(cf SCR Part 8, rule 8 (1); DCR Part 7, rule 8 (1); LCR Part 6, rule 8 (1))
(1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party."
14 It is necessary, at this point, to consider the nature of the present proceeding 3801/01 and the effect of the substantive order made by Santow J on 10 September 2001.
15 Part 2F.1A of the Corporations Act enables the court to allow certain persons associated with a company to act on its behalf in bringing or defending litigation. The provisions are, in that way, a means of redressing inaction by which the company is afflicted in relation to the particular litigation. One of the essential pre-conditions to a grant of leave to bring or defend proceedings on a company's behalf is that the court is satisfied that "it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them" (s.237(2)(a)).
16 In the present case, the Roach interests sought two substantive orders in the alternative. The second (or alternative) was an order under s.237 in favour of both plaintiffs (Mr Roach and Roach Industries). Such an order was made in favour of Mr Roach alone. There was then no longer any claim outstanding under the originating process. An order under s.237 granting leave to represent a company is a final order: see Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 at p.318. Final relief was thus granted in this proceeding on 10 September 2001.
17 That, in Mr Parker's submission, means that this proceeding is at an end, so that there is no necessity, in terms of rule 6.24(1) of the Uniform Civil Procedure Rules, for Mr Leslie, Mr Smits or anyone else to be joined as a party in order that "all matters in dispute" may be resolved. In Mr Parker's submission, there are no longer any "matters in dispute" in this proceeding. There is accordingly no purpose to be served by an order making Mr Leslie and Mr Smits parties and no basis on which such an order could properly be made.
18 Mr Leslie and Mr Smits appeared in person. Both of them made submissions. They say that the approach I have just outlined overlooks the important matter of the undertakings - both those given to the court constituted by Santow J on 10 September 2001 and those given to the court constituted by McClellan J on 20 March 2002. On each occasion, the undertakings were given in this proceeding; and the second of the occasions was several months after final relief had been granted by way of the grant of leave under s.237. The existence of the undertakings means, according to Mr Leslie and Mr Smits, that this proceeding is still extant and alive. Furthermore, they say that there has been non-compliance with the undertakings in two or perhaps three respects. First, while bank guarantees were furnished as contemplated by undertaking 2 of 10 September 2001 and undertaking 3 of 20 March 2002, the form of bank guarantee was never pronounced "satisfactory" by a registrar of the court. Second, Mr Roach and Roach Industries have not given the consent contemplated by undertaking 2 of 20 March 2002. These matters, if established, would point to non-compliance with the undertakings. The third matter of complaint stands in a somewhat different light. Mr Leslie and Mr Smits say that, although the two bank guarantees (regarded by them as non-compliant as to form) were given by Mr Roach and Roach Industries to Winnote and Sydtech as contemplated by the undertakings, the undertakings were later surrendered by the liquidators of the recipient companies or, more accurately, returned by the solicitors acting for those companies (and their liquidators) to the solicitors acting for the Roach interests. This apparently happened after the conclusion of proceeding 50099/99 at first instance before McClellan J. Mr Leslie and Mr Smits see any such surrender or return as inconsistent with the undertakings given to the court by Mr Roach and Roach Industries.
19 It is the contention of Mr Leslie and Mr Smits that they, as parties to 50099/99, were the intended beneficiaries of - or at least have a relevant interest in the due observance of - the undertakings given to the court in the present proceeding 3801/01, with the result that, even though they have hitherto not been parties to this proceeding, they should now become parties so that they may take appropriate action to redress what they regard as the several aspects of non-compliance with the undertakings on the part of Mr Roach and Roach Industries. Their interest arises from the fact that they have the benefit of a costs order against Winnote and Sydtech in 50099/99 (being one of the orders made by the Court of Appeal) and have some expectation that they may come to occupy a better position regarding costs, as against Winnote and Sydtech, as a result of the High Court appeal. They are therefore concerned to see that Winnote and Sydtech, which are in the course of being wound up and are apparently impecunious, obtain what is due to them in conformity with the undertakings given to the court by Mr Roach and Roach Industries.
20 The nature and purpose of proceedings in which leave is sought under Part 2F.1A were discussed by me in Carpenter v Pioneer Park Pty Ltd (2004) 186 FLR 104. In that case, a person with standing under s.237(1) sought leave to commence a proceeding on behalf of the relevant company against a bank. That potential defendant sought to be joined as a party to the s.237 application. Joinder was refused on the basis that participation by the potential defendant was not necessary to ensure that all matters relevant to the s.237 application itself were determined and adjudicated. I described the purpose and scope of Part 2F.1A as follows (at p.109):
"Part 2F.1A is concerned with the domestic process by which a company makes decisions relevant to initiation and continuation of legal proceedings. The statutory provisions aim to counter the effects of inaction on the part of those who would normally decide such matters internally. In most cases, those persons will be directors whose inaction may be a product of self-interest. Here, the inaction upon which Mr Carpenter seems likely to rely is the inaction of an unfunded liquidator. The provisions do not, in my opinion, have in view the welfare or interests of persons who are, from the company's perspective, 'outsiders'. They enable anyone with a particular form of 'insider' status described in s.236(1)(a) to seek the court's assistance in taking over the role of the normal decision makers in relation to a particular proceeding. The court's function is essentially a screening function. It must assess against specified criteria the litigation proposal the applicant has in mind for the company. If that proposal is found by the court to meet the criteria, it must grant leave enabling the applicant to pursue it for the company."
21 The basis on which joinder was refused was stated as follows (also at p.109):
"The intended defendant in the proposed proceeding no doubt has an interest of a general kind in the question whether leave should be granted under Part 2F.1A. If leave is granted, that person will be sued (or is likely to be sued). If it is not granted, the person will not be sued, at least at the instigation of the person who has failed to obtain leave under Part 2F.1A. But this cannot, in my view, form a basis for intervention under Part 8 rule 8. I accept, in this respect, the submissions made by Mr Garnsey. The question whether leave should be granted under Part 2F.1A can be decided perfectly well in the absence of the intended defendant. No legal liability or other legal consequence will accrue to that person by any grant of leave. The presence and involvement of the person when the leave question is argued is in no sense 'necessary' to an effectual and complete determination of the matters with which Part 2F.1A is concerned.
22 The Court of Appeal subsequently refused leave to appeal from this decision: Australia and New Zealand Banking Group Ltd v Carpenter (unreported, NSWCA, 20 May 2005).
23 The purpose of the undertakings that Santow J saw fit to make the price of the grant of leave under s.237 in this case are explained by the nature of Part 2F.1A proceedings and the function of such leave as just described. His Honour's judgment makes no reference to the matter but the purpose of the undertakings is, in my opinion, made very clear by the circumstances. Winnote and Sydtech had no assets. They were financially unable to pursue the course that the grant of leave under s.237 enabled Mr Roach to undertake on their behalf. Santow J was obviously concerned to ensure that the two companies were afforded some measure of protection against the financial consequences of the participation in proceedings 50099/99 that he was prepared to allow Mr Roach to cause them to undertake.
24 Such concerns have been expressly referred to in a number of cases under Part 2F.1A. The content of the next four paragraphs of these reasons draws on analysis, in that respect, found in a recently published research report, "Litigation by Shareholders and Directors: An Empirical Study of the Statutory Derivative Action" by Professor Ian Ramsay and Mr Benjamin Saunders of the University of Melbourne.
25 In Metyor v Queensland Electronic Switching Pty Ltd [2003] 1 Qd R 186, the Queensland Court of Appeal granted leave under s.237 in such a way that, as is made clear at paragraph [19] of the judgment, the party granted leave would, in the event of its failure in the derivative action, have to "bear … the not inconsiderable costs of the proceedings". The position in Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 was similar. The court again took the view that the "best interests of the company" criterion (one of the criteria by reference to which an application for leave under s.237 is assessed) would be satisfied only if the party granted leave gave the company appropriate protection in respect of costs. I quote from the judgment of Austin J at p.745:
"In my opinion, Mr Rich has made out the grounds for bringing a derivative action under s 237 to assert MDU's claims, provided that the best interests of the company are properly protected. That will be so, and the principles regarding provision of security for costs and compliance with the court's orders will be properly reflected, if the granting of leave is made subject to terms in the nature of conditions precedent to leave, requiring:
(1) Mr Rich to undertake to bear the costs of the pursuit of MDU's claims, indemnify MDU and not claim contribution from it in respect of any adverse costs order;
(2) the company or Mr Rich on its behalf to join in the provision of security for costs that I have ordered to be provided by Fiduciary and Fiduciary Consultants, and for pursuit of the company's claims to be stayed pending compliance; and
(3) the plaintiffs to pay the outstanding costs assessed in respect of the interlocutory application heard by Barrett J."
26 In McLean v Lake Como Venture Pty Ltd [2004] 2 Qd R 280, leave under s.237 was granted but was (at p.297):
"conditioned on an undertaking that in the absence of consent by all directors to payment, the funds of the company would not be utilised to pay solicitors' fees and outlays without leave of the court."
27 Charlton v Baber (2003) 47 ACSR 31 was another case in which leave was granted under s.237 on terms designed to ensure that the person granted leave should protect the company in respect of costs. I quote from paragraph [74] of the judgment (at p.49):
"… [W]hile Mr Charton may now pursue the possibility of augmenting the resources of NAA by pursuit of the claims in respect of which he has succeeded in showing an entitlement to leave under s 237, he should have no expectation of doing so in such a way that those resources are called upon to fund the litigation, unless the result is clearly seen to involve some distinct benefit to the general body of creditors going demonstrably beyond the kind of pointless recycling of money to which I have referred. Much less, of course, should he expect to see corporate resources expended on the litigation if his claims fail."
28 In Carpenter v Pioneer Park Pty Ltd (2004) 211 ALR 457, I said (at pp.470-1):
"[45] The court will also make Order 2 in that amended originating process, being an order that Mr Carpenter be granted leave to bring proceedings on behalf of the Company as described in that order. The order will be made both under Part 2F.1A and in exercise of the court's inherent power and will be made upon terms to the following effect:
(a) that Mr Carpenter pay and bear (and indemnify the Company against) all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings brought by him on behalf of the Company except to such extent, if any, as the court may in future otherwise direct or allow; and
(b) that, insofar as it may not apply of its own force, s.240 of the Corporations Act 2001 (Cth) shall apply to and be observed in relation to the proceedings brought by Mr Carpenter on behalf of the Company.