(2010) 79 ACSR 293
- Warman International Ltd v Dwyer [1995] HCA 18
Judgment (12 paragraphs)
[1]
Ismile Dental Pty Ltd atf Ismile Dental Trust (Third Plaintiff)
Di Wang (First Defendant)
WW Enterprises NSW Pty Ltd (Second Defendant)
Representation: Counsel:
D R Sulan (Plaintiffs)
J S Emmett/A M Cornish (Defendants)
[2]
Solicitors:
Kanjian & Co (Plaintiffs)
Esplins (Defendants)
File Number(s): 2014/239524
[3]
Judgment
By Amended Summons filed on 30 September 2014, the Plaintiffs, Dr Johnson Huang ("Dr Huang") and Dr Huang Enterprises Pty Ltd ("DHE") seek leave, under s 237 of the Corporations Act 2001 (Cth) to bring statutory derivative proceedings in the name of, and on behalf of, the Third Plaintiff, Ismile Dental Pty Ltd as trustee for Ismile Dental Trust ("Ismile"). The Defendants to the application for leave to bring those proceedings, and in the proposed substantive proceedings, are Dr Di Wang ("Dr Wang") and WW Enterprises NSW Pty Ltd ("WWE").
If leave to bring derivative proceedings is granted, the Plaintiffs seek final declaratory relief that Dr Wang, as a director of Ismile, breached fiduciary duties owed to Ismile in facilitating the purchase by WWE of the premises ("Premises") from which Ismile conducts its business, without first informing the Plaintiffs of her intention to do so and giving Ismile an opportunity to purchase the Premises on like terms. The Plaintiffs also seek a declaration that Dr Wang, as a director of Ismile, breached duties owed to it under ss 182 and 183 of the Corporations Act 2001 (Cth).
The Plaintiffs also seek relief by way of a constructive trust over the Premises, although that relief would only be available in respect of the claim for breach of equitable duties and not the claim for breach of statutory duties. Specifically, they seek a declaration that WWE holds its legal and equitable estate or interest in the Premises on constructive trust for the benefit of Ismile and an order that Dr Wang and WWE:
"Do all things and sign all documents which are proper and necessary for them to do or execute to enable [Ismile] to become registered proprietor of the [Premises] subject either to:
(a) Mortgage No A1604722 presently registered against title to the [Premises] in favour of Medfin Australia Pty Ltd; or
(b) A new mortgage to be registered against title to the [Premises] as will secure to the new mortgagee payment of the amount advanced to discharge mortgage registered number AI604722 consequent on transfer of title to the [Premises] to [Ismile].
Alternatively, the Plaintiffs seek an order that WWE account to Ismile for the net benefit and gain obtained by it by reason of its ownership of the Premises for the period from the date of acquisition to the date on which it is transferred to Ismile or alternatively for equitable compensation. The Plaintiffs acknowledge that an order should be made that Ismile make just allowances in a sum to be agreed or assessed in favour of WWE for so much of its own funds as were expended to purchase the Premises and meet, pay or bear ancillary costs and expenses reasonably incurred. The Plaintiffs also seek an order that Dr Wang and WWE jointly and severally pay the costs and expenses reasonably incurred to give effect to Ismile becoming registered proprietor of the Premises including stamp duty payable on the transfer and on any loan obtained by Ismile to discharge the existing registered mortgage over the Premises and legal fees and disbursements of and incidental to the transfer and to the discharge of the registered mortgage.
By agreement between the parties, the application for leave to bring derivative proceedings and the substantive application were heard together. That course may have had apparent attractions, in terms of minimising the time taken for the proceedings and the cost of the proceedings, when it was adopted. I raised the need to deal with the question of leave, prior to dealing with the Plaintiffs' substantive claims with Counsel at an early point in submissions (T5). Mr Sulan, who appeared for Dr Huang and DHE, submitted that the possibility that the Court could find a serious question to be tried but not find the relevant breach as somewhat theoretical, but accepted that the Plaintiffs needed to succeed both in respect of the application under s 237 of the Corporations Act and then the substantive proceedings (T5). Mr Emmett, who appeared with Mr Cornish for Dr Wang and WWE, indicated that the Defendants had no objection to the question of leave being dealt with first and emphasised that the Court would need to be satisfied, in order to grant leave, not only that there was a serious question to be tried, but also that it was in Ismile's best interests to bring the relevant proceedings (T6). I do not consider that I determine the substantive proceedings, without first determining the question of leave to bring them, because the grant of leave under s 237 of the Corporations Act is a statutory precondition to the substantive proceedings.
The course adopted by the parties had the consequence that the Court had access to all the evidence that was to be led at a final hearing, including the entirety of the evidence relied on to support the Plaintiffs' claim for relief, and need not have regard to any possibility that further evidence might be available at a final hearing beyond that which was led in support of the leave application. That had significant consequences for the assessment of whether the grant of leave to bring the proceedings is in Ismile's best interests, to which I will refer below.
[4]
Affidavit evidence and background facts
The Plaintiffs' application is supported by affidavits of Dr Huang dated 14 August 2014, 31 October 2014 and 17 December 2014. Dr Huang's first affidavit sets out the background of the commencement of the business operated by Ismile and the establishment of the Ismile Dental Trust. The Plaintiffs also rely, in reply, of an affidavit of Dr Huang's wife to which I will refer below. The Defendants rely on Dr Wang's affidavits affirmed 24 September and 13 October 2014 and on her husband's, Mr Fei Han's, affidavit to which I will refer below. Both parties' affidavit evidence addressed the circumstances in which differences have emerged between them over a considerable period. Dr Wang objected to, and I rejected significant parts of, Dr Huang's evidence as to those matters for form or relevance, and Dr Wang did not seek to read her evidence as to that matter. Ultimately, Dr Wang did not advance a positive contention that the difficulties in the parties' present relationship were such as to prevent the grant of relief, where such a contention would have required the rulings as to that aspect of the evidence to be reopened.
Dr Huang and Dr Wang worked together as dentists in the northern suburbs of Sydney in 2008 and, in August 2010, began looking for premises from which to practice together. Ismile was incorporated at the beginning of October 2010 and its directors were and are Dr Huang and a member of his family and Dr Wang and a member of her family. DHE and WWE each hold half of the shares in Ismile. Ismile is the trustee of the Ismile Dental Unit Trust and the units in that trust are held equally by entities controlled by Dr Huang and Dr Wang. The directors of WWE are Dr Wang and her husband, Mr Fei Han, and Ms Wang is the sole shareholder in WWE.
Ismile entered into a lease with a third party over the Premises, which are located in a development known as Q Central at Bella Vista, NSW, commencing on 1 April 2011, for a period of 7 years with two 5 year options for renewal at market rental exerciseable by Ismile (Ex P1, pp 50 - 77).
Attempts were made but not completed to document the terms of the business relationship between Dr Huang and Dr Wang. A draft Buy-Sell Agreement was prepared for Ismile in August 2011 but Dr Huang did not communicate with Ismile's solicitor or Dr Wang about that document or misgivings which he says he had about that agreement. A draft Practice Agreement was also prepared in late November 2011, and Dr Huang's evidence is that he did not have time to consider that document in detail and he again did not communicate with Ismile's solicitor or Dr Wang about it and it was not signed. There is, however, much common ground between the parties as to the manner in which their business relationship operates.
[5]
Requirements for leave to bring derivative proceedings
There is no dispute that Dr Huang and DHE have standing to bring an application for leave to bring a derivative claim under s 236 of the Corporations Act, as a director and shareholder in Ismile. In order to grant leave under s 237 of the Corporations Act, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 at [12]-[13]; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 at [55]-[65] per Campbell JA (with whom Spigelman CJ and Allsop P agreed). The Plaintiffs bear the onus of establishing that each of the criteria specified in s 237(2) of the Corporations Act are satisfied on the balance of probabilities: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [26].
[6]
Whether Ismile will bring the proceedings
The first requirement for a grant of leave to bring a derivative action, under s 237(2)(a) of the Corporations Act, is that it is probable that Ismile will not otherwise bring the proceedings. That requirement is satisfied, where Dr Wang and Dr Huang are the two directors of Ismile and there is no reason to think that Dr Wang would authorise the commencement of proceedings against herself or WWE, particularly where she denies any wrongdoing on her part.
[7]
Whether Dr Huang and DHE are acting in good faith
The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Corporations Act, is that Dr Huang and DHE must establish to the Court's satisfaction that they are acting in good faith: Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780 at [69]; Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 at [77]. In Swansson above at [36], Palmer J observed that:
"There are at least two inter related factors to which the courts will have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process."
The authorities indicate that it will be relatively easy to satisfy this requirement if an application is made by a current shareholder, as DHE is, who has more than a token shareholding and the proceedings seek recovery of property so that the value of the applicant's shares would be increased: Swansson above at [38]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58]; Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [6]. The Court does not consider the merits of the claim in determining whether this criterion is satisfied, since they are relevant to the question in s 237(2)(d) of whether there is a serious question to be tried: Fitzpatrick v Cheal [2010] NSWSC 717 at [41].
Mr Sulan submits that Dr Huang and DHE are acting in good faith, so far as they are pursuing the proceedings to protect Ismile's rights in respect of the Premises and to prevent Dr Wang's alleged breaches of fiduciary duty. Putting aside the merits of Dr Huang's and DHE's claim, there is no reason to think they are not acting in good faith. I can more readily infer that matter given the efforts which Dr Huang and DHE have devoted to pursuing the application for leave to bring derivative proceedings and, in this case, seeking to have the substantive claim heard at the same time. The authorities make clear that the Court should more readily draw the inference that they are acting in good faith where DHE has a direct and Dr Huang an indirect economic interest in Ismile and the Ismile Trust and would benefit from any recovery by the Company. There is no evidence that would support any suggestion that Dr Huang and DHE have a collateral purpose in bringing the proceedings, as distinct from a purpose of vindicating their perceived rights as a director and shareholder of Ismile, and Mr Emmett did not contend to the contrary. I find that the requirement that Dr Huang and DHE are acting in good faith is satisfied.
[8]
Whether there is a serious question to be tried
I will, for convenience, deal with the third and fourth requirements under s 237 of the Corporations Act in reverse order. The fourth requirement under s 237(2)(d) of the Corporations Act is that there is a serious question to be tried in the proceedings. The Court applies the test that it would apply in determining whether to grant an interlocutory injunction in determining that question: Swansson above at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. In Re Gladstone Pacific Nickel Ltd above, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]):
"The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 72 ACSR 506 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163 ; 74 ALR 505 at 509-10:
However, applying the "serious question" test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief."
[9]
Whether it is in the best interests of Ismile that Dr Huang and DHE be granted leave
The third requirement for the grant of leave, under s 237(2)(c) of the Corporations Act, is that the grant of such leave is in the Company's best interests. In Swansson above, Palmer J noted that that criterion required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the company's best interest. In Re Gladstone Pacific Nickel Ltd above, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the Company if the action is unsuccessful.
Mr Sulan submitted, in opening submissions, that:
"It is clearly in [Ismile's] best interests to bring [Dr Wang and WWE] to account for the profit she received in breach of her fiduciary duties, and the institution of these proceedings is consistent with [Dr Huang's] duties to [Ismile]."
It seems to me that that submission somewhat oversimplified the complexity of this question. In particular, it did not address the fact that the primary relief to be sought by Ismile was not an account of profits, but a constructive trust, or the fact that a claim for an account of profits had the obvious difficulty that there was no evidence that WWE had obtained any profit from its acquisition of the Premises, such that an account of profit would provide any financial advantage to Ismile. I will address those issues further below.
As I noted above, the Plaintiffs seek final declaratory relief that Dr Wang, as a director of Ismile, breached fiduciary duties owed to Ismile in facilitating the purchase by WWE of the Premises, without first informing the Plaintiffs of her intention to do so and giving Ismile an opportunity to purchase the property on like terms. I do not think that such a declaration would provide any benefit to Ismile to warrant the costs of the proceedings, absent substantive relief. That result is not avoided because the substantive proceedings have already been argued before me, since such a declaration could still be appealed, particularly if it were made in the absence of substantive relief. The Plaintiffs also seek a declaration that Dr Wang, as a director of Ismile, breached duties owed to it under ss 182 and 183 of the Corporations Act. I also do not think that such a declaration would provide any benefit to Ismile to warrant the costs of the proceedings, including any appeal, where no evidence was led by Dr Huang that would support a consequential order under s 1317H of the Corporations Act.
[10]
Notice
Notice of the application under s 237 was given by Dr Huang to Ismile on 22 July 2014 (Ex P1, p 128). It is therefore established that the Plaintiffs gave 14 days' notice of their intention to commence the proceedings, in accordance with s 237 of the Corporations Act.
[11]
Outcome
I am therefore not satisfied that leave should be granted to bring the proceedings under s 237 of the Corporations Act. I therefore do not proceed to determine the substantive proceedings, even in the alternative. First, as I noted above, s 237 of the Corporations Act does not authorise the proceedings to be brought, still less heard and determined, where the Court has not granted leave for them. Second, it would be undesirable now to proceed to a determination of the substantive proceedings, because an application for leave to bring statutory derivative proceedings is interlocutory in character, and it may be open to Dr Huang and DHE to bring a further application for leave, if they are able to address the matters that have caused the failure of this application by adequate evidence. I should not reach any determination of the substantive proceedings which would potentially cause prejudice in any substantive proceedings which might ultimately be brought consequential upon a further and successful leave application.
The application for leave to bring the proceedings should therefore be dismissed with costs.
[12]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 06 May 2015
It is common ground between the parties that their arrangements are that neither of them work full time in the dental practice, and each of them work 3 days per week, and that either or both of them can also attend on Monday if they wish to do so. Each of them is also involved with other, separate, dental practices. It is also common ground that the arrangements between the parties do not involve a partnership but an association conducted within the Company, which is structured in a manner that involves the conduct of separate practices and the sharing of certain expenses. This proposition was set out in an email dated 2 August 2011 from Dr Wang to Dr Huang, and accepted by Dr Huang in his email in response, as follows:
"We started this Practice as an associateship, never partnership. The fundamental differences are a partnership will share everything equally whereas associateship is pretty much independent of each other, only sharing common interests in certain areas. If you agree, we have common interests in the following areas:
1. Marketing of the Ismile Dental as [a] whole unit - so that we can share N/P equally;
2. As practice grows opportunity to cooperate further as 50/50 associateship to fund further treatment centers [sic] and share further profit;
3. Sharing limited services such as rent/outgoing etc to reduce overhead. However, we do not share:
1. Individual stock;
2. Nursing staff;
3. Own patient once built up unless asked to etc." [N/P means new patients] (Ex D3, p 262)
Dr Huang and Dr Wang maintain separate bank accounts in respect of Ismile and each of them only takes money out of their respective account, other than to the extent that money is paid into a joint account to meet joint expenses by agreement between them (T20). Dr Huang has the benefit of the income from the patients that he treats and Dr Wang has the benefit of the income from the patients which she treats (T21), albeit that approach is applied on a percentage of income basis (T22). Ismile accounts for and pays tax upon income earned by Dr Wang and Dr Huang in operating their respective practices in the Premises. Mr Sulan submits, and I accept, that approach is inconsistent with the operation of Ismile as a pure service company of an ordinary kind.
Rent for the Premises has been shared equally between the parties and the financial statements and income tax returns for the Trust for the 2012, 2013 and 2014 financial years confirm that position. Ismile also borrowed funds, under an asset financing agreement with a third party financier, to purchase plant and equipment for the dental practice and those arrangements require substantial rental payments to be made during their term. Each of Dr Wang and Dr Huang gave joint and several guarantees in respect of those arrangements. Other expenses have generally been shared between the parties although the parties have also engaged in separate marketing activities and incurred separate marketing expenses concerning their respective practices conducted from the Premises.
Before turning to the circumstances in which WWE purchased the Premises, I should say something further as to the evidence of the parties' earlier consideration of whether the dental practice should be conducted in leased or owned premises and of Dr Huang's and Dr Wang's respective inquiries as to the purchase of property in Bella Vista and Q Central. Dr Huang accepts that, during initial discussions about establishing the business, he and Dr Wang were not interested in purchasing premises for the dental practice (Dr Huang 31.10.14 [3(b)]). By her affidavit dated 24 September 2014, Dr Wang also gives evidence of discussions, when she and Dr Huang first discussed purchasing a practice, about the fact that they did not want to look at buying premises and should stick to leasing premises (Dr Wang 24.9.14 [3]). Dr Wang's evidence is also that when Dr Huang and she started looking for appropriate premises for the practice, in August 2010, they only discussed renting premises and have not discussed purchasing property together for a dental practice or otherwise (Dr Wang 24.9.14 [6]). Dr Wang gives evidence of a further discussion between Dr Huang, Dr Wang and her accountant (who was subsequently to act for Ismile) in August or September 2010 about the structure of the business where both she and Dr Huang advised the accountant that they would not want to buy property to run the business. Dr Wang also gives evidence of a further discussion of that matter between Dr Huang, Dr Wang and the accountant in the course of discussions concerning Ismile's financial accounts for the financial year ended 30 June 2011 (Dr Wang 24.9.14 [15]).
Dr Huang accepted in cross-examination that there was agreement in 2008 that he and Dr Wang did not wish to look at buying premises (T27). He was not sure that there had been further discussion whether to purchase a property in August or September 2010, but accepted that such a discussion might have taken place, and that he did not have a very clear recollection and might have indicated that he and Dr Wang were not interested in purchasing property (T27). His evidence was that, at the time of a further discussion with the accountant in late 2011, he and Dr Wang did not wish to purchase property (T28). Dr Huang accepted that, prior to the commencement of the proceedings, he had not raised the possibility of Ismile purchasing property or that Ismile should accumulate funds in order to do so and that he had not made inquiries about properties that Ismile might be interested in purchasing (T29).
Dr Wang and her husband, Mr Fei Han, give evidence of the circumstances in which WWE came to acquire the Premises. Mr Han's evidence is that he became aware that properties in Q Central were available for sale and lease by seeing a large sign indicating that matter on the lawn in front of the building, and his evidence is that he made inquiry of the property's agent, and inspected the suites for sale with a friend in September 2013. Mr Han's evidence is that his friend suggested that he contact the owner of the Premises where Dr Wang practised, and he then conveyed that suggestion to Dr Wang who contacted the agent.
Dr Wang's evidence is that she had an interest in purchasing commercial investment property in the Bella Vista area (Dr Wang 24.9.14 [70] - [71]). She gives evidence of contacting the agent which dealt with Q Central, following her conversation with her husband, to inquire as to the availability of the Premises for purchase, and of the agent inviting her to put in an offer which he would raise with the owner. An offer was made in November 2013; the owner made a counter-offer; and Dr Wang accepted that counter-offer, leading to the purchase ultimately made by WWE (Dr Wang 24.9.14 [72] - [73]). Contracts were exchanged some time later, in April 2014, apparently to meet the convenience of the vendor, and settlement occurred on 16 May 2014. WWE purchased the Premises for a purchase price of $670,000, of which $500,000 was financed by a loan provided by Medfin Australia Pty Ltd ("Medfin") secured over the Premises. WWE paid approximately $170,000 from its own resources. Dr Wang and her husband paid the stamp duty and legal fees on the purchase.
There is no dispute that Dr Wang did not inform or notify Dr Huang of the fact that the Premises were for sale or that WWE was interested in or was intending to purchase the Premises. Dr Wang's evidence in cross-examination was that she did not advise Dr Huang that WWE had purchased the property because she (or more precisely WWE) was purchasing the property on her own and it had nothing to do with Dr Huang (T54). Her evidence was that she had discussed that matter with her husband, who had not seen a problem in that regard (T55). I would not infer that that necessarily indicated a consciousness of wrongdoing, where it is equally consistent with a wish to avoid a confrontation with Dr Huang prior to completion of the purchase. It did, however, have the consequence that Ismile did not, by its directors, have the opportunity to consider whether to purchase the Premises.
Dr Wang's evidence, which was denied by Dr Huang, is also that, after WWE agreed to purchase the Premises, a director of the vendor informed Dr Wang that Dr Huang had called him and "was very angry" that the vendor had not sold the premises to Dr Huang (Dr Wang 24.9.14 [77]). That evidence, if accepted at a final hearing, would tend strongly against a finding that Dr Huang understood the purchase of the Premises to be within the scope of Ismile's business, rather than a course open to him (and similarly to Dr Wang) in his personal capacity. I should not reach a credit finding of that kind in determining an application for leave to bring derivative proceedings on an interlocutory basis, although it will be necessary to return to this question in determining the substantive claim if leave is granted. On 19 May 2014, Ismile was formally notified that WWE had purchased the Premises from their former owner, in the transaction which gives rise to the claim in these proceedings.
The Plaintiffs also read, in reply, the affidavit of Dr Huang's wife, Ms Difei (Phoebe) Li dated 22 October 2014. Ms Li's evidence is directed to responding to Dr Wang's evidence concerning inquiries which Dr Huang had also made to purchase property in the Bella Vista area. Her evidence is that Dr Huang had asked her to make inquiries about commercial property in the Bella Vista area, including with the agents for the building containing the Premises; that she had made inquiries at the beginning of 2014 as to commercial properties for sale in the relevant building for the Bella Vista area generally and had been told that the real estate agent did not "having anything on our books at the moment" [sic] but gave her the name of the building manager for Q Central, the building in which the Premises are situated. Her evidence is that she subsequently spoke to the building manager of Q Central as to whether there were commercial suites in Q Central for sale and was told that one suite had been renovated and was ready to be occupied, but responded that Dr Huang and she did not want premises that were empty but were looking to invest with "a secure tenant - a good professional tenant" and was told that nothing like that was then available. It seems to me that Ms Li's evidence at least establishes that Dr Huang understood that the parties' relationship did not prevent other property investments by them, in their private capacities, in Bella Vista and in Q Central. However, I should not reach a finding, at least at the leave stage, that that evidence goes so far as to indicate that he understood that he could purchase the Premises without first offering the opportunity to do so to the Company.
As I noted above, the substance of Dr Huang's and DHE's claim is that Dr Wang, as a director of Ismile, breached fiduciary and statutory duties owed to Ismile in facilitating the purchase by WWE of the Premises without first informing the Plaintiffs of her intention to do so and giving Ismile an opportunity to purchase the Premises on like terms. Mr Sulan characterises Dr Wang's actions in causing WWE to purchase the Premises as a diversion of an opportunity away from Ismile, thereby constituting a breach of fiduciary and statutory duties to Ismile. Mr Sulan points out that the test for breach of such a duty is objective and does not depend on Dr Wang's consciousness of impropriety. I accept that submission, so far as the equitable duty is concerned, although the position under s 182 of the Corporations Act may be somewhat more complex.
The no conflict rule prohibits conduct where a director has a personal interest or duty owed to a third party which gives rise to a real and sensible possibility of a conflict: Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 at 198-199; Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557-558. In Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 at 199, McHugh, Gummow, Hayne and Callinan JJ formulated the no conflict rule as follows:
"… [t]he fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is 'a conflict or a real or substantial possibility of a conflict' between personal interests of the fiduciary and those to whom the duty is owed."
The Plaintiffs also seek a declaration that Dr Wang, as a director of Ismile, breached duties owed to it under ss 182 and 183 of the Corporations Act 2001 (Cth). I summarised the relevant principles in respect of s 182 of the Corporations Act in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [432] - [433] as follows (omitting several authorities):
"Section 182(1) of the Corporations Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else or cause detriment to the corporation. An objective standard is to be applied in determining what amounts to an "improper" use of position, and impropriety is established by "a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case" …
It is not necessary that the relevant director gain an advantage for himself or herself or cause a detriment to the company in order to establish a contravention of the section: Chew v R [1992] HCA 18; (1992) 173 CLR 626 at 633 per Mason CJ, Brennan, Gaudron and McHugh JJ. An objective test was also applied to determine whether this section was contravened in Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd above and, in Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646, Siopsis J followed R v Byrnes, above, in holding that impropriety for the purposes of this section was objective and did not require subjective knowledge of impropriety and followed Chew v R, above, in holding that a contravention could be established although the desired object was not achieved. …."
The claim for breach of fiduciary duty and s 182 of the Corporations Act by Dr Wang arises, broadly, from WWE taking an opportunity that, the Plaintiffs contend, should have been made available to Ismile to purchase the Premises. Mr Sulan points to the decision in Bhullar v Bhullar [2003] EWCA Civ 424, where the Court of Appeal held that directors breached their fiduciary duties, in purchasing a commercial property adjacent to the company's premises for themselves, where the opportunity to purchase that property should have been made available to the company, and notwithstanding that the company had previously decided not to purchase any further property. Mr Emmett distinguishes that decision on the basis that the company's line of business there included the acquisition of property, whereas he submits that Ismile's line of business did not. I accept that there is some similarity between the facts of that case and this case, although it seems to me that the distinctions to which Mr Emmett draws attention are significant. It is not necessary or appropriate to express a final view as to that matter at the point of determining whether leave to bring the proceedings should be granted.
Mr Sulan rightly points out that there has been debate as to whether a separate "corporate opportunity" principle exists. Mr Sulan draws attention to the formulation of a "corporate opportunity" principle in SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 at 557 as follows:
"What is to be drawn from the authorities is that a director will act in breach of his fiduciary obligations to a company (the scope of which will vary in the circumstances of each particular case) if he or she takes up an opportunity for profit where there is a sufficient temporal and causal connection between the obligations and the opportunity. What is a sufficient connection will depend, in any relevant case, upon a number of factors, including the circumstances in which the opportunity arises and the nature of it and the nature and extent of the company's operations and anticipated future operations."
Mr Emmett accepts that the factors identified in SEA Food International are relevant to determining whether there is a real and sensible conflict of interest, where a director is not under a positive obligation to procure an opportunity for a company, but submits that those factors do not give rise to a conflict of interest in this case.
Mr Sulan also draws attention to Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 at 139, where Hill J noted that a fiduciary obligation may extend to a corporate opportunity which is "sufficiently in the same ball park" as the principal company's business. While it may be preferable to treat these matters as relevant to the application of the no conflict rule, rather than as involving a freestanding corporate opportunity principle, it seems to me that they are relevant matters to the application of the former rule. Mr Sulan also points out, and I accept, that the Court of Appeal and of the Supreme Court of Western Australian and the High Court of Australia respectively applied the no conflict rule and the no profit rule, in dealing with questions of an alleged diversion of a corporate opportunity in Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 82 ACSR 1 and Howard v Commissioner of Taxation [2014] HCA 21 at [59] - [64].
Mr Sulan points out, and I accept, that Ismile has the power to purchase property under the terms of the Trust Deed for the Trust (Ex P1, p33) and under the terms of its constitution (Ex D3, p115). However, both parties recognised that a real issue arose, in determining whether a serious question to be tried was established, as to the scope of Ismile's business and the duties owed by Dr Wang in that regard. Mr Sulan accepted in submissions that a fiduciary duty will be limited by the scope of the relationship which gave rise to the relevant duty, and that a person may be in a fiduciary position with respect to a part of his or her activities but not other parts of those activities. In Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, the Full Court of the Federal Court (Finn, Stone and Perram JJ) observed (at [179]) that:
"The concept of 'duty' in the 'conflict of duty and interest' formula of the first of these [themes] is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary's discretion to determine; and it may evolve over time as is commonly the case with partnerships. Put shortly the actual function or responsibility assumed determines '[t]he subject matter over which the fiduciary obligations extend' for conflict of duty and interest and conflict of duty and duty purposes".
I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) above as follows:
"… a necessary step in determining whether a breach of the rule against conflict of interest is established is to ascertain the subject matter of the relevant fiduciary obligations, which may be determined from the course of dealing between the parties: Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 at 409 per Dixon J; Chan v Zacharia above at 196 and 204 per Deane J; Streeter v Western Areas Exploration Pty Ltd (No 2) above at [70]; Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; (2011) 285 ALR 63 at [206], where Jacobson J (with whom Rares and Besanko JJ agreed) characterised the proposition "that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case" as "fundamental". The Defendants point out, and I accept, that the content of fiduciary duties are moulded to the character of the particular relationship so that, even within an established fiduciary relationship (such as between director and corporation), the content of the duties will not be uniform for all cases, and that fiduciary obligations exist in relation to a defined area of conduct and, except in that defined area, the fiduciary retains its economic liberty: United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 11 per Mason, Brennan and Deane JJ; Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at [15] per Bryson J; Streeter v Western Areas Exploration Pty Ltd (No 2) above at [70].
In Howard v Commissioner of Taxation above, French CJ and Keane JJ in turn referred (at [34]) to the principle that:
"The scope of the fiduciary duty generally in relation to conflicts of interest must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship."
Their Honours also noted that such a duty is to be "moulded according to the nature of the relationship and the facts of the case". Gageler J (at [110]) there referred with approval to the observation in Grimaldi v Chameleon Mining NL (No 2) to which I have referred above.
Mr Sulan placed substantial emphasis, in submissions, on the proposition that Dr Wang, by her control of WWE, was now the lessor of the Premises and would have control, or at least influence, over Ismile's future including its ability to remain and operate in the premises at the conclusion of the Lease. Mr Sulan also submits that WWE's purchase of the Premises puts it in the position to appropriate any goodwill attaching to the Premises, by allowing the lease to go to expiry and establishing a successor dental practice on the Premises. Dr Wang also accepted in cross-examination the proposition that WWE's ownership of the premises gave her some control over what happened to the practice going forward as landlord of the Premises, which could be exercised to the exclusion of Dr Huang (T57). Dr Wang also accepted that, if the lease was to be renewed twice and the practice operated for 17 years, she could then require Ismile to vacate the premises and operate from the premises in her own right as a dentist. Dr Wang's evidence was she had not thought about that matter (which is perhaps not surprising, so far as it would arise, on that hypothesis, in 2028) but accepted that possibility, as a consequence of WWE's purchase of the premises (T57). Mr Sulan also submits that the purchase allows WWE the ability to make a capital gain from the Premises. However, there is no evidence as to the likelihood of any appreciation in the capital value of the Premises.
Mr Sulan submits that the opportunity to purchase the freehold in the Premises would have allowed Ismile the opportunity to secure its future occupation of the Premises. While that is plainly the case, it should be recognised that Ismile had that opportunity from the time its business commenced, and the evidence to which I have referred above indicates that neither Dr Wang nor Dr Huang had previously sought to take it up by owning the business premises rather than leased premises. There is evidence that the location of the business may be of some significance, so far as health insurers may grant approval to a practice as a preferred provider at a particular location. Mr Sulan also submits that the opportunity to purchase the business would allow Ismile the opportunity to structure the payment of rent or outgoings impeded by the existing lease terms. While that might be so, it would also obviously expose Ismile or its shareholders to the obligations under any loan arrangement by which it or they acquired the premises.
A number of matters, to which Mr Emmett refers, are capable of supporting a strong argument that WWE's acquisition of the Premises was outside the scope of the relevant duty owed by Dr Wang. I have summarised the scope of the parties' relationship, so far as it emerges from Dr Huang's and Dr Wang's affidavit evidence above. Mr Emmett submitted that there was no breach of Dr Wang's statutory or fiduciary duties because the proposed purchase of the Premises did not fall within the scope of Dr Wang's statutory or fiduciary duties; Dr Wang was not under any positive obligation to procure the opportunity for Ismile; the opportunity did not arise as a result of Dr Wang's role as a director of Ismile; and the opportunity to purchase the Premises was outside both Ismile's existing and contemplated line of business. Mr Emmett points out, and I accept, that Dr Wang had no positive obligation to pursue the purchase of the Premises for Ismile, where there is no suggestion that Ismile had any prior intention to acquire the Premises. Mr Emmett also points out, and I also accept, that there is no suggestion that the opportunity to purchase the Premises came to Dr Wang in her capacity as a director of the Company, where each of Dr Wang and Dr Huang appear to have been exploring opportunities to purchase property in Bellevista or Q Central in their private capacities.
In closing submissions, Mr Emmett submitted that there was no obligation of a director to give a company an opportunity to change its mind as to its scope of business, which would be inconsistent with the proposition that the scope of the director's duty must be defined by reference to the scope of the relationship (T102). While I see the force of that proposition, it does not seem to me to be such as to displace a serious question to be tried as to that issue. Mr Sulan in turn submitted that the arrangements between the parties in the earlier period of the venture could not be used to confine the fiduciary obligation so as to avoid a requirement on Dr Wang to raise the possibility of Ismile acquiring the Premises when the opportunity to do so arose (T109).
On balance, it seems to me that the matters which support a narrower view of the scope of the business are not sufficient to displace a finding that there is a serious question to be tried at least in respect of the liability aspect of Dr Huang's and DHE's claim for breach of fiduciary duty at general law and breach of s 182 of the Corporations Act. It seems to me that there is a seriously arguable case that Dr Wang acted in conflict of interest to the extent that she did not draw the opportunity to acquire the Premises to Ismile's attention, to allow a discussion as to whether Ismile should expand its business by acquiring the Premises. It does not seem to me that the earlier discussions between the parties as to the scope of the business to which I have referred above, or the parties' respective inquiries as to the potential purchase of property in Bella Vista or Q Central, foreclosed that possibility. In reaching a decision as to whether to expand Ismile's business by acquiring the Premises for Ismile, both Dr Wang and Dr Huang as directors of Ismile would, subject to any narrowing of the scope of their duties in a closely-held company, have had to have regard to Ismile's interests rather than their respective personal interests.
The parties addressed limited submissions to the Plaintiffs' claim for breach of s 183 of the Corporations Act. The elements of a contravention of this section were summarised in Commissioner for Corporate Affairs v Green [1978] VR 505 at 510, approved by Santow J in Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2000) 19 ACLC 299 at [114]-[118], namely that a person was at the relevant time an officer of the corporation; he or she acquired the relevant information and did so by virtue of his or her position as officer of the corporation; and he or she made improper use of that information in order to gain directly or indirectly an advantage for himself or herself or for some other person or, alternatively, he or she made that improper use to cause detriment to the corporation. The prohibition in s 183 of the Corporations Act may be contravened where a director uses information that was confidential to a company to make a personal profit: for example, Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779 at 783; 12 ACLC 269 per Young J. A broader view of the section would allow its application to an improper use of information obtained by a director, irrespective of whether that information is confidential in equity: for example, in Grove v Flavel (1986) 43 SASR 410; 11 ACLR 161; McNamara v Flavel (1988) 13 ACLR 619; 6 ACLC 802. It does not seem to me that a serious question of a contravention of s 183 of the Corporations Act is established, where there is no evidence to suggest that Dr Wang used information of Ismile, still less confidential information of Ismile, in order to approach the leasing agent for Q Central to inquire whether the Premises were available for sale.
I note, for completeness, that Mr Sulan also made written submissions as to the scope of ss 180 and 181 of the Corporations Act. It is not necessary to address those submissions, since the Amended Summons filed by the Plaintiffs did not seek leave to bring proceedings under ss 180 or 181 of the Corporations Act.
Mr Sulan also submits, and I accept, that if relief was available against Dr Wang, then it would also likely be available against WWE, so far as it is properly treated as a corporate vehicle for Dr Wang's activities: Grimaldi v Chameleon Mining NL above at [243]. Dr Wang accepted in cross-examination that the decision to purchase the property by WWE was effectively her decision (T53) and that would support relief against WWE if it were otherwise available against Dr Wang.
The Plaintiffs also seek a declaration that WWE holds its legal and equitable estate or interest in the Premises on constructive trust for the benefit of Ismile. Relief by way of a constructive trust over the Premises would only be available in respect of the claim for breach of equitable duties and not the claim for breach of statutory duties. At one point, Mr Emmett had advanced a proposal that the Court could make a declaration of constructive trust conditional on Ismile being able to finance the purchase, which would have removed any issue as to its financial capacity, but left open the issue raised by Mr Emmett that Dr Wang and Dr Huang should not be thrust together into a property owning enterprise as a matter of discretion (T36). The parties were ultimately unable to agree any approach based on such conditionality of orders (T44). The Court is therefore left to determine whether it is in the Company's best interests to grant leave to bring proceedings seeking a constructive trust, in a manner that is not conditional upon Ismile's ability to finance the acquisition of the Premises.
In opening submissions, Mr Emmett submitted that the imposition of a constructive trust would be an inappropriate remedy, where it would force Dr Wang and Dr Huang into co-ownership of the Premises, which was a relationship they had not contemplated and a business venture on which they had not agreed to embark. He also submitted that, at most, Ismile would be entitled to damages, equitable compensation or an account of profits, but that the Plaintiffs had failed to prove that there had been any loss to Ismile or any profit to WWE, where it had purchased the Premises for their apparent market value and accepted rent from Ismile on the terms agreed with the previous lessor of the Premises.
Mr Emmett also drew attention to Grimaldi v Chameleon Mining above, so far as the Full Court of the Federal Court had there emphasised the discretionary nature of a constructive trust and the fact that a proprietary remedy does not always follow from a breach of fiduciary duty. Mr Emmett, in closing submissions, also submits that there is insufficient evidence as to whether it is in the Company's best interest to purchase the property, where it would be a benefit to have security of tenure, but that benefit involves greater risks, and a greater need for capitalisation, and is inconsistent with an anterior decision to prefer flexibility (by way of a lease) over security of tenure (by way of ownership of business premises) (T105). Mr Emmett accepted, in the course of his closing submissions, that a constructive trust was "something of a starting point in relation to breach of fiduciary duties" but submitted that:
"If the Court were to impose a constructive trust, then the logic of that would be the [Premises] would be held on trust, subject to a right of indemnity. If [Ismile] can't satisfy the trustee's right of indemnity, it can't have the asset." (T106)
Mr Emmett submits that the Court would not make orders that would take the position beyond that which would exist of WWE if it were an express trustee, subject to a right of indemnity (T106). He also submits that the Court could not conclude that the proceedings were in Ismile's best interests, where there was no sufficient evidence to conclude that Ismile could meet ongoing mortgage repayments in the long term on a purchase of the Premises; whether the rent from the Premises would cover the interest; or the terms by which Ismile's shareholders would fund the acquisition of the premises by Ismile from WWE (T111). Mr Sulan responds, in closing submissions, that the Court does not need evidence that Ismile would have or had the financial capacity to take up that opportunity in order to grant relief, and that the Court ought to be satisfied that there is a realistic prospect that it could do so and that ought to be sufficient for present purposes (T111).
It does not seem to me that a sufficient prospect of obtaining such relief has been established to allow a conclusion that the proceedings are in Ismile's best interests. First, it must be recognised that a constructive trust is not necessarily imposed as a remedy for breach of fiduciary duty. The Court will generally only impose a constructive trust if no other appropriate remedy is available which is capable of doing full justice: Bathurst City Council v PwC Properties Pty Ltd [1998] HCA 59; 195 CLR 566 at [42]; Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [10]. In John Alexander's Clubs Pty Limited v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 at [128] - [129], in a case of alleged breach of fiduciary duty, the High Court observed that a constructive trust "ought not to be imposed if there are other orders capable of doing full justice" and that:
"[I]t is not a complete answer to … reliance on Giumelli that remedies other than a constructive trust may lack practical utility because of the impecuniosity of those against whom they are sought. One point made in the Giumelli line of cases is that care must be taken to avoid granting equitable relief which goes beyond the necessities of the case. Another point in those cases is that third party interests must be borne in mind in deciding whether a constructive trust should be granted …"
Second, the authors of Meagher, Gummow and Lehane's Equity, Doctrines and Remedies, 5th Ed, 2015, [3.060] point to a well-established application of the equitable maxim that those who seek equity must do equity, namely that:
"a beneficiary will get no assistance from equity against the trustee in seeking to recover trust property unless the beneficiary is prepared to defray the trustee's legitimate expenses. Those who claim the benefit of a constructive trust of some other sort must also be willing to do equity. A principal who claims an asset bought by a fiduciary on the basis that the asset ought to have been acquired if at all for the principal must be willing to do equity by paying the price of the asset so claimed."
The authors there refer to the decision in Cole v Miles [2002] NSWCA 150 at [63], where Heydon JA (with whom Spigelan CJ and Hodgson JA agreed) observed that:
"Equitable remedies, including the remedy of equitable compensation, have a flexible character. … when a court recognises a constructive trust it is normally doing so pursuant to the fashioning, in part, of an appropriate remedial response. That remedial response can vary very considerably depending on the circumstances; it turns on what the wrongdoer did at the time of the wrongdoing, rather than on what the settlor of the trust stipulated well before the time of the wrongdoing. And the remedial response is also controlled by the need to avoid injustice even to the wrongdoer. [On the facts of that case] the wrongdoers had put their superannuation funds into a position in which gains could be made from the permits acquired; but those potential gains depended on the laying out of $400,000 at a time when gains were not certain. If the respondent had sought the imposition of a constructive trust in April 1999, it would only have been imposed if [the plaintiff] had paid [the wrongdoers] the $400,000 …"
In the present case, a requirement for Dr Huang and DHE to do equity, or, as Heydon JA put it, to avoid injustice to WWE and Dr Wang who funded the acquisition of the Premises, requires that Ismile either assume the loan taken out by WWE or indemnify it for future payments under that loan and compensate WWE for the payments it has already made and associated expenses, which Ismile does not itself have the capacity to do without financial support from its shareholders. I can readily infer that WWE and Dr Wang have the capacity to provide financial support for Ismile's assumption of those obligations, since WWE has already acquired the premises with funds contributed by WWE and her husband. However, I cannot draw that inference in respect of Dr Huang and DHE, on the present state of the evidence.
Dr Huang sought to give evidence as to Ismile's (but not his or DHE's) capacity to fund the purchase of the Premises in paragraph 17(c) of his affidavit dated 31 October 2014 as follows:
"If this Honourable Court grants orders sought in the Amended Summons, I am confident that Ismile Dental Pty Ltd as trustee for the Ismile Dental Trust can raise $500,000 on the security of the property to pay out the mortgage presently registered in favour of Medfin Australia Pty Ltd."
Dr Huang also there referred to a letter of offer dated 20 October 2014 from BOQ Specialist Bank to a different company associated with him, Perpetual Health Care Network Pty Ltd, which he describes as giving "in principle approval" for an advance of $570,000 on the security of suitably approved commercial property (Dr Huang 31.10.14 [17(c), Annexure "B"). Dr Huang stated that:
"I believe that the offer can readily be transposed to apply to Ismile Dental Pty Ltd with supporting personal guarantees from [Dr Wang] and [Dr Huang] as directors of [Ismile]."
I rejected that evidence, because Dr Huang's confidence and belief as to those matters did not seem to me to be admissible as evidence of the relevant facts. I left open the possibility that Dr Huang could seek to lead further affidavit evidence as to those matters in admissible form (T9) but he did not seek to do so.
The letter dated 20 October 2014 from BOQ Specialist Bank to Perpetual Health Care Network Pty Ltd, on which Dr Huang and DHE rely to support Ismile's capacity to fund the purchase of the Premises, in turn indicates that it is an "indicative" approval of a credit facility and that final terms and conditions would depend upon the final structure and details, and that the indicative approval was valid for 30 days from the date of the letter, until late November 2014, now six months past. The loan terms involved a requirement for a guarantee from Dr Huang and a first registered real property mortgage by Perpetual Health Care in its own right and as trustee for the Perpetual Health Care Network Trust over a property and a guarantee and indemnity granted by Dr Huang. It contemplated a valuation to be instructed by BOQ Specialist and found acceptable, indicating a value of at least $570,000 and contained various other terms and conditions. Quite apart from the fact that that letter is no more than an expired "in principle" approval, it seems to me that that letter provides little information as to Ismile's ability, or DHE's ability as a shareholder in Ismile, to raise finance in respect of a loan to Ismile, where BOQ Specialist's attention was plainly directed to the position of Perpetual Health Care and the Perpetual Health Care Network Trust and Dr Huang rather than the position of Ismile and its present shareholders.
Dr Huang and DHE also do not propose any specific arrangement to indemnify WWE and Dr Wang against their liability on WWE's borrowings, or to substitute a new loan arrangement between a lender and Ismile for the existing loan arrangement between WWE and Medfin, or to confirm that Medfin is content to extend that loan arrangement to Ismile on terms that Dr Huang or DHE could support, at least to the level of their respective interests in Ismile.
In the course of submissions, Mr Sulan raised the further possibility that a constructive trust might be ordered over the shares of WWE, instead of over the Premises. Mr Emmett submitted that the suggestion of a constructive trust over the shares of WWE went beyond the scope of the relationship and the scope of any possible breach, and was also outside the scope of the relief for which the Plaintiffs had sought leave to bring derivative proceedings, or sought in the substantive proceedings (T107). That course also has the difficulty that, as Mr Emmett pointed out, WWE owns not only the Premises but also the units in the trust associated with Dr Wang's involvement in the Ismile business.
Mr Sulan points out, and I accept, that it is no defence to a claim for breach of fiduciary duty that the principal was unwilling, unlikely or unable to pursue the relevant opportunity. However, it does not follow that a constructive trust would be imposed in favour of Ismile in respect of the Premises, unless it is able to do equity in that regard, rather than leaving Ismile to its claims for equitable compensation or an account of profits, which I will address below. I am therefore not satisfied that it is in the best interests of Ismile that it be granted leave to bring proceedings to establish a constructive trust, where the evidence - which, I again note, is the entirety of the evidence in the substantive claim - does not support its ability to do equity to obtain such relief.
By order 6 of the Plaintiffs' proposed relief, they seek an order that Dr Wang and WWE do all things and sign all documents that are proper and necessary for them to do or execute to enable Ismile to become registered proprietor of the Premises subject either to the present mortgage registered against the title in favour of Medfin or a new mortgage to be registered against title as will secure to the new mortgagee payment of the amount advanced to discharge the registered mortgage consequent on transfer of title to the Premises to Ismile. The Plaintiffs' position, as expressed by Mr Sulan, was ultimately that the Court should declare a constructive trust and make an order in the nature of their proposed order 6, which would require the parties to do all things necessary and sign all documents to bring about a transfer of the Premises from WWE to Ismile (T65). Mr Emmett submitted that the Court would not make an order in that form, where there was a lack of certainty as to what it would require, and that it was not sufficient for the Plaintiffs to abandon any claim in contempt (an issue to which I will refer below) because the Court would need to be satisfied that the order made would do justice between the parties (T106).
There are, it seems to me, substantial difficulties with an order in the form of order 6 sought by the Plaintiffs. The first and most fundamental is that it seems to me to be a mandatory order, expressed in such wide terms that it would be left unclear to Dr Wang and WWE what they were required to do in order to comply with it. An obvious example, which I raised in the course of submissions, is the possibility that a third party lender might require a joint and several guarantee from Dr Wang and Dr Huang, or indeed Dr Wang and Dr Huang and their respective spouses, in respect of such a loan. It seems to me that the Court would not be likely to make such an order, without it having sufficient clarity that either the Court or the parties bound by the order knew what would be required to comply with it. I hold that view notwithstanding that Dr Huang and Dr Wang indicated, in the course of submissions, that they were prepared to undertake not to bring any claim in contempt against Dr Wang or WWE arising out of any dispute as to what was required to comply with the order. A second possible difficulty with the order is that it seeks to impose the obligation upon Dr Wang and WWE to take such steps, whereas Dr Huang and DHE offer no corresponding undertaking that they will take corresponding steps. I have not relied on that matter in determining this issue since, first, it was not addressed in submissions and, second, it could readily be addressed by the Court imposing a condition upon its order requiring such an undertaking from Dr Huang and DHE.
Alternatively, Dr Huang and DHE seek an order that WWE account to Ismile for its gain by reason of its ownership of the premises, and Mr Sulan maintained that claim in the alternative. The claim has the difficulty that, as Mr Emmett pointed out, there is presently no evidence to suggest that any benefit is likely to have been obtained by WWE from its ownership of the Premises over a relatively short period or is likely to be obtained from that ownership in the future. There is no evidence that WWE was able to acquire the Premises at an undervalue or that the rental paid by Ismile is above market, to allow the Court to assess whether any profits that would be recoverable in respect of WWE's ownership of the Premises would warrant the costs of proceedings to recover them. For that reason, I am not satisfied that it is in the best interests of Ismile to bring proceedings to establish that relief.
The same difficulty faces the alternative claim for equitable compensation, where there is no evidence to support a finding that Ismile has suffered any loss by reason of WWE's ownership of the Premises. The evidence is to the contrary, where there is no suggestion that Ismile has been doing anything other than paying the same rent to WWE as it previously paid to the previous owner of the Premises under the terms of the lease agreement.
For these reasons, I am not satisfied that the proposed proceedings are in Ismile's best interests as the evidence stands. I should add that, before reserving judgment, I identified my concern as to this aspect of Dr Huang's and DHE's claim and offered Dr Huang and DHE the opportunity to make further submissions. Those submissions might, for example, have further addressed (and, potentially, sought leave to lead further evidence about) Dr Huang's or DHE's capacity to make a proportionate contribution to the costs of taking out finance over the Premises or indemnifying WWE for its liabilities under the loan to Medfin, if WWE was ordered to transfer the Premises to Ismile, and the manner in which such a transaction could fairly be implemented. After taking further instructions, Mr Sulan confirmed that the Plaintiffs' position was that the relief they proposed was wholly appropriate and they did not seek alternative relief or the opportunity to make further submissions (T112). I have reached the conclusions set out above on that basis.