Harding Investments Pty Ltd v PMP Shareholdings Pty Ltd

REASONS FOR JUDGMENT 1 The first applicant, Harding Investments Pty Ltd (as trustee of the S & H Harding Family Trust) (Harding Investments), is one of three shareholders in Lotic Pty Ltd (Lotic). The second applicant, Steven John Harding (Mr Harding) was an employee and director of Lotic. 2 The proceedings were commenced by the applicants on 8 September 2010 in the Fast Track List. There were three classes of claims: 1. a minority shareholders action commenced by Harding Investments against the other two shareholders in Lotic, the first and third respondents; 2. alternatively to (1), an action against Lotic (the fifth respondent at the time) for specific performance of a Shareholders Agreement dated 27 February 2006; 3. alternatively to (1), an application under s 233(1) of the Corporations Act 2001 (Cth) (the Act) seeking leave for Harding Investments to institute proceedings in its own name and on behalf of Lotic against the second and fourth respondents, Mr Donald Stewart Gordon and Mr Paul Robert Dick - the directors of Lotic. 3 On 27 October 2010, the parties attended mediation. It was unsuccessful. On 8 November 2010, Lotic was placed into administration. 4 The procedural history of this matter, since the mediation, includes: 1. On 15 November 2010, the applicants issued a notice of motion seeking to remove Lotic from administration. The notice of motion was part-heard on 22 November 2010 and adjourned for settlement discussions to take place; 2. On 1 December 2010, the matter returned to Court. The applicants' Counsel informed the Court that the parties believed that the matter was settled. However, a settlement did not eventuate and the proceedings were removed from the Fast Track List; 3. On 16 December 2010, the parties consented to the proceedings against Lotic (the fifth respondent at the time) being dismissed with no order as to costs and to orders for the conduct of the proceeding in respect of the remaining parties; 4. On 2 February 2011, leave was granted for the applicants to amend their Statement of Facts, Issues and Contentions and further directions were made to prepare the substantive hearing for trial in May 2011. The parties estimate that the trial will last approximately two and a half to three days; 5. On 3 February 2011, the applicants filed an Amended Statement of Facts, Issues and Contention that, inter alia, sought to continue the minority shareholder action and sought relief under the Act that: 1. the first and third respondents purchase the shares held in Lotic from Harding Investments; or 2. Harding Investments purchase the shares held in Lotic by the first and third respondents. 5 By notice of motion filed 22 February 2011, the respondents sought security for the costs of the proceeding in the amount of $100,000 and an order that if security is not provided, the proceeding be stayed. The respondents further sought to have the proceedings dismissed under O 28 r 5 of the Federal Court Rules 1979 (Cth) if the security is not provided within 30 days of 1 March 2011. That application is opposed by the applicants. 6 The respondents allege that Harding Investments has insufficient assets to meet a costs order. In relation to the net assets of Harding Investments, the respondents state: 1. searches of the Victorian Land Titles Register did not disclose any property registered in the name of Harding Investments; 2. so far as the respondents are aware, the only asset owned by Harding Investments is its shareholding in Lotic and the respondents allege that does not have any present value; and 3. Harding Investments has an outstanding shareholder's loan account balance in Lotic's accounts of approximately $380,000. 7 In relation to the financial position of Mr Harding, the respondents submit there were several entries in the New South Wales and Victorian Land Titles Register under the name of Steven John Harding and two appear to be interests held by Mr Harding. However, each entry is encumbered by at least one mortgage. 8 Finally, the respondents allege that Harding Investments is not suing for its own benefit but for the benefit of Mr Harding. 9 As previously mentioned, the applicants oppose the application on three grounds. First, that the application for security is too late. Next, when taken in conjunction with other demands by the respondents and by Lotic (which is under the control of the respondents) and the timing of those demands, the application should be viewed either as a deliberate attempt to avoid the trial proceeding as scheduled, or to interfere with the applicants' preparation for the trial and, finally, the amount sought does not reflect the likely costs of a three day trial.