26 To grant the leave Mr McEvoy seeks under s 237 would be to give complete control and decision-making in relation to the second cross-claim of KT and KTO to a person who was, in equity, forbidden to espouse the cause that the cross-claim sought to promote and duty bound to strive for the failure of that cause".
10 He concluded that the creation of this situation would not be in the best interests of KT and KTO and that he was accordingly not satisfied of the essential pre-requisite to an order being made under s 237 that it be in the best interests of the company that the applicant be granted leave (see s 237(2)(c)).
11 On the hearing in this Court, the Court raised with the parties the possibility of leave being granted under s 237 upon the basis that:
- Except in relation to the issue arising out of the proposed second cross-claim as to whether the HMA had been terminated, proceedings on that cross-claim be stayed pending determination of the Principal Proceedings;
- The issue as to termination of the HMA arising out of the proposed second cross-claim be determined at the same time as the Principal Proceedings; and
- Mr McEvoy be precluded from playing any role on behalf of KT or KTO in relation to the determination of the issue as to termination of the HMA.
12 The Court raised this possibility for the purpose of ascertaining whether there was any reasonable means by which it could be ensured that the issue as to termination of the HMA would only be litigated once and that the conflict of duties to which the primary judge referred would be avoided. Without some such orders, the possibility exists that in the Principal Proceedings a court might determine that the HMA was validly terminated and that in separate proceedings that KT or KTO might subsequently bring against the directors, these directors might contend, and a court might find, that the HMA had not been validly terminated. Two of the directors are not parties to the Principal Proceedings and they at least would not, in the absence of special circumstances, be bound by findings made in those proceedings. In these circumstances, it seemed to this Court that if there were a way in which this possibility of duplication of litigation and inconsistent results could reasonably be avoided, then it should be considered.
13 Senior Counsel for Mr Caplan, Mr Beech-Jones SC however effectively responded to the suggestion that it might be appropriate to make orders upon the basis referred to in [11] above by pointing out that the issue as to whether the HMA was validly terminated is not an issue which was separate and distinct from the issues arising out of the proposed second cross-claim as to breaches of directors' duties. This is so because the Amended Statement of Claim in the Principal Proceedings goes beyond alleging that the termination of the HMA was not valid on the basis that there was no subsisting breach of the HMA that would justify such termination, to allege that the termination was invalid because it was "undertaken for an improper purpose, namely for Mr Caplan to take the benefit of rights of management" of the hotel for an associate of his. The latter allegations are similar to those contained in the proposed second cross-claim. Allegations to similar effect are made in the Amended Statement of Claim in relation to certain breach notices alleged to have been issued.
14 The making of allegations (as to the substance and relevance of which I make no comment) in the Principal Proceedings concerning the propriety of the directors' actions in my view renders it impracticable to adopt a scheme of the nature referred to in [11] above. If the leave sought were granted Mr McEvoy's challenges to the propriety of the directors' actions would need to be allowed to be made both in the Principal Proceedings and on the hearing of the second cross-claim because Mr McEvoy would not, through Metro and Transmetro, have the same ability to pursue those challenges in the Principal Proceedings as he would have if he were pursuing them on behalf of KT and KTO on the proposed second cross-claim. For example, in the latter circumstance Mr McEvoy would have access to any privileged advice obtained by KT and KTO in connection with termination of the HMA whereas in pursuing the Principal Proceedings Metro and Transmetro would almost certainly not. There is thus no discrete issue in relation to the termination of the HMA that is suitable for determination separately from determination of the remaining issues arising out of the proposed second cross-claim.
15 In these circumstances one is left with the situation that confronted the primary judge, and with the attendant difficulties that he identified. In the absence of Mr McEvoy having proffered to his Honour or to this Court any acceptable means of overcoming the conflict that the judge identified, the view taken by the primary judge must be regarded as correct. As the appeal would not succeed if leave to appeal were granted, leave to appeal should be refused.
16 In conclusion I reiterate the following observation that the primary judge made after he expressed his conclusion that to grant Mr McEvoy the leave he sought would not be in the best interests of the companies:
"28 This is not to say that it may not be, at some point, in the best interests of KT and KTO for Mr Caplan, Mr Leslie and Mr Lesnie to be sued by those companies in the way Mr McEvoy envisages. But this will logically happen, if at all, once it is seen that the management agreement was validly terminated and Aspen in reality derived the benefit of becoming the manager of the hotel in place of Metro".
17 I propose the following orders: