Plaintiff v Defendants

PRACTICE AND PROCEDURE - Application to re-open the hearing on the grounds of 'fresh evidence' - Civil Procedure Act 2010 s 49 - Whether there is the possibility of 'fresh evidence' being adduced - Whether such evidence is relevantly 'fresh evidence' - Whether such evidence is probative and could materially affect the outcome - Whether in the interests of justice to re-open the hearing - Whether evidence of a third party's interest in the proceeding 'taints' the interests of the plaintiff - Application refused.

PRACTICE AND PROCEDURE - Objection to subpoenas - Supreme Court (General Civil Procedure) Rules 2015 - Whether defendants expressly and precisely identify the legitimate forensic purpose for which access to the subpoenaed documents is sought - Whether the subpoenaed documents could assist in the defendants' application to re-open the hearing of the derivative leave application - Whether the relevant subpoenas should be set aside pursuant to r 42.04 of the Supreme Court (General Civil Procedure) Rules 2015.

Mr M H O'Bryan QC with Mr G D Dalton QC, Ms K E Foley and Mr J Rudd

Mr A J Myers AC QC with Mr B F Quinn QC, Mr D G Guidolin and Ms A M Folie

1 In 2003, Sofianos Tsialtas, Glenn Lees and Murray Lees established a business as a mortgage aggregator. The business involved procuring and aggregating the services of finance companies lending on mortgages. The business would then, for a commission, offer the service of these financiers to mortgage brokers to enable them to offer a wide choice of mortgagees to their clients seeking to borrow moneys secured by mortgage.

2 The business was conducted by Connective Services Pty Ltd (Connective Services) and Connective Services OSN Pty Ltd (Connective OSN) (the Connective companies). Mr Tsialtas held his one-third shareholding interest through his company, Slea Pty Ltd (Slea). Each of the Connective companies had a pre-emptive rights provision in its constitution that enabled Slea, and each of the original shareholders, to maintain its one-third interest in the companies and thus the business.

3 In 2008, Mr Tsialtas resigned as a director of the Connective companies at the request of Glenn Lees. Mr Tsialtas thereafter began working for Liberty Financial Pty Ltd (Liberty). In 2012, Macquarie Bank Ltd (Macquarie Bank) offered to buy 25 per cent of the Connective business. Mr Tsialtas was not informed of the offer by the Connective companies or their directors. To avoid Slea obstructing the offer by Macquarie Bank, by Slea exercising its pre-emptive rights, without the knowledge of Slea, in February 2013, the directors of the Connective companies established a subsidiary company and transferred the Connective business to the subsidiary. This enabled shares in the subsidiary to be sold to Macquarie Bank without enlivening the pre-emptive rights of Slea. I shall refer to these steps as the restructure.

4 Thereupon, on 31 October 2013, the directors of the Connective companies issued 25 per cent of the shares in the subsidiary to Macquarie Bank, thereby reducing Slea's interest in the business to 25 per cent from 33.33 per cent and giving Macquarie Bank a 25 per cent share in the Connective business. This is referred to as the transaction.

5 Slea seeks the leave of the Court under s 237 of the Corporations Act 2001 (Cth) (the Act) to bring derivative proceedings on behalf of the Connective companies against Glenn Lees, Macquarie Bank and others, seeking the rescission of the sale of the shares in the subsidiary to Macquarie Bank. Primarily, Slea claims the directors of the Connective companies misused their powers and breached their duties to the Connective companies by exercising their powers to undertake the restructure steps, to give Macquarie Bank a 25 per cent interest in the business and to reduce Slea's interest from 33.33 per cent to 25 per cent, to avoid and deny the pre-emptive rights of Slea.

6 The application was heard by me over 14, 16, 17 and 18 August 2017. I reserved my decision and, on Friday 6 October 2017, the parties were given notice that I intended to hand down my decision on Tuesday 10 October 2017.

7 On 6 October 2017, after receiving notification that my decision would be handed down, the first, second and fourth to ninth defendants (the Connective parties) issued a summons seeking orders that, pursuant to s 49(1) of the Civil Procedure Act 2010 and the inherent jurisdiction of the Court, the hearing of the derivative leave application be re-opened and the Connective parties be granted leave to adduce new evidence; and the delivery of the judgment of the derivative leave application, listed for 10 October 2017, be adjourned sine die.

8 On 10 October 2017, the Connective parties made an application to adjourn the hearing of their summons. I reserved my decision. On 20 October 2017, the Court made orders adjourning the hearing of the summons of 6 October 2017 to 13 November 2017.

9 On 8 November 2017, Slea filed a summons seeking subpoenas, that had been issued in relation to the Connective parties' application to re-open the hearing of the application for derivative leave, be set aside.

10 On 13 November 2017, I heard the application to set aside the subpoenas and the application to re-open the hearing of the application for derivative leave.

11 For the reasons given below, the Court dismisses the application to re-open the hearing of the application for derivative leave and sets aside the subpoenas subject to the 8 November 2017 summons. Further, the Court proposes to grant leave, conditionally, to Slea to bring the proposed derivative proceeding.

12 Messrs Glenn and Murray Lees each held their one-third interest in the Connective companies through Millsave Pty Ltd (Millsave). Mr Mark Haron also worked in the Connective business. On 5 May 2011, Mr Haron commenced a proceeding against the Connective companies, Millsave and Slea (the Haron proceeding) alleging that they had agreed with him that Slea and Millsave would sell to him, and he would purchase, 25 per cent of the shares in each of the Connective companies. As discussed below, the Haron proceeding was finally settled on 22 October 2013.

13 On 15 August 2011, prior to the settlement of the Haron proceeding, Slea instituted the main proceeding, in which the application currently before me is made, as an oppression proceeding against the Connective companies, seeking orders, inter alia, under s 233 of the Act that Connective Services recover directors' fees paid to Mr Haron and Murray Lees; that Connective Services declare and pay a dividend out of declared profits; that Connective Services rectify its books and records; and that Mr Haron and Mr Graham Maloney be removed as directors from the boards of the Connective companies. The oppression proceeding largely lay dormant whilst the Haron proceeding ran its course.

14 On 16 August 2011, Mr Haron and Millsave settled the Haron proceeding as between themselves, pursuant to a deed of settlement and release dated 16 August 2011, but otherwise the Haron proceeding continued.[1]

15 As mentioned above, on 15 February 2013, unbeknownst to Mr Tsialtas at the time, the Connective companies restructured the Connective business by:

(a) Connective Services selling its shares in Connective Broker to Connective Group in return for Connective Group issuing a further 19,999,964 shares to Connective Services;

(b) Connective OSN selling its shares in Connective Lender and Connective Funder to Connective Group in return for Connective Group issuing 24 shares to Connective OSN;

(c) Connective Services licensing its intellectual property to Connective Broker for an unspecified sum; and

(d) Connective OSN licensing its intellectual property to Connective Lender and Connective Funder for an unspecified sum.

16 Mr Tsialtas did not see the documents by which these transactions were effected at the time. Mr Tsialtas became aware of them when they were subsequently discovered or disclosed in the oppression proceeding.

17 On 20 February 2013, in the Haron proceeding, Daly AsJ ordered that Mr Haron and the Connective companies discover any documents relating to the actual or possible sale of the Connective companies after 10 October 2006, and any restructuring of the ownership structure necessary to give effect to the sale. Despite the order of Daly AsJ, Mr Tsialtas did not become aware of the restructure and transaction until after the Haron proceeding finally settled in October 2013, as referred to below.

18 On 1 October 2013, Slea commenced a pre-emptive rights proceeding against the Connective companies, Millsave and Mr Haron seeking declarations that the pre-emptive rights provision in the constitution of each of the Connective companies applied to the proposed transfer of shares in the Connective companies by Millsave to Mr Haron under the deed of settlement and release dated 16 August 2011 (the pre-emptive rights proceeding). The pre-emptive rights proceeding did not relate to the Macquarie Bank transaction, as Mr Tsialtas did not know about the proposed Macquarie Bank transaction at that stage. Slea also sought mandatory injunctions requiring Millsave to make an offer to immediately transfer to Slea the shares that were the subject of the deed of settlement and release dated 16 August 2011, that were to be transferred to Mr Haron under the settlement and release of 11 August 2011.

19 After a mediation took place on 22 October 2013, the Haron proceeding and the pre-emptive rights proceeding were finally settled under a settlement deed (the pre-emptive rights proceeding settlement deed).

20 Under the pre-emptive rights proceeding settlement deed, Slea agreed to waive any pre-emptive rights in respect of shares to be transferred to Mr Haron by Millsave as part of the settlement and release agreement of 11 August 2011.

21 On about 29 October 2013, pursuant to the settlement deed, Millsave transferred 300 of its shares in each of the Connective companies to Mr Haron. Following this transfer, the shareholders of the Connective companies were (and remain):

(a) Millsave, which holds 900 shares representing 50 per cent;

(b) Slea, which holds 600 shares representing 33.33 per cent; and

(c) Haron, who holds 300 shares representing 16.67 per cent.

22 Mr Tsialtas says that when the pre-emptive rights proceeding settlement deed was agreed, he understood that the Connective companies still owned and controlled the Connective business.[2] He therefore also understood that Slea would continue to hold a 33.33 per cent interest in the Connective business as it had since the establishment of the Connective companies and that a new investor would need to comply with the pre-emptive rights regime in the Connective companies' constitutions.

23 Mr Tsialtas had seen ASIC company searches for some of the entities identified in the Connective group structure diagram. He understood from these documents that new subsidiaries of the Connective companies had been incorporated. Mr Tsialtas had not seen any of the discovered documents, due to the confidentiality regime imposed by the Connective companies during the pre-emptive rights proceeding. Due to that confidentiality regime, Mr Tsialtas could not give any instructions to his solicitors about those documents, or what they might mean. At no stage was Mr Tsialtas told of the objectives of the new subsidiaries, or of the purpose behind their incorporation. Mr Tsialtas was not aware that this was part of a corporate restructure that involved the transfer of the Connective business to a new subsidiary and that thereupon shares in that subsidiary were to be sold to Macquarie Bank.

24 At the time of settlement of the pre-emptive rights proceeding, Mr Tsialtas was entirely unaware that the Connective companies had agreed to sell, or were negotiating to sell, a substantial interest in the Connective business to Macquarie Bank, notwithstanding the order of Daly AsJ on 20 February 2013 that required discovery by Mr Haron and the Connective companies and production by Glenn Lees and Murray Lees and Millsave of documents relating to the actual or possible sale of the Connective companies.[3]

25 On 7 November 2013, Mr Tsialtas received a telephone call from Ms Anne Gallagher, the state manager of Liberty. Ms Gallagher informed Mr Tsialtas of the sale of the Connective business to Macquarie Bank. This was the first time Mr Tsialtas had heard of any sale of the Connective business.

26 In November 2013, Mr Tsialtas read a media release announcing the Macquarie Bank transaction. Later, during the discovery process in the oppression proceeding, Mr Tsialtas became aware of the details of the restructure.[4]

27 As mentioned, the constitutions of Connective OSN and Connective Services contained pre-emptive rights provisions (set out below at paragraph 52(a)), whereby before shares can be issued or sold, they must first be offered to existing shareholders. On 20 November 2013, Maddocks, the Connective companies' solicitors, sent a letter to Arnold Bloch Leibler (ABL), Mr Tsialtas' solicitors, stating, amongst other things, a denial that the transaction breached the pre-emptive rights provisions of the Connective companies' constitution.

28 On 11 November 2013, Slea sent a letter to the directors of the Connective companies, being Mr Maloney, Glenn Lees and Mr Haron, stating that Slea, as a substantial shareholder, expected to be kept informed of all significant transactions.[5] On 12 November 2013, Mr Tsialtas received a letter from Mr Maloney, on behalf of the Connective companies in response to his letter of 11 November 2013, that did not mention or disclose anything about the sale of shares in the new subsidiary company to Macquarie Bank.

29 On 20 November 2013, Mr Tsialtas received a letter from Mr Maloney confirming the transaction. In the letter, Mr Maloney said that Slea would receive a fully franked dividend of $1,166,666.67. Mr Maloney also called Mr Tsialtas and said that the Connective group had sold a 25 per cent interest in the Connective business to Macquarie Bank and that it was a great deal for shareholders.[6]

30 On 20 November 2013, ABL sent a letter to Maddocks stating that Slea would challenge the validity of the restructure and transaction and sought an undertaking not to dispose of any further shares. The letter also stated that as Slea did not accept the validity of the purported transaction, the dividend of $1,166,666.67 would be held on trust pending the resolution of the issues arising out of the purported transaction. Mr Tsialtas says the dividend continues to be held on trust. The Connective companies have not declared and Slea has not received any dividends since this time.

31 On or about 6 December 2013, in the existing oppression proceeding, Slea applied to join Millsave, Macquarie Bank and Messrs Glenn Lees, Haron and Maloney as defendants; and for leave to file an amended statement of claim, inter alia, complaining about the transaction and the restructure.[7]

32 On 14 March 2014, Efthim AsJ dismissed Slea's application to amend the statement of claim in the oppression proceeding on the grounds that Slea required leave under s 237 of the Act to allege that the defendant directors had breached their duties to the Connective companies and to allege that Macquarie Bank knowingly assisted or participated in the breaches of duties owed by the directors to the Connective companies.[8]

33 Thereafter, on 1 July 2014, Slea delivered an amended statement of claim in the oppression proceeding, pleading the restructure and the transaction as further acts of oppression. Slea claimed that after the settlement of the Haron proceeding, Slea became aware that the directors of the Connective companies had effected a restructure of the ownership of the underlying business of the Connective companies with a result that, amongst other things:

(a) the fourth defendant (Connective Group), a subsidiary of the Connective companies, which, in turn, held various further subsidiaries, was incorporated;

(b) the underlying companies of the Connective companies were transferred to the subsidiaries (the restructure); and

(c) 25 per cent of the shares in the Connective Group were sold to Macquarie Bank (the transaction).

34 Slea contends that the result of the restructure and transaction was that Slea's ownership interest in the underlying Connective business was diluted to 25 per cent.

35 Slea filed a summons, as amended on 27 May 2016, in the oppression proceeding (the 27 May 2016 summons) seeking orders that:

(a) pursuant to s 237 of the Act, Slea be granted leave to bring a proceeding on behalf of and in the name of Connective Services and Connective OSN in the form set out in the draft statement of claim exhibited to the affidavit of Ms Kimberley Chantelle MacKay, dated 17 May 2016 (the first MacKay affidavit), against the parties identified in the schedule.

(b) Slea be granted leave to use the documents listed in exhibit KCM 1 to the first MacKay affidavit for the purpose of the derivative action, should leave to bring the action be granted.

36 The 27 May 2016 summons is the subject of these reasons and proposed orders.[9] The defendants to the summons are Connective Services, Connective OSN, Millsave, Connective Group, Connective Broker Services, Connective Lender Services, Connective Funder Services, Connective Group IP Holdings (No 1), Connective Group IP Holdings (No 2) (the Connective defendants/parties) and Mr Haron.

37 Mr Myers, one of Her Majesty's counsel, appeared for the Connective defendants and Mr Hay appeared for Millsave. There was no appearance for Mr Haron, who relied on written submissions of Mr Marcus Clarke of counsel. Mr O'Bryan, one of Her Majesty's counsel, appeared for Slea.

38 In substance, Slea alleges that the directors breached their duties to the company by exercising their powers to restructure not in good faith, not in the best interests of the Connective companies and for an improper purpose, as the purpose of the directors was, or included, the substantial purpose of circumventing the pre-emptive rights provisions in favour of Slea to the detriment of Slea.

39 On 11 August 2016, Connective Services and Connective OSN issued an originating process (No 1168 of 2016) (the 2016 pre-emptive rights proceeding) against Slea, Minerva Financial Group Pty Ltd (Minerva) (holding company of Liberty), Millsave and Mr Haron as the defendants, seeking orders, inter alia, that Slea offer its shares in Connective Services and Connective OSN to Millsave and Mr Haron in accordance with clause 77.3 of the constitution of Connective Services and Connective OSN.

40 The 2016 pre-emptive rights proceeding was brought in reliance on an agreement between Slea and Minerva (the 2010 accommodation agreement) that was obtained by Connective through discovery in the Haron proceeding on 15 December 2011.

41 The 2010 accommodation agreement was entered into on 12 August 2010 between Mr Tsialtas and Minerva, the company that was then the parent company of Liberty. The 2010 accommodation agreement was entered into after the alleged oppressive conduct against Slea began, when no dividends were being paid out by the Connective companies and Mr Tsialtas was in need of financial support. At the time, Mr Tsialtas was working for Liberty.

42 In return for providing financial accommodation to Mr Tsialtas, the agreement provided that if further Connective shares came to Mr Tsialtas, or were offered to him from Millsave or Haron under the pre-emptive rights provisions, Liberty would consider lending him the money to enable him to buy those further shares. The 2010 accommodation agreement also provided that if Slea were to become the owner of all the shares, thus the sole shareholder, and therefore the shares would not be subject to pre-emptive rights, then, at that time, Liberty had the option of buying those further shares.

43 The 2010 accommodation agreement was discovered to the Connective companies in the Haron proceeding. Slea alleges that the timing of the discovery by the Connective companies supports Slea's contention that the restructure was carried out for an improper purpose, as it would have been evident to the Connective companies and their directors that Slea would have the financial means to exercise their pre-emptive rights if any shares were to be offered at the time of negotiating with Macquarie Bank. On the other hand, the Connective companies submit that the 2010 accommodation agreement discloses a nefarious purpose on the part of Slea in bringing the derivative leave action, as it is said to be brought at the behest of Liberty. This is discussed further below.

44 In the 2016 pre-emptive rights proceeding, the Connective parties alleged that:

(a) on or about 12 August 2010, Slea entered into the 2010 accommodation agreement with Minerva, whereby Slea would, among other things:

(i) refuse to sell, transfer or dispose of any of its shares in the Connective companies to existing shareholders; and

(ii) seek to transfer all of its shares in the Connective companies to Liberty.

(b) the purpose of the 2010 accommodation agreement was to subvert or avoid the pre-emptive rights; and

(c) that in breach of the pre-emptive rights, Slea failed to offer its shares in Connective to Millsave and Haron.

45 Connective sought orders compelling Slea to offer its shares in the Connective companies to Millsave and Haron, and an order restraining Slea from transferring or dealing with those shares otherwise than in accordance with the pre-emptive rights.

46 On 4 October 2016, Slea and Minerva sought orders that the 2016 pre-emptive rights proceeding be dismissed or stayed. Further, or alternatively, Slea and Minerva sought an injunction pursuant to s 1324 of the Act restraining Connective Services and Connective OSN from prosecuting the proceeding. Slea and Minerva contended that by commencing the 2016 pre-emptive rights proceeding in reliance on the 2010 accommodation agreement, Connective breached the implied undertaking not to use the 2010 accommodation agreement for a purpose unconnected with the proceedings in which it was discovered.

47 The application was heard before Almond J and, on 12 May 2017, his Honour ruled that the proceedings had been commenced in reliance on the contents of the 2010 accommodation agreement, which had been obtained by the Connective companies through discovery in the earlier proceedings, and that accordingly the Connective companies breached the implied undertaking not to use the 2010 accommodation agreement for a purpose unconnected with the proceedings in which they were discovered. Almond J held that this amounted to an abuse of court. His Honour held that in circumstances where the core of the claim turned on the terms of the 2010 accommodation agreement, the appropriate remedy was to stay the proceeding pursuant to r 23.01 of the rules of court. On 2 June 2017, Connective Services and Connective OSN issued a summons in the oppression proceeding for orders that Connective Services and Connective OSN be granted leave to use the 2010 accommodation agreement in the 2016 pre-emptive rights proceeding. This summons is not before me. The summons has been heard by Judd J.[10]

Part 1

48 The summons before me is Slea's application, pursuant to s 237 of the Act, that Slea be granted leave to bring a proceeding on behalf of and in the name of Connective Services and Connective OSN in the form set out in the draft statement of claim exhibited to the first MacKay affidavit.[11]

49 Section 236 of the Act provides for bringing, or intervening in, proceedings on behalf of a company, and states as follows:

(1) A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:

(a) the person is:

(i) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or

(ii) an officer or former officer of the company; and

(b) the person is acting with leave granted under section 237.

(2) Proceedings brought on behalf of a company must be brought in the company's name.

(3) The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.

Note 1: For the right to inspect company books, see subsections 247A(3) to (6).

Note 2: For the requirements to disclose proceedings and leave applications in the annual directors' report, see subsections 300(14) and (15).

Note 3: This section does not prevent a person bringing, or intervening in, proceedings on their own behalf in respect of a personal right.

50 Section 237 of the Act sets out the tests for applying for and granting leave, to bring a proceeding on behalf of a company:

(1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

(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; and

(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 appropriate to grant leave even though subparagraph (i) is not satisfied.

(3) A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that:

(a) the proceedings are:

(i) by the company against a third party; or

(ii) by a third party against the company; and

(b) the company has decided:

(i) not to bring the proceedings; or

(ii) not to defend the proceedings; or

(iii) to discontinue, settle or compromise the proceedings; and

(c) all of the directors who participated in that decision:

(i) acted in good faith for a proper purpose; and

(ii) did not have a material personal interest in the decision; and

(iii) informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate; and

(iv) rationally believed that the decision was in the best interests of the company.

The director's belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold.

(a) a person is a third party if:

(i) the company is a public company and the person is not a related party of the company; or

(ii) the company is not a public company and the person would not be a related party of the company if the company were a public company; and

(b) proceedings by or against the company include any appeal from a decision made in proceedings by or against the company.

Note: Related party is defined in section 228.

51 Slea bears the onus of establishing each of the five elements in subsection 2, on the balance of probabilities.[12] If it does so, then the Court must grant leave. The obligation is mandatory. A failure to establish any one of the matters specified is fatal to the application for leave.

52 Before applying each of the tests, it is useful to examine the claim sought to be brought and the evidence that is relied on to support it. At the core of the proposed statement of claim is the constitution of Connective Services and Connective OSN which, at all relevant times, contained pre-emptive rights provisions providing for:[13]

(i) before issuing shares of a particular class, the directors must offer them to the existing holders of shares of that class;

(ii) as far as practicable, the number of shares offered to each shareholder pursuant to (i) must be in proportion to the number of shares of that class that they already hold;

(iii) to make the offer, the directors must give members a statement setting out the terms of the offer;

(iv) the directors may issue any shares not taken up under the offer as they see fit.

(i) before transferring shares of a particular class, a member must offer them to the existing holders of shares of the class;

(ii) as far as practicable, the number of shares offered to each shareholder pursuant to (i) must be in proportion to the number of shares of that class that they already hold;

(iii) to make the offer, the directors must give members a statement setting out the terms of the offer;

(iv) if some of the shares offered have not been fully accepted by the end of the period, the member must re-offer the remaining shares on the same terms to those members (if any) who accepted the offer in proportion to the number of shares of that class that they are deemed to hold by virtue of having already accepted some of the shares on offer; and

(v) the member may transfer any shares not taken up under the offers pursuant to (i) and (iv) as they see fit provided that the terms, including price, are no more commercially attractive or advantageous to a third party than the terms of the original offers.

53 In the proposed statement of claim, Slea alleges that:[14]

(a) From about April 2008, Mr Haron and Glenn Lees desired to remove Slea as a shareholder in Connective Services and Connective OSN.

(b) In or about March 2012, the directors (Glenn Lees, Mark Haron and Graham Maloney) commenced discussions and negotiations with Macquarie Bank about the sale of an interest in the Connective business to Macquarie Bank.

(c) On or about 7 June 2012, Macquarie Bank's solicitors prepared an options paper that:

(i) identified the following options to restructure Connective Services and Connective OSN to enable Macquarie Bank to acquire an interest in the Connective business:

• Option 1: Connective Services and Connective OSN establish a wholly owned subsidiary (Group-Co) and transfer the Connective business to the wholly owned subsidiaries of Group-Co; and Macquarie Bank be issued shares in Group-Co;

• Option 2: Connective Services and Connective OSN issue shares to Macquarie Bank;

• Option 3: Millsave transfers its share in Connective Services and Connective OSN to a related body corporate and causes that related body corporate to issue shares to Macquarie Bank;

• Option 4: Millsave buys out all of Slea's shares in Connective Services and Connective OSN using its own funds and funds from Macquarie Bank;

(ii) advised that Slea may challenge option 1 on the basis that the purpose of the restructure would be to enable Millsave to offer and Macquarie Bank to acquire an interest in the Connective business without complying with the pre-emptive rights provisions;

(iii) advised that options 2 and 3 were subject to the pre-emptive rights provisions, which they assumed constituted an 'unacceptable risk'; and

(iv) advised that option 4 would require agreement with Slea.

(d) Between 20 December 2012 and 25 October 2013 the directors (Glenn Lees, Mark Haron and Graham Maloney) caused Connective Services and Connective OSN to enter into transactions with the result that the Connective business was transferred from Connective Services and Connective OSN to the subsidiaries of Connective Group (the new subsidiary), consistent with option 1 of the options paper.

(e) On 31 October 2013, without conducting a competitive bidding process, Connective Services, Connective OSN, Glenn Lees, Murray Lees, Haron and Macquarie Bank executed a share purchase deed, pursuant to which Connective Services and Connective OSN transferred shares in Connective Group to Macquarie Bank for $5 million and Connective Group adopted a new constitution.

(i) Macquarie Bank became the owner of 25 per cent of the shares in Connective Group;

(ii) Connective Services retained 75 per cent of the shares in Connective Group;

(iii) Connective OSN ceased to hold shares in Connective Group;

(iv) Slea's interest in the Connective business was diluted from one-third to one-quarter.

(g) Between mid-2012 and 31 October 2013, the directors (Glenn Lees, Mark Haron and Graham Maloney) concealed the restructure and share purchase from Slea.

(h) In breach of their duties to exercise their powers as directors in good faith in the best interests of Connective Services and Connective OSN respectively and for a proper purpose, the transaction and restructure was carried out by the directors for the purpose of, or for the purposes that included as a substantial purpose:

(i) selling a 25 per cent interest in the Connective business in a manner that would:

B. circumvent Slea's rights as a shareholder in Connective Services and Connective OSN under the pre-emptive rights provisions;

C. enable Millsave and Haron to retain effective control over the Connective business;

D. ensure Slea would not acquire effective control over the Connective business through the exercise of the pre-emptive rights provisions afforded to it as a shareholder in Connective Services and Connective OSN;

(ii) further, or alternatively, reducing Slea's interest in the Connective business.

(i) At all relevant times, Macquarie Bank had knowledge of the relevant matters and was therefore on notice of the breaches by the directors of their duties.

(j) By reason of the breach of directors' duties, the transactions undertaken pursuant to the share purchase agreement and the transactions comprising the restructure are voidable at the election of Connective Services and Connective OSN.

(k) By reason of the breach of duties, Connective Services and Connective OSN suffered loss and damage.

(l) Slea alleges that the improper purpose of the directors in carrying out the restructure and the transactions, inter alia:

(ii) is evident from a preliminary statement from Murray Lees, taken on behalf of Slea,[15] which sets out the concerns the principals of Connective Services and Connective OSN had with Mr Tsialtas and their desire to force him out of the business by, inter alia, getting Mark Haron to issue legal proceedings against Slea, seeking a transfer of a 25 per cent shareholding in Connective Services and Connective OSN, refusing to declare dividends, and restructuring the Connective business to allow for the sale of shares to Macquarie Bank without Slea exercising its pre-emptive rights;

(iii) emails discovered by the defendants on 10 August 2017, between Macquarie Bank, Glenn Lees, Graham Maloney and their respective solicitors, sent prior to or at the time of the restructure, discussing the restructure and share sale transaction, the need to deal with 'the shareholding issues with Sof [Mr Tsialtas]', and confirming, by their lawyers, that they had not informed Slea of the restructure.[16]

(m) Macquarie Bank's knowledge can be inferred from:

(i) the content of the options paper which was prepared by its lawyers;

(ii) its knowledge of the pre-emptive rights provisions;

(iii) its concern about 'structuring issues', as referred to in emails from James Casey (of Macquarie Bank) to Glenn Lees sent on 20 March 2012 and 21 March 2012.[17]

54 As indicated above, in the oppression proceeding, the claims sought to be raised in the proposed statement of claim allege the restructure and transaction were carried out with an improper purpose. Slea contends that, initially, it relied on the strong inference that the restructure was done to avoid the pre-emptive provisions. This inference was supported by the fact that Macquarie Bank could not make the investment it sought to make by buying shares from the existing shareholders without triggering the pre-emptive rights, which would have allowed Mr Tsialtas, with the backing of Liberty, to buy shares issued by the Connective companies and thus gain control of the Connective companies. The directors of the Connective companies were aware of this risk, as they had seen the 2010 accommodation agreement that had been discovered in the earlier Haron proceeding.

55 Mr Moshinsky QC, counsel for Slea in the oppression proceeding, when seeking leave to amend the claims in the oppression proceeding to rely on the breach of duties by the directors to the company and to join Macquarie Bank, informed Efthim AsJ that these were bare allegations without particulars and that Slea did not have the transaction documents, but that the claim was based on the sole inference that they could not see any other purpose for the restructure and transaction than to circumvent Slea's rights.

56 The application to amend the claims in the oppression proceeding was rejected on 14 March 2014, for the reason that the amendment required a leave application, such as the present application for derivative leave, to bring claims against the directors.[18]

57 As is discussed above, Murray Lees was a co-founder of the Connective business along with his brother, Glenn Lees, and Mr Tsialtas. He was a principal of the Connective companies until he was purportedly made redundant in November 2015.

58 Subsequently to the refusal for leave to amend the originating process, in May 2016, Slea received the statement of Murray Lees, made 11 May 2015,[19] that confirmed what Slea had suspected and inferred, being, that in fact the restructure was carried out by the directors to avoid the pre-emptive rights of Slea being enlivened by selling 25 per cent of the shares in the Connective companies to Macquarie Bank (the Murray statement).

59 The Connective parties submitted that Slea could not rely on the statement by Murray Lees in this proceeding, as Slea had not proved that the document tendered, bearing the purported signature of Murray Lees, was in fact signed by Murray Lees.

60 In response, Slea referred to and relied on evidence that the Connective parties admitted that the Murray Lees statement was in fact made by Murray Lees, as when they were made aware of the Murray Lees statement, the Connective companies took proceedings to restrain Murray Lees from disclosing certain matters stated in his statement, on the grounds that he was disclosing information confidential to the Connective companies. On 30 August 2016, the Connective parties commenced proceedings alleging, inter alia, breaches by Murray Lees in relation to disclosing confidential information to Slea and Slea's lawyers, in making the Murray Lees statement (confidentiality proceedings).

61 In response to comments made by counsel for Slea in relation to the issuing of the confidentiality proceedings, by letter dated 19 October 2016, Quinn Emanuel Solicitors, solicitors for the Connective companies, identified passages of the Murray Lees statement said to be confidential.[20] Glenn Lees also provided a statement, dated 13 February 2017, identifying paragraphs of the Murray Lees statement that he asserted were subject to Connective's rights of confidence and privilege.[21]

62 On 7 March 2017, Quinn Emanuel wrote to ABL and informed them that in the interests of having the real issues in dispute resolved, they would no longer object to Slea relying on the Murray Lees statement on the grounds that his obligations of confidence to Connective precluded him from voluntarily giving evidence to Slea,[22] bringing to an end the confidentiality proceedings.

63 On 14 March 2017, ABL sent a reply in which they noted that they now assumed that the Connective parties do not assert that the Murray Lees statement contains any privileged information, unless notified otherwise.[23]

64 Slea submits that the confidentiality proceedings and the evidence in support, which identified the statement as that of Murray Lees, constitutes an admission by the Connective companies that the statement was in fact the statement of Murray Lees. I accept that submission.

65 I am satisfied that the Murray Lees statement, tendered as the statement of Murray Lees, was his statement and was signed by him.

66 On behalf of the Connective parties, Mr Quinn of counsel submitted that despite this being, strictly speaking, an interlocutory application, that this evidence, which is said to go to a critical point, is really an attempt to put in a full statement by a witness who was available to be called, could have been called, where the choice was made not to call him.[24] Further, that in the circumstances where the application will have serious consequences, Mr Quinn submitted that the general discretion to exclude evidence, pursuant to s 135 of the Evidence Act 2008, ought be engaged, or if admitted, to limit its use (s 136).[25]

67 Section 135 states that:

The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might -

(a) be unfairly prejudicial to a party; or

(b) be misleading or confusing; or

(c) cause or result in undue waste of time; or

(d) unnecessarily demean the deceased in a criminal proceeding for a homicide offence.

68 Connective parties submit that the probative value of the statement is very limited; it is un-testable; it is unclear from Ms MacKay's affidavit whether she had anything to do with the taking of the Murray Lees statement, or whether there is a belief that it is true; and in the circumstances where the motive of Murray Lees providing the statement is unexplained.[26]

69 Slea submitted that the rules of evidence for an interlocutory type question apply and, in those circumstances, the Court is entitled to receive hearsay evidence to satisfy itself that there is a question to be tried, and ordinarily there would be no cross-examination allowed.[27]

70 After hearing submissions on this point, I ruled that the weight of authority favours the view that the proceedings are interlocutory and thus hearsay evidence is admissible under s 75 of the Evidence Act 2008, which provides that in an interlocutory proceeding the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source.[28]

71 I also noted that in my view, in this sort of proceeding, it would be inappropriate and perhaps prejudicial to the further hearing of the matter to allow Murray Lees to be cross-examined at this stage in the proceeding.

72 Notwithstanding the Murray Lees statement, there was substantial evidence presented on the application for derivative leave that the restructure was intended to avoid Slea's pre-emptive rights.

73 At the time of the application to amend the oppression proceeding to include the allegation that the directors of the Connective companies had breached their duties to the Connective companies, Slea had not seen the restructure documents, although Slea had requested them. The documents were provided to Slea eventually between November and December 2013.

74 After the application for leave under s 237 was issued, further evidence has become available to Slea which further supports the proposed claim Slea wishes to pursue in the name of the Connective companies against the Connective parties, Millsave and Mr Haron.

75 As discussed above, the paper headed 'Connective options paper', dated 7 June 2012, on letterhead of Henry Davis York Lawyers, lawyers for Macquarie Bank, explains the existing structure of the Connective Group and then identifies four possible options for Macquarie Bank acquiring an interest in the Connective business. These options are mentioned in the proposed statement of claim. The observations of Macquarie Bank on each of the options follows.

76 Option 1 is to transfer the Connective business to the new subsidiary and then issue new shares in the new subsidiary, as holder of the Connective business, to Macquarie Bank; this was the option that was ultimately carried out (save that the interest transferred was 25 per cent of the new subsidiary, not 20 per cent as referred to in the options paper).

77 Option 1 notes 'we note your instructions that Millsave intends to implement this restructure regardless of MBL's investment' and that Slea may challenge this restructure and investment on the basis that the restructure was implemented to enable Millsave to offer and Macquarie Bank to acquire 20 per cent of the Connective business without complying with the pre-emptive rights process for the issue of shares or the pre-emptive rights process for the transfer of shares set out in the constitutions.

78 Option 2 is simply issuing shares to Macquarie Bank. It is noted that 'we assume that it's an unacceptable risk to rely on Slea co-operating in respect of passing a resolution to issue new shares to Macquarie Bank and if such a resolution was proposed, Slea may insist on the pre-emptive process in respect of the issue of new shares to be complied with and Slea may seek to acquire further shares in Connective which we assume would be unacceptable to Millsave and Macquarie.'

79 Option 3 involves Millsave effectively creating a new special purpose vehicle and Macquarie Bank investing in that vehicle. It is noted that such a structure will only be possible if Slea consents or does not accept the pre-emptive offer, as there is no exception to the pre-emptive rights provisions in respect of a transfer of shares to a related body corporate.

80 Option 4 was to make an offer to buy Slea's shares. Millsave might use its own funds and funds from Macquarie Bank to buy all of Slea's shares and then Millsave would hold all of the shares. This would require an agreement with Slea, including in relation to the purchase price, but may be an option, both in order to effect the transfer to Macquarie Bank and resolve the litigation in respect of the shareholding in the Connective companies. Millsave could then transfer shares to Macquarie Bank, or can issue new shares, because the pre-emptive rights would effectively no longer apply.

81 The restructure was undertaken, without the knowledge of Slea, taking about 12 months to implement. The restructure documents show it involved a series of complex steps.

82 On 5 July 2013, Ms Heritage from Macquarie Bank sent an email to various people, including 'Graham', whom I infer is Mr Maloney, from which it is evident that the negotiations continued with Macquarie Bank once the restructure was carried out.[29]

83 On 30 July 2013, an email was sent from Mr Smooker at Maddocks, to Mr Mortimer, who is identified as a lawyer at Henry Davis York, which refers to the restructure and the transaction with Macquarie Bank being concealed from Slea.[30]

84 Emails between Macquarie Bank, Glenn Lees, Mr Maloney and their respective solicitors, sent prior to or at the time of the restructure, discuss the restructure and transaction, the need to deal with 'the shareholding issues with Sof' [Mr Tsialtas], and confirming, by their lawyers, that they had not informed Slea of the restructure.[31]

The Connective companies will not bring the action

85 As to the first requirement for granting leave under s 237, there is no dispute that it is probable that the Connective companies will not themselves bring the proceedings or properly take responsibility for them.

86 The allegations underlying the application for derivative leave concern the conduct of Glenn Lees, Mr Haron and Mr Maloney. Each remains a director of the Connective companies, and the directors have effective control over the Connective companies. The directors, as the governing mind of the Connective companies, oppose the derivative leave application and are defending the concurrent oppression proceeding in which related allegations of misconduct are raised.

87 Pursuant to s 237(2)(b), Slea must establish on the balance of probabilities, that it is acting in good faith in bringing the application for derivative leave.

88 Both parties referred to the observations of Palmer J in Swansson:[32]

At this early stage in the development of the law on the statutory derivative action created by Pt 2F.1A it would be unwise to endeavour to state compendiously the considerations to which the courts will have regard in determining whether applicants in all categories defined by s 236(1) are acting in good faith. The law will develop incrementally as different factual circumstances come before the courts.

Nevertheless, in my opinion, there are at least two interrelated factors to which the courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.

...

Where the application is made by a current shareholder of a company who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the court's satisfaction. So also where the applicant is a current director or officer: it will generally be easy to show that such an applicant has a legitimate interest in the welfare and good management of the company itself, warranting action to recover property or to ensure that the majority of the shareholders or of the board do not act unlawfully to the detriment of the company as a whole.

89 Thus, Palmer J states that there are at least two interrelated factors:

(a) whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success;

(b) whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.

90 It was submitted by the Connective parties that although Palmer J considered what constitutes good faith in Swansson, good faith means an absence of a collateral purpose, being the general understanding of good faith in the law, with reference to the company's interest.[33]

91 The Connective parties submit that for Slea to be acting in good faith, Slea is required to have a pure intention and is not trying to achieve something other than that which the proceedings are explicitly directed to; that does not include a substantial collateral purpose.

92 Mr O'Bryan submits that the benefit that the law allows through this proceeding is the protection of shareholder interests[34] and that it cannot amount to an abuse of process for Slea to advance its interests, notwithstanding that there is a third party that has contingent interests or benefits, which are derived from Slea's interests.[35]

93 In his affidavit of 2 August 2016, Mr Tsialtas states, under the heading 'purpose for bringing the proposed derivative action:'[36]

A copy of the draft Statement of Claim in the Proposed Derivative Action is exhibited at "Confidential KCM-5" to the First MacKay Affidavit.

I believe there is a good cause of action underlying the Leave Application.

The Leave Application is not bought at the behest of Minerva. Minerva did not instruct or [sic] direct me to issue the Leave Application.

I am making the Leave Application to restore Slea's 33.33% interest in the Connective business and thereby restore full value to the original shareholders of the Connective Companies. Slea also seeks to prevent the directors from taking further steps that are detrimental to the Connective Companies as a whole, which includes Slea's interest as a 33.33% shareholder.

Slea also seeks, by the Leave Application, to restore its pre-emptive rights under the Connective Companies' constitutions, which rights have been subverted by the Restructure and certain provisions of the Connective Group constitution.

In this regard, I note that by virtue of the Restructure and provisions in the Connective Group constitution, Slea's interest in the Connective Business is at risk of being further and/or wholly eliminated. Examples of how this could occur are by:

(a) the directors of Connective Services resolving to sell some or all of its shares in the Connective Group or not participating in any further share issue in Connective Group; or

(b) the directors of Connective Group resolving to sell some or all of its shares in any of the Connective subsidiaries or not participating in any further share issue in the Connective subsidiaries; or

(c) Connective Services being forced to sell its share in Connective Group by reason of mechanisms built into the Connective Group constitution. The Connective Group constitution provisions which provide for these mechanisms are set out in Annexure B of the draft Statement of Claim exhibited at "Confidential KCM-5" to the First MacKay Affidavit.

Further, the Connective Group constitution includes provisions that may prevent Slea from ever increasing its shareholding in Connective Services. Those provisions are also set out in Annexure B of the draft Statement of Claim exhibited at "Confidential KCM-5" to the First MacKay Affidavit.

94 As discussed below, the Court does find that there is a serious question to be tried.

95 Mr Tsialtas was not challenged on his evidence that he believed there was a good cause of action underlying the leave application.

96 I am satisfied on the balance of probabilities, on the evidence before the Court, that Slea, by its sole director Mr Tsialtas, believes that there is a good action as pleaded in the draft proposed statement of claim.

97 The Connective parties contend that Slea has a collateral purpose in bringing the proceeding on behalf of the Connective companies in that Slea is bringing the proceedings for the benefit of Liberty or Minerva; 'that Slea is a stalking horse for Liberty.'[37]

98 The Connective parties relied upon the 2010 accommodation agreement, discussed above. The Connective parties contend that it is apparent under the 2010 accommodation agreement that Liberty has the option of obtaining all of Slea's shares in the Connective companies and that therefore Slea has nothing obvious to gain directly from the success of the derivative action, that the action is not brought with reference to the company's interests; but rather it is serving a collateral purpose of giving effect to the objectives of the 2010 accommodation agreement.[38]

99 Secondly, that Liberty is funding the proceedings is pointed to as evidence of a collateral purpose.

100 The Connective parties submit that all the evidence shows that the proceeding 'is being promoted and conducted by Liberty in order to get a toehold, or a bigger toehold in the company or ultimately to get control of it'[39] and that the Court is required to 'scrutinise with particular case the purpose for which the derivative action is said to be brought.'[40]

101 Mr O'Bryan submits that what is being put by the Connective parties is that Slea does not have an interest in the proceeding, and that the proceeding is being pursued to advance Liberty's interests and not Slea's interest. Mr O'Bryan submits the problem with the submission is that the evidence shows that Liberty's interest in the proceeding is contingent upon and derivative from Slea's interest in the proceeding.[41]

102 Secondly, Slea submits that this submission misses the point. Slea says that even if the 2010 accommodation agreement does give Liberty the option as alleged, it is in Slea's commercial interest to pursue the proposed proceedings under the 2010 accommodation agreement.

103 This is so because if the proposed proceeding is successful, Slea may, depending on the relief granted, improve its interest in the business, which Mr Tsialtas considers may now be worth something in the area of $100 million. Further, the proceedings will protect Slea's interest from being further diluted by any further share issue by the Connective Group.

104 The terms and conditions agreed between Slea and Minerva in consideration of the funding provided by Minerva, both for the litigation and any purchase of Connective shares, are consistent with Slea's objective to restore full value to its shareholding in the Connective companies.

105 Slea is bound under the 2010 accommodation agreement to do all that it is necessary to protect and maintain its interest in the Connective business.

106 The simple point made on behalf of Slea is that even though the proceedings may assist or advance the interests of Liberty, the primary purpose of Slea in pursuing the proceedings is to protect and further its own interests in the Connective business.

107 It is not denied by Slea that Liberty has an interest in the proceedings, nor that the interests of Liberty and Slea are aligned, however it is submitted that Liberty's is a contingent, future interest that is entirely respectful of the Connective companies' constitution. And that such an agreement does not establish an abuse of process or lack of good faith in this proceeding.[42] Further, it is submitted that there is nothing improper about litigation funding.

108 A collateral purpose is that which would amount to an abuse of process within the test laid down in Williams v Spautz.[43] The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in the event.[44] There is no collateral purpose in Slea bringing the application in order to restore full value to its shareholding in the Connective companies, enabling it at some future point in time to realise the value, as well as increasing through dividends, a higher share of the profits.

109 The test of improper purpose was recently discussed by the Court of Appeal in Melbourne City Investments Pty Ltd v Myer Holdings Ltd,[45] where the court, discussing Williams v Spautz and other cases establishing the tests for collateral purpose, said:[46]

The leading authority on abuse of process of the improper purpose kind is Williams v Spautz. In that case, Dr Spautz was dismissed from his position as a senior lecturer at the University of Newcastle. Dr Spautz then instituted more than 30 different proceedings. In some of the proceedings, Dr Spautz alleged criminal defamation and conspiracy against persons who occupied positions of authority at the University. Some of them sought a stay on the basis that the proceeding was an abuse of the process of the court. By majority, the High Court held that the proceedings should be stayed, on the basis that the predominant purpose of Dr Spautz in bringing the proceedings was improper. He sought to use the threat of proceedings and maintenance of them as a means of securing his reinstatement as a lecturer at the University. Mason CJ, Dawson, Toohey and McHugh JJ endorsed the articulation of the relevant principle by Lord Evershed MR in Re Majory:

that court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused.

Their Honours went on to state that the criterion for abuse of process is whether the predominant purpose of bringing the proceedings is improper. They cautioned that the concept of abuse of process must be kept within reasonable bounds:

To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event.

Thus, to take an example mentioned in argument, an alderman prosecutes another alderman who is a political opponent for failure to disclose a relevant pecuniary interest when voting to approve a contract, intending to secure the opponent's conviction so that he or she will then be disqualified from office as an alderman by reason of that conviction, pursuant to local government legislation regulating the holding of such offices. The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor. But the immediate purpose of the prosecutor is within that scope. And the existence of the ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor's favour.

It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers.

The plurality also drew on the observations of Bridge LJ in Goldsmith v Sperrings Ltd:

Bridge LJ identified one difficulty when he said:

What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired byproduct of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it. (Emphasis added.) So would we. But his Lordship, by implication, evidently sees no difficulty with the case in which the plaintiff does not wish to pursue his or her cause of action to a conclusion because he or she intends to use the proceedings for a collateral and improper purpose.

Their Honours held that the commencement and maintenance of the proceedings was predominantly undertaken for an improper purpose and were properly stayed by the trial judge.

Brennan J delivered a separate judgment. He too focused on the proper purpose of legal proceedings and stated:

The purposes which legal proceedings are designed to serve are the protection or vindication of particular legal rights or immunities, the maintenance or affection of particular legal relationships, and the imposition or enforcement of particular legal penalties, liabilities and obligations. The means by which these purposes are achieved in a proceeding consist in the verdict which might be returned or the order which might be made in the proceeding, in the consequences that flow naturally from a verdict that might be returned or from an order that might be made (for example, the vindication of a plaintiff's reputation flowing from a verdict in a civil action for defamation) and in compromise of the claims made in the proceeding. The achievement of any of the purposes mentioned by any of the means mentioned is within the scope of the remedy for which a proceeding is designed. But a proceeding may be intended to produce and may be capable of producing results that are not within the scope of the remedy.

Brennan J phrased the test as one based on whether there was a substantial legitimate purpose in bringing or maintaining the proceeding. Having referred to Goldsmith v Sperrings Ltd and the passage set out at above he continued:

I respectfully adopt the phrase 'reasonable relationship' to formulate a test similar to (though it may not be identical with) the test propounded by Bridge LJ in this passage. I would formulate the test in this way: if there be a reasonable relationship between the result intended by the plaintiff and the scope of the remedy available in the proceeding, there is no abuse of process. If there be mixed purposes - some legitimate, some collateral - I would restate his Lordship's test that 'but for his ulterior purpose, [the plaintiff] would not have commenced proceedings at all.' So expressed, the test casts on the other party an onus of proving what the plaintiff would not have done if he had not formed the intention of obtaining a collateral advantage. That onus may be impossible to discharge. If that onus were discharged, the other party would establish that the plaintiff had not commenced or maintained the proceeding for any substantial legitimate purpose. The gravamen of the test, I apprehend, is that the plaintiff did not commence or maintain the proceeding for any substantial legitimate purpose. I would state the test in that way. Substantiality is a matter of degree, ascertained by reference to the intention attributed to the plaintiff in all the circumstances of the case. At the end of the day, the court must determine, by reference to the intention attributed to the plaintiff, not merely whether the collateral purpose of the proceeding outweighs any legitimate purpose but whether the plaintiff entertained any substantial intention that the proceeding should achieve a legitimate purpose.

For these reasons, I would hold that an abuse of process occurs when the only substantial intention of a plaintiff is to obtain an advantage or other benefit, to impose a burden or to create a situation that is not reasonably related to a verdict that might be returned or an order that might be made in the proceeding.

110 The Court of Appeal went on to discuss the decision in Dowling v Colonial Mutual Life Assurance Society Ltd,[47] which was also considered by the members of the High Court in Williams v Spautz as an example of a case where the plaintiff intends to obtain relief within the scope of the remedy available in the proceeding such that there is no abuse of process.[48]

111 The Court of Appeal said of Dowling that:[49]

... Colonial Mutual had taken an assignment of a debt owed by Dowling. Based on non-payment of the debt giving rise to an act of insolvency, Colonial Mutual petitioned for the sequestration of Dowling. Colonial Mutual proceeded this way because it wanted Dowling to be publicly examined as to who had caused him to publish defamatory material about it. Isaacs J held that notwithstanding the ultimate object of Colonial Mutual, it had a legal right to the immediate relief it sought (that being the sequestration order). Colonial Mutual wished to use the proceeding for the very object for which it was designed by law; that is sequestration. Its subsequent purpose (discovery of the identity of those causing Dowling to publish the defamatory statements) could only be achieved by the court compelling Dowling to give an answer in a public examination. Isaacs J contrasted the situation with one where it was shown that Colonial Mutual had threatened Dowling that unless he gave up the names of his supporters, it would bring bankruptcy proceedings. In his Honour's opinion, those circumstances would have constituted an abuse of process. Powers J held that the proceedings were based on a lawful debt and Colonial Mutual intended in good faith to proceed with the petition for bankruptcy. Consequently, in his Honour's opinion, there was no abuse of process. Griffiths CJ dissented taking the view that the proceeding was an abuse of process. In the Chief Justice's opinion, the sole purpose of Colonial Mutual in seeking sequestration (to discover by means of an inquisitorial bankruptcy examination those who had encouraged or funded Dowling to publish) was an illegitimate use of the proceeding and constituted an abuse of process.

112 It is difficult to categorise the rights and obligations under the 2010 accommodation agreement as a collateral purpose as defined by the cases discussed. Nonetheless, the Connective parties also rely on the fact that litigation funding is being provided by Liberty under a further funding agreement. The fact that Liberty believes it is in its own interests to fund Slea to pursue the proposed claim does not mean that Slea does not have legitimate grounds for pursuing the claim. The critical issue is whether Slea is genuinely seeking relief to its own advantage within what the law allows.

113 The submissions of the Connective parties on this issue failed to meet the fact that Slea has legitimate claims that may be properly pursued through a derivative proceeding. Liberty's interest in Slea pursuing those grounds does not convert what is otherwise a legitimate claim by Slea into an improper claim for a collateral purpose. The issue is to characterise Slea's purpose and objective.

114 Slea has satisfied me on the balance of probabilities that, on the evidence before the Court, it is acting in good faith in seeking leave to bring the derivative proceedings. Insofar as it is relevant, I am also not satisfied that the predominant purpose of Slea bringing the proceedings is improper or constitutes an abuse of process.

115 The Connective parties contest that it is in the best interests of the Connective companies for leave to be granted. The Connective parties submit that the Court must be positively satisfied that a trial of the proposed claim seeking to unravel a transaction now almost four years old, which has been a commercial success, in all of the circumstances, serves the best interests of the Connective companies.[50]

116 The Connective parties acknowledge that the relevant best interests are those of the Connective companies, but nonetheless submit that the Court must also consider the interests of the broader Connective group, which will be affected by the claimed relief.[51]

117 The Connective parties submit that consideration must be had of the following factors:[52]

(b) the nature of the company's business (so that the effects of the proposed litigation on that business may be considered);

(c) whether the substance of what Slea seeks to achieve can be achieved by means other than a derivative action and without the involvement of the company in any litigation; and

(d) the ability of the defendant to meet judgment, or a large part of it, so as to assess whether the action will be of practical benefit to the company.

118 The Connective parties led evidence from Mr Atkins, a non-executive director of the Connective Group. Mr Atkins states that in his opinion the proposed action cannot be in the best interests of the Connective group, or the Connective companies.

119 Key to his opinion is the fact that one form of relief that will be sought by Slea, if leave were granted to pursue the derivative action, is to unwind the transaction. As is discussed below, this is not a relevant consideration for determining the best interests of the Connective companies.

120 Mr Atkins provides the following evidence of his experience and factors that lead him to conclude that the application cannot be in the Connective companies' best interests.

121 Mr Atkins states that he is a professional corporate consultant with more than 30 years' experience in company management, including 16 years in directorship. His particular expertise is in corporate strategy and marketing. He has been appointed to a number of boards (as chairman, non-executive director and director) and has held senior executive positions in highly competitive markets, including financial services, retail and energy.[53] He became a director in April 2016. Mr Atkins is not a director of the Connective companies.

122 Mr Atkins states that he began providing consultancy services through Vantage Strategy & Marketing in 2008. In that capacity he provided companies with strategy and planning, board assistance, leadership coaching and mentoring, team training and development, advice on marketing and sales, and general advisory services.

123 Mr Atkins states that he became acquainted with the Connective group through Mr Maloney, whom he describes as an independent non-executive director and chairman, whom he met through the Australian Institute of Company Directors at some time in 2011.

124 Mr Atkins began providing advice to the Connective group as an external consultant in September 2014 and says that he was appointed a non-executive director of the fourth to ninth Defendants on 1 April 2016. Mr Atkins states that he has not, at any time, held shares in the Connective group and is paid directors' fees for his work as a non-executive director.

125 Mr Atkins gave opinion evidence of what he opined would be the financial and reputational damage to the Connective parties and to the business if leave were granted and the restructure undone.

126 Mr Atkins states that the existing corporate structure of the Connective group has been in place for over three years and that it functions successfully. He says that the companies have an entrenched interrelationship and run a unified business, which would mean that any benefit or detriment caused to any of the companies would necessarily impact the group.

127 Mr Atkins deposes that since the time of the transaction, Macquarie Bank has made a significant positive contribution to the success of the Connective group.

128 The primary business of the Connective group is to provide mortgage aggregation services (a highly competitive business) and related facilities to lenders and mortgage brokers. Mr Atkins says that mortgage aggregators act as a conduit between product providers (lenders) and distributors (brokers).

129 Mr Atkins was strongly of the view that it is not in the interests of any of the Connective companies that the action be pursued. He said this was principally because the relief being sought would seek to unwind the restructure that occurred in 2012-2013 and unravel Macquarie Bank's involvement in the business as a cornerstone investor.[54]

130 Mr Atkins, in great detail, also gave evidence of particular aspects of the business which he says has been assisted by the association with Macquarie Bank and the consequential increase in the value of the Connective business.[55]

131 Mr Atkins could see no credible basis for suggesting that it is in the best interests of the business to pursue the derivative action. Mr Atkins said that it is not in the best interests of the business, and doing so would be detrimental to the Connective group, key shareholders and shareholders as a whole.[56] I have given full regard to Mr Atkins' evidence.

132 Under cross-examination, Mr Atkins agreed that Macquarie Bank was not unique in being able to provide services to the Connective business, similar to that provided by Macquarie Bank.[57]

133 Mr Atkins conceded that the business was growing strongly before Macquarie Bank took its interest.[58]

134 Mr Atkins agreed that a number of awards were won prior to Macquarie Bank becoming involved in the business that could not be attributable to Macquarie's involvement.[59]

135 Slea argued that Mr Atkins' evidence was misconceived, as the issue is whether it was in the best interests of the Connective companies to bring the proceedings not whether it was in the best interests for the Connective companies to obtain any relief claimed. Slea said it would be a matter for the trial judge to fashion the appropriate relief, which may not necessarily include Macquarie Bank losing its interest in the business.

136 It is inappropriate for me to speculate on the possible relief, as that would turn on the evidence rather than Mr Atkins' opinions. The issue is whether it is in the best interests of the Connective companies to have the proposed proceedings determined - that is, whether the directors did breach their duties to the companies or otherwise exercise their powers for an improper purpose.

137 The authorities make it clear that in considering the best interests of the company the directors were obliged to consider the interests of the members of the company.[60]

138 In Knights Quest, Sifris J sets out the requirements that must be met to grant leave to bring a derivative leave action. With reference to the requirement of s 237(2)(c) and 'best interests' of the company, his Honour identified the following principles:[61]

(a) the court must be satisfied that it is in the best interests of the company, not may be or is likely to be;

(b) there is no fixed test to determine best interests and no special standard of proof; and

(c) the court will always have regard to whether the benefits of the proceeding are outweighed by the costs and risks that the company would suffer in bringing them.

139 Sifris J cited the following cases with approval.[62] In Metyor Inc v Queensland Electronic Switching Pty Ltd,[63] the Queensland Court of Appeal said:[64]

To require that disputes between members be resolved before leave is granted to bring proceedings on behalf of the company would defeat the very purpose which those statutory provisions are designed to serve.

It may be accepted that ss 236 and 237 were not intended to preserve the former law; but they should surely be approached as measures of reform designed to improve, rather than to place novel obstacles in the way of, such proceedings. It is because one group of members are in control of the management or affairs of the company and refuse to permit it to take proceedings that there is a dispute between the two groups of shareholders or members here. It is only by permitting proceedings to be taken on behalf of the company that the dispute in question can be resolved at all and that the complaint of one set of members against the others can be remedied. Otherwise the majority will be able to prevent the minority and through them the company from obtaining redress against the actions of the majority.

140 In Fiduciary Ltd v Morningstar Research Pty Ltd, Austin J said:[65]

It seems to me that, where the company in question is a joint-venture vehicle and one of the venturers alleges that the other has acted unlawfully causing the company loss, it will usually be appropriate to allow the complaining venturer to bring proceedings in the company's name against the other venturer and its representatives on the board, even though there are no other shareholding interests than those of the litigants and the effect of success of the litigation will be indirectly to benefit the complaining venturer proportionately to its shareholding

There is a balance to be struck between the prejudice that the company will suffer if claims are pressed unsuccessfully on its behalf and there is an adverse costs order, and the advantage that it will gain, indirectly for the benefit of its shareholders, if the claims are successful: see McLean v Lake Como Venture Pty Ltd. Sometimes satisfaction of the "serious question to be tried" criterion will lead readily to the conclusion that the applicant should be permitted to assert the company's claims on its behalf. But where, as here, the assertion of those claims is simply a manifestation of aspects of the overall dispute between the parties, it will often be appropriate for the court to address the question of costs in the event that the claims fail. A suitable way of doing so, addressed during the hearing of the present application, is to grant leave on terms that the applicant is responsible for the costs ordered against the company, and undertakes not to seek contribution or indemnity from the company.

141 In Swansson, Palmer J provided four factors for the applicant to address in order to establish, on the balance of probabilities, that granting leave be given to bring an action is in the best interests of the company.[66] These factors were summarised in Ragless v IPA Holdings Pty Ltd (in liq), as requiring the applicant to adduce evidence on at least the following matters:[67]

(1) the character of the company, that is to say, the nature evidence of the company's operations;

(2) the business of the company so that the effects of the proposed litigation on the conduct of the business may be appreciated;

(3) whether there are other means of obtaining the same redress so that the company does not have to be brought into litigation against its will; and

(4) the ability of the defendant to meet at least a substantial part of any judgment in favour of the company so that the court may ascertain whether the action would be of practical benefit to the company.

142 In Ragless, with regard to the above factors, the South Australian Court of Appeal said:[68]

In discussing the first of those matters, Palmer J suggested that the procedure was not suitable in the case of a joint venture company where the controlling interests are deadlocked. He said at [57]:

... [T]he company may be a joint venture company in which the venturers are deadlocked so that the proposed derivative action is seen as being for the purpose of vindicating one side's position rather than the other's in a way which will not achieve a useful result: see eg Talisman Technologies Inc v Queensland Electronic Switching Pty Ltd.

After Palmer J had delivered judgment, the Court of Appeal of Queensland published its decision in Meytor Inc in which it allowed an appeal against the decision in Talisman Technologies Inc v Queensland Electronic Switching Pty Ltd. As already noted, that decision identified the utility of granting leave to resolve a deadlock between controlling interests in a joint venture company.

...

Joint venture companies in which no one shareholder has a controlling interest have a real potential to become bogged down in a stalemate because the shareholders cannot agree how to conduct the business of the company. The decisions in Meytor Inc and in Fiduciary establish that a grant of leave is a suitable means by which to resolve deadlocks of that kind.

143 In MG Corrosion Consultants Pty Ltd v Vinciguerra, the full Federal Court said:[69]

... It generally follows that pursuit of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by the officer's breach of duty is in "the best in the interests of the company": Vigliaroni v Concrete Precast Systems Pty Ltd (Davies J). ... There would be no basis to conclude that an oppression action (as an alternative approach) would have less impact on [the company's] affairs than a statutory derivative action. It is no more in the interests of the company as a whole that an oppression action be brought rather than a derivative action be pursued.

144 In South Johnstone Mill Ltd v Dennis and Scales,[70] Middleton J's analysis of best interests was within a cost benefit context:[71]

This issue is to a certain extent connected to the strength or otherwise of the case the applicants wish to advance on behalf of the company. The applicants have accepted that they will bear the costs of the proceedings if unsuccessful. This puts the balance of the consideration of what is in the best interests of the company in favour of the applicants.

145 After considering the above principles, Sifris J considered the best interests of the relevant companies by reference to cost benefit; that it is in the best interests of the company as a whole to resolve a dispute between its shareholders, particularly in the case of deadlock; reputational damage; and protection of intellectual property rights.[72]

146 As to settling the dispute between shareholders, in the relevant case, a bitter dispute that resulted in a deadlock, Sifris J says that:[73]

The authorities recognise that one way of resolving such a deadlock is to use the procedure provided in the Corporations Act. In fact, as suggested by the authorities, this may be the preferable way, particularly where the claim in the name of the company against a shareholder is the very reason for the deadlock. The rationale and justification provided in the authorities is attractive and compelling if there is - as indeed I have found - a serious case. I propose to follow these decisions.

147 The Privy Council, in Smith (Howard) Ltd v Ampol Petroleum Ltd,[74] held that directors abused their powers when they acted for the purpose of defeating the voting power of existing shareholders by creating a new majority, as the power to issue shares must be exercised in the interests of the company as a whole.

148 Their Lordships accepted that, when determining whether the directors have made a decision for one or another purpose, or which of several purposes was the 'substantial' one, credit must be given to the bona fide opinion of the directors. Their Lordships also stated that it would be wrong for the court to substitute its opinion for that of management, or indeed to question the correctness of the management's decisions 'if bona fide arrived at.' However, Lord Wilberforce, delivering the judgment of their Lordships, emphasised that the court:[75]

... is entitled to look at the situation objectively in order to estimate how critical or pressing, or substantial, or per contra, insubstantial an alleged requirement may have been. If it finds that a particular requirement, though real, was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme.

149 Further, their Lordships affirmed that:[76]

... it must be unconstitutional for directors to use their fiduciary powers over shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist.

150 Howard Smith affirmed the position in Hogg v Cramphorn Ltd,[77] where Buckley J held that an honest belief that the maintenance of existing control was for the benefit of the company, could not legitimate a share issue made for the purpose of preserving existing control.

151 A motive built upon the betterment of the company does not carte blanche permit the controlling of membership contrary to the constitution and the interests of members, shareholders and the company itself. Moreover, this matter does not lend itself to the line of reasoning, permitting allotment of shares which the directors bona fide believe is necessary to secure financial stability.[78]

152 In Whitehouse v Carlton Hotel Pty Ltd,[79] despite pre-emptive rights provisions, a director attempted to issue shares to give control to a certain group of shareholders. The High Court found that the exercise of power to dilute the shareholdings of existing shareholders was a voidable transaction, and said:[80]

[T]he directors of a company cannot ordinarily exercise a fiduciary power to allot shares for the purpose of defeating the voting power of existing shareholders by creating a new majority: see e.g., Fraser v Whalley (25); Ngurli Ltd v McCann (26); Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (27); Ashburton Oil NL v Alpha Minerals NL (28); Howard Smith Ltd v Ampol Petroleum (29).

...

It is simply no part of the function of the directors as such to favour one shareholder or group of shareholders by exercising a fiduciary power to allot shares for the purpose of diluting the voting power attaching to the issued shares held by some other shareholder or group of shareholders.

...

[A]n allotment of shares which would otherwise be valid and binding is rendered voidable and not void if vitiated by an impermissible purpose.

153 As to the question of motivations, the court found the transaction to be voidable regardless of the bona fide intentions of the director:[81]

[I]t is unavailing that Mr Whitehouse was not motivated by purely selfish considerations in that he believed that the manipulation of voting power in favour of his sons at the expense of his former wife was in the best interests of the company ...

...

In this as in other areas involving the exercise of fiduciary power, the exercise of a power for an ulterior or impermissible use is bad notwithstanding that the motives of the donee of the power in so exercising are substantially altruistic.

154 In Harlowe, the High Court said that the 'ultimate question' must always be whether in truth the issue was made honestly in the interests of the company.[82] The substance of the decision of Berger J in Teck was that where directors seek to prevent a majority shareholder from exercising control over the company because they believe on reasonable grounds that what they are doing is in the best interests of the company, their actions will not be deemed improper. In contrast with the decision in Howard Smith, Berger J concentrated on establishing not what the directors ought to have done as the correct course in the particular circumstances but what the reasonable director might have done in the circumstances. Directors, he said, are entitled to consider the reputation, experience and policies of anyone seeking to take over the company:[83]

If they decide, on reasonable grounds, a takeover will cause substantial damage to the company's interests, they are entitled to use their powers to protect the company ...

155 On the present facts, there is the contrary consideration, where an allotment has taken place to allow a third party, that being Macquarie Bank, to take up a stake in the business, rather than as was the case in Harlowe and Teck, which saw an allotment issued to frustrate a takeover. Other cases concerning the allotment of new shares, cited with approval, shared the same characteristics of directors acting honestly and in the interests of the company to frustrate takeovers that were deemed damaging to the business.[84]

156 Nonetheless, it is not enough that the directors act bona fide. There is a positive duty to exercise an active discretion and actually consider and act in the interests of the company as a whole.[85] There is an element of objectivity to the test of best interests, to avoid the problems of an 'honest lunatic'. The test is whether an intelligent and honest director could, in the whole of the existing circumstances, have reasonably believed that the transaction was for the benefit of the company.[86]

157 In acting in the interests of the company as a whole, the directors should consider, without limitation:[87]

• the interests of existing members;
• the future interests of the enterprise;
• the interests of creditors; and
• if the company is a trustee, the interests of the beneficiaries.

158 The alleged breach in this case went to the heart of the joint venture between the three parties, Mr Tsialtas, Glenn Lees and Murray Lees. In substance, the pre-emptive rights ensured that each party had the power to control who could participate in the business. The pre-emptive rights clauses were fundamental to the joint venture that the three parties entered into. The best interests of the company include the best interests of the members as members.[88] It is in the best interests of the company and to the shareholders to ensure that rights, qua shareholder, under the constitution as shareholders, be respected and observed by the directors.

159 In my opinion, the proceeding to protect the interests of members as members from breaches of duty by the directors is a proceeding in the best interests of the company as a whole, irrespective of the alleged commercial advantages that Mr Atkins refers to. In any event, I am not satisfied that these commercial advantages could not be procured by the Connective companies without the directors misusing their powers in respect of the share ownership of the companies. Further, the criteria is whether it is in the best interests of the company that the applicant be granted leave; not whether it is in the best interests of the company that the possible orders for relief are all in the best interests of the company.

160 Slea has stated that it will fund the litigation.[89] According to Power v Ekstein,[90] Austin J considers it relevant 'whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order.'[91] His Honour addressed that concern in the Power v Ekstein case by granting leave conditionally upon the applicant undertaking to the court to pay and bear and indemnify the company against all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims for which leave is granted.[92] Such a conditional order should be made in the present case.

161 Further, the factual issues will be canvassed in the oppression proceeding. It is in the best interests of the Connective companies to pursue the claims for breach of directors duties arising out the same transactions at the same time. It is desirable that if the Court finds a wrong arising out of those transactions, it can determine the appropriate relief for Slea in the oppression proceeding and/or the Connective companies in the derivative proceeding.

162 The Connective parties point to the existence of the oppression proceeding in support of the contention that the derivative leave action is not in the best interests of the Connective companies, and as evidence of Slea's lack of good faith.

163 The authorities establish that it is often an advantage for oppression proceedings to be heard with derivative proceedings so as to ensure that all issues are satisfactorily dealt with and appropriate relief can be determined. In Fernandes v True Value Solar Holdings Pty Ltd,[93] where there was a substantial overlap between allegations in the oppression proceeding and the allegations in the proceeding for which leave was sought, Judd J said:[94]

Contrary to the respondents' submission, the existence of the oppression proceeding, in which the applicant makes the same or similar allegations as it is proposed the company should make in the new proceeding, is a factor that weighs in favour of the grant of leave, not against. To have those allegations litigated in the oppression proceeding, in which the company is a party, but in the absence of any claim by the company for relief, may have the result that it is later precluded from making any claim.

164 The appeal from the decision was dismissed.[95] The Court of Appeal said of the above statement:[96]

In turn, his Honour was correct in the conclusions he reached that the relationship between the oppression proceeding and the proposed claim supported the grant of leave.

First, in a fundamental sense, the resolution of a seriously arguable substantial claim against the appellants raised the possibility the respondent might succeed in the oppression proceeding and obtain consequential relief reflecting in part the value of the company's assets, including any choses in action against the appellants. Nevertheless the obligations of the appellants and Mr Gattereder to the company would not be the subject of judgment in the oppression proceeding. Whether or not and to what extent this situation might give rise to Anshun estoppel, this situation could not on its face be in the company's interests.[97]

165 I am satisfied that on the evidence before the Court, it is in the best interests of the Connective companies, as a whole, to bring proceedings to protect the interests of members, as members, from breaches of duty by the directors. It is in the best interests of the company to have the same factual issues raised at the same time as the oppression proceeding, and for the company to be able to claim some form of relief, if appropriate, arising out of those factual matters.

166 The Connective parties contended that the delay in Slea bringing this application is relevant to the issue of best interests. Senior counsel for the Connective parties eschewed the suggestion that it was relevant to good faith, although earlier he had submitted that it was relevant that Slea was trying, by the delay, to cause as much difficulty to the Connective group so as to induce them to sell out to Liberty or to Slea.

167 The derivative proceeding is sought to be brought within the limitation period. The Connective parties submit that Slea could have sought leave to bring the derivative proceeding after they lost the application to bring the claim in the oppression proceeding and submit that they had in their possession all relevant information, in November 2013, to bring the application for derivative leave.

168 Slea submits that delay is not expressly referred to in s 237 as a criterion for considering whether leave is to be granted. Slea submits that it can only be relevant to the extent that it fits within the criteria of good faith or best interests of the company.

169 The Connective parties say that due to the delay it will now be some time before both proceedings can be heard. They submit that the proceedings will be drawn out and fiercely defended if Macquarie Bank is brought into the proceedings. The Connective parties submit that this is not in the best interests of the Connective companies.

170 I accept that the delay will not be in the best interests of the Connective companies. That, however, is not the question. The question is whether the proposed proceeding is in the bests interests of the Connective companies. Accepting for argument's sake that delay in and of itself is a relevant consideration, the delay and inconvenience does not, in my mind, lead to the conclusion that the proceeding to pursue the alleged breach of duty by the directors is other than in the best interests of the companies, as that term is understood.

171 In any event, I do not accept that there has been an unacceptable delay. Before Slea received the Murray Lees statement, that case was based on inference and, by Slea's own admission, was thin. The case has also been strengthened by the discovery of the options paper and emails discussed above at [82]-[84].

172 The oppression proceedings are still ongoing and are yet to be heard. The rules of practice and procedure seek to have all disputes arising out of a transaction resolved together if possible.

173 Accordingly, I do not find that the alleged delay, in the circumstances, leads to a conclusion that the applicant had not satisfied either the good faith criteria or the best interests of the company criteria.

174 The Connective parties submit that Slea must establish, by actual evidence, on the balance of probabilities,[98] that there is a serious question to be tried[99] and that the directors of the Connective companies, in breach of s 181 of the Act, did not act in good faith in the interests of the Connective companies and for a proper purpose.

175 Slea referred to South Johnstone Mill Ltd v Dennis,[100] where Middleton J summarised the requirements for determining that there is a serious question to be tried to essentially be satisfied that there is a sufficient likelihood of success to justify it going to trial. His Honour says there is no requirement for the court to make factual determinations about contested issues; the application must be supported by evidence.[101]

176 Slea submits that the essential element of the claim is a claim by the companies, against the directors, and the claim is that the directors exercised their powers for an improper purpose. There is no issue that the directors had the power to restructure the company to move the operating business out of the companies into subsidiaries and then to sell the shareholding in those subsidiaries to Macquarie Bank. The allegation is that they did so for a purpose other than for which the power was granted. In particular, they did so for the substantial purpose of circumventing pre-emptive rights of the members and to prevent Slea from exercising its pre-emptive rights.

177 As mentioned above, the Murray Lees statement, if accepted, would establish that the restructuring powers that the directors exercised were exercised to avoid Slea being able to exercise its pre-emptive rights under the constitution of the companies.

178 The emails between Macquarie Bank, Glenn Lees, Mr Maloney and their respective solicitors, discovered by the Connective parties on 10 August 2017, which were sent prior to or at the time of the restructure, if accepted, would also establish that there was a concern between the directors and Macquarie Bank that Mr Tsialtas may exercise his pre-emptive rights and that Slea may gain control of the Connective business.

179 The emails discuss the restructure and share sale transaction, and propose possible means of dealing with 'the shareholding issues with Sof [Mr Tsialtas]', and that they did not want Slea to exercise its pre-emptive rights. The emails also confirm that Slea had not been informed of the restructure.

180 The Henry David York options paper shows there was an appreciation of the problem and that the restructure was raised by Macquarie Bank as a possible course to avoid the risk of Mr Tsialtas purchasing any issued shares.

181 The documents referred to in paragraphs [178]-[180] also infer that the restructuring powers that the directors exercised were exercised to avoid Slea being able to exercise its pre-emptive rights under the constitution of the companies.

182 Directors may only exercise their powers for the purpose for which they were given. The exercise of a power for an improper purpose may be set aside in equity if the improper purpose was a substantial purpose. In this case it is said that the directors exercised their powers to create subsidiaries and to transfer the sole business of the company to those subsidiaries to enable Macquarie Bank to take a 25 per cent interest in the company to avoid the pre-emptive rights of the existing shareholders being exercised.

183 In doing so, the directors may be found to have exercised their powers for the substantial purpose of interfering with and defeating the rights of the shareholders under the constitution of the company. As was said in Howard Smith, the directors were interfering with 'that element of the company's constitution which is separate from and set against the powers.'[102]

184 The defendants have also asserted that for the Court to be satisfied that there is a serious question to be tried, the applicant must establish by actual evidence, on the balance of probabilities, that the directors of the Connective companies, in breach of s 181 of the Act, did not act in good faith in the best interests of the Connective companies and for a proper purpose. The defendants also say that the applicant must establish, as alleged in paragraph 35 of their proposed claim, that Connective companies have suffered loss and damage.

185 On the face of the Act, and s 237 specifically, there is no explicit requirement for the applicant to show that damage has been suffered by the company. Consideration of the underlying claim, in determining whether leave should be granted to the applicant, is the proper forum for considering damage and whether it needs to be established, on the balance, to allow for a successful application pursuant to s 237.

186 The learned authors of Australian Corporation Practice,[103] with regards to s 180 of the Act, note that the duty of care and diligence can be breached even if there was no actual damage to the company.[104] Further, with specific reference to s 181 of the Act, Brereton J in ASIC v Maxwell found that:[105]

The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation.

...

In Vrisakis v ASC (1993) 9 WAR 395, 449-50; Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company - which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company - and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct: see also Australian Securities and Investments Commission v Doyle [2001] WASC 187; (2001) 38 ACSR 606 [222]. As His Honour explained:

"Under s 229(2), however, there is no reference to damage suffered by the company, and an offence may notionally be committed under that section without any damage having been sustained. The question is merely whether the defendant director has exercised a reasonable degree of care and diligence in the exercise of his powers in the discharge of his duties.

187 Thus, I find that there is no necessity for the purposes of both the underlying claim, and s 237, that damage is required to be proven, on the balance, by the applicant in these proceedings to be successful in its application for leave. A breach of the Act can still be found in the absence of any damage occurring. The proposition that leave cannot be granted to litigate this alleged breach in the absence of damage being proven on the balance is without basis and would subject the applicant to a higher standard than that faced by the applicant in establishing the breach of the Act itself.

188 In the event that damage must be shown to establish a serious question to be tried, I find that on the evidence before the Court, relevant damage has been shown to be suffered by the Connective companies. As mentioned above at [158], the best interests of the company includes the best interests of the members as members, and shareholders. On balance, the evidence at this stage shows the interests of Slea, as a shareholder, have been damaged.

189 I am satisfied that there is a serious question to be tried.

190 Slea did not give written notice to the Connective companies under s 237(2)(e)(i). Slea submits that it is nonetheless appropriate for leave to be granted, because there is no real prospect that the Connective companies would bring the proposed action themselves and, therefore, providing the required notice, it is said, would be futile.

191 Secondly, Slea submits that it is appropriate to grant leave in the absence of notice in circumstances where the allegations underlying the proposed derivative leave application 'will have to be litigated in any event,'[106] as is the case in the present circumstances, given the existence of the oppression proceeding and the similar claims made therein.

192 The Connective parties did not challenge that it was not appropriate to grant leave for the reason that criterion (e) of s 237 had not be complied with.

193 The indirect interest of Liberty in the proposed proceeding does not detract from Slea's genuine interest in establishing that the directors of the Connective companies exercised their powers for the improper purpose of avoiding Slea's pre-emptive rights and thus diminished the value of its shareholding and the proceedings are thus in the best interests of the Connective companies.

194 The alleged misuse of the directors powers goes to the heart of the terms of the joint venture between the three founding shareholders, and to that extent, Slea has disclosed a strong cause of action by the Connective companies.

195 On the evidence put before the Court at the hearing of the application for derivative leave, I am satisfied the five elements for derivative leave are made out, and I must grant the application.

196 As set out above, after it was announced that judgment would be delivered, an application was made to re-open the hearing on the grounds that the defendants had discovered fresh evidence that was unavailable at the time of the hearing.

Part 2

197 On 6 October 2017, after receiving notification that a decision in the application for derivative leave would be handed down, the Connective parties issued a summons seeking orders that the hearing of the derivative leave application be re-opened and the Connective parties be granted leave to adduce new evidence.

198 I listed the summons for hearing on Tuesday 10 October 2017. When the summons was called on for hearing, the Connective parties sought an adjournment of the hearing of their summons, which was opposed, and I thereupon heard argument as follows.

199 The basis of the application to re-open was that the Connective parties wished to adduce fresh evidence, which the Connective parties submitted had the effect of showing that the purpose of the application for derivative leave brought by Slea was to advance Liberty's commercial and financial interests to the detriment of the Connective companies.[107]

200 On 5 October 2017, the solicitors for the Connective parties, Quinn Emanuel, obtained a copy of an originating process dated 4 October 2017, with an endorsed statement of claim filed by Murray Lees and Mortgage Results Pty Ltd (a company of which Murray Lees is sole shareholder and director) against Liberty and Slea, in proceeding No 00235 of 2017 in this Court (the Murray Lees proceeding).

201 Paragraphs 38 and 39 of the statement of claim, filed in the Murray Lees proceeding, plead (excluding particulars):[108]

Collateral representation

In or about December 2015, Liberty represented to [Murray] Lees and Mortgage Results that in return for Lees providing Liberty, through its solicitor, information that would assist Slea in its Oppression Proceeding against Connective, Liberty would:

(a) lend Lees $2.8 million, at a favourable interest rate, that Lees could use to repay the Murray debts and that would not be repayable for 10 years; and

(b) lend Lees further sums to cover the legal costs of conducting the Registration Proceeding (the collateral representations).

Contractual Representations

On 11 January 2016, in reliance on the collateral representations Lees and Mortgage Results entered into:

(a) a Guarantee and Indemnity in favour of Liberty;

(b) a Financial Support Agreement with Liberty; and

(c) a Cooperation Deed with Slea;

(the Agreements)

202 The Connective parties pleaded that Murray Lees was in financial difficulty from late 2015 and that Liberty (and/or Minerva) knew of these difficulties. Ms Laura Frances Weston, solicitor for the Connective parties, deposed that none of the agreements referred to in the statement of claim, being the Cooperation Deed with Slea, the Finance Support Agreement with Liberty, nor the Guarantee and Indemnity in favour of Liberty, were disclosed or produced at the hearing of the derivative leave application.[109] Ms Weston deposed that, in particular, neither the Murray Lees statement nor the first MacKay affidavit to which it was exhibited,[110] made any reference to these agreements.[111]

203 Ms Weston also referred to paragraph 47 of the statement of claim in the Murray Lees proceeding, which pleaded:[112]

It was Liberty's intention, as communicated to Lees, that by reason of Lees' and Mortgage Results' entry into the Cooperation Deed and Slea's entry into the Tsialtas agreement, Liberty would gain control of Connective without engaging the pre-emptive rights provisions and could effect changes that would benefit Liberty.

Particulars

The changes were communicated to Lees by Boyle orally in meetings in late 2015 and included immediate reinstatement of Liberty to the Connective panel and that Connective would put in place processes that would enable Liberty could [sic] "auto approve" applications that had been declined by other lenders.[113]

204 The Connective parties served a notice to produce, dated 9 October 2017, on ABL, solicitors for Slea for the three agreements referred to in the originating proceeding, being:

(a) the undated funding agreement of 2012 between Slea and Minerva;

(b) the co-operation deed between Mortgage Results, Murray Lees and Slea of 11 January 2016;

(c) the financial support agreement between Mortgage Results, Murray Lees and Minerva of 11 January 2016 (with the attached guarantee and indemnity in favour of Minerva).

205 Mr Myers submitted that the Connective parties were not in a position to maintain the application to re-open and so sought an adjournment of the summons 'to make enquiries and take other steps to secure the evidence'[114] that went to the issue that the purpose of the application to bring a derivative proceeding was to advance the interests of Liberty to the detriment of the Connective companies.[115]

206 It was submitted that the new evidence may establish that Liberty is attempting to obtain control of the Connective companies, without engaging the pre-emptive rights provisions, and could effect changes that would benefit Liberty.[116]

207 Mr Myers said that the evidence sought to be adduced would go to the issue of whether Slea was acting in good faith in bringing the derivative proceedings and whether it was in the best interests of the Connective companies that Slea be granted leave when the effect of the agreements was for Liberty to obtain a commercial benefit.[117]

208 Mr Hay, counsel for Millsave, informed the Court that Millsave, the third defendant in the oppression proceeding, consented to and adopted the position put forward by Mr Myers.[118]

209 Mr Hay also informed the Court that Mr Haron, the tenth defendant, who was not represented, likewise said that he was happy that the delivery of judgment be adjourned.[119]

210 Mr Dalton, one of Her Majesty's Counsel, opposed the application to adjourn the further hearing of the summons and said that an adjournment should only be granted if there was any utility in doing so, and as the relevant evidence was not relevantly 'fresh' or capable of affecting the outcome, the application to adjourn the summons should be refused.[120]

211 I reserved my decision and, on 20 October 2017, made orders adjourning the hearing of the summons to 13 November 2017, without giving any reasons.

212 I advised the parties that I had granted the adjournment to enable further arguments to be made by the parties that they had not had the opportunity to put on 10 October 2017. The arguments made at the hearing of 10 October 2017, in relation to the adjournment, have been considered below, were relevant, in relation to the application to re-open.

213 The evidence upon which the Connective parties base their application to re-open is a statement by Murray Lees dated 8 November 2017;[121] the 2012 litigation funding agreement between Slea and Minerva;[122] the co-operation deed between Murray Lees, Mortgage Results and Slea;[123] the financial support agreement between Mortgage Results, Murray Lees and Minerva.[124]

214 If the proceeding is re-opened, the Connective parties also seek to recall Mr Tsialtas and Mr Justin Vaastra for further cross-examination on matters arising from such evidence.

215 The Connective parties rely on two affidavits of Laura Frances Weston of 6 October 2017 and 8 November 2017; the affidavit of Elan David-Sasson dated 9 October 2017; and an affidavit of Marcel Jon Deleuil dated 10 November 2017.

216 It is accepted that the Court has an inherent power to re-open a matter for hearing.[125] The relevant principles to apply in the application are well settled. Habersberger J discussed the principles in Reid v Brett,[126] and said that in exercising the court's discretion, there are certain criteria that ought to be taken into account:[127]

(a) the further evidence is so material that the interests of justice require its admission;

(b) the further evidence, if accepted, would most probably affect the result of the case;

(c) the further evidence could not by reasonable diligence have been discovered earlier; and

(d) no prejudice would ensue to the other party by reason of the late admission of the further evidence.[128]

217 There, the court held that 'there are good reasons why the circumstances must be exceptional before a court may allow a case, having been closed and judgment reserved, to be re-opened. The need for finality in litigation is one.'[129]

218 The Court of Appeal in Spotlight v NCON emphasised that the overriding consideration is whether, taken as a whole, the justice of the case favours the grant of leave to re-open.[130]

219 The Connective parties' application is brought on the ground of fresh evidence, unavailable or not reasonably discoverable previously, becoming known and available after the hearing.[131]

220 Slea submits that none of the documents are relevantly fresh, 'in the sense not being obtainable by reasonable diligence prior to the close of the Connective parties' case of the derivative leave application;' nor are they evidence that could be capable of affecting the outcome.[132]

221 Mr Myers was asked how this evidence could be considered fresh when the Connective parties have maintained throughout that the derivative leave application was brought at the behest of Liberty, and if it can be considered fresh, how could the evidence affect the outcome if Mr O'Bryan was correct in stating that it was irrelevant that Liberty had an interest in the proceeding as it is in Slea's interests to pursue the relief.[133]

222 Mr Myers said that the evidence showed a campaign by Liberty and Slea not to protect the interests of the shareholders in the Connective companies, but to procure that the affairs of the Connective companies will be directed to advance the commercial and financial interests of Liberty. Mr Myers submitted that this was very different to Mr O'Bryan's case that nothing happens in respect to the control of the Connective companies until there is 100 per cent ownership of the shares by Slea, when the pre-emptive rights provisions will no longer operate.[134]

223 Mr Quinn submitted that it was now clear that the nature of the Liberty 'stalking horse' was more sinister than previously thought. He said that 'what we now have is a new species of stalking horse and a more powerful one', as it was evident from the new material that Liberty had a scheme in place, not simply to acquire Connective shares if the opportunity arose, but to control the Connective companies without acquiring any shares itself.[135]

224 Slea submits that from at least 10 June 2016, the Connective parties understood that Liberty was funding the proceedings;[136] the funding agreement was established in the cross-examination of Ms MacKay, who made it clear from the exchange set out below, that it was separate from the 2010 accommodation agreement between Liberty and Slea, and identified the funding agreement sufficiently for it to have been called for, but for forensic purposes the Connective parties chose not to do so.[137]

Mr Myers: Thank you. You heard my learned friend, Mr O'Bryan, before referring to a litigation funding agreement between Mr Tsialtas and the Liberty group?

Ms MacKay: Yes.

Mr Myers: Have you seen that document?

Ms MacKay: Yes.

Mr Myers: And who are the parties to it?

Ms MacKay: Um, Slea and Minerva.

Mr Myers: And is Mr Tsialtas a party?

Ms MacKay: Um, not that I recall.

225 Slea submitted that with reasonable diligence the Connective parties could have discovered the agreement. Slea submitted that the Connective parties elected not to call for the funding agreement. The Connective parties submitted, however, that the call was not made because Mr O'Bryan informed the Court that he was instructed that the funding agreement was privileged and that it did not affect the evidence that Ms Tsialtas had given.[138] The Connective parties said that if the significance of the document had been understood, or if the assertion of privilege had not been made, the agreement would have been called for.

226 When the funding agreement was called for on 10 October 2017, it was produced by Slea without privilege being contested.

227 Thus the position was that the Connective parties were aware of the existence of the funding agreement during the hearing of the derivative leave application, elected not to call for the document, and accordingly did not test whether the call would be opposed on the ground that the document was in fact privileged. Accordingly, I am not satisfied that with reasonable diligence the funding agreement could not have been uncovered by the Connective parties prior to the hearing concluding.

228 As for the co-operation deed between Mortgage Results, Murray Lees and Slea, Mr Dalton accepted that it was not averted to during the course of the derivative leave application. Mr Dalton submits, however, that it was common ground that Murray Lees had switched allegiance, from his brother and the Connective parties, to Slea, and that the Connective parties knew, from at least 17 May 2016, that Murray Lees had agreed to give evidence on behalf of Slea.

229 Thereafter, on 8 July 2016, the Connective parties requested that Slea and its solicitors ABL provide copies of documents relating to Murray Lees' disclosure of information including 'any agreement ... in respect of that disclosure.'[139] Slea says that the requests were denied, yet from that time, a reasonable diligent solicitor could have issued a subpoena or notice to produce to investigate the circumstances in which Murray Lees' allegiance had changed. Slea submits that the Connective parties elected not to pursue such a course and it is not available to them to do so now.

230 Further, at the time of the trial, Slea says that the only relevant co-operation was for Murray Lees to give evidence, and that fact was already known by the Connective parties, as Ms MacKay's affidavit states that Murray Lees had agreed to provide evidence. Further, Slea submits that the Connective parties were on notice of the existence of an agreement between Murray Lees and an unspecified party to give evidence. Slea submits that the Connective parties elected not to seek to subpoena the production of the co-operation deed.

231 The Connective parties submit that a vague reference to an agreement in an affidavit cannot be sufficient to put them on notice that a written agreement existed and that I cannot infer, from their failure to call for the agreement, that a forensic decision was made. Nonetheless, it appears from the earlier correspondence that the possibility of such an agreement existing had entered the minds of the Connective parties, as they had sought to obtain it.

232 Accordingly, I am not satisfied that with reasonable diligence the co-operation deed could not have been uncovered by the Connective parties prior to the hearing of the derivative leave application concluding.

233 I do not, therefore, consider the evidence to be relevantly fresh.

Financial support agreement and the guarantee and the indemnity

234 Slea submits that soon after the Connective parties learned that Murray Lees had agreed to give evidence for Slea, the solicitors for the Connective parties wrote to Murray Lees requesting that he 'identify any financial or other benefit provided (or agreed to be provided) in relation to [his] agreement to give evidence...'[140] No call was made for any such documents.

235 Mr Dalton said that the fact that Liberty (or Minerva) was funding Murray Lees 'at about the time that he spoke to ABL and ... became the turncoat, the fact that he was in financial difficulty, and the fact that he may have been receiving funding from Liberty was well known', to the Connective parties.[141]

236 A loan agreement between Liberty and Murray Lees, and Murray Lees' financial situation, was raised during cross-examination of Ms MacKay in the following exchange:[142]

Mr Myers: Thank you, now do you know about a loan agreement between the Liberty group and Mr Murray Lees?

Ms MacKay: I believe there could be one, I'm not sure.

Mr Myers: What's the basis of your belief?

Ms MacKay: I understood that Murray had said at some point that he was in financial trouble and had approached Liberty.

Mr Myers: And do you also believe that Liberty lent him $2.m?

Ms MacKay: I'm not aware of that.

Mr Myers: How much do you believe Liberty lent to him?

Ms MacKay: I don't have any idea about that.

Mr Myers: But do you believe there may be a loan agreement?

Ms MacKay: I believe there may be.

Mr Myers: And that loan agreement was entered into before Mr Murray Lees offered to give evidence on behalf of the Liberty interests?

Ms MacKay: I, I don't know about that. I don't know any details about the loan agreement or.

...

Mr Myers: What's the source of your knowledge about the loan agreement?

Ms MacKay: Ah in terms of the circumstances in which Murray approached - - -

Mr Myers: Liberty?

Ms MacKay: Yes.

Mr Myers: And who told you about those circumstances?

Ms MacKay: I can't recall. I can't recall whether it came directly from Liberty or whether I was told internally by someone else from ABL.

...

Mr Myers: Well I put it to you that that's a really serious omission because you've put forward Mr Lees' statement, that's something that the court would rely upon, when you believed, maybe I should say no, that he had entered into a loan agreement and taken money from Liberty before giving that statement?

Ms MacKay: Um, well I think the difference was that you said that they would lend the money on condition that he give a statement. And I'm not aware of that occurring.

Mr Myers: But you are aware that they did lend money and he gave the statement?

Ms MacKay: Yes.

Mr Myers: Yes. And you're aware that he approached Liberty because he said he was short of money and needed some money?

Ms MacKay: Yes.

Mr Myers: And then Liberty lent some money and then he made a statement?

Ms MacKay: Um, I haven't had any involvement or knowledge of the loan.

Mr Myers: Well is there someone who's going to give evidence in this proceeding about the loan? Is someone going to tell us about the loan agreement with Mr Murray Lees?

Ms MacKay: No.

Mr Myers: You want to keep that from the court do you?

Ms MacKay: Um, no.

Mr Myers: Well that's the effect of what's happened, isn't it?

Ms MacKay: I haven't seen a loan agreement to make some sort of decision about whether it's relevant on this application or not.

...

Mr Myers: You said that a source of your information about a loan agreement was within the firm of Arnold Bloch Leibler?

Ms MacKay: Yes.

Mr Myers: Who was that person?

Ms MacKay: Um, it would have been Justin Vaastra.

237 Mr Dalton submitted that from the above exchange it is obvious that there was some knowledge on the part of the Connective companies about a loan agreement between Murray Lees and Liberty, sufficient for the questions to be put,[143] and sufficient information to cross-examine Mr Vaastra at that time, who had given affidavit evidence for the proceeding. Mr Vaastra was not cross-examined about the loan agreement, despite Slea having the information that it put to Ms MacKay.

238 Despite raising the issue, the Connective parties did not seek to call for the loan agreement and instead chose to make something of the fact that Slea had not proffered this material.[144] Mr Dalton submitted that the Court must assume that the Connective parties considered in their interest not to call for the agreement. Mr Myers asked who was going to produce the agreement, but elected not to call for its production or to subpoena the document.

239 I am not satisfied that the Connective parties could not, by reasonable diligence, have obtained this evidence of the loan agreement at the time of the hearing of the derivative leave application.

240 The further statement of Murray Lees, dated 8 November 2017, is relied upon to point to Liberty's intentions in relation to the Connective business.

241 I note that the most recent statement of Murray Lees does not involve him withdrawing anything he said in his previous statement.

242 Slea submits that it was open to the Connective parties to have subpoenaed Murray Lees prior to the hearing of the leave application; instead of doing so, the Connective parties sought to impugn Slea's decision not to call Murray Lees and the circumstances attending the provision of his statement. Slea points to the 'remarkable feature' that the Connective parties seek to re-open for the purpose of calling the very witness whose absence they sought to exploit, and for the purpose of having the witness give evidence on events that predate the hearing.[145]

243 Slea submitted that the allegations raised in the later statement by Murray Lees do not contradict or otherwise bear on the contractual arrangements between Slea and Liberty, and all matters relevant to the re-opening application were traversed at the hearing.[146]

244 In my opinion, the statement of Murray Lees does not raise any new issues not otherwise already raised during the derivative leave application.

245 Slea submitted that the evidence does not contradict or otherwise bear on the contractual arrangement between Slea and Liberty, evidence of which was presented at the trial, and that all of the relevant matters that the Connective parties now wish to agitate by way of re-opening were already raised by them at the hearing. Slea submitted that, therefore, there is no prospect that the material, the subject of the re-opening application, could materially affect the outcome of the leave application.

246 Slea submitted that the co-operation deed is contingent upon Murray Lees obtaining a shareholding in the Connective business, which requires Murray Lees to bring proceedings, succeed with the relief claimed, and receive a transfer of shares from Millsave.

247 Mortgage Results commenced proceedings seeking a transfer of 25 per cent of shares from Millsave (referred to at paragraph 14 of the statement of claim), by which means Mortgage Results attempted to have its legal rights to a 25 per cent shareholding in the Connective companies recognised. At the time that the derivative leave application was heard the proceedings remained on foot. The proceeding is now stayed, pending the Court's determination in the fresh proceeding commenced by Murray Lees against Liberty.[147]

248 Mr Dalton submitted that, in any event, Murray Lees has now changed camps and the proceeding seeking shareholding rights for Mortgage Results has been stayed. As Murray Lees has no intention of prosecuting his claim to obtain a shareholding in the Connective companies, the 'nefarious scheme' that is relied upon as increasing the size of the Liberty stalking horse, simply does not exist anymore.[148] The case put is that the fresh evidence shows that unbeknownst to the Connective parties that at the date of the hearing Liberty had exerted influence over Murray Lees as part of its attempts to exercise influence over the Connective companies, however, by the date of hearing the application to re-open, that was no longer the case. Even if the co-operation deed and financial support agreement can be said to be relevant, the alleged scheme cannot be enforced.

249 The Connective parties submitted that the relevant 'fresh' evidence is centrally relevant to the statutory requirement that the application is brought in good faith.[149]

250 The Connective parties submitted that in assessing this criterion, the Court is to consider whether 'the application is being made in pursuit of an interest other than that of the company',[150] namely, for a collateral purpose.[151]

251 The Connective parties submitted that it is not necessary to find that a collateral purpose amounts to an improper purpose, rather, that the presence of any collateral purpose means that there is an absence of good faith.[152] Mr Quinn referred to Chahwan v Euphoric Pty Ltd, where Tobias J (with Justices Bell and Beazley agreeing) said that:[153]

I would therefore reject the appellant's submissions on the question of good faith when assessed against the two grounds identified by Palmer J in Swansson: namely, whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success and whether the applicant is seeking to bring the derivative action for a collateral purpose that would amount to an abuse of process. In any event, the expression "acting in good faith" in s 237(2)(b) of the Act need not be confined, as the appellant submitted it should, to those two grounds. In particular, it extends beyond conduct that would constitute an abuse of process.

As Palmer J made clear in Swansson, in my respectful view correctly, although those two factors are required to be considered when a court is determining whether the good faith requirement of s 237(2)(b) is satisfied, the issue of good faith is not confined to those factors. His Honour noted (at 320 [35]), "the law will develop incrementally as different factual circumstances come before the courts".

252 Mr Quinn submitted that there can be an absence of good faith on grounds that would fall short of the leave application being an abuse of process.

253 Mr Dalton submitted that this submission was an attempt at putting further legal arguments than those dealt with at the trial, and serves to highlight the difficulty with any re-opening, and particularly this re-opening application, which is really just seeking to have another go.

254 In any event, Mr Dalton submitted that the present case fits perfectly with the principle of Chahwan, stated as:[154]

In other words, I take his Honour to be saying that an applicant will only be acting in good faith for the purpose of s 237(2)(b) where, as a current or former shareholder or director of the company, he or she would suffer a real and substantive injury if a derivative action were not permitted provided that that injury was dependent upon or connected with the applicant's status as such shareholder or director. It might be a positive indication of the good faith of a shareholder if he or she sought to institute a derivative action which would have the effect, if successful, of restoring value to his or her shares in the company.

255 The Connective parties submitted that the good faith requirement cannot be met by Slea, as it is clear that the dominant purpose of the co-operation deed between Slea and Murray Lees is to advance the interests of Liberty.[155] That there may, incidentally, be a financial benefit conferred on Slea is beside the point, because the Connective parties now have evidence that these arrangements are to enable Liberty to get control of the business without acquiring all, or any, of the shares and to advance the commercial and financial interests of Liberty.[156] The existence of the co-operation deed and the plan to benefit Liberty exposes the purposes and motivations of the parties to this suite of agreements.[157]

256 Mr Dalton submitted that the co-operation deed would not add anything to the existing evidence and it does not answer Mr O'Bryan's earlier submission that there is a discrete benefit to Slea in the proceeding, not the least of which is ensuring that its shareholding is not diminished' and its interest in the Connective business is not reduced from a third to a quarter.

257 Mr Dalton said that the funding agreement would have no further probative value, as it was common ground that Liberty was funding Slea in the litigation and thus would have no effect on the outcome of the application.[158] The agreement may establish that Liberty had a commercial interest, but this is not relevant to whether or not Slea is acting in good faith. Slea clearly has a genuine commercial interest in establishing that it has a third interest in the Connective business and that interest is enhanced by reason of its commercial dealings with Liberty. If the materiality of the funding agreement is that Liberty's solicitors and Liberty were giving instructions, this would not have made material difference to the evidence before the Court.

258 Mr Quinn submitted that Slea's legitimate commercial purpose has been tainted by the joint venture arrangement with Liberty.

259 The premise of this argument, that the objectives of a joint venture between Slea and Liberty diminishes or somehow taints the legitimate interest of Slea, is false. The argument ignores the fact that by assisting the joint venture, Slea advances its own commercial interests, both in the joint venture and in its shareholding in the Connective companies. Slea's commercial interest in making sure the constitution of the Connective companies is observed, is not only to protect the value of its investment in the Connective companies, but also the value of the joint venture Slea has with Liberty.

260 If I am wrong, and the purpose of Liberty is seen as in some way undermining or devaluing the commercial interests of Slea, in my view it still does not derogate from the fact that Slea has a bona fide and predominate reason for bringing the proceeding: to cause the Connective companies to uphold the constitution and undo the damage caused by the directors' breach by misusing their powers, which led to Slea's interest in the business being diminished to 25 per cent.

261 The agreement with Liberty does not interfere with Slea's rights to dividends on its shares in the Connective companies and thus the earnings of the Connective companies. Slea has a significant commercial interest in ensuring that the directors of the Connective companies properly exercise their powers that is not in any way tarnished or diminished because it also has a joint venture arrangement with Liberty.

262 The Connective companies submitted that the relevant evidence is materially relevant to the consideration of 'best interests of the company', and that the whole arrangement with Liberty and Minerva is not directed to the best interests of the Connective companies, it is directed to the commercial interests of a corporation who is not even a shareholder.[159]

263 Mr Dalton submits that the question is not whether or not any of the co-operation that is referred to in the materials is in the Connective companies' interests, but whether or not the application to bring the proceeding on behalf of the Connective companies is in the companies' best interest. Mr Dalton submits that it is in the best interests of the Connective companies, as a whole, that the directors observe the protections provided to the shareholders in the constitutions of the companies and that contrary to the submissions of the Connective parties, the issue of best interests cannot be determined by the financial advantages to the majority shareholder garnered at the expense of the minority interests of Slea.

264 Slea submitted that the fact that there is an agreement between Slea and Murray Lees as to how Murray Lees might act as a shareholder, in the contingent event that he becomes one, and that the agreement considers affecting 'changes that would benefit Liberty' bears no relationship to the question of whether or not it is in the interests of the Connective companies that the proceeding be brought to ensure that its internal governance is conducted correctly and, if it was not, that appropriate remedies be granted in respect of it.[160]

265 Mr Myers submitted that the Court must feel the gravest apprehension that Murray Lees, someone who was put forward as an important witness, unbeknownst to the other party and to the Court, has been promised $2.8 million for co-operating, including providing evidence.[161]

266 Mr Dalton submits that if Murray Lees' statement was influenced by the circumstance that he had obtained an agreement for the provision of $2.8 million, his evidence should accordingly be treated with less weight, or should not be believed at all.[162] Nonetheless, Mr Dalton says that there was other evidence presented at the hearing, sufficient to cross the hurdle of a serious question to be tried, in particular the documentary evidence showing Macquarie's advice to the directors how to get around the pre-emptive provisions.[163]

267 Mr Dalton said that it cannot be determinative that there may now be direct evidence that Murray Lees had entered into an agreement with Liberty, as opposed to the state of affairs at the trial: that Murray Lees had given a statement to ABL in circumstances where it was believed that there was a loan agreement with Liberty.[164]

268 Slea submits that the Connective parties seek to re-open the leave application in order to inquire into the circumstances surrounding its litigation funder's dealings with a third party, which Slea says is of, at best, marginal relevance, while its possible scope is indeterminate.

269 The principles of finality in litigation and the efficient administration of justice dictate that the circumstances must be exceptional before a party will be permitted to re-open its case.

270 As to the question of prejudice, it is submitted on behalf of the Connective parties that inevitably there will always be delay and expense as an inevitable incident of extending the hearing, and in order for prejudice to be a bar to an application to re-open, the prejudice must be something over and above this, otherwise, there would always be prejudice and that hurdle could never be overcome.

271 It is put that Liberty's ultimate commercial objective was to enable its joint venture parties, being Slea and Murray Lees (beholden to Liberty), to get control of 58 per cent of shares in the Connective business, to take over control of the board and get Liberty back on the panel of lenders. There is no evidence that shows the commercial purpose of Liberty involves getting rid of Macquarie Bank, or stripping it of its shares; there is no binding agreement to get 58 per cent of the shares; the agreements are contingent; and as things presently stand, Liberty is not receiving the dividend stream of the shares.

272 The prospect of Liberty seeking to control the Connective companies is irrelevant to the good faith of Slea and whether the proceedings are in the best interests of the Connective companies.

273 In substance, the new evidence referred to seeks to further the argument maintained during the derivative leave application that the derivative proceedings are being conducted by Slea for a collateral purpose of advancing the interests of Liberty. That was the main contention of the Connective companies in the hearing before me. That case misconceives and ignores the genuine and bona fide interest that Slea has in seeking to protect its interest in the Connective companies from being damaged and diminished by the directors exercising their powers for the improper purpose of circumventing Slea's pre-emptive rights.

274 None of the evidence can establish that Slea is bringing the proceedings on behalf of Liberty as opposed to Slea bringing the proceedings in its own interest, which includes advancing the arrangements Slea has with Liberty. The fresh evidence does not contradict the existing evidence before the Court, that the derivative proceedings constitute a discreet benefit to Slea. In any event, I am not satisfied that it is in the interests of justice to allow the hearing to be re-opened on grounds of fresh evidence.

275 My view is that I should dismiss the application to re-open the hearing. Mr Quinn submitted that if I was minded to dismiss the application, I should consider whether the objected subpoenas, issued after the hearing of the application to adjourn the summons for re-opening the hearing, could be capable of affecting the outcome. That is, whether there is legitimate forensic purpose for subpoenas.

276 The relevant subpoenas seek further documents that relate to the alleged fresh evidence outlined above. As Mr Quinn put it, the Connective parties have fresh evidence and, for the purposes of the re-opening application, wish to know whether there is any additional undisclosed fresh evidence, not at large, but directly related to the fresh evidence already discovered.

277 Mr Dalton submits that insofar as the subpoenaed documents may be said to be relevant to the re-opening application, in which they have to establish freshness and sufficient materiality, the subpoenas are a fishing expedition.

278 Mr Quinn submits that the purpose of the subpoenas is to ensure that we have all of that evidence of a fresh nature relating to the topic raised by the documents outlined above, and that the substantial overlap of the subpoenaed documents and those already discovered, means the subpoenas fall well short of a fishing expedition.

279 As I have found that the evidence relied on for the re-opening application is not relevantly 'fresh,' is not capable of materially affecting the outcome and it is otherwise not in the interest of justice to re-open the case, I am not satisfied that any further evidence of the same category would have any legitimate forensic purpose.

280 For the foregone reasons, in the exercise of my discretion, I dismiss the summons for re-opening the hearing and for adjourning the delivery of judgment.

281 I have not found that there would be any utility in allowing the subpoenas. I allow the objections to the subpoenas.

282 I have found on the evidence before the Court, that the criteria in s 237 have been met. Accordingly, I am required by the Act to grant leave to Slea to bring the proposed derivative proceeding.

283 I do so on the condition that Slea undertakes to the Court to pay and bear, and indemnify the company against, all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims for which leave is granted.

(a) Pursuant to s 49(1) of the Civil Procedure Act 2010 and the inherent jurisdiction of the Court, the application made on behalf of the first, second and fourth to ninth defendants to re-open the hearing of the derivative leave application be dismissed;

(b) The application made on behalf of the first, second and fourth to ninth defendants, to adjourn the delivery of judgment in the derivative leave application sine die, be dismissed;

(c) Pursuant to r 42.04(1) of the Supreme Court (General Civil Procedure) Rules 2015, the following subpoenas issued at the request of the first, second and fourth to ninth defendants be wholly set aside:

(i) The subpoena addressed to Liberty Financial Pty Limited dated 27 October 2017;

(ii) The subpoena addressed to Liberty Financial Group Pty Limited dated 27 October 2017;

(iii) The subpoena addressed to Murray Lees dated 31 October 2017;

(d) On the condition of Slea undertaking to the Court to pay and bear, and indemnify the company against, all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims, pursuant to s 237 of the Corporations Act 2001 (Cth), Slea be granted leave to bring a proceeding on behalf of, and in the name of, Connective Services Pty Ltd and Connective Services OSN Pty Ltd, in the form set out in the draft statement of claim exhibited to the affidavit of Kimberley Chantelle MacKay sworn 17 May 2016, at "KCM-5", against the parties identified in the schedule of parties in the proposed statement of claim.

285 The Court proposes to adjourn to a date to be fixed, paragraph (b) of the 27 May 2016 summons on the question of whether Slea be granted leave to use the documents listed in exhibit KCM 1 to the first MacKay affidavit for the purpose of the derivative action.

[1] Mr Tsialtas witness statement of 26 October 2015 (Tsialtas first statement) [192]; affidavit of Mr Tsialtas dated 2 August 2016, EX ST-1; EX P4.

[4] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T160 XXN.

[7] CB D117; LFW-4 to the affidavit of Laura Frances Weston dated 13 June 2016.

[8] Affidavit of Laura Frances Weston dated 13 June 2016, EX LFW-4.

[9] Order of Almond J dated 28 March 2017 in proceeding no S CI 2011 4332; Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 232.

[10] Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 706.

[11] Affidavit of Kimberley MacKay dated 17 May 2016 (the first MacKay affidavit), EX Confidential KCM-5.

[12] Swansson v R A Pratt [2002] NSWSC 583; (2002) 42 ACSR 313, 319 [26] (Palmer J) ('Swansson').

[13] The MacKay affidavit, EX Confidential KCM-5.

[14] The MacKay affidavit, EX Confidential KCM-5.

[15] The first MacKay affidavit, EX KM-3.

[18] Affidavit of Laura Frances Weston dated 13 June 2016, EX LFW-4.

[24] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T165.

[25] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T166, T170.

[26] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T168.

[27] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T177. I was referred to a number of decisions confirming that leave applications of this kind are interlocutory in nature. Macfarlan JA, with Allsop P and Beazley JA agreeing, said such that applications are interlocutory: McEvoy v Caplan [2010] NSWCA 115; (2010) 78 ACSR 167, 168 [4]. Gzell J said of the earlier cases which suggested such an application was final in nature, that those decisions cannot be right, because there is no final determination of issues between the parties: Hackett v Nambucca Valley Quarries [2012] NSWSC 1189 (4 October 2012) [67], [70] (Gzell J).

[28] See Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T186.

[31] EX P8; (see pleas at paragraph 53(e) above).

[32] Swansson, 320 [35]-[36], [38] (Palmer J).

[33] Transcript of hearing, Re Connective Services Pty Ltd (17 August 2017) T307.

[34] Transcript of hearing, Re Connective Services Pty Ltd (18 August 2017) T394.

[35] Transcript of hearing, Re Connective Services Pty Ltd (18 August 2017) T392.

[36] Affidavit of Mr Tsialtas dated 2 August 2017 [34]-[40]; EX P4; CB C415-6.

[37] Transcript of hearing, Re Connective Services Pty Ltd (14 August 2017) T67.

[38] Transcript of hearing, Re Connective Services Pty Ltd (17 August 2017) T307.

[39] Transcript of hearing, Re Connective Services Pty Ltd (17 August 2017) T310.

[40] Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732, 740 [34].

[41] Transcript of hearing, Re Connective Services Pty Ltd (18 August 2017) T392.

[42] Transcript of hearing, Re Connective Services Pty Ltd (18 August 2017) T406.

[43] [1992] HCA 34; (1992) 174 CLR 509, 526 (Mason CJ, Dawson, Toohey and McHugh JJ) ('Williams v Spautz'). See also Swansson, 320 [36]-[37] (Palmer J).

[44] Williams v Spautz, 526-7 (Mason CJ, Dawson, Toohey and McHugh JJ).

[45] [2017] VSCA 187 (20 July 2017) ('MCI v Myer').

[46] MCI v Myer, [8]-[13] (citations omitted).

[48] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 535 (Brennan J), considered in MCI v Myer, [15].

[49] MCI v Myer, [14] (citations omitted).

[50] Carpenter v Pioneer Part Pty Ltd [2004] NSWSC 1007; (2004) 211 ALR 457, 464 [19]; Swansson 324 [55]-[56]; Robash Pty Ltd v Gladstone Pacific Nickel Pty Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432, 445 [57].

[51] Goozee v Graphic World Group Holdings Pty Ltd (200) [2002] NSWSC 640; 170 FLR 451, 467 [74], citing Maronis Holding Ltd v Nippon Credit Australia Pty Ltd (2001) ACSR 404; Nicholas v Soundcraft Electronics Ltd [1993] BCLC 360.

[52] Submissions of the First, Second & Fourth to Ninth Defendants in relation to the derivative action leave application dated 10 July 2017 [28]; citing Swansson, 324 [56]; Robash Pty Ltd v Gladstone Pacific Nickel Pty Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432, 445 [57]; Knights Quest Pty Ltd v Barokes Pty Ltd (2016) 113 ACSR 505, 517 [64] ('Knights Quest').

[53] Affidavit of James Stephen Atkins dated 3 August 2016, EX JSA-1.

[54] Affidavit of James Stephen Atkins dated 3 August 2016 [22]; CB D197; D201.

[55] Affidavit of James Stephen Atkins dated 3 August 2016 [22]-[24]; CB D197; D201.

[56] Affidavit of James Stephen Atkins dated 3 August 2016 [24]; CB D197; D201.

[57] Transcript of hearing, Re Connective Services Pty Ltd, (17 August 2017) T250-251, 253 XXN.

[58] Transcript of hearing, Re Connective Services Pty Ltd, (16 August 2017) T235, 238.

[59] Transcript of hearing, Re Connective Services Pty Ltd, (16 August 2017) T235-6.

[60] See Ngurli v McCann [1953] HCA 39; (1953) 90 CLR 425, 439-40 (Williams ACJ, Fullagar and Kitto JJ); Mills v Mills [1938] HCA 4; (1938) 60 CLR 150.

[61] Knights Quest, 516 [59], [60].

[62] Knights Quest, 516-18 [59]-[67].

[63] [2002] QCA 269; [2003] 1 Qd R 186.

[64] Metyor Inc v Queensland Electronic Switching Pty Ltd [2002] QCA 269; [2003] 1 Qd R 186, 191 [10].

[65] [2005] NSWSC 442; (2005) 53 ACSR 732, 743-4 [47]-[51].

[67] Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90; (2008) 65 ACSR 700, 709 [35] ('Ragless').

[68] Ragless, 709 [35] (citations omitted).

[69] [2011] FCAFC 31; (2011) 82 ACSR 367, 379 [60] (citations omitted).

[70] South Johnstone Mill Ltd v Dennis and Scales [2007] FCA 1448; (2007) 244 ALR 730 ('South Johnstone').

[72] Knights Quest, 519-20 [81]-[82], 520 [84].

[73] Knights Quest, 520 [83] (citations omitted).

[74] [1974] UKPC 3; [1974] AC 821 ('Howard Smith').

[77] [1967] Ch. 254.

[78] Teck Corporation Ltd v Millar (1973) 33 DLR (3d) 288 ('Teck'); Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co [1968] HCA 37; (1968) 121 CLR 483 ('Harlowe').

[79] [1987] HCA 11; 162 CLR 285 ('Whitehouse').

[80] [1987] HCA 11; 162 CLR 285, 289-90, 295 (citations omitted) (emphasis added).

[81] [1987] HCA 11; 162 CLR 285, 291-2 (citations omitted).

[84] See generally Cayne v Global Natural Resources plc [1982] EWHC (Ch) (12 August 1982), noted in 'Recent Cases' (1982) 56 Australian Law Journal 598, 600; Winthrop Investments Ltd v Winns Ltd (No 2) (1979) 4 ACLR 1; Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [1927] 2 KB 9; Re Smith & Fawcett Ltd [1942] Ch 304.

[85] See, eg, Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 (managing director had an obligation to protect the interests of the company and could not excuse himself under a conflict of interest).

[86] See Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386.

[87] Australian Corporation Practice (LexisNexis, January 2017) [13.214].

[88] Vrisakis v ASIC (1993) 9 WAR 395.

[89] CB C255; Affidavit of Kimberley MacKay dated 3 June 2016 [12].

[90] [2010] NSWSC 137; 77 ACSR 302 ('Power v Ekstein').

[92] Power v Ekstein, 330 [108]. Austin J says that this problem is often addressed by the court in such a manner and refers to Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91.

[93] [2012] VSC 430 [6].

[94] [2012] VSC 430 [22].

[95] True Value Solar Holdings Pty Ltd v Fernandez [2013] VSCA 27.

[96] True Value Solar Holdings Pty Ltd v Fernandez [2013] VSCA 27 [19]-[20].

[97] FWV Stanke Holdings Pty Ltd v O'Meara; Von Stanke v O'Meara [2007] SASC 413, [100]-[102].

[98] Re Varsity Queensland Ltd [2006] QSC 356; (2006) 60 ACSR 366, 369 [10] (Mullins J).

[100] [2007] FCA 1448; (2007) 163 FCR 343.

[101] [2007] FCA 1448; (2007) 163 FCR 343, 357, [80]-[81], citing Ehsman v Nutectime [2006] NSWSC 887; 58 ACSR 705, 707 [6] (cf Re Varsity Queensland Ltd [2006] QSC 356; (2006) 60 ACSR 366, 369 [10] (Mullins J)).

[103] Australian Corporation Practice (Lexis Nexis, Service 122, January 2017) [13.211].

[104] See Vrisakis v ASC (1993) 9 WAR 395; ASIC v Doyle [2001] WASC 187; (2001) 38 ACSR 606; ASIC v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199.

[105] [2006] NSWSC 1052; (2006) 59 ACSR 373, 397 [102] (emphasis added).

[106] Jawhite Pty Ltd v Trabme Pty Ltd [2015] QSC 341 [10]-[11].

[107] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T1-2.

[108] Affidavit of Laura Frances Weston dated 6 October 2017, EX LFW-3.

[109] Affidavit of Laura Frances Weston dated 6 October 2017 [12].

[110] The first MacKay affidavit, EX KM-3.

[111] Affidavit of Laura Frances Weston dated 6 October 2017 [12].

[112] Murray Lees statement of claim [47].

[113] Ms Weston deposes that she is informed by Glenn Lees, CEO of the Connective companies, and believes, that such access to declined applications would be extremely valuable to an entity like Liberty: affidavit of Laura Frances Weston dated 6 October 2017 [14].

[114] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T2.

[115] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T1-2.

[116] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T8, L7-9; L16-23; T9, L5-9.

[117] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T12.

[118] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T38.

[119] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T38.

[120] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T23-24.

[121] Affidavit of Elan Davis Sasson dated 8 November 2017, EX EDS-1.

[122] EX D13 (tendered for the purposes of the 6 October 2017 summons).

[123] EX D15 (tendered for the purposes of the 6 October 2017 summons).

[124] EX D14 (tendered for the purposes of the 6 October 2017 summons).

[125] Smith v New South Wales Bar Association [1992] 176 Commonwealth Law Reports 256, 265.

[126] [2005] VSC 18.

[127] [2005] VSC 18 [41].

[128] Re Australasian Meat Industry Employees' Union (WA Branch); Ex parte Ferguson (1986) 67 ALR 491, 493-4 (Toohey J), citing Watson v Metropolitan (Perth) Passenger Transport Trust [1965] WAR 88 and Murray v Figge (1974) 4 ALR 612.

[129] Spotlight, 5 [17]. This precept was well known to antiquity: interest reipublicae ut sit finis litium ('it is in the interests of the state that there be an end to litigation'). See also Bailey v Marinoff [1971] HCA 49; (1971) 125 CLR 529, 539 (Gibbs J), where his Honour spoke of 'the obvious principle that it is desirable that there be an end to litigation'.

[130] Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232; (2012) 46 VR 1, 3 [7] ('Spotlight'); Apple and Pear Australia Pty Ltd v Pink Lady America LLC [2016] VSCA 280; [2016] 343 ALR 112, 165 [171]; Industrial Conveying (Aust) Pty Ltd v SKM Recycling Pty Ltd (No 2) [2012] VSC 588 [93]-[94].

[131] A class identified by Kenny J as a case in which a court may grant leave to re-open in Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 [24]. Approved in Spotlight, 7 [25] (Harper JA, Tate JA and Beach AJA).

[132] Plaintiff's Outline of Argument (in opposition to Connective's application to re-open) dated 10 November 2017; Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T24.

[133] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T17.

[134] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T17.

[135] Transcript of hearing, Re Connective Services Pty Ltd (13 November 2017) T38; T39.

[136] See affidavit of Justin Taede Vaatstra dated 8 November 2017, [18]; EX JTV-7.

[137] See Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T201, 202; (10 October 2017) T25.

[138] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T190.

[139] Affidavit of Justin Taede Vaatstra dated 8 November 2017 [24]; EX JTV-11.

[140] Affidavit of Justin Taede Vaatstra dated 8 November 2017 [18] and JTV-7.

[141] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T27.

[143] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T28.

[144] Transcript of hearing, Re Connective Services Pty Ltd (16 August 2017) T205, L5 - T208, L10 XXN; (17 August 2017) T310, L3-26.

[145] Plaintiff's Outline of Argument (in opposition to Connective's application to re-open) dated 10 November 2017.

[146] Plaintiff's Outline of Argument (in opposition to Connective's application to re-open) dated 10 November 2017.

[147] Transcript of hearing, Re Connective Services Pty Ltd (13 November 2017) T47.

[148] Transcript of hearing, Re Connective Services Pty Ltd (13 November 2017) T76.

[150] Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998 (Cth) [6.36].

[151] Swansson v Pratt [2002] NSWSC 583; (2002) 42 ACSR 313, 320 [36]; Chahwan v Euphoric [2008] NSWCA 52; (2008) 227 FLR 43, 61 [78], 62 [83] ('Chahwan').

[152] Transcript of hearing, Re Connective Services Pty Ltd (13 November 2017) T61.

[153] Chahwan, 62 [81]-[82]; Transcript of hearing, Re Connective Services Pty Ltd (13 November 2017) T72, at T73 Mr Quinn submits that 'Chahwan has been approved by several cases and it's not been disapproved.'

[155] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T12; T21.

[156] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T22.

[157] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T40.

[158] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T26.

[159] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T12, L21-28.

[160] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T36; T38.

[161] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T22.

[162] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T29.

[163] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T29.

[164] Transcript of hearing, Re Connective Services Pty Ltd (10 October 2017) T30.