Leave to commence derivative proceedings
33The claim which Mrs Pottie now wishes to bring on behalf of Vicad is for the relief set out in paragraphs 1.1 to 1.11 of the Amended Interlocutory Process - being a claim for mesne profits against the Dunkley defendants, in respect of their separate use and occupation, since 16 March 2007 and 28 October 2008 respectively, of Vicad's land; an enquiry into damages suffered as a result of the alleged contravention by them of ss 180(1), 181(1) and 182(2) the Corporations Act by their conduct, whilst acting as a director of the company, in occupying or using the company's land otherwise than at a fair commercial rental or fee or any rental or fee; or, alternatively, the taking of an account of profits as a result of the said contravention; orders to determine compensation for breach of fiduciary duty of the Dunkley defendants and an account of profits as a result of the alleged breaches of fiduciary duty; and orders pursuant s 1324 of the Corporations Act that each be restrained from using or occupying the company's land without payment of a fair commercial rental fee and pay damages and interest for their respective use and occupation of the land.
34Not involved in the s 237 application are the allegations in relation to the purported loan debt and purported debt transfer, namely that Mr John Dunkley committed breaches of statutory and fiduciary duty in relation to those matters. (It is said by Counsel for Mrs Pottie (Mr Smallbone) that these were accounting entries which either are nullities or can otherwise be reversed or taken into account upon a winding up or determination by the court of fair value under a compulsory purchase order.) Nor are the allegations of breaches of duty, or misuse of position in relation to the control of the company, matters on which leave under s 237 is sought. (Mr Smallbone indicated that this was because it did not seem necessary for the company to seek monetary relief in respect of those matters.)
35The criteria to be considered upon an application for leave to commence a derivative suit, as set out in s 237(2), are as follows:
(i) the probability that the company will not itself bring the proceedings or properly take responsibility for them;
(ii) whether the applicant is acting in good faith;
(iii) whether it is in the best interest of the company that the applicant be granted leave;
(iv) whether there is a serious question to be tried by the court; and
(v) whether either the requisite written notice was given (at least 14 days before the making of the application to the court) by the applicant to the company of the intention to apply to the court for leave and of the reasons for so applying or it is appropriate for the court to grant leave even though notice was not given to the company.
36Each of these five criteria must be satisfied ( Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 at 541; 20 ACLC 1502) but, relevantly, if all five criteria are satisfied, then the court is bound to grant the application, there being no discretion in that regard ( Fiduciary Ltd v Morning Star Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 at 735; 23 ACLC 1100). This last point is significant here, in answer to the submissions made for the Dunkley defendants based on discretionary matters such as laches. I consider each criterion in turn.
(i) s 237(2)(a) - probability that the company will not itself bring the proceedings or properly take responsibility for them
37It is submitted by Mr Smallbone that this criterion is satisfied whether or not the respective appointments of the Dunkley defendants as directors were valid. As noted, on Mrs Pottie's case there are no directors so that the company could not presently bring proceedings by itself. However, even if validly appointed, it is said that the directors who would be capable of bringing the proceedings will not be likely to sue themselves. Common sense suggests that that is the case (as does the resistance by the Dunkley defendants to the present application).
38In paragraph 125 of their Defence, the Dunkley defendants have, however, denied the allegation that it is probable that the company will not bring proceedings against them (a denial that Mr Smallbone submits is vexatious).
39I am satisfied that it is probable that the company, which is under the control of the Dunkley defendants, will not cause proceedings to be instituted against its two (acting or otherwise) directors. The Dunkley defendants would clearly have some difficulty in giving instructions in that regard, since they have already verified a defence that denies the substance of the allegations on which the proposed claims for breach of fiduciary duty or statutory obligations are founded. Therefore, it is difficult to see a basis on which they could see themselves as properly able to cause the company to commence proceedings in which such allegations would have to be made (and verified) by them on the company's behalf to the contrary of those already verified by them in their personal capacity.
40The first criterion is therefore satisfied.
(ii) s 237(2)(b) - good faith
41In Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, Palmer J said:
... there are at least two interrelated factors to which the court will always have regard in determining whether the good faith requirement of s 237(b) is satisfied. The first is whether the applicant honestly believes that a 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 proceedings for such a collateral purposes as would amount to an abuse of process.
42In Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661; 245 ALR 780), the Court of Appeal indicated that the court will have regard at least to those matters but the enquiry concerning the applicant's good faith is not limited to those two matters.
43In Swansson it was further said (at 320-21) that it will be relatively easy for the applicant to demonstrate good faith where the applicant is a current shareholder of the company (as is Mrs Pottie) who has more than a token shareholding (as does Mrs Pottie) and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased (as would seem to be the result if the company were to recover substantial sums by way of damages or an account of profits). This is the case even where the applicant is motivated by malice or animosity towards the defendant. His Honour said (at 41):
to take another example: a derivative action sought to be instituted by a current shareholder for the purpose of restoring value to his or her shares in the company would not be an abuse of process even if the applicant is spurred on by intense personal animosity, even malice, against the defendant: it is not the law that only a plaintiff who feels goodwill towards a defendant is entitled to sue: see e.g. Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 at 521-2; IOC Australia Pty Ltd v Mobile Oil Australia Ltd (1975) 2 ACLR 122 at 131. On the other hand, an action sought to be instituted by a former shareholder with a history of grievances against the current majority of shareholders or the current board may be easier to characterise as broad for the purpose of satisfying nothing more than the applicant's private vendetta. An applicant with such purpose would not be acting in good faith.
44Insofar as the derivative suit propounded in this case may, if successful, result in the recoupment by the company of profits currently unavailable to it in relation to the use and occupation of company land (which would presumably result in increased value in Mrs Pottie's minority shareholding even if that increase in value was not measured directly by the increase in funds available to the company) this criterion would therefore be one that, on his Honour's reasoning, would be relatively easy to satisfy.
45Mr Smallbone submits that there is no reason to doubt Mrs Pottie's genuine belief in the company's claim, since she has already commenced proceedings; she has verified the Statement of Claim; and she has led evidence in support of the Statement of Claim. Mr Smallbone points to the admissions made in the Defence by the Dunkley defendants as to the use and occupation of the lands in question and contends that it is only a question of debate as to what legal consequences or conclusions should be drawn therefrom. It is noted that there is no plea of a collateral purpose and (by reference to Swansson ) that there would not be an abuse of process even if there were a degree of an animosity between the parties.
46The two factors seen as relevant (though not exhaustive) to the consideration of the good faith requirement in s 237(2), as identified in Swansson , were applied by Barrett J in Goozee . There, his Honour held that the applicants were acting for a collateral purpose in that they were seeking to bring the derivative action to force the directors to pay dividends or else to force the directors to arrange for the applicants' shares to be purchased. The application for leave to bring a derivative action was denied. Here, there is no evidence from which I would conclude that this is an attempt to force the payment of dividends to Ms Pottie (though if there were profits available in the company out of which dividends could be declared it may well be that she would have an expectation of some payment or dividend). Rather, the good faith issue (though not pleaded as a collateral purpose) seems to be the suggestion that Mrs Pottie is seeking to force a winding up of the company in order to better her position under her parents' respective wills, or else that, because the relief sought in the derivative suit overlaps with that claimed in her own right, the derivative proceeding is unnecessary and must therefore be for a collateral purpose.
47In Power v Ekstein [2010] NSWSC 137, Austin J considered an application for leave to bring a derivative claim as part of an expanded pleading, a central component of which was an allegation of breach of duties affecting the value of the plaintiff's shareholding in the company and causing her loss and damage and that the persons acting as directors had conducted the affairs of the companies and acted in a manner oppressive and unfairly prejudicial to the plaintiff and unfairly discriminatory against her. His Honour accepted that there were some suggestions in the evidence that the plaintiff might be conducting a vendetta but he was satisfied ultimately that the plaintiff was seeking to restore value to the companies by maintaining the derivative claims (with the ultimate objective of establishing that the distribution to her was insufficient to satisfy her entitlement as a beneficiary of the trust and 50% residuary shareholder in stepfather's estate and obtaining additional recovery through compulsory sale of her shares). His Honour said:
The respondents submit that an applicant who at the same time seeks leave to bring proceedings on behalf of a company and seeks orders for the winding up of the company cannot be acting for a proper purpose in good faith. I disagree with that submission. Bringing simultaneous proceedings to assert derivative claims and to wind the company up may or may not be indicative of bad faith and abuse of process, depending on the circumstances. ... On the plaintiff's case, acting in breach of their duties as persons purporting to be directors forms part of the oppressive conduct of which she complains. A possible outcome of her claims would be that one or more of the companies would establish breach of duty ... and obtain orders for compensation against them, and also grounds for relief under the oppression provisions. The result could be that the value of the companies would be increased by recovery against the directors and then some remedies would be granted for oppression, such as the buyout of the plaintiff's shares at a proper valuation or even the winding up of the companies as enhanced by the success of the derivative claims.
The respondents also submit that if the plaintiff is successful in her claim that the scheme of distribution fails to take into account the true value of some of the property of the trust and the estate, and was therefore implemented in breach of trust, she will have a remedy on that ground and she would not require relief in the derivative claims as well. It seems to me that some of the plaintiff's complaints could be met in either of two alternative ways: by finding breaches of duty and directing that the company be compensated, hence increasing the value of the company, or by valuing the company as if it had recovered from breach of duty without going through the derivative process. But I am not sure that all of the claims can be analysed in this dual fashion and moreover, it seems to be wise to allow the alternative forms of the claim to go forward to trial so that the trial judge can select the remedial course best reflecting the court's findings of fact on a final basis. (my emphasis)
48I also note that in Power v Ekstein it had been submitted before Austin J that as the plaintiff there had no entitlement to control or benefit from the companies or any right to vote at meetings she could not point to any substantive prejudice to her or to the companies as a whole in any of the transactions of which she complained (a submission seemingly not dissimilar from the proposition put by Mr Aldridge that the derivative suit here would be of no ultimate benefit to Mrs Pottie or no benefit that could not otherwise be obtained via the oppression suit she has instituted). His Honour considered that such a submission overlooked the fact that, in those companies with "A" and "B" class shares, the "B" class shareholders not only had dividend rights but also the right (after repayment of the nominal value of the "A class shares) to a rateable distribution of any surplus on a winding up. Similarly, here, Mrs Pottie holds one-third of the ordinary shares of the company, which carry the right to dividends and surplus on winding up (albeit not voting control).
49In Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763, in Federal Court, Gilmour J noted that in Chahwan , Tobias at [81] stated that whether or not a person was acting in good faith extends beyond conduct constituting an abuse of process and that where an applicant is in reality seeking to further his or her own personal interests, other than as a current or former shareholder of the company, rather than the interests of the company as a whole, the onus of establishing good faith would not be discharged (my emphasis). (I emphasise this portion of his Honour's reasoning as it reflects that the existence of a personal motivation in the outcome of the derivative suit will not be decisive against the existence of good faith in circumstances where the applicant is a former or current shareholder - and hence where the personal benefit arises from an outcome which is favourable to the company itself.) His Honour noted that it did not matter that the applicant's conduct would not amount to an abuse of process in the strict sense. Gilmour J said:
Abuse of process in the context of an application such as this involves for example using the derivative proceedings, not in order to prosecute them to a conclusion, but as a means to obtain some advantage for which they were not designed, or some collateral advantage beyond what the law offers: Williams v Spautz (1992) 174 CLR 509 at 526-527 per Mason CJ, Dawson, Toohey and McHugh JJ. (At 67 to 68)
50In Vinciguerra, the defendant said that such an abuse of purpose or collateral purpose was present in the application on the basis that the purpose of the plaintiff was to destroy the defendant and remove it as a competitor of his interests. Ultimately, his Honour held that the plaintiff had 30% of the defendant's ordinary shares for a significant period and that if the proposed derivative proceedings were pursued successfully would recover funds that were improperly disbursed such that its assets would be increased and the value of its shareholding would be increased and accepted that in those circumstance it was a relatively easy task to demonstrate good faith to the court's satisfaction.
51Mr Aldridge pointed out that part of the claim made by Mrs Pottie in the substantive proceedings is a lack of capacity or undue influence in relation to the transfer of the "A" class shares from Mrs Dunkley to Mr John Dunkley, which, if sustained, would leave Mrs Dunkley owning one share and entitled to the remaining share under her late husband's will. It is said that a claim for the winding up of the company (on the basis that there are no directors and no possibility of appointing valid directors) would not be reasonable in circumstances where the company is a going concern and that it would be possible (though no such application has yet been made) for an application to be made for a manager to be appointed to have control of Mrs Dunkley's affairs. That, however, seems to me to go to the question whether a winding up order should be made by reference to matters not the subject of the proposed derivative suit and which would more appropriately fall to be determined at the end of a concluded hearing of the matter.
52Secondly, it is said by Mr Aldridge that the derivative action is unnecessary insofar as the complaints as to the use of the company's land without the payment of compensation or rent form the basis both for that action and for the shareholder oppression suit. Mr Aldridge submits that if Mrs Pottie succeeds in her oppression claims and obtains what would be regarded as the traditional remedy, namely a compulsory share purchase order, any such order would be valued as if there were no oppressive conduct and therefore Mrs Pottie's shares would be valued as if the appropriate rent had been paid.
53In this regard, Mr Aldridge noted that in Vadori v AAV Plumbing [2010] NSWSC 274; (2010) 77 ACSR 616 (where the application for leave to bring the derivative proceedings was heard as part of a final hearing in which an oppression claim was also raised) I had formed the view that if (as there occurred) a compulsory purchase order were to be granted then it could not be suggested that it would be in the best interests of the remaining shareholders for derivative proceedings to be commenced in light of the likely cost of the proceeding. On that basis not all of the requisite criteria for leave to bring a derivative suit were satisfied in Vadori . However, there, the decision as to the appropriate relief was able to be made after an analysis of the alternative claims in light of the evidence at the hearing.
54Mr Smallbone submits that the rights and remedies on an oppression suit are not the same as the rights and remedies on a claim for breach of fiduciary duty and that discretionary considerations may be absent or different depending on which of the causes of action is before the court. He submits that the causes of action are not identical. (He did not, however, resist the suggestion by Mr Aldridge that if leave to bring a derivative suit were to be granted then the respective claims ought to be dealt with together and he accepted that this would be an appropriate condition to be imposed on any grant of leave).
55Here, I am not satisfied (and to his credit Mr Aldridge did not suggest otherwise), that the claims for relief in the oppression suit already on foot mirror completely the claims for relief in respect of the alleged breach of fiduciary or statutory duty in relation to the use of the relevant land and, to the extent that there may be alternative remedies available, it seems to me that the conclusion reached by Austin J in Power v Ekstein is equally applicable in the present case - namely that the alternative forms of the claim should go forward to trial so that the trial judge can in due course determine the remedial course best reflecting the court's findings of fact on a final basis. (In that regard, I am firmly of the view that if leave to commence derivative proceedings is granted, it should be subject to a direction that the suit be prosecuted under the umbrella of the current proceedings so as not to involve a duplication of costs at the expense of the respective parties.)
56Apart from the element of duplication or overlap between the relief sought in the two sets of claims, when considering the good faith requirement Mr Aldridge placed emphasis on the motivation underlying Mrs Pottie's claim. His submission is that Mrs Pottie's claim is really a succession issue 'dressed up' as a company case (since, whatever may be the case in relation to the transfer of the A class shares to Mr John Dunkley, control of the company will pass to Mr John Dunkley eventually under the terms of his parents' wills). It is submitted that what Mrs Pottie is trying to do is to avoid Mr John Dunkley obtaining (or retaining) control of the company by seeking to wind up the company in advance of her mother's demise). Whatever happens, it is said the shares held by Mrs Pottie will always remain as non-voting shares. (That does not, however, not preclude Mrs Pottie bringing an oppression case, since her interests as a minority shareholder may be oppressed whether or not she has non-voting shares. Therefore, any suggestion that Mrs Pottie has sought to 'dress up' a succession claim in this fashion in order to have a basis for seeking relief is not one that I find persuasive.)
57Mr Aldridge says that the succession nature of the complaint is evidenced by the lack of any complaint by Mrs Pottie (while her father was still alive or after his death until the present proceedings) as to the management of the farm or the use of the land by Mr John Dunkley. (In that regard, one might well imagine a reluctance on Mrs Pottie's part to take issue with decisions made by her father in relation to the family farming operations but I do not see that this reflects on her bona fides in now raising such disputes with her brother after their father's death). As to the delay in commencement of these proceedings since her father's death, I do not see this as a matter reflecting adversely on Mrs Pottie's good faith in now asserting the claim. It may well be that, had the succession issues been differently resolved, Mrs Pottie would not have pursued her current proceedings. However, that does not mean that she now raises complaints in her capacity as minority shareholder otherwise than in good faith. Mr Smallbone submits, and I am inclined to agree, that the succession issue is a 'red herring'. It seems to me that it is open to Mrs Pottie, as a shareholder, to complain that the company's rights are not being observed and that benefits are being obtained by acting directors in breach of their fiduciary and statutory obligations, whether or not she may also have a complaint as to matters of succession.
58I am satisfied that in seeking leave to bring the claim for breach of fiduciary or statutory duty on behalf of the company, Mrs Pottie is acting in good faith (even though she may bear some personal animosity towards her brother and even though she may have commenced these proceedings due to dissatisfaction with the succession arrangements within the family), noting that as a current shareholder whose shares may increase in value as a result of the suit it is recognised that this is a relatively low threshold to meet. Therefore, the second criterion is satisfied.
(iii) s 237(2)(c) - best interests of the company
59It is for Mrs Pottie to establish that it is in the best interests of the company that she be granted leave to commence the proceedings. In Power v Ekstein , Austin J said:
Courts have drawn attention to the wording of s 237(c), according to which the court is to be satisfied, not that the proposed derivative action may be, appears to be, or is likely to be, in the best interests of the company but, rather, that it is in its best interests; and consequently the applicant must establish on the balance of probabilities a fact that can only be determined by taking into account all relevant circumstances: Swansson at [55]-[56], Chahwan at [85].
The relevant circumstances include whether the substance of the redress sought in the derivative proceedings is available by other means, such as litigation by the applicant in her own name: Swansson at [59]; Talisman Technologies Inc v Queensland Electronic Switching Pty Ltd [2001] QSC 324. It is also relevant for the court to consider whether the action would be of any practical benefit to the company or would be a fruitless exercise: Swansson at [60], [68].
...
the enquiry set by s 237(2)(c) is not confined to whether it is in the best interests of the company that the particular proceeding should be brought on its behalf; the enquiry extends whether it is in the best interests of the company that the proceedings should be brought on its behalf by the particular person who seeks leave. Section 237(1)(c) was held not to be satisfied in Transmetro Corporation Ltd v Kol Tov Pty Ltd (2009) 71 ACSR 582; [2009] NSWSC 350 because the proceedings for which leave was sought would seek to prove that a management agreement was terminated but the applicant was duty bound as a director of a relevant company to show that the management agreement was still in full force and effect. ... A further issue for the court to consider is whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risks of an adverse costs order.
60In determining whether an application is in the best interests of the company, again the fact that the applicant has a personal interest in the outcome of the application or has personal animus against other members of the company is not significant or decisive because it is recognised that this is common in types of disputes that lead to derivative actions ( Maher v Honeysett and Maher Electrical Contractors Pty Ltd [2005] NSWSC 859: Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705).
61It is said by Mr Smallbone that it is in the best interests of the company that leave be granted because the company has reasonable (indeed he submits strong) claims for misuse of position for private gain and for mesne profits. As to the particular person who should be permitted to bring such proceedings, he submits that it is inconceivable that such claims could sensibly be prosecuted by a company solicitor acting on the instructions of the Dunkley defendants (who are personally interested in the outcome of such a claim) and that there is no other person proposing to apply for leave (the only other person that might have an interest in so doing being the third ordinary class shareholder (Mrs Cooper), who has already consented to the grant of leave in favour of her sister).
62It is submitted that, in light of the admissions by the Dunkley defendants in their defence as to the income of the company for the years ended 2007-2009 (Defence at [146] - [148]) this means that they have been conducting farming and grazing enterprises on the company's land without paying rent for some time and it is likely (unless leave is granted) that such conduct will continue. It is said that it is plainly in the best interests of the company to commence the proceedings as there are valuable company assets not being used for the company's benefit. It appears that these are not insubstantial landholdings. If rent were to be achievable at the market rate as valued by the expert valuer whose evidence was relied upon by Mrs Pottie (Mitchell Staniforth) at some $36-$41 per acre, then I am told that the company would be able to earn some hundreds of thousands of dollars.
63Mr Smallbone further indicated that he had instructions to offer an undertaking of the kind that was encapsulated in the orders made in Power v Ekstein , namely an undertaking by Mrs Pottie to pay and bear and indemnify Vicad against all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims for which leave is granted (noting that if successful in the proceedings, Mrs Pottie on behalf of the company would no doubt seek costs orders against the defendants and reimbursement of those costs).
64I am satisfied that where there appears to be a cause of action that, if successful, may enable the company to recoup not insubstantial amounts (or, at the very least, enable it to put in place arrangements where in future a reasonable amount is paid for the right to use the company's land) and, where it is indemnified for the cost of the proceedings in the first instance, it is in the best interest of the company for leave to be granted and that Mrs Pottie is the appropriate person to whom leave should be granted.
(iv) s 237(2)(d) - Serious question to be tried
65Whether there is a serious question to be tried can be answered only by reference to an infringement of some legal or equitable right or the commission of some legal or equitable wrong ( Goozee at 542; Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90 at [40]; (2008) 65 ACSR 700; 254 LSJS 225). The applicant must provide the court with sufficient material to enable the court to make this determination ( Charlton v Baber [2003] NSWSC 745; (2003) 47 ACSR 31) but it has been said that there is a relatively low threshold to surmount, as in the case of an application for an interlocutory injunction ( Swansson ).
66In Vinciguerra, Gilmour J accepted the submission that, in approaching the 237(2)(d) criterion, the court must proceed, as explained in Ragless, by identifying the legal or equitable rights to be determined at trial in respect of which the final relief is sought. His Honour went on to say (and Mr Aldridge places some weight on this) that the application must be supported by evidence, a "mere indication of the evidence" without actual evidence being insufficient ( citing South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343; (2007) ACSR 447 at [81]) and that it is the plaintiff that bears the onus of providing sufficient material to enable the court to make this determination (citing Charlton v Baber at [55]).
67Mr Aldridge points out, as to the serious question to be tried, that the case for which Mrs Pottie requires leave is the claim for breach of fiduciary/statutory duty for use of company property without rent or appropriate shareholder agreement (leave is not required for her claim as to the validity of the appointment of the directors).
68It is well recognised that directors of a company owe to it not only the statutory duties prescribed in the Corporations Act (including the duties to act in good faith in the best interests of the company and the duty to act for a proper purpose, and the duty not to make improper use of the director's position, which duties are here said to have been breached) but also fundamental and distinct fiduciary obligations. In Chan v Zacharia [1984] HCA 36, at [24]; (1984) 154 CLR 178 those fiduciary duties, both of which are of strict application, were identified as the duty not to profit by reason of one's position as a fiduciary and the duty not to place oneself in a position of potential conflict (at [24]):
... The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the "use of fiduciary position" doctrine is but an illustration or part of a wider "conflict of interest and duty" doctrine (see, e.g., Phipps v. Boardman, at p l23; N.Z. Netherlands Society v. Kuys, at p 1229), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. (my emphasis).
69As recognised in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64, at [27]; (1984) 156 CLR 41), these principles have been described as "inflexible" ( Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, at 408) and "fundamental" ( Boardman v Phipps [1966] UKHL 2; (1967) 2 AC 46; [1966] 3 All ER 721, at 756). Furthermore, the duties may be breached independently of each other.
70It seems to me that there is sufficient evidence to establish a serious question to be tried as to whether, in assuming or continuing in occupation of the company's land for their private purposes (without any apparent payment to the company for the benefit of such use) at a time when they had assumed the role of directors of the company, one or both of the Dunkley defendants was in breach of his statutory obligations to the company (under ss 180, 181 or 182 of the Corporations Act ) or of one or both of the 'no conflict' and 'no profit' rules binding them as fiduciaries. Insofar as the "improper use" allegation is concerned, s 182 creates an objective standard of impropriety having regard to the standard of conduct that would be expected of a person in the position of the director and does not require a dishonest intention as such (see discussion in Austin & Black's, Annotations to the Corporations Act at [2D.182]).
71The question whether the company has suffered a loss by reason of such conduct is not an essential ingredient to the existence of a cause of action for breach of those obligations (in Gemstone Corp of Australia Ltd v Grasso (1994) 13 ACSR 695; 12 ACLC 653, for example, Olsson and Prior JJ confirmed that it was no defence to a claim for breach of fiduciary duty that the company had not suffered a loss).
72Similarly, insofar as Mr Aldridge argues that nothing is known as to whether there have been profits made from the farming activities carried out by the Dunkley defendants (so as to sustain a claim for an account of profits), this goes to the question of the appropriate remedy assuming that the alleged breaches are established. (So, for example, if there has been a breach of the no conflict rule, but no profits have been made, then equitable compensation may instead be the appropriate remedy if there has been loss caused to the company).
73Whether or not the Dunkley defendants were aware of the onerous obligations they were assuming when taking on the role as directors of acting directors of the company is irrelevant, as is also, in my view, the fact that the company may have been set up as a family company (for estate planning reasons or otherwise) and may not initially have been intended to derive profit by way of rental from the lands. It was not suggested (nor do I think it could have been) that the fiduciary or statutory duties owed by directors to a family company are generally any less onerous than those owed to a larger company (although the interests to which the directors ought properly to have regard in making decisions on behalf of the company might differ as between a family land-owning company and a larger commercial trading company).
74The late Mr Victor Dunkley and his wife, having chosen to adopt a corporate structure for their family farming operations, put in place a structure under which onerous obligations were imposed on those directors who took on the role of managing the company's affairs and, whether or not they understood the implications of so doing, the Dunkley defendants when acting as directors of the company are bound by those obligations.
75It may well be that, when any proceeding for breach of fiduciary or statutory duty in due course comes to be heard (assuming for present purposes that leave is granted), the Dunkley defendants will be able to point to arrangements in place within the company which permitted each to occupy and use the lands in the manner in which they have done (or be in a position, on the alternative oppression claim, to rely upon Mrs Pottie's acquiescence in a course of conduct over the years as something that now precludes her from arguing that her interests as a minority shareholder have been oppressed or that the affairs of the company have been managed in an unfairly prejudicial or oppressive way). However, that is a quite different issue to the question whether there is before me sufficient evidence to give rise to a serious question as to whether, as directors or acting directors, the Dunkley defendants have breached their clear (and well recognised to be onerous) statutory and fiduciary obligations to the company (including to act in the best interests of the company and its shareholders as a whole and not personally to take a benefit at the expense of the company).
76I note that Mr Aldridge made reference to items in the company's accounts (which disclosed loans for building and property improvements at the expense of Mr John Dunkley and a loan account in favour of Mr John Dunkley). I accept that it may well be that there was some other form of compensation by Mr John Dunkley for the use by him and his son of the farming lands (though the accounts of the company record contributions by him as loans to the company) but that is a matter for evidence in due course. On the face of the company's records there seems to have been no payment for the use by the (acting or otherwise) directors of the company lands.
77Mr Aldridge submitted that the fact that this was a family company (said to have been designed as a land holding company) in its historical emanation used for farming without payment of rent was a matter that permitted an inference that the intention of the family was for the company to hold the land and make it available to members of the family for farming, and that the operations have not changed even though the directors' identities have done. Thus it was submitted that the mere fact that no rent has been paid did not give rise to a prima facie case or serious question to be tried for breach of fiduciary duty.
78Mr Aldridge submits, in effect, that taking into account the nature of the historical arrangements for use of the farm, this is a vastly different case from that in which property acquired by a company for use in a business may have been used by a director for his or her personal gain at the expense of the company's business.
79Thus Mr Aldridge submitted that there was a real issue as to whether a serious question as to breach of duty had been established at all and said that what Mrs Pottie had failed adequately to address was the fact that rent had not, historically, been paid for the use and occupation of the farm properties. (A further complaint was that there was no suggestion as to what rent could realistically have been paid even assuming the land were to have been the subject of a sharecropping or sharefarming agreement of the kind one might expect in a farming enterprise run within a family - having regard to the existence of the severe drought over much of the period in question.)
80In summary, the family nature of company; its historical mode of operation; the lack of any earlier complaint by Mrs Pottie (other than as to succession issues) in relation to the management of the company; and the lack of any evidence as to whether the Dunkley defendants might realistically be able to pay the market rent as valued by Mr Staniforth, were all matters said to demonstrate the inadequacy of the evidence from which the court was being asked to find that there was a serious question to be tried as to breach of fiduciary duty.
81As to the ability to pay the rent (and, conversely, the likelihood that there would have been profits made out of the farm over the relevant years over which an account of profits might lie) Mr Aldridge submits that where, as here, this was a family holding and not a commercial business it is not sufficient for Mrs Pottie simply to say that there has been a use of the property by the directors or acting directors for personal purposes without payment of rent. Mr Aldridge places emphasis on the fact that there was no request (or evidence) as to the profits made by the Dunkley defendants out of the farm over the years. Hence it was said that Mrs Pottie had failed to discharge the onus of establishing, by sufficiently material evidence, that the nature of the historical arrangements was such that there would realistically have been profits made for which an account could be sought.
82In response, Mr Smallbone noted that there was evidence as to the quantum of loss claimed to have been suffered by the company (in the valuation report and that the defendants' valuer did not respond as to the reasonableness of the assessment of rental value). As to the historical intent of the parties, Mr Smallbone submits that it cannot be assumed that the purpose of the company was simply as a family land owning company and suggested that the corporate structure had been adopted initially to avoid death duties. (He referred to Mrs Pottie's affidavit evidence in which she deposed to an assumption that she was to be entitled to a third of the company.) The issue, Mr Smallbone submits, is not whether this is the business of the company but whether the director is pursuing his own business interests at the expense of the company.
83I am satisfied that the evidence does raise with sufficient particularity a serious issue to be tried as to whether the Dunkley defendants are in breach of their statutory or fiduciary duties in circumstances where they admit they have conducted private farming business on land owned by the company and the company accounts permit an inference that this was without the payment of compensation to the company. The test is one for which there is a relatively low threshold.
84Insofar as Mr Aldridge points to lack of evidence as to whether there were in fact profits made, the causes of action sought to be brought against the Dunkley defendants do not depend on the existence of such profits (nor do they depend on the ability of the company itself realistically to have recovered rent for the use of the land). (I accept that the remedy of account is a discretionary one and that an account may not be ordered where such an order would be futile - Mulherin v Quinn Villages Pty Limited [2007] QSC 231. However, those are matters that go to whether the relief sought by Mrs Pottie in the name of the company might ultimately be granted, not whether there is a serious question as to whether there is a legal or equitable right on the part of the company having regard to the conduct that has taken place.)
85I am satisfied that there has been established a serious question to be tried as to the claims of breach of fiduciary or statutory duty.
(v) s 237(2)(e) - notice of the application
86The provision of the requisite notice is admitted (Defence at [128]). This criterion has therefore been satisfied.