefore stand the application over for a short time, so as to give Denis as plaintiff/applicant the opportunity to prepare draft short minutes of order and to procure the proposed undertakings from the non-parties.
127 As with the application for leave to amend in the derivative proceedings, my view is that the appropriate order for the costs of this application is as follows:
"Order that:
(a) the plaintiff pay the defendants' costs thrown away by reason of the amendment; and
(b) subject thereto, the costs of the application be costs in the cause."
128 This is because, while Denis has had substantial success on the application, part of the resistance to it seems to have been because of concern about the irrelevancy of the pleading asserting a partnership between Catherine and Felicity, and about the assertion in the derivative claims that Felicity had "actual knowledge", both of which have (as I understand the position) been withdrawn at the hearing.
Mediation and case management
129 Senior counsel for Claude submitted that the Court should forthwith order mediation in both proceedings, and pointed out that Denis, Catherine, John and Patrick have undertaken to submit to orders for mediation. Senior counsel for the Company and Denis did not oppose an order for mediation, but submitted that it would be most likely to be effective if the mediation occurred after the evidence of the parties had been served. In my judgment, the latter submission is probably correct. Therefore I will not order mediation at this stage, though no doubt the issue will be revisited in the course of case management of these disputes.
130 There is still quite a bit to be done before the two proceedings are ready for trial, and in all probability further issues will arise during the course of preparation. I think it is important that these matters be kept under a measure of judicial scrutiny to ensure that the proceedings make adequate progress and interlocutory issues are identified and addressed efficiently. I will therefore stand both proceedings into the Corporations List for directions in a few weeks time. I think they should travel together, at least for the time being.