McLean & Anor v Lake Como Venture P/L & Anor; Lake Como Venture P/L & Ors v Progressive Projects P/L & Ors [2003] QCA 562

SUPREME COURT OF QUEENSLAND

CITATION: McLean & Anor v Lake Como Venture P/L & Anor; Lake Como Venture P/L & Ors v Progressive Projects P/L & Ors [2003] QCA 562

PARTIES: RICHARD PETER MCLEAN and NICHOLAS GUY HERPS (applicants/appellants) v LAKE COMO VENTURE PTY LTD ACN 085 424 657 (first respondent) JOHN ROBERT FACER (second respondent/respondent)

PARTIES: LAKE COMO VENTURE PTY LTD ACN 085 424 657 (first plaintiff) MACOMO PTY LTD ACN 085 424 595 MACOMO NO 2 PTY LTD ACN 091 001 740 RICHARD PETER MCLEAN TENTICLES (QLD) PTY LTD ACN 083 108 392 OCTOPUS NOMINEES PTY LTD ACN 083 108 310 NICHOLAS GUY HERPS (second plaintiffs/appellants) v PROGRESSIVE PROJECTS PTY LTD ACN 010 636 316 (first defendant/first respondent) JOHN ROBERT FACER (second defendant/second respondent) REGENT GROUP PROJECTS PTY LTD ACN 072 521 530 (third defendant/third respondent) PROJECT EQUITY PTY LTD ACN 084 876 737 (fourth defendant)

FILE NOS: Appeal No 2290 of 2003 / Appeal No 2288 of 2003 / SC No 11701 of 2002 / SC No 11703 of 2002

DIVISION: Court of Appeal

PROCEEDING: Appeal from interlocutory decision

ORIGINATING COURT: Supreme Court at Brisbane

DELIVERED ON: 19 December 2003

DELIVERED AT: Brisbane

HEARING DATE: 16 September 2003

JUDGES: McMurdo P, Davies and Jerrard JJA / Separate reasons for judgment of each member of the Court, McMurdo P and Jerrard JA concurring as to the orders made, Davies JA dissenting

ORDER: In Appeal No 2290 of 2003:appeal allowedset aside orders made on 27 February 2003 in SC No 11701 of 2002in lieu thereof, pursuant to s 237 of Corporations Act2001 (Cth) order that the appellants be granted leave nunc pro tuncto bring proceedings on behalf of Lake Como Venture Pty Ltd in proceeding SC No 11703 of 2002, such leave to be conditioned on an undertaking that in the absence of consent by all directors to payment, the funds of the company would not be utilised to pay solicitors' fees and outlays without leave of the courtappellants' costs of originating application be costs in that proceedingrespondent to pay appellants' costs of the appeal to be assessed on the standard basisIn Appeal No 2288 of 2003:appeal allowedset aside orders made on 27 February 2003 and the directions made on that date in SC No 11703 of 2002in lieu thereof order that the application for declaration filed 23 December 2002 be adjourned to a date to be fixed on five business days noticethere be a direction that defendants in SC No 11703 of 2002 file and serve their notices of intention to defend, defences and counter-claims (if any) within 14 days after publication of the judgment in these appealsrespondents to pay appellants' costs of that appeal to be assessed on the standard basisLiberty to apply as to the form of these orders

CATCHWORDS: CORPORATIONS - CONSTITUTION AND LEGAL CAPACITY - INTERNAL DISPUTES - USE OF COMPANY NAME - where applicants are directors of the company - where third person also director of the company - where company loaned money from another company associated with third director - where applicants claimed amount recoverable under the loan agreement is a penalty - where third director refused to consent to the company instituting proceedings against lender - where applicants sought leave to bring proceedings on behalf of company - whether applicants can institute proceedings in company name / Corporations Act 2001 (Cth), s 236, s 237 / Lion White Lead Ltd v Rogers (1918) 25 CLR 533, considered / Metyor Inc v Queensland Electronic Switching Pty Ltd [2003] 1 QdR 186, considered

COUNSEL: P A Keane QC, with D A Kelly, for the appellants / P J Dunning for the first and third respondents / G J Gibson QC for the respondent Facer

SOLICITORS: Hopgood Ganim Lawyers for the appellants / Quinn Box & Muller (Bundall) for the first and third respondents / Nyst Lawyers (Southport) for the respondent Facer

McMURDO P: The facts and issues are set out in the reasons for judgment of Davies JA which I have had the benefit of reading. I will repeat only those necessary to explain my reasons for agreeing in Jerrard JA's proposed orders that both appeals should be allowed.

Under ss 236 and 237 Corporations Act 2001 (Cth) ("the Act") the learned primary judge was required to grant the appellants' application for leave to bring proceedings in the name of Lake Como Venture Pty Ltd ("Lake Como") as a plaintiff in the action if satisfied that the five conditions listed in s 237(2) of the Act were made out. It is common ground that s 237(2)(a)-(b) and (d)-(e) were established. The question for the primary judge was whether "it is in the best interests of the company that the [appellants] be granted leave" to bring the proceedings.¹

Assuming the proceedings were successful, the loss suffered was ultimately primarily that of the joint venturer appellants, because Lake Como as the vehicle transferring the proceeds of the joint venture to the joint venturers, would be able to distribute more profit to them once the loan agreement of 26 February 2002 was set aside or modified. This does not mean the proceedings were not in the best interests of Lake Como because, even though Lake Como was obliged to distribute the profits of the joint venture, the proceedings plainly concerned Lake Como's right to property as affected by the contentious loan agreement: cf DKLR Holding Co (No 2) v Commissioner of Stamp Duties.²

This Court in Metyor Inc v Queensland Electronic Switching Pty Ltd³ noted that a preliminary determination as to whether proceedings were in "the best interests of the company" under s 237(2)(c) of the Act does not have in mind "some kind of cost-benefit analysis of possible outcomes of the prospective litigation, which is an assessment that it would be almost impossible to make with any degree of confidence or accuracy". The respondents admit there is a serious question to be tried⁴ and the facts before the learned primary judge suggest that Lake Como's prospects of success were realistic. In the absence of other factors favouring a contrary conclusion, this suggests that it is in the best interests of Lake Como to pursue its claim against the respondents so that it will receive the benefit of any judgment in its favour⁵ even though the ultimate beneficiaries of the proceedings, if successful, will be the appellant joint venturers.

I turn now to consider the reasons of the primary judge for determining that it was not in the best interests of Lake Como to bring the proceedings.

The respondents conceded that the learned primary judge erred in relying on Spokes v Grosvenor Hotel Co⁶ as authority for the proposition that if the appellants succeed as plaintiffs without joining Lake Como, any relief to which Lake Como is entitled as a result of their success can be granted to it. This is because s 236(3) of the Act abolishes the right of a person at general law to bring or intervene in proceedings on behalf of a company: see Metyor.⁷

His Honour found that it was not in the best interests of Lake Como to grant leave under s 237 of the Act because, first, he was concerned about the possibility of an adverse costs order which might be made against Lake Como as an unsuccessful plaintiff. This consideration begs the question because, if it is in the best interests of Lake Como to bring the action, the risk that a costs order may be made against it if it is unsuccessful cannot mean it is not in its best interests to pursue its claim.

His Honour's second reason for determining the proceedings were not in the best interests of Lake Como was that the remedies Lake Como could pursue as plaintiff could be given by way of final order if it were joined as a defendant. Again, this does not address the issue for determination, that is, whether it is in the best interests of the company that the application be granted. His Honour relied on Metyor as authority for joining Lake Como as a defendant. In Metyor, the application was to take proceedings on behalf of the company by joining it as a co-defendant; this application was always to join Lake Como as co-plaintiff. Metyor is authority that ss 236 and 237 of the Act allow a company to be joined as co-defendant and are not confined to authorising proceedings to be brought on behalf of a company as plaintiff;⁸ it does not support joining a company as a defendant in an application for leave to proceed on behalf of a company as plaintiff.

His Honour's third reason for refusing the application was the possibility of conflict of interest if the proceedings were successful with Lake Como as a plaintiff. This argument was rejected by this Court in Metyor⁹ as a sound basis for refusing leave to bring proceedings on behalf of a company under s 237 of the Act.

The respondents have not demonstrated any sound reason to depart from the preliminary conclusion that it is in the best interests of Lake Como for the appellants to have leave to bring the proceedings on its behalf.

A factor in the appellants' desire to bring proceedings on behalf of Lake Como as a plaintiff is likely to be their desire to share with Lake Como the costs of bringing the action. The appellants gave an undertaking to the primary judge that they would not utilise Lake Como's funds in payments of any costs without an order of the court. Mr Keane QC, who appeared with Mr D A Kelly for the appellants, repeated that undertaking in his submissions in reply on the appeal, stating that the appellants would not have access to Lake Como's assets to meet the costs of running the action, although understandably reserving the appellants' rights under s 242 of the Act, in the event the action is successful, to apply to the court for an order to allow them access to Lake Como's assets to pay all or some of those costs.

The appeal should be allowed and the appellants given leave to bring proceedings on behalf of Lake Como. There is no reason why that leave should not be granted nunc pro tunc. I agree with the orders proposed by Jerrard JA in both appeal No 2290 of 2003 and Appeal No 2288 of 2003.

DAVIES JA: This is an appeal against an order made on 27 February 2003 by a Supreme Court judge dismissing an application by Richard Peter McLean ("McLean") and Nicholas Guy Herps ("Herps") for an order that they be granted leave nunc pro tunc to bring proceedings in the name of Lake Como Venture Pty Ltd ("Lake Como") against Progressive Projects Pty Ltd ("Progressive"), John Robert Facer ("Facer"), Regent Group Projects Pty Ltd ("Regent") and Project Equity Pty Ltd ("Project") in the terms of a claim and statement of claim which had been filed. By the time the application was heard by the learned primary judge on 22 January 2003 the claim and statement of claim had been filed with Lake Como as first plaintiff, Macomo Pty Ltd ("Macomo"), Macomo No 2 Pty Ltd ("Macomo No 2"), McLean, Tenticles (Qld) Pty Ltd ("Tenticles"), Octopus Nominees Pty Ltd ("Octopus") and Herps as second plaintiffs, Progressive as first defendant, Facer as second defendant, Regent as third defendant and Project as fourth defendant. Macomo and Macomo No 2 were companies controlled by McLean. Tenticles and Octopus were companies controlled by Herps. Progressive was a company controlled by Facer or members of his family and Regent was a company controlled by Facer. Project was a company controlled by McLean and Facer.

There is also an appeal against an order dismissing an application for a declaration. It was common ground between the parties that its success depended on the success of the appeal which I first described.

A brief history of the matter leading up to this application, so far as it can be ascertained from what is alleged in the statement of claim and contained in other material before this Court, is as follows. On about 11 September 1998 Octopus entered into a contract to purchase land. Then by a contract called a Joint Venture Agreement dated 27 January 1999 between Tenticles, Macomo, Regent, Octopus and Lake Como, Tenticles, Macomo and Regent agreed to develop the land in a joint venture to be known as "Lake Como Joint Venture" in the interests of 50 per cent to Tenticles, 25 per cent to Macomo and 25 per cent to Regent. Although Octopus remained the legal owner of the land, the joint venturers confirmed that they owned the joint venture assets as tenants in common in those interests.¹⁰ The joint venture agreement provided that the joint venturers would contribute in those interests¹¹ and that a bank account would be opened in the name "Lake Como Joint Venture".

In the joint venture agreement Lake Como was described as the trustee. Its directors were Herps, McLean and Facer and its shareholders were those persons or their nominees.

Lake Como's role was described in the joint venture agreement as follows:

"**10.**MANAGEMENT OF THE JOINT VENTURE

The Trustee will manage the Joint Venture. The Joint Venture Participants agree that the Trustee of the Joint Venture shall have full and complete power and authority to make all decisions and determinations in relation to all matters arising in relation to the management of the Joint Venture and all such decisions and determinations shall be binding upon the Joint Venture Participants.

… "

Clause 28.2 should be read with cl 10. It provided:

"28.2Any clause of this Agreement requiring a decision, determination or appointment by the Trustee will be made unanimously by the Directors, unless otherwise stated."

It can be seen that these clauses together ensured that any decision "in relation to all matters arising in relation to the management of the Joint Venture" would be made by Herps, McLean and Facer unanimously. What those decisions were was not so clear.

Clause 5.7 of the joint venture agreement provided that Lake Como might by notice call on the joint venturers to contribute in the above proportions and that their respective contributions will be paid into the above bank account. No other provision in the joint venture agreement conferred any relevant powers on Lake Como or vested any property in it.¹²

By a power of attorney, Octopus, which remained the owner of the land the subject of the joint venture, granted to Lake Como the following powers:

"1.To execute all contracts, documents, transfers, applications, consents, plans, correspondence, invoices, receipts, statements and all other appropriate documents for and on behalf of Octopus with respect to the Land or required or anticipated by the terms of the Contract to enable the Joint Venture Participants to carry out the Project Development Responsibilities and to complete the Development;

To execute the Fixed and Floating Charge and any mortgages, security documents and any documents collateral thereto for and on behalf of Octopus to secure the Funding;

Do all things which in its absolute discretion it deems appropriate with respect to the Land and to the Contract to enable the completion of the Development;

Do all things necessary and execute all documents on behalf of Octopus as set out in or anticipated by the terms of this Agreement;

To appoint substitutes and additional attorneys to execute the Powers on behalf of the Trustee."

The above description of Lake Como's role as manager of the joint venture is a little confusing because Project was described in the joint venture agreement as the manager and its role was stated to be as follows:

"**9.**MANAGEMENT OF THE BUSINESS

The Manager will solely manage the Business. The Joint Venture Participants agree that the Manager shall have full and complete power and authority to make all decisions and determinations in relation to all matters arising in relation to the Business and all such decisions and determinations shall be binding upon the Joint Venture Participants. It is agreed by the Joint Venture Participants and the Manager that the Manager shall have the sole power to decide on the appointment or replacement of the Manager. The Joint Venture Participants will procure the manager to enter into a written management agreement upon terms and conditions acceptable to the Joint Venture Participants."

It is unclear whether any such management agreement was ever entered into. None was produced in evidence. However Project's responsibilities are set out in detail in a schedule to the joint venture agreement. They may be described generally as managing the construction work.

The joint venture agreement also provided that the joint venture participants would provide or procure the provision of funding necessary for the venture and that Octopus and Lake Como would do all things necessary and execute all appropriate documents to secure such funding. No other documents to which Lake Como was a party, other than the loan agreement referred to below, were in evidence and it remains unclear what role Lake Como played in the development and sale of the subject land. However it is alleged in the statement of claim that between January 2000 and July 2002 Lake Como developed the land into a residential development known as "Villas Mediterranean" and has progressively sold lots in the development.

The object of the joint venture, which had been successfully completed by the time the matter came before the learned primary judge, was to undertake the residential development on the land to be known as "Villas Mediterranean". The nett proceeds of sale of lots is now held, by agreement, in an interest bearing account, for the benefit of the joint venture, in the names of Lake Como and one of Facer's entities. Subject to any claim which Progressive may have had against them, the beneficial owners of those nett proceeds are, and were at all relevant times, the joint venturers.¹³ It is said that the amount so held was, on 15 November 2002, $2,773,686, and that by 16 December 2002 was expected to be $3,405,125. There is no reason to think it did not reach that sum by that date which was a few days before this action commenced.

However by early 2002 the joint venture was short of money to complete the development. According to the statement of claim an offer of financial accommodation from the Bank of Queensland at that time, sufficient to avoid any shortfall, was rejected by Facer. McLean and Herps would have accepted it. It was accordingly rejected.

The financial position of the joint venture deteriorated and on 26 February Facer threatened to appoint an administrator and, it was alleged, also by other threats, exerted economic pressure on McLean and Herps resulting in the execution of an agreement on 28 February described as a loan agreement and agreement for variation of joint venture agreement ("the loan agreement").

The parties to the loan agreement were the parties to the joint venture agreement together with Progressive, Project, Macomo No 2 and Facer, Herps and McLean. It provided that Progressive (Facer's company) agreed to advance $500,000 to Lake Como upon the following security; a mortgage by Octopus over the community titles scheme lots on the subject land, fixed and floating charges by Lake Como, Octopus, Macomo, Tenticles and Regent and guarantees by each of Facer, Herps and McLean. It is unclear why the loan was made to Lake Como, rather than to the joint venturers or to Project (Project had a responsibility to provide or procure the funding to enable the joint venturers to complete the development). However it appears from a recital to the loan agreement that this was at the request of the joint venturers.

The loan was stated to be to assist with the funding of development and construction work for "Villas Mediterranean". The consideration for the loan was contained in cl 7 and cl 8 of the loan agreement which were relevantly in the following terms:

"**7.**Repayments

LCV will upon the due date pay the following amounts to Progressive (or as Progressive may otherwise direct):-

(a)$500,000, being the principal amount of the loan; and

(b)$1,500,000,

in clear funds. Time is of the essence of any payment due under this clause.

**8.**Re-prioritisation of distributions due under joint venture agreement

8.1After (and subject to) payment in full of the amounts due to Progressive under clause 7, the priority of distributions under the joint venture agreement is varied as follows:-

(a)First priority (first $250,000) - Regent$250,000

(b)Second priority (next $750,000):-

(i)Tenticles$500,000

(ii)Macomo$250,000

(c)Third priority (balance):-

(i)Tenticles50%

(ii)Regent25%

(iii)Macomo25%

8.2If funds are only partly sufficient to cover any part of the funds due under paragraphs 8.1(b) or (c), the parties names in those subclauses will share the funds in the proportions set out in those subclauses.

…"

In addition, the liabilities under the charges and guarantees to which I have already referred were described in cl 9 as follows:

"**9.**Liabilities under charge and guarantee

The obligations of:-

(a)Tenticles, Macomo and Regent under the charge; and

(b)the Guarantors under the guarantee, are limited to and capped at the sum of the following amounts:-

(c)the advance of $500,000; and

(d)the greater of the following amounts:-

interest on the advance calculated at 30% per annum for the first year of the advance; plus

interest on the advance calculated at 10% per annum on monthly rests if the advance is not repaid after one year from the date of this agreement; or

the amount paid to Progressive under clause 7(b) (or if the amount is less than $1,500,000, the amount actually paid)."

In short, Lake Como was liable, as consideration for the loan of $500,000, to repay that loan plus $1.5M¹⁴ and Macomo and Tenticles were liable to accept a redistribution of the profits under the joint venture in favour of Regent, Facer's company. But in undertaking that liability Lake Como was acting, it seems, as agent of the joint venturers and it was obliged to act in accordance with the directions of McLean, Herps and Facer, the individuals behind the joint venture companies who were also its directors. The loan was for the purpose of the joint venture and the borrowers were, in reality, the joint venturers, as all parties knew.

The application before the learned primary judge was one pursuant to s 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of Lake Como and in its name pursuant to s 236. The central question under s 237 in this case was whether it was in the best interests of Lake Como that the applicants be granted leave: s 237(2)(c). The proceedings which, as I have already said, had been instituted by the time the matter came on before his Honour, claimed that the amount recoverable under the loan agreement was a penalty and thereby void and unenforceable; that the loan agreement was procured by unconscionable conduct or duress by Facer exerting undue pressure on and unfair tactics against McLean and Herps; and that Facer, as a director of Lake Como, was in breach of fiduciary obligations to it in procuring the loan agreement. The statement of claim claimed relief at common law, in equity and pursuant to the Trade Practices Act 1974 (Cth). Lake Como claimed further relief in respect of the monies held in the interest bearing account and for equitable compensation in respect of breaches of fiduciary obligations owed to it by Facer, Progressive and Regent.

The claim in respect of the re-prioritization of distribution under the joint venture agreement, Mr Keane QC for the appellants conceded, was a claim which only Macomo and Tenticles could make. It was not one which could be made by Lake Como.

However one puts the cause of action of the plaintiffs Macomo and Tenticles, and of the proposed plaintiff Lake Como, in respect of the liability to pay $1.5M - penalty, duress or unconscionable conduct - their principal complaint is that, having regard, in particular, to the relative strengths of the bargaining positions of McLean and Herps and their respective companies on the one hand and Facer and his companies on the other, the liability under the loan agreement to pay $1.5M in addition to repayment of the capital sum of $500,000 was disadvantageous to them and was procured unconscionably against the interests of Macomo and Tenticles. However this cause of action is framed, the loss was always primarily to the joint venturers who, by Lake Como, their agent, became liable to pay that sum.

Of course all of those who provided charges or guarantees for the loan were, at the time the loan agreement was entered into, potentially disadvantaged thereby. But by the time the matter came on for hearing before the learned primary judge, and perhaps even by the time the action was commenced, it was plain that they would never be called on to pay because the amount held in the interest bearing account on behalf of the joint venture was sufficient to pay this liability and to distribute the remainder to the joint venturers. But if that liability were paid it would, by that amount, deplete the money asset of the joint venturers held in the interest bearing account. By that time it could have been only the joint venturers who, by having that asset reduced by the extent to which $1.5M exceeded a reasonable rate of interest, suffered loss in consequence of being obliged to enter into the loan agreement.

In my respectful opinion it is not, as the learned President has described it, a question of Lake Como being able "to distribute more profit to them once the loan agreement of 26 February 2002 was set aside or modified". As at the time this application came before the learned primary judge, the joint venturers Macomo, Tenticles and Regent, owned, as tenants in common, an asset, a sum of money of or exceeding $3,405,125, subject to the claim against them by Progressive under the loan agreement. The fact that that money was, by agreement between those acting for Macomo and Tenticles, on the one hand and, on the other, those acting for Progressive, held in an interest bearing account for the joint venture, pending the resolution of that disputed claim, in the names of Lake Como (no doubt nominated by the joint venturers) and an unnamed Facer entity (no doubt nominated by Progressive), as joint stakeholders is beside the point. It was, subject to that claim, the joint venturers' asset. And, more importantly, it was only the right to that money, to the extent of $1.5M less a reasonable interest rate, between the joint venturers on the one hand and Progressive on the other, which, by the time this matter came before the learned primary judge, was effectively in issue in this action. Lake Como's only interest in that money was, like that of the unnamed Facer entity, to hold that asset as stakeholders pending resolution of the disputed claim.

Put in terms of an action under s 51AC, s 87(1A) and s 87(2)(b) of the Trade Practices Act, the most likely and most effective remedy in respect of the alleged unconscionable conduct causing the liability to pay $1.5M less a reasonable rate of interest, the only persons who suffered or were likely to suffer loss by that conduct, by the time the matter came before his Honour, were Macomo and Tenticles because the money to which they were entitled as tenants in common with Regent would be depleted by the above sum. It cannot be shown that, by that time, any other person, certainly not Lake Como, was or was likely to suffer loss by that conduct.

It is plain that Regent will not join in this action as a plaintiff. That part of the action in respect of the re-prioritization of distributions under the joint venture agreement is primarily against it as well as Facer. But even as to that part of the cause of action in respect of the requirement under the loan agreement to pay $1.5M it is likely that it and Progressive were seen by all as, effectively, Facer.¹⁵ It was therefore appropriate to join it as a defendant as was done.¹⁶

If, in addition to the claims in respect of the amount by which $1.5M exceeded a reasonable rate of interest and the claim in respect of the re-prioritization of distributions, there is some additional claim by reason of the plaintiffs being unable to obtain possession of and use the sum held in the interest bearing account then that claim also, in my opinion, must be one by the joint venturers. The money is held by joint stakeholders for the joint venture. It is only the joint venturers who could have suffered any loss because this has occurred.

In summary, it seems to me likely that the only plaintiffs in this action, that is, the only persons who, at the time of this application, have suffered or are likely to suffer loss in consequence of the unconscionable conduct, are the joint venturers Macomo and Tenticles and, possibly in respect of the claim involving the sum of $1.5M, Regent. Mr Keane QC, for the appellants, conceded that it would not be in the best interests of Lake Como that leave be granted to bring proceedings in its name unless it were a necessary party, as plaintiff, to such proceedings, or as he preferred to put it, there was a real question as to whether it was such a necessary party. I would not accept Mr Keane's preferred way of putting the proposition. And as it seems to me that all necessary relief - an order varying the rights under the loan agreement and, possibly, some other, consequential relief - can be granted at the suit of Macomo and Tenticles, Lake Como was not a necessary plaintiff in the action.

For those reasons, I can see no error in the learned primary judge's refusal to make the order sought. For the reasons given, I do not find it necessary to consider the specific reasons given by the learned primary judge for his conclusion. The action was not one to which Lake Como was a necessary plaintiff.

However it is not at all clear to me why, without leave under s 237, this action was not validly commenced in the name of Lake Como as plaintiff. Both s 248G of the Corporations Act and cl 15(2) of the Constitution of Lake Como provided that a resolution of the directors must be passed by a majority of votes cast by the directors entitled to vote on the resolution; and s 248A of the Act provides that directors may pass resolutions without a meeting by passing a circulating resolution.

On 2 October 2002 a circulating resolution was signed by Herps and McLean, two of the three directors of Lake Como, which provided:

"1.It is declared and resolved that the company should forthwith:

tender to Progressive for payment on 14 October 2002 the amount of $150,000, being interest on the Loan of $500,000 calculated at the flat rate of 30%;

there upon call on Progressive to release and discharge the Loan Agreement and the Securities;

offer to meet the reasonable legal costs and disbursements of Progressive in releasing and discharging the Loan Agreement and the Securities; and

upon acceptance of the basis of tender by Progressive, authorise and direct Quinn & Box to release from their trust account the amount tendered, ie, $150,000 to Progressive on 14 October 2002.

2.It is further declared and resolved that, in the event that Progressive rejects theCompany's tender and refuses to release and discharge the Loan Agreement and Securities, the Company commence such legal proceedings as may be necessary or desirable to set aside or discharge the Loan Agreement and the Securities."

Then at a directors' meeting of Lake Como on 26 November 2002, at which McLean and Herps, but not Facer, were present, it was resolved:

"That in the event that Progressive rejects the tender as aforesaid and refuses to release and discharge the Loan Agreement and Securities, the company commence such legal proceedings as may be necessary or desirable to recover the Excess and set aside or discharge the Loan Agreement and the Securities, or such other Order as a Court would accept as appropriate."

This action was then commenced on 23 December 2002.

It may be that these resolutions were decisions or determinations by Lake Como required by a clause of the joint venture agreement, within the meaning of cl 28.2 of the joint venture agreement. That would have the consequence that they would have been resolutions of Lake Como made in breach of cl 28.2. But whatever consequence that may have, they would, it seems to me, be nonetheless, at least prima facie, valid resolutions authorizing the proceedings the subject of this appeal. So the proceedings in the name of Lake Como as plaintiff may have been validly instituted. No relief was sought in respect of that question.

For the reasons given earlier the appeal should be dismissed.

Orders

Appeal dismissed.

The appellants to pay the respondents' costs of the appeal.

JERRARD JA: In this matter there are two appeals, they being Appeal No 2290 of 2003 which was argued in full, that being the appeal from the order dismissing an application numbered S11701 of 2002, the nature of which is described in the learned judgment of Davies JA; the second, Appeal No 2288 of 2003, being an appeal from an order dismissing an application for a declaration in proceedings numbered S11703 of 2002, was not argued. It was common ground between the parties to the latter appeal that its result depended upon the appeal argued in full. In the appeal which was heard, I have had the considerable advantage of reading the reasons for judgment of Davies JA and the orders proposed. I have respectfully come to a different conclusion from his Honour, but gratefully adopt his careful description of the parties, the issues, and the relevant matters of fact.

My principal reason for disagreement is that with respect to paragraphs [31] and [32] of his Honour’s reasons, I respectfully consider that whether or not the company Lake Como Venture Pty Ltd became liable as the agent of the joint venturers, or otherwise, to pay the $1.5 million akin to interest to the company Progressive Projects Pty Ltd, it is that Lake Como company which has that primary obligation under the loan agreement. The fact that the company has the funds to repay both that sum and the $500,000.00 borrowed means that the plaintiff joint venturers have no potential liability under any guarantee or charge securing that obligation. I consider it follows that it is Lake Como which directly suffered a loss, to the extent to which $1.5 million exceeded a reasonable rate of interest, assuming that one or more of the pleaded causes of action can be established. The loss suffered by the plaintiff joint venturers is a consequential loss to the loss or damage suffered by Lake Como, being the reduction in the funds available for distribution to those plaintiffs.

In the application brought by the appellants Richard McLean and Nicholas Herps for leave to bring proceedings on behalf of Lake Como, it was not in issue that s 237(2)(a), (d), and (e) Corporations Act 2001 (Cth), had been satisfied. Further, no issue in fact was made about the good faith of those applicants pursuant to s 237(2)(b). The issue is whether it was in the best interests of Lake Como that those applicants be granted leave.

I respectfully consider that the material provided to the learned trial judge did demonstrate that it was in the company’s best interests that that leave be granted. To do so would ensure that the company was bound by the judgment, as explained by McPherson JA in Metyor Inc. v Queensland Electronic Switching Pty Ltd [2003] 1 Qd R 186 at 192.¹⁷ This is because all the interested parties would be before the court (Lion White Lead Ltd v Rogers (1918) 25 CLR 533 at 545). In personam judgments in favour of the plaintiff joint venturers, setting aside the loan agreement, would not bind Lake Como unless it was a party; it seems necessary that it be one to ensure the utility of orders in favour of the other plaintiffs.

In deference to the reasons for judgment of Davies JA, holding that the money held in the interest bearing account is the joint venturers’ asset owned by them as tenants in common, I observe that the liability to pay $1.5 million is that of Lake Como. It appears common ground both that the liability is to be satisfied from that money held in that account, and that this is unavoidable unless the loan agreement is set aside or the parties – including Lake Como – agree otherwise. It is always possible that the groupings of interests and voting patterns of the directors of Lake Como could change; joining Lake Como as a party avoids having those responsible for disbursing the money so held being placed in the position where an order is made for the disbursement of those monies to the joint venturer companies in certain proportions, and where Lake Como remains party to a loan agreement not set aside by agreement or by any orders binding it.

The respondents actually agreed that Lake Como should be a party to the proceedings. The judgment under appeal recites that counsel for the respondent John Facer and counsel for Progressive Projects Pty Ltd, who was heard although that company had not been made a respondent, each made an oral application for orders under rule 62 of the Uniform Civil Procedure Rules 1999 (Qld) that Lake Como be added as a defendant. Such applications could only be made where it was contended that Lake Como’s presence was necessary to enable the court to adjudicate effectively and completely on all matters in dispute and all issues raised in the proceedings. That is what rule 62 requires for an order adding a party. The learned trial judge declared himself satisfied that it would be proper to order that the company be joined as a defendant. This entire appeal can thus be seen to be concerned with the issue of Lake Como funding the proceedings, since all sides agree it should be joined.

The applicants (two of the three directors of Lake Como) gave an undertaking to the learned trial judge through their counsel that they would not utilise the funds of the company in payment of any costs without an order of the court. Their senior counsel explained that this did not mean that as a plaintiff the company would not be liable to its solicitors for costs (no doubt meaning fees and charges, including for outlays), but remarked that the company would have the same solicitors as the applicant second plaintiffs, who would also themselves be liable for those costs. I consider with respect that as a condition of the leave, which I consider it is in the company’s best interests to grant, the applicants should be obliged to provide an undertaking that in the absence of consent by all directors to payment, the funds of the company would not be utilised to pay solicitor’s fees and outlays without leave by order of the court. The company, for example, should not pay fees already incurred or reimburse outlays already made, despite leave being nunc pro tunc. This is because the ultimate beneficiaries of the litigation will be the plaintiff joint venturers. The company should be liable for fees and outlays incurred for services rendered on the company’s behalf in the proceedings from the date of the publication of this judgment.

My reason for preferring an order that the applicants have leave to commence proceedings in the name of the company as plaintiff, rather than an order that the company be added as a defendant, is that I consider that where the company is a necessary party, as all parties agree it is here, the provisions of s 236 of the Corporations Act 2001 assume that the relevant company will be a plaintiff rather than defendant. I respectfully observe that the learned judgment of McPherson JA, being the judgment of the court, in Metyor explains that no error is made by continuing the long standing practice of joining a company as a co-defendant in Foss v Harbottle¹⁸ actions; but the application in Metyor was for leave to join the company as a defendant¹⁹ which the respondents in that case opposed, submitting that s 236(1) and 237 envisaged that an applicant was only to “bring” proceedings, which in their submission meant a company must be a plaintiff. McPherson JA carefully explained that historically that had not been the case, and gave leave under s 237 to those plaintiff applicants in Metyor to bring proceedings on behalf of the company against the defendants in that action “as a co-defendant or otherwise as the plaintiffs may be advised”.²⁰

It follows that the judgment in Metyor does not relevantly bind a trial judge hearing applications under s 237 to consider it more appropriate to give leave that a company be joined as a defendant, rather than leave to bring proceedings in the name of the company as a plaintiff, which is what I consider the section envisages²¹. Accordingly, I would allow the appeal in Appeal No 2290 of 2003, and in Appeal No 2288 of 2003 make the consequential orders upon which the parties were agreed.

The orders I would make are:

That the appeal be allowed in Appeal No 2290 of 2003 from the orders made on 27 February 2003 in application number S11701 of 2002, and that it be further ordered in that appeal:

That the orders made on 27 February 2003 be set aside;

That in lieu thereof it be ordered pursuant to s 237 of Corporations Act 2001 (Cth) that the appellants be granted leave nunc pro tunc to bring proceedings on behalf of Lake Como Venture Pty Ltd in proceeding number S11703 of 2002, such leave to be conditioned on an undertaking that in the absence of consent by all directors to payment, the funds of the company would not be utilised to pay solicitors’ fees and outlays without leave of the court;

That the appellants’ costs of the originating application be costs in that proceeding;

That the respondent pay the appellants’ costs of the appeal to be assessed on the standard basis.

That in Appeal No 2288 of 2003 the orders made on 27 February 2003 and the directions made on that date in relation to the proceedings S11703 of 2002, be set aside, and that it be further ordered in that appeal:

That in lieu thereof there be an order that the application for a declaration filed 23 December 2002 be adjourned to a date to be fixed on five business days notice;

That there be a direction that the defendants in proceedings S11703 of 2002 file and serve their notices of intention to defend, defences and counter claims (if any) within 14 days after publication of the judgment in these appeals;

That the respondents pay the appellants’ costs of that appeal to be assessed on the standard basis.

Liberty to apply as to the form of these orders.

Footnotes

1. Section 237(2)(c) of the Act. ↩

2. [1980] 1 NSWLR 510, 518-519. ↩

3. [2003] 1 QdR 186, 194, [19]. ↩

4. Section 237(1)(d) of the Act. ↩

5. Metyor, fn 3, at 192. ↩

6. [1897] 2 QB 124, 126, 128-129. ↩

7. At 191-192. ↩

8. Above, fn 3, at 193. ↩

9. Above, fn 3, at 194, [18]. ↩

10. Cl 3.3. ↩

11. Cl 3.4 and cl 3.7. ↩

12. Clause 7 empowered it to appoint bankers of the joint venture, cl 13 empowered it to determine the costs of an arbitration in the event of a dispute and cl 15 empowered it to determine that a joint venture participant has become wholly or in part unable by force majeure to carry out its duties or obligations. Certain other functions or duties were conferred on it by cl 30.2, cl 31 and cl 35. ↩

13. See fn 10. ↩