Keyrate P/L v Hamarc P/L & Ors

(a) for breach of fiduciary duty as a promoter and co-venturer against all the Defendants other than Hamarc and Pentela;

(b) under the Corporations Law against Mr Ferdinand Oosterhoff and members of his family said to be acting as directors of Hamarc and Pentela for breach of equitable and statutory duties as directors;

(c) against ATI for breach of the joint venture management agreement and breach of fiduciary duty as an agent;

(d) for statutory and common law misrepresentation in relation to certain conduct said to have induced Keyrate and the other Plaintiffs to have entered into the joint venture; and

The statement of claim seeks some relief described in (b) and (c) above in the name of Pentela and/or Hamarc. 11 To pursue relief in the name of Hamarc or Pentela, Keyrate and the other proposed plaintiffs must obtain leave to proceed under s237 and now seeks that leave by amended notice of motion dated 9 March 2001. The Plaintiff does not at this stage seek relief under s233(1)(g). 12 In support of the Plaintiff's motion it read the affidavit of its solicitor, Mr Troy Peisley, sworn on 5 March 2001, and the affidavit of the proposed third Plaintiff, Mr Alex Kiklovich, sworn on 21 February 2001. The Defendants took no objection to the contents of those affidavits being read. The Defendants read the affidavit of their solicitor, Mr Christopher Dawson, sworn on 26 March 2001. No objection was taken to the contents of that affidavit. 13 I have been assisted by written submissions prepared by counsel for the Plaintiff and counsel for the Defendants. 14 The proposed statement of claim is some 39 pages long. The parties agreed that for the purposes of this motion the Court would not be assisted by a close examination of the detail of the evidence or the many individual pleaded allegations in the statement of claim. Appended to the Defendants' outline written submissions was a 12 page document entitled Matters of Defective Pleading and for Proper Particulars. Counsel agreed that it would be possible to conduct the argument before me without descending to a detailed consideration of each of the objections stated in that document. Mr Slattery QC who appears for the Plaintiff conceded that at least the allegations of fraud, dishonesty and negligence did require re-pleading or greater particularity. He further indicated that the Plaintiff was prepared to further particularise its damages claim at least generically. Further, it was conceded on the Plaintiff's behalf that greater particularity can be achieved with respect to the alleged contraventions of the Corporations Law and breaches of general law directors' duties if the Plaintiff were to provide the Defendants with references to the identifiable acts and/or omissions upon which it intends to rely to establish these contraventions. The orders I propose to make provide a regime for these matters to be dealt with. 15 I will deal first with the procedural issue which is raised by the Defendants and second with the issue of granting leave to proceed under s237 of the Corporations Law.

A. Procedural Issue 16 In the proposed amended summons and statement of claim the Plaintiff has named both Hamarc and Pentela as Defendants. By paragraphs 122, 140 and 146 of the statement of claim, relief is claimed on behalf of Hamarc and Pentela against the other proposed Defendants. The Defendants contend that there is an inherent problem in doing so because relief is sought both for and against Hamarc and Pentela. 17 The Plaintiff answers that contention by saying it has followed an accepted procedure for derivative actions and in so doing has complied with the new statutory derivative scheme. The former procedures for members bringing derivative actions under one of the exceptions to the rule in Foss v Harbottle (1843) 67 ER 189, involved a party bringing such an action, as the Plaintiff now seeks to do, by joining the company as a Defendant and claiming relief on its behalf. Success by the Plaintiff under the old procedure resulted in a judgment binding on and for the benefit of the company: Ford's Principles of Company Law (Butterworths), Ford Austin & Ramsay, para 11.300; Spokes v Grosvenor Hotel Co Ltd (1897) 2 QB 124. 18 The new statutory derivative action created by ss236 and 237 of the Corporations Law includes a requirement that "Proceedings brought on behalf of a company [under the ss236 and 237 procedure] must be brought in the company's name": s236(2). The Plaintiff says that s236(2) does not require in every case and in particular in a case such as the present that the company be actually made a plaintiff in a fresh summons or statement of claim, if it is already a defendant against whom relief is claimed. The Plaintiff further says that provided the representative nature of the proceedings on behalf of the company is clear, the present structure of the statement of claim is appropriate. The Plaintiff's argument on this issue is set out in its outline of submissions. "2.4 The words "in the company's name" in s236(2) must always be construed in circumstances where the company has in substance refused to commence or continue the proceedings itself: s237(2)(a). That is so in the present circumstances. This diminishes the force of any suggestion that s236(2) can only be satisfied by the company appearing on the title of the proceedings as a Plaintiff. 2.5 In substance, the statutory derivative action is brought "on behalf of" the company by the Plaintiff in a representative capacity, in addition to the Plaintiffs' personal capacity. It is sufficient that the pleadings somehow clearly reflect that dual capacity. The proceedings are properly constituted provided the Plaintiff has each of the capacities claimed: Karam & Ors v ANZ Banking Group (2000) 34 ACSR 545 at para 39; Bowler v John Mowlem & Co Ltd (1954) 3 All ER 556. 2.6 The statutory derivative action was created analogously with and against the background of an established procedure for bringing suits in equity and at common law in the name of a company (apart from the exceptions to the rule in Foss v Harbottle ) by joining the company as a co-defendant with alleged wrongdoers. The procedure is particularly apt in order to avoid a multiplicity of suits: Jacobs Law of Trusts in Australia, Meagher & Gummow, (Butterworths) 6th Edition, para 2303; Karam v ANZ Bank , para 37; Lidden v Composite Buyers (1996) 139 ALR 549, at 552-3; Howden v Yorkshire Miners Association (1903) kb 308 AT 328-329; Ramage v Waclaw (1988) 12 NSWLR 84 at 91. 2.7 The proposed form of Statement of Claim complies with s236(2). (i) The joinder of Hamarc and Pentela as Defendants, who will benefit from the action which is pleaded on their behalf against co-Defendants, is to bring an action "in the company's name". The words of s236(2) will literally be complied with provided that each company is named as a party. (ii) The role of these companies will be no more active or passive in the proceedings nor will it otherwise differ in substance where they are made Plaintiffs or Defendants and the court's capacity to make orders including costs orders in relation to them is not altered by their position as Plaintiffs or Defendants. (iii) Hamarc and Pentela are necessarily Defendants in these proceedings in order for the Plaintiffs to obtain the relief claimed by them in the oppression action brought under s233. These companies cannot be Plaintiffs and Defendants in the one action at the one time. Avoiding multiplicity of proceedings is desirable, for "the just quick and cheap" resolution of disputes. The several claims raised by the proposed statement of claim deal with overlapping issues of fact and should all be tried together: Lidden v Composite Buyers at 544; Supreme Court Rules Part 1, rule 3(1). 2.8 Although the bringing of simple proceedings "in the name of" another usually requires that other person to be named as a Plaintiff, in the more complex cases the Corporations Law should be interpreted to allow the remedy provided by sections 236 and 237 to be interpreted to accommodate the full flexibility of the rules of court and to promote the greatest efficiency of the new remedy and thereby the purpose or object underlying it. Stuckey v Iliff (1960) 105 CLR 164 at 170; section 109H of the Corporations Law ; Crothers v Sheil (1933) 49 CLR 399 at 407, 408; McBeatty v Gorman (1975) 1 NSWLR 262 at 267 and 271."

19 I find these arguments persuasive. The proposed structure of the statement of claim and the joinder of Hamarc and Pentela as Defendants on whose behalf the relief sought complies with the procedural requirements of the new statutory derivative action created by ss236 and 237 of the Corporations Law. The representative nature of these proceedings as pleaded is clear.

Factors Requiring Leave to be Granted 20 In order to obtain a grant of leave the Plaintiffs must satisfy the five pre-conditions set out in s237(2) of the Corporations Law. Subs237(2) provides as follows: "(2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is inappropriate to grant leave even though subparagraph (i) is not satisfied."

21 Before looking at whether these five preconditions are made out in the present case it is helpful to see how the case was put on behalf of the Plaintiff. 22 In oral submissions, Mr Slattery QC categorised the Plaintiff's principal allegations in the proceedings thus.

(a) Punchinello - this allegation relates to Mr Ferdinand Oosterhoff's alleged non-disclosure to the Kiklovichs of an obligation that he, and interests associated with him owed to Kosciusko Thredbo Pty Ltd (the head lessee of Thredbo Village from the New South Wales Government) to build additional beds at a ski lodge (Punchinello) also owned by him or interests associated with him. It is alleged that the time for performance of that obligation was extended and then extinguished in return for Mr Oosterhoff undertaking to Kosciusko Thredbo that he would build a lodge with an equivalent number of beds. That undertaking was then satisfied to the advantage of the Oosterhoff interests by the 130 bed River Inn project, which was constructed pursuant to the joint venture.

(b) Time Share Scheme - this allegation relates to Mr Ferdinand Oosterhoff's alleged non-disclosure of an undertaking given by him, and interests associated with him, to Kosciusko Thredbo that, in return for it providing him with its consent to an application he wished to make to the National Parks & Wildlife Service for a timeshare scheme he wished to implement for a ski lodge owned by his interests (Snowgoose), he would build a new lodge in Thredbo. That obligation was satisfied to his advantage by the performance of the joint venture and the building of the River Inn.

(c) Financial Non-viability - this allegation relates to Mr Ferdinand Oosterhoff's alleged non-disclosure of his own adverse assessment of the River Inn's financial viability prior to the entry into the joint venture agreement.

(d) Back Rent - this allegation relates to Mr Ferdinand Oosterhoff's alleged non-disclosure of Pentela's obligation to pay back rent for the River Inn site to Kosciusko Thredbo in relation to the site of the River Inn. It is said that the back rent had also been negotiated by Mr Oosterhoff in return for Kosciusko Thredbo's release of his obligation to pay it rent on the proposed Punchinello bed extension.

(e) Additional Management Fees - this allegation relates to Mr Ferdinand Oosterhoff allegedly procuring management fees for ATI from Hamarc in excess of agreed fees, in circumstances involving duress.

(f) Mismanagement - this allegation relates to ATI's mismanagement of the River Inn and its conduct as a manager in selling holiday packages at allegedly artificially low wholesale rates for the purpose of deriving excess commissions and retaining the difference between these wholesale rates and retail rates. 23 The Defendants accepted that in respect of each of these six subject matters referred to by the Plaintiff there was a serious question to be tried within the meaning of s237(2)(d). Mr Dempsey for the Defendants also conceded that in so far as the other pre-conditions for leave to be granted under s237(2) were concerned, all but one of them had been made out by the Plaintiff. The parties only remained at issue in respect of the requirement under s237(2)(c) (that it be in the best interests of the company that the applicant be granted leave). 24 The Defendant submitted that leave to proceed under s237 should be refused on two grounds: first, because the derivative actions do not arise out of the same transactions as the personal claims or the management conduct claims for the purposes of Part 8 rule 2 and, second, that it could not be in the interests of the companies to file a statement of claim in its current form. 25 Mr Dempsey for the Defendant(s) submits that the derivative actions do not arise out of the same transactions as the Plaintiff's personal claims and in that regard he relies upon Pt 8 r2 of the Supreme Court Rules and on authorities including the English decisions of Stroud v Lawson [1898] 2 QB 44 and Prudential Assurance Co Ltd v Newman Industries Ltd [1981] Ch 229 (Vinelott J) revd [1982] Ch 204 (Court of Appeal) the latter cited with approval in Ford's Principles of Corporations Law (supra) at [11,265]. These authorities and the Rules he submits require that all the relief claimed in the proceedings be in respect of or arise out of the same transaction or series of transactions. The Defendants contend that the derivative actions do not arise out of the same transactions and that it is inappropriate to grant leave where elements of the derivative action and the elements of the personal actions, or management conduct actions, differ. The Defendants submit that there is no prejudice to the Plaintiffs from this course as it is open to the Plaintiffs to seek leave and then cause Hamarc and Pentela to commence fresh proceedings if they so choose. 26 There appears in fact to be a very substantial factual overlap between the derivative actions and the personal actions in the case as pleaded in the proposed statement of claim. However, without deciding that question, I doubt that the English cases cited by the Defendant do require an exact factual overlap. Even if the Defendants' contention the English cases require an exact factual overlap or coincidence of issues between the personal and derivate actions were correct, s63 of the Supreme Court Act 1970 mandates a more flexible approach to the issue in this jurisdiction. Section 63 empowers the court to grant such remedies as any party is entitled to in respect of any claim brought in the proceedings so that, in the first place, all matters of controversy are completely and finally determined, and secondly to avoid a multiplicity of proceedings. I would conclude that to the extent that there are any additional factual elements, because of the substantial overlap all matters should be tried in the same set of proceedings to finally determine the matter and avoid multiple proceedings. 27 A further issue arises. That is whether the use of the mandatory language ("must") in s237(2) itself precludes the Court from considerations of the sort raised in those English cases. Mr Dempsey submitted that if the conditions of s237(2)(a) to (e) were satisfied the court must grant leave to bring proceedings but it did not follow in this case that leave should be granted to bring those claims in the same proceedings as the personal claims if that would be otherwise inappropriate under Pt 8 r2. For the reasons stated in the previous paragraph, it is not necessary for me to decide that issue as a matter of principle in this case, though I would incline against the Defendants' contention. 28 The second aspect of the Defendants' objection to leave on this ground is that the interests of Hamarc and Pentela cannot be assessed in circumstances where the proposed statement of claim is defective in form and lacks particularity in some respects. 29 The Defendants' argument was set out in its outline or argument as follows: "7. Further, leave ought not to be granted to file the statement of claim in its current form. See the attached "Matters of Defective Pleading and for Proper Particulars". 7.1 There is a particular risk of embarrassment and prejudice to the defendants in this case as the pleading mixes so many different causes of action with different elements against a variety of parties. 7.2 Pleadings alleging dishonesty (paragraph 112, 133) and other false and intentionally misleading conduct (for example, paragraphs 91) must be pleaded properly with full particulars: Pt 15 r13, Ritchie's Supreme Court Procedure (NSW) Butterworths Vol 1 [15.13.5]. 7.3 The deficiency of particulars is so widespread that the plaintiffs should be required to replead in any event. 8. Further, leave should not be granted as the plaintiffs have not demonstrated that the commencement of derivative proceedings are in the best interests of the companies. The statement of claim does not plead what damage or loss or detriment has been sustained and no particulars of damage have been provided. It is obvious that the proceedings will be complex, lengthy and expensive."

30 That objection is now overcome by the Plaintiff's earlier indication that it is prepared to replead or provide further particulars in respect of the fraud, dishonesty, negligence, directors' duties and damages aspects of the claim and to take account of the other objections stated in the document. 31 I propose to make an order granting leave to the Defendant to bring a statutory derivative action pursuant to P 2F.1A of the Corporations Law. I am satisfied as to the matters pursuant to s237(2). The orders will include the procedure in 6 and 7 below, which I am satisfied sufficiently safeguards the pleading position for the Defendants, while recognising the mandatory requirement upon the Court in s237(2) once its conditions are satisfied.

The allegations of fraud and dishonesty contained within the draft statement of claim at annexure "C" to the affidavit of Troy Peisley sworn on 5 March 2001 (the Draft) be pleaded by the Plaintiff more precisely or otherwise be particularised by it.

The allegations of negligence contained within the Draft be pleaded by the Plaintiff more precisely or otherwise be particularised by it.

The conduct alleged by the Plaintiff in the Draft to contravene the Corporations Law and/or breach general law directors' duties be specified by it with reference to and with reasonable particularisation of the identifiable acts and/or omissions upon which it relies.

The Plaintiff particularises generically the damages it has claimed in the Draft.

The Plaintiff file and serve upon the Defendants a statement of claim in the form of the Draft but revised so as to comply with orders 1 to 4.

If the Defendants wish to make an application to the Court alleging that the Plaintiff has failed to comply with orders 1 to 4, they must do so within 7 days of the first Monday following the Plaintiff notifying the Defendants that it considers itself to have acted in compliance with order 5.

In the event that the Defendants do not make an application pursuant to order 6, leave be granted to the Plaintiff in accordance with the orders sought in prayers 1, 2, 4 and 6 of its amended notice of motion dated 9 March 2001 and annexed hereto, but subject to the Draft complying with orders 1 to 4.

It be noted that there is no order as to costs on the basis that costs will then be costs in the cause.

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