Isak Constructions v Faress [2005] NSWSC 679 | Case summary

1440/03 ISAK CONSTRUCTIONS & ANOR v FARESS & ORS JUDGMENT - Ex Tempore 1 HIS HONOUR: The proceedings in which this application is brought are an internal dispute about the ownership of shares in, and the management of, the plaintiff company ("the Company"). People who were once the shareholders in the Company have fallen out, and there is some uncertainty as a result of various steps taken by some of them, about exactly who the present shareholders and directors of the Company are. The present proceedings were ones which were brought to seek the Court's resolution of that practical problem. 2 On 27 August 2003 Barrett J heard and determined a notice of motion in these proceedings. His Honour granted to Mr Faress, who at one time had clearly been a director of the Company but whose status at the time of the application to Barrett J was a matter in dispute in the proceedings, leave under section 237 Corporations Act 2001 (Cth) to intervene in certain District Court proceedings on behalf of the Company. Those District Court proceedings, number 8748 of 2002, were ones which had been brought against the Company by someone who had done work for it, seeking payment. Mr Faress had handed the defence of those proceedings to a co-director, but had fallen out with the co-director, and found that a default judgment had been entered in the District Court proceedings. As well, Mr Faress had a personal liability under a guarantee for performance of a building contract which the Company then had on foot. Whether the Company owed the debt claimed in the District Court proceedings may have affected Mr Faress' personal liability under that guarantee. 3 It was in that context that Barrett J granted leave on 27 August 2003: Isak Constructions v Faress [2003] NSWSC 784. 4 The present application is one which Mr Faress brings by notice of motion filed on 14 June 2005 in the proceedings. In it, he seeks leave to withdraw as intervenor in the District Court proceedings, upon terms that he pay the costs as agreed or assessed of the plaintiff in those proceedings from the date of intervention to the present date. 5 The notice of motion has been served upon the first and second plaintiffs in the present proceedings. They are the Company, and the co-director of the Company with whom Mr Faress has fallen out. The third defendant in these proceedings, who is the brother of Mr Faress, has consented in writing to the present orders. The plaintiffs, though served, have not appeared. 6 As well, there has been oral evidence from the solicitor for the plaintiff in the District Court proceedings that his client consented to the orders which are sought, and the terms upon which they are sought. 7 Mr Faress no longer wishes to defend the District Court proceedings. He still regards the Company as not having any liability to the plaintiff in the District Court proceedings, but his desire to defend them has gone away because he has caused a building project which the Company was engaged in at the time Barrett J granted leave, to become completed to the satisfaction of the person for whom that building construction was being carried out, and has obtained a release of a personal guarantee which he gave in connection with that building construction. Power to Grant Leave to No Longer Exercise a Right to Intervene to Enforce Company Claims 8 The provisions of Part 2F.1A Corporations Act 2001 (Cth) are ones which replace the general law to bring or intervene in proceedings on behalf of a company: section 236 (3). Section 237 sets out a set of criteria by reference to which the Court decides whether to grant or withhold leave for a company to bring or intervene in proceedings on behalf of the company. The remaining provisions of Part 2F.1A do not say anything, in so many words, about the Court having a power to grant leave for someone to cease to exercise leave which has formerly been granted to them under section 237. However, there are two provisions in particular which bear upon the Court's power to make the order which is now sought. The first is section 240, which provides: " Leave to discontinue, compromise or settle proceedings brought, or intervened in, with leave Proceedings brought or intervened in with leave must not be discontinued, compromised or settled without the leave of the Court." 9 If I were to grant the present application, its practical effect will be that the District Court proceedings go no further - the granting of the leave sought is, in practical effect, the same as the District Court proceedings being settled, on terms whereby the applicant in the present proceedings pays the costs for the period of his intervention, and nothing stands in the way of the plaintiff in those proceedings obtaining a default judgment for the amount claimed and costs. When the order sought has the same practical effect as granting leave to settle the proceedings - an order the Court clearly has power to make - it would be surprising if the Court did not have power to make the present order. 10 As well, section 241 Corporations Act 2001 (Cth) provides: "(1) The Court may make any orders, and give any directions, that it considers appropriate in relation to proceedings brought or intervened in with leave, or an application for leave, including: (a) interim orders; and (b) directions about the conduct of the proceedings, including requiring mediation; (c) an order directing the company, or an officer of the company, to do or not to do any act; and (d) an order appointing an independent person to investigate, and report to the Court on: (i) the financial affairs of the company; or (ii) the facts or circumstances which gave rise to the cause of action the subject of the proceedings; or (iii) the costs incurred in the proceedings by the parties to the proceedings and the person granted leave." 11 While none of the specific heads of power contained in paragraphs (a) to (d) apply in the present case, the power contained in the opening words of section 241(1) is very wide. It is wide enough to enable the order the applicant seeks in this application to be one which this Court has jurisdiction to make. Effect of these Proceedings having been Dismissed 12 There is a further complication about the power of the Court to make the order. It arises from the fact that on 27 May 2004 Master Macready (as his Honour then was) made an order dismissing these present proceedings. He ordered the plaintiffs to pay the defendants' costs of the proceedings on a party and party basis. The basis of that order of Master Macready was lack of prosecution of the proceedings. 13 There is some oddity in filing a notice of motion in proceedings which have already been dismissed. However, there are some circumstances in which that is done. For example, costs applications can be made in relation to proceedings which are dismissed. If there were to be a breach of a Mareva order, or some other interlocutory order which had been made in proceedings, Part 55 rule 6 Supreme Court Rules 1970 would positively require any application for punishment for contempt concerning that breach to be brought by notice of motion in the proceedings. That requirement would continue even if the contempt application was brought after the proceedings had been dismissed. 14 Further, the usual way in which the Court's power to enforce the payment of the costs and expenses of compliance with subpoenas, under Part 37 rule 11 Supreme Court Rules 1970, is by notice of motion in the proceedings in which the subpoena has been issued. If there were to be a dispute about payment of the cost of compliance with a subpoena, that question could be resolved by motion in the proceedings, even once the proceedings had been dismissed. 15 As well, Part 40 rule 9 Supreme Court Rules 1970 enables the Court to set aside or vary judgments in certain circumstances. An application under that Rule would be made by notice of motion. And one of the circumstances in which that rule can be invoked is when proceedings have been dismissed in the absence of a party. 16 Further, consideration of the general nature of the relationship between notices of motion and the proceedings in which they are brought supports the correctness of the filing of the notice of motion in the present proceedings. Generally, notices of motion are properly filed in proceedings when they are for the purpose of advancing the orderly disposition of the ultimate relief which is claimed in the proceedings: Re Jay-O-Bees [2004] NSWSC 818; (2004) 50 ACSR 565 at [63] - [72] and cases there cited; Hawksford v Hawksford [2005] NSWSC 463 at [93]. In the present case, at the time Barrett J made his order, that order was one which aimed at the proper advancing of the issues for determination in the proceedings. The question of the ongoing existence or administration of that leave granted is likewise something appropriately connected with the relief which was once sought in these proceedings. 17 Thus, I am satisfied about the jurisdiction of the Court to make the order, and the appropriateness of the procedure by which it has been brought. Merits of the Application 18 The merits of the application are clear. All the people who are involved in the ownership and direction of the Company have been notified of the intention of the plaintiff to seek the present orders and have either consented or not appeared. 19 The plaintiff in the District Court proceedings has granted its consent. The reason why Mr Faress has lost his desire to have the Company defend the District Court proceedings is explained, and explained in a way which shows that there is no lack of good faith and no other impropriety in his adopting the course of now seeking leave to withdraw. 20 For these reasons I will make the order asked. 21 I make order 1 in the notice of motion filed 14 June 2005. **********

Isak Constructions v Faress

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