Magafas v Carantinos & Anor

Supreme Court of NSW|2006-11-27|Before: Brereton J

CITATION : Magafas v Carantinos & Anor [2006] NSWSC 1459

HEARING DATE(S) : 27 November 2006 JURISDICTION : Equity Division

DECISION : Leave granted to bring statutory derivative action and to amend statement of claim. Interlocutory injunctive relief granted to preserve assets of company and ensure notice to plaintiff. Defendant to pay plaintiff's costs.

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 232, 237 Fair Trading Act 1995 (NSW)

Carpenter v Pioneer Park Pty Limited (in liq) (2004) 211 ALR 457 Charlton v Baber (2003) 47 ACSR 31 Fiduciary Limited v Morningstar Research Pty Limited [2005] NSWSC 442 CASES CITED : Goozee v Graphic World Group Holdings Pty Limited (2002) 42 ACSR 534 Jeans v Deangrove Pty Ltd [2001] NSWSC 84 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313

Anthony Magafas (first plaintiff) PARTIES : Pac-Com Pty Limited (second plaintiff) Peter Carantinos (first defendant) Fotini Carantinos (second defendant)

COUNSEL : Mr T Alexis SC (plaintiffs) Mr I Faulkner SC w Ms E Holt (defendants)

SOLICITORS : Rockliffs, Solicitors & Attorneys (plaintiffs) Munro Lawyers (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2670/06 Anthony Magafas v Peter Carantinos & Anor JUDGMENT (Ex tempore) 1 HIS HONOUR: The plaintiff Anthony Magafas and the first defendant Peter Carantinos are the two directors of and equal 50% shareholders in Pac-Com Pty Limited. Pac-Com is the trustee of the Karafas Trust, a hybrid unit discretionary trust of which members of the Magafas family and members of the Carantinos family are the beneficiaries. The second defendant, Fotini Carantinos, is the wife of the first defendant.

2 Mr Magafas has commenced these proceedings against Mr and Mrs Carantinos alleging, first, that he and Mr Carantinos in the early to mid 1990s entered into a joint venture or partnership for the acquisition, development and sale of real estate; secondly, that in pursuance of that joint venture three properties were acquired (one comprising three lots at 39-43 Riverside Drive, Dulwich Hill, a second at St Peters, and a third at Katoomba; the Katoomba property has since been sold and does not require further attention in the present application, and the Dulwich Hill property has also been sold); and thirdly, that Mr Carantinos owned him fiduciary duties as a partner or co-venturer. Mr Magafas complains that, in breach of those duties: · one of the three lots that comprise the Dulwich Hill properties was acquired by Mr Carantinos and his wife in their own names when Mr Carantinos was bound to acquire it, if at all, for the benefit of the partnership; · the proceeds of sale of the Dulwich Hill properties have been misappropriated or misapplied by Mr Carantinos; · in respect of the St Peters property, which the parties agreed should be acquired by Mr Carantinos in a further joint venture between them and a third party, one Mr Gav, 50% of the shares in the joint venture corporate vehicle, Artesian Pty Ltd (Mr Gav holding the other 50%) were acquired in Mr Carantinos' name, when he was bound to acquire them, if at all, in the names of the joint venturers Magafas and Carantinos, or their company Pac-Com.

3 In their defence filed in the present proceedings, the defendants deny that there were breaches of fiduciary duty and assert: · that Mr Carantinos had an option to acquire the three lots at Dulwich Hill and assigned the benefit of the option in respect of two lots to Pac-Com, retaining the third for himself; · that the funds which he has retained are on account of management fees due to him; and · that Mr Carantinos acquired 50 percent of shares in Artesian in his own name after Mr Magafas had declined to be involved in the purchase of that property. 4 The defendants further say, by paragraph 2 of their defence: In answer to the whole of the plaintiff's claim the defendants say that, if any loss or damage was suffered, as alleged, which is not admitted, that loss or damage was not suffered by the plaintiff, as distinct from Pac-Com, in its capacity as trustee of the trust, and the plaintiff does not have standing to sue.

5 Mr Magafas has also commenced proceedings in the District Court for the recovery of moneys advanced by him to Mr Carantinos, which he alleges are loans but which Mr Carantinos apparently says were part payment of management fees said to be due to Mr Carantinos for his management role in of the joint venture. The proceedings in the District Court were removed into this Court and now travel with the present proceedings.

6 The present application is brought by Mr Magafas under Corporations Act 2001 (Cth), s 237, for leave to bring proceedings under s 236 in the name and on behalf of Pac-Com against Mr & Mrs Carantinos, claiming compensation and other relief for alleged breaches by Mr Carantinos of his duties as a director of Pac-Com. The motion also seeks leave to amend the Statement of Claim in other respects, and interlocutory injunctive relief.

7 On an application under Corporations Act, s 237, for leave to bring proceedings on behalf of a corporation by way of the statutory derivative action created by s 236, the issues are those specified as the prerequisites of which the Court must be satisfied under s 237(2), namely:

(a) whether 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) whether the applicant for leave is acting in good faith;

(d) where the applicant is applying for leave to bring proceedings (as distinct, for example, from defending them), whether there is a serious question to be tried; and

(e) whether notice has been given to the company of the intention to apply for leave and the reasons for applying at least 14 days before the application is made or, if not, whether it is, in any event, appropriate to grant leave.

8 Should those five requirements be satisfied, the Court must grant leave [Carpenter v Pioneer Park Pty Limited (in liq) (2004) 211 ALR 457, [31]; Fiduciary Limited v Morningstar Research Pty Limited [2005] NSWSC 442, [16]]. If any one of the prerequisites is not established, leave must be refused: there is no residual discretion to grant leave if one or more of the prerequisites is unsatisfied [Goozee v Graphic World Group Holdings Pty Limited (2002) 42 ACSR 534, [27]; Charlton v Baber (2003) 47 ACSR 31, [31]; Jeans v Deangrove Pty Ltd [2001] NSWSC 84; Fiduciary Limited v Morningstar Research Pty Ltd [16]; Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [12]. It follows from the requirement that if all five criteria be satisfied, leave must be granted and that otherwise leave must be refused, that the relevant considerations are limited to the five specified criteria [Maher v Honeysett & Maher, [13]].

9 On an application for an interlocutory injunction, the question is whether the applicant for interlocutory relief has established a sufficiently seriously arguable case for final relief to justify, having regard to the balance of convenience, the granting of interlocutory relief.

10 It will be apparent that it is common, to the application for leave under s 237 and the application for interlocutory injunctive relief, that the plaintiff must establish that there is a serious question to be tried. Accordingly, it is convenient to deal first with that factor.

11 Acceptance that there is a serious question to be tried is facilitated in this case by the circumstance that no submission has been made to the contrary. But because the nature of that case informs consideration of other of the factors relevant to the s 237 application, it is appropriate to summarise, at least in broad terms, its content.

12 The derivative action which Mr Magafas seeks to bring on behalf of Pac-Com is for breach by Mr Carantinos of the duties which he owed Pac-Com as its director. Accordingly, the proposed action, as pleaded in the Draft Amended Statement of Claim, would allege that Pac-Com was acquired to be the corporate vehicle for the parties' property dealings; that Mr Carantinos was a director of Pac-Com and as such owed fiduciary and statutory duties to Pac-Com; that in purchasing the third of the lots at Dulwich Hill (No 43 Riverside Crescent) in the name of himself and his wife rather than in the name of Pac-Com, Mr Carantinos acted in breach of those duties; that as a result, each of the three Dulwich Hill lots (not limited to the two that were purchased in the name of Pac-Com) were assets of the Karafas Trust, or of the joint venture between Mr Magafas and Mr Carantinos; that the acquisition by Mr Carantinos of 50 percent of the shares in Artesian in his own name, in conjunction with Artesian's purchase of the St Peters property, in circumstances in which he was bound to acquire an interest in that property directly or indirectly, if at all, for the benefit of Pac-Com, was a breach of his duties to Pac-Com; and that his denial that he holds those shares upon trust for Pac-Com likewise is a breach of those duties. Further, it would allege that Mr Carantinos, in breach of his director's duties, has failed to account to Pac-Com for the proceeds of sale of the Dulwich Hill properties (including No 43); that he withdrew and appropriated for his own use without the knowledge or consent of Mr Magafas some $675,000 from Pac-Com's bank account; that he withdrew and appropriated for his own use a further $475,000 from Pac-Com Westpac's bank account; and that he has asserted that he owns the Artesian shares in his own right (and is therefore entitled to retain any distribution derived through them from the sale of the St Peters's property). Finally, it would allege that as a result of Mr Carantinos' various defaults, Pac-Com had to go into voluntary administration in late 2005, from which it has since emerged, but at a cost of some $267,000.

13 In circumstances where there has been no submission against the proposition that there is a seriously arguable case, it is better not to review the evidence in detail, but I am satisfied that the absence of such a submission is a plain and proper recognition, according to the evidence before me, that there is evidence which if accepted at final hearing could sustain such a case, and that, at this stage at least, the evidence of Mr Magafas as to his dealings with Mr Carantinos and his conversations with Mr Carantinos stands entirely uncontradicted. Of course, it may not be so at trial, but as things stand, there is a seriously arguable case for final relief of the type which I have outlined.

14 I turn then to consider the other prerequisites for the granting of leave under s 237.

15 The first is whether it is probable that the company will not itself bring the proceedings. Section 237(2)(a) requires that the Court be satisfied that it is probable that the company will not itself bring the proceedings. As Palmer J observed in Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313, 319 [28], in most cases it will be readily apparent whether this requirement is satisfied, since usually the defendant in the proposed derivative action will be in control of the company or enjoy the support of the majority of the shareholders or the Board. In Maher, the case was not quite in that category because the respondent there did not control the company (in the sense of having more than 50 percent of the voting power), but his 50 percent entitlement ensured that he could prevent the carriage of any resolution to institute proceedings against him (or his corporate alter ego). In those circumstances, it was said that it was readily to be inferred that he would not support a proposal that the company bring the proceedings against him, and all the more so in the light of his opposition to the application and the absence of any suggestion on his part that he would co-operate in bringing the proposed proceedings.

16 In the present case, as in Maher, the shareholdings are 50/50, and each of the protagonists is one of the only two directors. The same inference as was drawn in Maher is to be drawn here, for the same reasons as were explained in Maher. The inference is reinforced in this case by the circumstance that, when Pac-Com went into voluntary administration Mr Carantinos proposed (unsuccessfully) a Deed of Company Arrangement that included releases of all claims which the company might have had against its directors; and it is further reinforced by the circumstance that in more recent months Mr Carantinos has been agitating to have the company placed in liquidation - its control having been returned to directors upon the termination of the voluntary administration. I am satisfied that it is probable that Pac-Com will not itself bring the proposed proceedings.

17 The next relevant requirement, and the only one in respect of which there was an affirmative submission that a requirement had not been satisfied, is that the applicant for leave be acting in good faith. Section 237(2)(b) requires that the Court be satisfied that the applicant for leave is acting in good faith. In Swansson, Palmer J, while recognising that in the early development of the law on the statutory derivative action created by s 236 it would be unwise to state compendiously the considerations which might apply in determining whether an applicant is acting in good faith, and that the law would develop incrementally as different factual circumstances came before the courts, nonetheless identified two interrelated and usually overlapping factors to which the Court would always have regard in determining whether the good faith requirement imposed by s 237(2)(b) is satisfied: first, whether the applicant for leave honestly believed that a cause of action existed and had a reasonable prospect of success; and secondly, whether the applicant was seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process [(2002) 42 ACSR 313, 320, [35] - [36]]. That approach has since been followed in many other cases [Maher, [30]].

18 The applicant for leave bears the onus of proving the good faith criterion, but that onus varies depending upon the standing of the applicant. As Palmer J pointed out in Swansson, a current shareholder with more than a token shareholding who proposes an action to recover property of a company, which if successful will increase the value of the shares, will relatively easily demonstrate good faith, as may a current director or officer who has a legitimate interest in the welfare and good management of the company; but it will be more difficult for a former shareholder or officer, with nothing to gain directly by the success of the action, to do so [(2002) 42 ACSR 313, 320 [36]].

19 As I sought to explain in Maher, a conclusion that the applicant is acting in good faith does not depend on the sworn assertion of the applicant that he believes that a good cause of action exists and has reasonable prospects of success; what is necessary is that the Court be persuaded that there exists in the applicant such a state of mind. In some cases, the presence or absence of a sworn assertion to that effect might be important, but because it will almost always be unqualified opinion founded on hearsay, it will often be of little weight or utility; the objective facts and circumstances are more important [Maher, [33]].

20 In this case, Mr Magafas is a current shareholder and director of Pac-Com with a 50 percent shareholding. The proposed action seeks compensation for Pac-Com and, if successful, will enhance the value of the shares in Pac-Com. In such a case, relatively little is required to establish good faith. Moreover, although Mr Magafas has not deposed in terms to his belief in the cause of action, he has sworn affidavits and has been cross-examined, so that it cannot be suggested that he has avoided the opportunity to allow his good faith to be tested.

21 A substantial amount of the affidavit evidence in support of Mr Magafas' case for final relief has already been served, and those affidavits depose to facts which, if accepted (and they are presently uncontradicted), might well sustain the allegations of breach of duty which Mr Magafas seeks to agitate against Mr Carantinos. The very circumstance that I have accepted (and indeed, that it is uncontroversial) that there is a serious question to be tried is significant on the question of the good faith criteria. As I endeavoured to explain in Maher (at [36]), the actual existence of the matter, honest belief in which it is required, is a firm basis for the inference there is an honest belief in its existence. As I have found that there is a seriously arguable case for final relief, it does not require much to conclude that Mr Magafas honestly believes that there is a seriously arguable case for final relief.

22 The substantial argument advanced on behalf of the defendant against the conclusion that Mr Magafas is acting in good faith was that Mr Magafas had not been frank with the Court - in that, at the outset of the proceedings and, indeed, until recently when subpoenas for the tax returns of related entities made it inevitable - he did not disclose that the very substantial contributions which he claims to have made to the joint venture or Pac-Com as capital contributions to an investment fund, were dealt with in the accounts of his related entities as routine business expenses in respect of which tax deductions were claimed.

23 In my opinion this has nothing to do with the good faith requirement. If it transpires that the tax returns lodged on behalf of Mr Magafas told a story quite at odds with that put forward as the truth in the case, it would be far from the first occasion on which that has occurred. It may be, and it would be inappropriate to say anything more at this stage, that Mr Magafas or his related entities have been party to the making of false income tax returns. If that turns out to be so, then it may well be that there will be consequences at a later stage in the proceedings - although I observe that the Court has been informed and evidence has been adduced that amended returns have now been lodged. But the question on the good faith criteria is not whether the applicant has clean hands, nor whether there are matters adverse to the credit of the applicant for leave. The focus of the requirement is the applicant's purpose in bringing the application for leave - and the proposed proceedings, if leave is granted.

24 I can see in this case no want of intent to prosecute the proposed proceedings to a final hearing for the remedy claimed in them, and that is the ultimate test of whether or not there is an improper collateral purpose. It may be, as has been submitted on behalf of Mr Carantinos, that one of Mr Magafas' motives for bring proceedings is to attempt to appease his family - although it is not entirely clear how joining Pac-Com in the proceedings substantially advances the appeasement of the family over and above prosecuting the claim against Mr & Mrs Carantinos personally. But perhaps the strongest demonstration that the purpose of the proceedings is proper is that the need for them was distinctly raised by paragraph 2 of the Defence, putting in issue the standing of Mr Magafas, as distinct from Pac-Com, as the appropriate plaintiff. In the face of paragraph 2 of the Defence, the argument that the application for leave is not brought in good faith is untenable.

25 The next factor is the best interests of the corporation. Section 237(2)(c) requires the Court to be satisfied that the proposed derivative action is in the best interests of the company. There is no suggestion that s 237(3), which provides in certain circumstances a rebuttable presumption that a proposed derivative action is not in the best interests of the company, is applicable here.

26 The prosecution of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by that the officer's breach of duty is, at least prima facie, in the interests of the company. In the context of the present case the proposed derivative action, if successful, will enhance the assets of Pac-Com available for distribution between its shareholders, and, for the reasons which I explained in Maher (at [51] - [52]), is in the interests of Pac-Com.

27 This is a case in which the factual substratum of Pac-Com's proposed claim is substantially the same as that which underlines the dispute between Mr Magafas and Mr Carantinos personally. That factual substratum is to be litigated in any event. That circumstance makes it highly desirable, in the interests of the company whose only shareholders and directors will be litigating the issue in any event, that the subject matter be litigated on behalf of Pac-Com concurrently. The prosecution of the proposed derivative action here is in the interests of Pac-Com. No submission was made to the contrary.

28 As to the final criterion, notice as required by s 237(e)(i) to the company Pac-Com has not been given. However, Mr Carantinos is the only person to whom notice might practicably be given in the context of this two-man company, and during the pendency of the present Notice of Motion since 3 October 2006 he has had ample notice of the intention to make the application, the relief sought, and the supporting evidence. In those circumstances, I am satisfied that the absence of formal notice to Pac-Com should not be an obstacle to a grant of leave [cf Maher, [22]].

29 Accordingly, I am satisfied of each of the five prerequisites to a grant of leave under s 237, and it follows that such leave must be granted.

30 The Notice of Motion also seeks leave to amend the Statement of Claim. The proposed amendments fall into two categories. The first category concerns those amendments necessary to incorporate the proposed derivative action on behalf of Pac-Com; it follows from my conclusion on the s 237 application that those amendments should be permitted. The second category comprises amendments which add a claim for oppression under Corporations Act 2001 (Cth), s 232; claims for relief under the Fair Trading Act 1995 (NSW); and claims of negligent misrepresentation. The application to amend insofar as the second category of amendments is concerned is not opposed, and I will grant leave to amend accordingly.

31 In the absence of any agreement to a change of the registered office of Pac-Com, Mr Magafas seeks an order that Mr Carantinos provide to him by facsimile all notices or documents received at Pac-Com's registered office. In the circumstances of this serious falling out between the two equal shareholders and directors, there is a significant risk that notices sent to the registered office of Pac-Com will not come to the notice of Mr Magafas or his interests, unless some mechanism is in place to ensure that that happens. Mr Carantinos declined to continue an interim undertaking to the effect of the order sought. It has not been suggested that any prejudice would be occasioned by such an order. I will make an order substantially to the effect of paragraph 5 of the Notice of Motion.

32 Mr Magafas next seeks an order that Mr Carantinos be restrained until further order from selling, disposing of, using or otherwise dealing with any assets of Pac-Com and the Karafas Trust until further order. It is implicit, in my conclusion there is a serious question to be tried, that there is a seriously arguable case that Mr Carantinos is not entitled to deal in his own right with assets of Pac-Com or the Karafas Trust. The only assets which the evidence identifies are the two shares held by Mr Carantinos in Artesian, and the sum of $46,271.77 currently held by Colin Biggers & Paisley, the solicitors for the former joint administrators of Pac-Com, which they propose to pay to the company, its control now having returned to the directors. The evidence tends to show that Mr Carantinos has appropriated funds of Pac-Com for his own purposes, has claimed management fees, which he apparently asserts remain outstanding, and claims to be entitled in his own right to the Artesian shares. There is therefore a risk that, if not restrained, Mr Carantinos will use assets of Pac-Com for his own purposes. There is a seriously arguable case for final injunctions restraining Mr Carantinos from dealing with the $46,000 and the shares that are held in his name in Artesian. I accept that, to avoid room for doubt, any such injunction would better be framed to refer to the specific assets, rather than generically to "any assets of the second plaintiff and the Karafas Trust" which would leave open to argument what are those assets.

33 Mr Magafas also seeks an order compelling Mr Carantinos to notify Mr Magafas of any proposed sale by Artesian of the St Peters property, together with an order restraining Mr Carantinos from dealing with, disposing of, or dissipating any dividends or distribution of profits to him by Artesian arising from any such sale. I have already found that there is a seriously arguable case that Mr Magafas and/or Pac-Com has an interest in 50% of the shares in Artesian.

34 On 2 November 2006, Mr Carantinos proffered to the Court an undertaking that there was no existing contract, option or arrangement of any kind in relation to the disposition of the St Peters property. Before me, however, there is prima facie evidence of a contract for sale made between Artesian and a purchaser on 24 March 2005, and that Mr Gav was asserting to a bank manager as recently as 23 August 2006 that contracts had been exchanged and that settlement was expected now to take place towards the end of this year. There is, therefore, reason to think that there may be a pending sale, and reason to doubt the accuracy of the undertaking given on 2 November 2006 - although it may well be that the knowledge of Mr Carantinos is not that of Mr Gav, and it is quite conceivable that Mr Carantinos may have given instructions for that undertaking not knowing of Mr Gav's position. Regardless, I am satisfied that there is a greater than ordinary risk of a dealing with the St Peters property, and that as a result proceeds may be distributed to shareholders, including Mr Carantinos, to which Mr Magafas and/or Pac-Com has a seriously arguable claim.

35 So far as discretionary considerations are concerned, two matters chiefly have been argued. The first is delay. While it is true that the evidence suggests that Mr Magafas has known of at least some of the facts on which he now relies for quite some time, he has explained that when he first learnt that properties had been purchased in the name of Mr Carantinos and not Pac-Com he trusted Mr Carantinos and accepted his innocent explanations. There is more force in the argument that since 8 May 2006 Mr Magafas has not believed Mr Carantinos's explanations, and might have been expected to move for interlocutory relief more expeditiously, but the position was complicated, and the administrators were in control of Pac-Com. Moreover, there is no indication that there has been the slightest prejudice to Mr Carantinos from any delay in not moving more promptly and, in those circumstances, I do not think that any policy favouring prompt action outweighs the desirability of preserving the status quo pending the determination of a seriously arguable case.

36 Secondly, it was argued that so far as the orders relate to Mr Carantinos's interest in Artesian, they must impinge indirectly on Mr Gav's shareholding in Artesian. I am afraid that I am quite unable to accept that argument. The orders would require, first, that Mr Carantinos not deal with his shares in Artesian - which does not impinge on Mr Gav's rights at all; secondly, that if there is a proposal for Artesian to sell or deal with the property, Mr Carantinos notify Mr Magafas of that proposal and provide 21 days notice before implementation of such a proposal - again, that does not impact on Mr Gav's rights; and, thirdly, that Mr Carantinos not deal with any dividends or distribution of profits to him in respect of his shares from a sale of the St Peters property - yet again, that does not in any way impinge on the rights of Mr Gav.

37 The true question on the balance of convenience is whether greater injustice would be done by wrongly granting an injunction than by wrongly refusing an injunction. If I grant the injunctive relief sought, the status quo will be preserved, pending a resolution of what I have found to be a seriously arguable case. It is not apparent on the evidence that that injunctive relief will occasion any prejudice at all to Mr Carantinos; he has adduced no evidence that he will incur any detriment as a result. On the other hand, declining to grant the injunctive relief sought would run the risk that assets, which it is seriously arguable should be assets of Pac-Com or the Karafas Trust or the joint venture, will be dissipated in the meantime. The balance of convenience plainly favours the grant rather than the withholding of interlocutory relief.

38 It has been submitted on behalf of Mr Carantinos that, rather than granting relief until further order of the Court, the injunction should be expressed to operate only until 21 days after notice of a proposed dealing has been given. If there were evidence of significant prejudice to Mr Carantinos arising from injunctive relief, that course might have been appropriate. Such a course is also often a useful way of providing an interlocutory accommodation between parties without requiring a fully contested interlocutory hearing. That opportunity has been lost here, and to impose such a regime now would simply require Mr Magafas to rerun the present application on a more specific dealing on each occasion, if any, that Mr Carantinos decided to give notice.

39 That is not to suggest for a moment that the position is immutable pending a final hearing. If occasion does arise then Mr Carantinos can, in the light of some change of circumstances, apply for a variation of the orders that I propose to make. But after a contested interlocutory hearing of this type, it is appropriate that the burden of any further application lies with Mr Carantinos rather than with Mr Magafas.

40 The final issue is Mr Magafas' claim for an order for delivery up to the Court of certain documents in the possession, custody or power of the defendants. The documents in question are documents of Pac-Com. The report of the joint administrators indicates that at least a significant proportion of those documents was not provided to the joint administrators. They are documents to which both directors of Pac-Com are entitled to have access. The only argument advanced against their production was that this was a form of discovery. I do not think it is necessary to resolve whether or not that is so. If, as Mr Alexis submits, it is to give effect to the statutory rights of a director under the Corporations Act, then the order is justified on that basis. If, in fact, it is in the nature of discovery, then there is no reason why an order for discovery in this form should not be made now. Failing to make it now and leaving it to some later discovery process simply prolongs the exercise.

42 Upon the undertaking of Mr Magafas to the Court that he will pay, bear and indemnify Pac-Com Pty Ltd against all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings so brought by him, except in so far as the Court may in future otherwise direct or allow,

(1) Grant leave to the plaintiff Anthony Magafas to bring proceedings on behalf of Pac-Com Pty Ltd.

(2) Order that Pac-Com Pty Ltd be added as second plaintiff.

(3) Grant leave to the plaintiffs to amend the summons by filing an amended summons in the form of the draft, a copy of which is Annexure D1 to the affidavit of Mr Magafas, sworn 3 October 2006 herein.

(4) Grant leave to the plaintiffs to amend the Statement of Claim by filing an amended Statement of Claim in the form of the draft, a copy of which is Annexure D2 to the affidavit of Anthony Magafas, sworn 3 October 2006 herein. 43 Upon the plaintiffs by their counsel giving to the Court the usual undertaking as to damages:

(5) Order in terms of paragraph 5 of the Notice of Motion filed on 3 October 2006.

(6) Order that until further order the first defendant be restrained from selling, disposing of, using or otherwise dealing with the sum of $46,271.77 currently standing to the credit of Pac-Com in the trust account of Messrs Colin Biggers & Paisley.

(7) Order that until further order the first defendant be restrained from dealing with, disposing of or otherwise encumbering its two ordinary shares in Artesian Pty Limited ACN 084 229 970.

(8) Orders in terms of paragraphs 8, 9 and 10 of the Notice of Motion.

44 In Maher, (at [56] - [58]), I sought to summarise the considerations which inform the Court's decision on the question of costs on this type of application. The features of the present application are, first, that the plaintiffs were completely successful; secondly, that there was formal, though not argued opposition, to every order which the plaintiffs sought; thirdly, that there was no evidence on the part of the defendants, so that the contest amounted to putting the plaintiff to proof of its case for interlocutory relief; fourthly, on the one matter that was substantially argued, namely, the question of bona fides, I have concluded that, in light of the matters which the defendants themselves put in issue by their defence, the suggestion of an absence of bona fides on the s 237 application was untenable. Those matters, I think, make this one of those perhaps rare cases in which the outcome of an application for interlocutory relief should be the subject of a costs order which is not dependent on the ultimate outcome of the proceedings. The defendants are entitled to put the plaintiff to proof, but they do so at their own risk as to costs. 45 I make the following further orders

(9) Order that the defendant pay the plaintiff's costs of the Motion filed 3 October 2006. (10) Order that the exhibits on the interlocutory application be returned. (11) Stand over the proceedings for further directions on Thursday 7 December 2006 at 9.45am.

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.

Corporations Act 2001(Cth)ss 236, 237

Fair Trading Act 1995(NSW)

At a glance

Court

Decision date

Before

Source

Judgment (66 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (4)

Cited By (3)