Rafferty v National Australia Bank Limited

S 237(2) CORPORATIONS ACT 7 There is no doubt that the Court has power to make an order under s 237(2) retrospectively. So much was decided by Middleton J in South Johnstone Mill Ltd v Dennis (2007) 163 FCR 343. For the reasons his Honour their discussed at [24]-[63], with which I respectfully agree, I am satisfied that the Court has power to do so. 8 I am also satisfied on the material before me that each of the criteria identified in s 237(2) have been met. Given the structure of ownership and directorship of Time 2000, it is probable that Time 2000 would not otherwise bring proceedings. I am satisfied that Rafferty is acting in good faith, having an honest belief of a good cause of action and with reasonable prospects of success against the Bank, in seeking to do so. I am also satisfied that he has no collateral purpose that would amount to an abuse of process. It is, as I understand the material, simply a case where Rafferty alleges that funds of Time 2000 have been applied improperly to a corporate entity associated with Donovan, and at the expense of Time 2000 and so indirectly of the interests associated with Rafferty. If the claim is successful, that situation will be reversed and the funds held by Time 2000 will then be applied appropriately on behalf of the shareholders of Time 2000. The particular payment in issue was not specifically the subject of a claim for relief in the proceedings referred to in [2], so if the proceeding is successful (as the proposed compromise now contemplates that it will be), it will simply restore the shareholders of Time 2000 and its shareholders to their proper position. Moreover, it is clearly in the best interests of Time 2000 that its assets not be improperly dissipated by transfers of monies to an interest associated with only one of the shareholders. There is clearly a serious question to be tried. The affidavit evidence discloses that. That is, to a degree, confirmed by the apparent arrangement now entered into between Rafferty apparently on behalf of Time 2000 and the Bank. Nor can there be any improper disadvantage to Donovan or his interests by granting the relief sought because, if the payment to Time Systems was properly made, it can subsequently be justified. There will only be a temporal disadvantage. The payment was made in circumstances at a time when both Rafferty and Donovan were in dispute. They had agreed (on the material before me) that the assets of Time 2000, including its bank assets, would not be applied except by their joint agreement. There is a serious question to be tried that the contentious payment was made contrary to that arrangement.

S 240 Corporations Act 9 The other matter to consider is whether an order should be made under s 240. It provides that: Proceedings brought or intervened in with leave of the Court must not be discontinued, compromised or settled without the leave of the Court. 10 Clearly such a provision is intended to ensure that the Court have the opportunity to prevent any collusion between the plaintiff and the defendant in the particular circumstances, and perhaps more widely to oversee the question whether the proposed resolution is in the best interests of the company. The Court may permit others whose interests may be affected to be heard before deciding whether to grant leave to compromise a proceeding brought with leave under s 237(2): Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 211 ALR 457 per Barrett J at [41]. 11 In the absence of full submissions as to the scope and effect of s 240, it is not appropriate to consider those matters in detail. In this instance, it is clear that Time 2000 and the Bank are at arms length. There is no risk of them colluding. That may be a sufficient protection to ensure that the resolution of the claim is an appropriate one. The proposed agreement simply includes restoration of the status quo before the contentious payment was made. If the funds in issue were properly paid to Time Systems by the Bank notwithstanding any arrangement between the directors at the time, and notwithstanding that (as evidence before me suggests) that the Bank was aware of that arrangement, Time Systems (and the Donovan interests) will in due course be able to justify that payment. 12 However, as Time Systems and Donovan have not had an opportunity to be heard and are not parties to this proceeding, in my view it is appropriate to act a little cautiously under s 240 of the Act. Accordingly, I propose to make orders broadly in the terms requested. They are made on the basis that the status of the account will be restored to that which was in place before the contentious payment. Once that occurs, the proceeding is apparently proposed to be discontinued. There are apparently other terms to the proposed compromise, but the critical issue to my mind is the interests of Time 2000. I will direct pursuant to s 240 of the Act that leave be granted to the parties to discontinue, compromise or settle the within proceedings. As the terms of settlement are in part confidential, I am not fully informed as to them. As I have indicated, there is no reason to think that they have not been reached on an arms length and proper basis. There will be circumstances in which it is appropriate for the Court to be informed of the full terms of the proposed compromise of proceedings, so that the Court may be satisfied that all interests potentially adversely affected by any such compromise have an opportunity to participate and be heard. In this case, as I have indicated, to the extent that there may be an adverse effect upon Donovan or Time Systems, presumably by the Bank seeking reimbursement of the funds which have been re-credited to the account of Time 2000, they will have the opportunity to be heard at that time. In the meantime, in case there is some other step which might be taken by those interests to oppose the compromise being permitted, I propose to grant the leave referred to, subject to that leave being stayed by a period of, in effect, 14 days. During that 14 days, the orders to be made are to be served upon Time Systems, and Time Systems is then given a period of seven days within which to file in the Registry, and serve upon the parties, notice that it objects to the leave granted. In the event that it files such a document, the stay of that order will operate until further order. The parties will have an opportunity to be heard as to whether the order should be sealed, or some other or no order should be made. In that event, the matter will be called on for further directions, with a view to resolving any ongoing dispute. 13 In that way, in my view, the interests of both the parties to this proceeding and the interests of Donovan, in particular Time Systems, are properly protected. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.