By Summons filed on 28 June 2024, the Plaintiff, Mr Jaworski, seeks relief described as:
"Grant of leave for derivative action per Request in attached Affidavit: Jaworski Chartered Accountants, Australia and New Zealand."
The relief which is sought is framed as the grant of leave to bring a derivative action, which Mr Jaworski contends would be granted in accordance with the general law, in circumstances that the Defendant, Chartered Accountants Australia and New Zealand ("CAANZ") is not a company registered under the Corporations Act 2001 (Cth) ("Act"). However, Mr Jaworski rightly pointed out that the leave which he sought was not required to commence the proceedings but, on the case law, went to the question whether he would be entitled to retain legal representation at the cost of CAANZ.
It is convenient first to address the authorities on which Mr Jaworski relied, although he first addressed them in detail after I gave leave to reopen to do so. I have revised this judgment to reflect his further submissions in this regard. Mr Jaworski relies on the Court of Appeal's decision in Wallersteiner v Moir (No 2) [1975] 1 QB 373 ("Wallersteiner") which is a well-known earlier decision in respect of the derivative action at general law, prior to the introduction of the present statutory derivative action regime for corporations under the Act. Mr Jaworski fairly drew attention to the observation of Lord Denning MR (at 391-392) in that case that a minority shareholder, as an agent acting on behalf of the company, was "entitled" to be indemnified by the company against all costs and expenses reasonably incurred by him in the course of the agency. That proposition, of course, depends upon the existence of an agency, arising where a minority shareholder is properly pursuing proceedings on the company's behalf. The Master of the Rolls there identified (at 392) a possible procedure to address the question of an indemnity for costs in favour of such a minority shareholder, namely that the minority shareholder, soon after issuing the proceedings, should apply for the sanction of the Court in somewhat the same way as a trustee does, by applying ex parte for directions supported by an opinion of Counsel as to whether there is a reasonable case or not. The Master of the Rolls noted that:
"The master may then, if he thinks fit, straight away approve the continuance of the proceedings until close of pleadings, or until after discovery or until trial (rather as a Legal Aid committee does). The master need not, however, decide it ex parte. He can, if he thinks fit, require notice to be given to one or two of the other minority shareholders - as representative of the rest - so as to see if there is any reasonable objection."
The Master of the Rolls also there noted that a preliminary application should be simple and inexpensive and should not be allowed to escalate into a "minor trial".
There are two difficulties with Mr Jaworski's reliance on this approach here. The first is that Mr Jaworski has not taken the course which Lord Denning MR contemplated, namely that the application brought ex parte should be supported by an opinion of Counsel. I recognise that Mr Jaworski indicates he has not done so because he cannot afford the costs of legal representation; but that has the significant consequence that the Court is deprived of the independent view of the merits of the proceedings which an independent opinion of Counsel would provide. The second difficulty is that, while Lord Denning MR suggested that proposed approach, he made clear that the master was not bound to decide the application ex parte but might do so if he or she thought fit. His Lordship also there contemplated that notice could be given to other minority shareholders; it seems to me that, by parity of reasoning, so too it could be given to the company which is the subject of the application, in whose name the proceedings are sought to be brought, and that view was taken by the majority in Wallersteiner.
Mr Jaworski also drew attention to the observations of Buckley LJ (at 404) where his Lordship also considered that a minority shareholder could apply for directions as to whether he should proceed in such an action and to what stage without further directions, and also contemplated that such an application could be made ex parte. However, his Lordship then went on to add:
"In a relatively simple case the Court may feel able to deal with the matter without joinder of any other party. When the summons comes before the Court, directions should be given as to whether the company or another minority shareholder or the defendants or any of them or anyone else should be made respondents and whether any respondent should be appointed to act in a representative capacity for the purposes of the summons." [emphasis added]
His Lordship went on to make further observations as to the possible approach and Scarman LJ (at 407) agreed with the procedure proposed by Buckley LJ.
These observations do not assist Mr Jaworski's contention that this application should continue on an ex parte basis to a determination. First, the majority in Wallersteiner confined that possibility to a "relatively simple case", and the 200 pages of Mr Jaworski's affidavit and 500 pages of exhibits to which he has referred are not consistent with this being a "relatively simple case". Second, the majority of the Court of Appeal there expressly approved the possibility that the company could be joined as a respondent to such an application rather than it being determined on an ex parte basis.
Mr Jaworski also referred to Oates v Consolidated Capital Services Pty Ltd (2009) 72 ACSR 506; [2009] NSWCA 183 ("Oates"). He referred, first, to the proposition, which I accept, that "leave" is not required to commence derivative proceedings, at general law, before their commencement. Instead, as Campbell JA noted (at [87]), an application, which Mr Jaworski here describes in his Summons as a "leave" application, is a mechanism available to a minority shareholder which is concerned about his or her potential future liability for costs and which seeks to obtain indemnity from the company in respect of such costs. I proceed on the basis that, as Mr Jaworski points out, his reference to "leave" in his Summons is directed to that matter. Campbell JA also there referred to the observations in Wallersteiner to which Mr Jaworski refers and to which I have referred above. I have noted above that that case contemplates, in the majority judgment of Buckley LJ and Scarman LJ, that notice may properly be given to the affected company in respect of an application of this kind, after the first ex parte mention of the matter.
Mr Jaworski also refers to the decision of the Supreme Court of Queensland in Virgtel Ltd v Zabusky [2006] QSC 066 at [67], where the Court treated the application as seeking a "preliminary adjudication of the competence of the proceeding" and (at [75]) noted the difficulty in that case of convening a meeting of the relevant company, or a meeting of its board of directors, noting that an application of this kind could allow "not insubstantial claims" to be "ventilated effectively". Two things should be noted about those observations. The first is that the matter was not conducted on an ex parte basis. To the contrary, the judgment records the fact that both the applicants and the first to fifth respondents were represented. Second, the observations as to the desirability of a derivative action, where a company could not readily authorise the commencement of the proceedings, do not have the consequence that the company should not be given notice of the application and an opportunity to be heard as to whether the proposed proceedings should be conducted at its cost.
Mr Jaworski also refers to the observations of Finkelstein J in Wood v Links Golf Tasmania [2010] FCA 570 at [9], which was a statutory derivative action, where his Honour ordered that the company indemnify the plaintiff for its costs. That, however, was an application of the statutory requirements for leave to bring a derivative action in respect of a company under the Act and, second, is a rare (and possibly the only) case in which such an order has been made, amidst a multitude of cases in which, to the contrary, a shareholder has been required to indemnify the company for the costs to which it will be exposed by the proceedings in order to obtain such leave.
For these reasons, while Mr Jaworski's account of the cases has been helpful, it does not support the conclusion for which he contends, that this is a simple case that it would be inappropriate to give CAANZ an opportunity to be heard as to whether Mr Jaworski should be permitted to pursue a claim at CAANZ's cost, whether to an intermediate point or in its entirety. It is important, in that respect, that Mr Jaworski does not provide the Court with the assistance of any Counsel's opinion, as contemplated by Wallersteiner, as to the prospects of the claim that he seeks to bring on CAANZ's behalf and at its cost. Absent such an opinion, the Court's assessment of that matter would be better informed if CAANZ is allowed an opportunity to be heard and make submissions in that regard.
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The question in this application, affidavit evidence and matter4s raised by Mr Jaworski
With this background, the question which arises in the application is a narrow one, namely whether Mr Jaworski should be required to serve the Summons on CAANZ before any determination of any question as to whether he should be entitled to pursue the proceedings further at CAANZ's cost.
Mr Jaworski relies on his affidavit dated 28 June 2024 which is some 194 pages in length part of which is in the nature of submissions. I have, consistent with the usual practice of Judges in this Court, undertaken a preliminary review of that affidavit before coming on to the bench, and the affidavit has now been read by Mr Jaworski in the course of the hearing this morning. It seems to me that the matters which are in issue do not depend upon a detailed review of the allegations made in that affidavit, at least unless and until CAANZ is allowed an opportunity to be heard as to those matters, before the Court determines whether Mr Jaworski should be permitted to pursue the proceedings further at its cost.
I should, however, note the matters which Mr Jaworski has raised in the course of submissions which are directed to the proposition that the Court should grant the relief he seeks on an ex parte basis, without CAANZ being given any opportunity to be heard as to those matters.
First, Mr Jaworski submits that it would be contrary to the interests of justice to require the Summons to be served on CAANZ to allow it an opportunity to respond to the allegations, before determining whether Mr Jaworski can pursue the proceedings further at its cost. Plainly, that question needs to be determined in the particular circumstances, but it needs to be determined in the context that procedural fairness would ordinarily require that a party against which relief is sought, here to permit proceedings to be conducted on CAANZ's behalf and at its cost, should be given the opportunity to be heard as to whether that relief should be granted. I recognise that Mr Jaworski points to several matters that he submits are such that procedural fairness is excluded here, and I will address those matters below.
Second, Mr Jaworski submits that CAANZ is not incorporated under the Act but under Royal Charter, and that that may limit protections afforded to its shareholders under the Act although protections will still be available at general law. I assume, without deciding, that that is the case, and that the question whether the orders sought by Mr Jaworski should be made will be determined by general law principles which existed prior to the introduction of the statutory regime for derivative actions under the Act, to which I referred above. That, however, is not sufficient to exclude the desirability of procedural fairness, so far as relief is sought against CAANZ, to permit proceedings to be conducted on its behalf at its cost.
Third, Mr Jaworski submits that the officers of CAANZ have effective control of it and have acted in a manner that is oppressive and prejudicial to the interests of its members and inconsistently with the purpose of CAANZ of promoting transparency and accountability. It must be recognised that that is an allegation; CAANZ may well not agree with that characterisation of the conduct of its officers; and potentially, the officers themselves may not agree with that characterisation, although they have not been presently joined as party to the proceedings to give them any opportunity to respond to it.
Fourth, Mr Jaworski submits that, when the officers of CAANZ are accused of wrongdoing, it is unfair for them to use the resources of CAANZ to respond to that allegation. That proposition plainly depends upon the existence of a basis for the allegation of misconduct and it also depends on the way in which CAANZ responds to the allegations against its officers. For example, it would be common and desirable practice, where such an allegation is made, for an organisation to appoint an independent board committee comprised of persons against whom the allegation is not made, or adopt some other mechanism of corporate governance, to allow decisions to be made by persons who do not have an interest in the matter. Whether CAANZ would take that course remains to be seen, but it will not have the opportunity to do so unless it is afforded an opportunity to be heard before the relief sought by Mr Jaworski is granted. No doubt, if CAANZ, under the control of the alleged wrongdoers were to expend its resources in their defence, that might be a matter which warranted intervention by the Court. But whether CAANZ will do so is a matter that is yet to emerge and cannot emerge unless it has the opportunity to be heard as to the relief sought.
Fifth, Mr Jaworski submits, by reference to Wallersteiner to which I referred above, that a company's resources can or should be used to provide legal representation in an action brought in the company's name against its officers. I accept that that is a potential order but it is not an order that should be made in every case or without any inquiry into the merits of the allegations. In particular, it is not apparent that every person who wishes to bring a derivative action against a body other than a corporation, irrespective of the merits of the allegations to be made, should be funded by that body in doing so. Plainly, that proposition requires at least a preliminary inquiry as to the merits of the allegation, and the majority in Wallersteiner recognised that it may be appropriate to allow the body to be heard in respect of that preliminary inquiry, albeit there may be constraints on the manner in which the body makes relevant corporate decisions as to how to respond to the allegations made.
Sixth, Mr Jaworski submits that CAANZ should be legally represented but that the process is forcing him to represent CAANZ. I do not accept that submission where the process has, at least in the form that the Summons contemplates, two stages. The first is the application that Mr Jaworski has brought for approval to bring a derivative action with funding to be provided by CAANZ in which he is entitled to represent himself and has done so. The second is a stage by which, if Mr Jaworski is allowed such approval, then he (acting on behalf of CAANZ) can be legally represented at its cost.
Seventh, Mr Jaworski submits that his affidavit shows a prima facie case against the alleged wrongdoers. However, the difficulty with drawing inferences from that affidavit, without allowing the parties against whom such inferences are to be drawn an opportunity to be heard, is that it is inconsistent with procedural fairness, and this is not a simple case of the kind contemplated as one possibility in Wallersteiner. It is a matter of common experience that perceptions may differ, so CAANZ might, for example, consider that there are other matters which are relevant, in explanation of its officers' conduct, in addition to those to which Mr Jaworski has pointed. To reach a conclusion whether as to the strength of the proposed claim without allowing CAANZ an opportunity to be heard, would deprive it of procedural fairness in respect of the application and undermine the reliability of that decision.
Eighth, Mr Jaworski points to his intention, by his affidavit, to secure justice for CAANZ in respect of its claims against the alleged wrongdoers. Again, I proceed on the basis that that is Mr Jaworski's intention but not all derivative actions are well-founded, whether under the general law or by statute, and "leave" (in the relevant sense) has been granted both in the United Kingdom and in Australia in some applications and not in others. Again, that contemplates a process to determine whether such leave should be granted, in which procedural fairness is an important component of that process at least in a complex case. Mr Jaworski also submits that his claims raise important public interest matters, but it seems to me that the same issues arise in that respect, namely that that is a question best determined after procedural fairness is allowed to CAANZ, so far as it is affected by an application to bring the proceedings on its behalf and at its cost.
Ninth, Mr Jaworski submits that his affidavit presents the whole of the case and his evidence is not contested. He points to the fact that he has available about 500 pages of additional documents, in electronic form, which he would be "happy to provide to the Court". No doubt, those documents could be tendered, subject to any proper objection, in a hearing of Mr Jaworski's application in due course. While Mr Jaworski's affidavit may well provide the whole of the case as he perceives it, that highlights the possibility that CAANZ may consider that other matters are relevant to the relief he seeks, beyond those which he has identified. Second, the proposition that the affidavit is not contested simply reflects the fact that CAANZ has not yet had any opportunity to respond to it, and any contest could only emerge after that opportunity was permitted to it.
Tenth, Mr Jaworski identifies several key matters to be dealt with in his proposed claim, including contentions that the alleged wrongdoers have acted to quash members' rights to call the board to account; that they amended the basis on which a resolution could be proposed by members to require 100 rather than 10 members as the minimum number of members to do so; that office bearers have been paid remuneration and, after a challenge to their entitlement to that remuneration, that resolution was put to an annual general meeting for approval; and that CAANZ's accounts do not "require truth and fairness", although it was not entirely clear whether this was an allegation that those accounts were not in fact true and fair accounts. I recognise that these allegations are made; I proceed on the basis that, if established, they are likely significant matters; however, the strength of the case, and whether CAANZ should be required to pay the costs of pursuing it, would be best determined after CAANZ is allowed an opportunity to be heard. I note, for completeness, that Mr Jaworski also referred to a concern that, if CAANZ was joined as the defendant in proceedings brought by him personally, the directors would rely on legal professional privilege, and raised the possibility that such privilege may not be available if the action is brought by CAANZ. That question is best left for determination if and when proceedings are pursued further on CAANZ's behalf.
Eleventh, Mr Jaworski referred to a suggested "Catch-22", where legal representation is required for CAANZ but he does not have access to such legal representation at this point. There is, it seems to me, no inconsistency so as to constitute a "Catch-22" in that respect. As I noted above, the present application may be brought by Mr Jaworski without legal representation, although I have drawn his attention to the desirability of legal representation; if the application succeeds, the proceedings can continue on CAANZ's behalf and funded by CAANZ, and CAANZ can be legally represented at its cost.
Twelfth, Mr Jaworski referred to the decision in Oates in the Court of Appeal, which in turn referred to Wallersteiner, as authority that there was no need for "leave" to commence a derivative action, although, immediately after the action was commenced, "leave" would be sought on an ex parte basis. Mr Jaworski expanded on that proposition in the further submissions as to the case law to which I referred above. I proceed on that basis, although I recognised above that that is arguably not the basis on which the Summons proceeds, so far as it seeks such leave. So far as the question whether a hearing as to "leave" should take place on an ex parte basis, I have noted above that it seems to me that it would be preferable in a matter of this complex character that CAANZ have the opportunity to be heard as to whether it should be ordered to pay the costs of legal representation for Mr Jaworski (acting on its behalf) in the proposed proceedings. There is no inconsistency in that proposition, where the question of how the application is to be heard, whether on an ex parte basis or otherwise, can be determined on notice to the party affected by the application, so it at least has an opportunity to be heard as to that practical matter.
Thirteenth, Mr Jaworski submits that he does not have the funds to pay a legal representative and I proceed on that basis. However, Mr Jaworski, as I have noted above, is entitled to be self-represented in this aspect of the application and he is presently self-represented in this aspect of the application. Plainly, the position may differ if, ultimately, CAANZ is ordered to pay his costs of proceedings brought on its behalf. Further, and importantly, I have drawn to Mr Jaworski's attention the fact that there is a significant risk for self-represented litigants, including Mr Jaworski, who lack adequate resources to conduct litigation. While Mr Jaworski's representing himself, at this point, has the consequence that he is not incurring the costs of legal representation, he remains exposed to the costs of legal representation of CAANZ, if he is unsuccessful in respect of this application, at least where it is permitted to be heard in this application.
Fourteenth, Mr Jaworski submitted that the Court should read his affidavit in order to reach a conclusion as to these matters. I have noted above that, consistent with the Court's usual practice, I have reviewed that affidavit before coming on to the bench and it seems to me that the detail of that affidavit does not exclude the desirability of the proceedings being served upon CAANZ, so that it can be heard as to the question whether proceedings should be continued by Mr Jaworski on its behalf at its cost.
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Orders
I have allowed Mr Jaworski the opportunity to be heard as to orders, and I accept that it would be inappropriate to direct him to serve this application on CAANZ, where he is concerned that the service of the application would expose him to costs then incurred by CAANZ, to which he does not wish to be exposed. In those circumstances, the preferable course is to allow Mr Jaworski the option to serve the proceedings, if he wishes to do so, but stay the proceedings until that has occurred. That allows him to continue the proceedings, if he wishes to do so, but does not require him to do so if he does not wish to do so.
Mr Jaworski has also raised the possibility that he will seek leave to reopen, to the extent that I may not have understood the submissions that he has put or that he may wish to address further matters as to the case law, which I have addressed above. Ordinarily, leave to reopen is not readily granted, but I bear in mind that the issues are complex and Mr Jaworski is self-represented. I will make directions which will allow him the opportunity for further submissions and reserve to him the opportunity to apply for leave to reopen, while reserving the question whether such leave should be granted.
Accordingly, I make the following orders:
Note that the proceedings have not been served.
Stay the proceedings until they are served upon the Defendant, Chartered Accountants Australia and New Zealand.
Direct the Plaintiff, Mr Jaworski, to notify the Associate to Black J within two days of serving the proceedings, to permit their relisting.
Relist the proceedings in the Corporations Directions List on 16 December 2024, with a view to dismissal of the proceedings for want of prosecution if they have not been served by that date.
Direct that Mr Jaworski provide an outline of any further submissions that he wishes to make in any application to reopen, limited to ten pages in Arial font 12 in one and a half spacing, to the Associate to Black J by 4pm on 23 August 2024.
Relist the matter for any application to reopen by Mr Jaworski, and any oral submissions in that regard, in the Corporations Motions List at 9.15am on 26 August 2024.
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Decision last updated: 20 August 2024