Sartori v BM2008 Pty Ltd

Federal Court of Australia|2010-10-27|Before: McKerracher J

Counsel for the Applicant: D Denton with L Watts

Solicitor for the Applicant: Belleli King & Associates

Counsel for Mr Small: R Harrison

Solicitor for Mr Small: Tottle Partners

Counsel for the First Respondent: GD Cobby

Solicitor for the First Respondents: Maddocks

Counsel for the Second to Fifth Respondents: GM Abbott

Solicitor for the Second to Fifth Respondents: Obst Legal

GENERAL DIVISION WAD 299 of 2008

IAN DAVID WALLIS AND ROSS DELAHUNTY AS EXECUTORS OF THE ESTATE OF THE LATE WALTER RUTHERFORD MCCARTER (DECEASED)

IAN DAVID WALLIS AND ROSS DELAHUNTY AS EXECUTORS OF THE ESTATE OF THE LATE BARRY HENRY LADD (DECEASED)

Steve Iliopoulos, Perth Freightlines Pty Ltd ACN 129 516 990 and VFS Group Pty Ltd ACN 121 880 751 all of 41 Buchanan Road, Brooklyn, Victoria be added as applicants to this proceeding. 2. The applicants have leave to join as respondents to this proceeding Dianne Margaret Cox, Wallis Securities Pty Ltd, Tony Kosovic, Arthur William Ransom, Neil Warren, Hugh Young, Janet Irene Napier, Kevin Joseph Small and Robert Ivan Guthrie. 3. Leave to amend the application and leave to amend the statement of claim is granted in accordance with the minute. 4. Costs of the motion be in the cause. 5. Any party wishing to make submissions to the contrary of costs being in the cause must file and serve the submissions within 14 days, failing which the costs order will stand.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

GENERAL DIVISION WAD 299 of 2008

IAN DAVID WALLIS AND ROSS DELAHUNTY AS EXECUTORS OF THE ESTATE OF THE LATE WALTER RUTHERFORD MCCARTER (DECEASED)

IAN DAVID WALLIS AND ROSS DELAHUNTY AS EXECUTORS OF THE ESTATE OF THE LATE BARRY HENRY LADD (DECEASED)

INTRODUCTION 1 The applicant (Mr Sartori) brings three motions. First, he wishes to join certain parties as applicants to the proceeding. Secondly, he seeks leave to join various respondents to the proceeding; and thirdly, he seeks leave to file and serve an amended application and an amended statement of claim. 2 It is convenient to start with the final form of relief first to understand the nature of the proceeding.

THE CLAIMS 3 By his proposed amended statement of claim, Mr Sartori claims, in substance, the facts and matters as set out in [4]-[26]. 4 He was at all material times the holder of one A class ordinary share in the share capital of the first respondent (the Company). 5 The second respondent, PFL Properties Pty Ltd (PFL Properties) also held an A class share in the Company. Its shareholders were Messrs Walter Rutherford McCarter and Barry Henry Ladd (now deceased) and the fifth respondent (Mr MacKenzie). 6 The third respondent is the executor of the estate of the late Mr McCarter who was a shareholder, holding an A class share in the Company and until 11 September 1995, a director of each of the Company and PFL Properties. 7 The fourth respondent is the executor of the estate of the late Mr Ladd who was an A class shareholder of the Company and until 25 August 2007, a director of the Company and a shareholder and director of PFL Properties. 8 Mr MacKenzie was a B class shareholder and from 30 December 1992, a director of the Company and a shareholder and director of PFL Properties. 9 M/s Dianne Margaret Cox was a B class shareholder of the Company and from 18 November 1996, a secretary of the Company and a director of PFL Properties from 24 October 1995. 10 PFL Properties, together with the fourth to fourteenth proposed respondents, are current 'purported' B class shareholders of the Company. 11 The Articles of Association of the Company adopted the regulations contained in Table A in the Fourth Schedule to the Companies Act 1961 (Vic), except to the extent they were excluded or modified by the Articles of Association. 12 Regulation 41 of Table A was not excluded and provided as follows: Subject to any direction to the contrary that may be given by the company in general meeting, all new shares shall, before issue, be offered to such persons as at the date of the offer are entitled to receive notices from the company of general meetings in proportion, as nearly as the circumstances admit, to the amount of the existing shares to which they are entitled. The offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined, and after the expiration of that time, or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the directors may dispose of the shares in such manner as they think most beneficial to the company. The directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the directors be conveniently offered under this regulation. (emphasis added) 13 Mr Sartori contends that he, as an A class ordinary share holder in the Company was entitled with other holders of A class ordinary shares to appoint the directors of the Company; to receive notices of and to attend and vote at meetings of the Company; to receive dividends; to share in the winding up of the Company and to rank pari passu with holders of all other classes of shares for return of capital in the winding up of the Company; and to accept an offer of shares made pursuant to reg 41. On the other hand, a B class ordinary shareholder has no entitlement to receive notices of or to attend and vote at meetings of the Company other than a meeting called to decide in the winding up of the Company and is entitled to participate in the appointment of directors. A holding of a B class share did entitle receipt of dividends, a share in the winding up of the Company and ranking pari passu with holders of all other classes of shares for return of capital in the winding up of the Company . 14 The events which are pleaded, as observed in Sartori v BM2008 Pty Ltd (ACN 005 762 685) [2009] FCA 467 (Sartori No 1), pertain to circumstances originating so long ago that certain key participants in the events are no longer alive. The first alleged breach took place in 1981. Mr Sartori says that the Company, without notice to him and without first giving any notice in accordance with the requirements of reg 41, on or about 17 July 1981 or in the period shortly after, purported to resolve to issue and issued 12,000 B class shares in the Company. That issue, according to Mr Sartori, was void because the Company and its board failed to offer the shares to Mr Sartori and in every other respect failed to comply with the requirements of reg 41; was contrary to the interests of the members of the Company as a whole and was oppressive, unfairly prejudicial to or unfairly discriminatory against the other shareholders of the Company. It reduced the proportionate entitlement of other shareholders to payment of the dividend or to return of capital in the event of a winding up and deprived shareholders of the right to accept an offer of and to receive additional shares pursuant to reg 41. 15 Similar events were repeated in 1985 and 1992 when various persons who are now proposed to be joined as respondents were treated as purporting to hold B class shares despite any valid issue of them. Those persons proposed to be joined are M/s Dianne Margaret Cox, Mr Hugh Young, Mr Neil Warren, Mr Tony Kosovic, Mr Kevin Small, M/s Janet Napier, Mr Arthur Ransom, Mr Robin Ivan Guthrie and Wallis Securities Pty Ltd. The proposed joinder of those persons as respondents is on the basis that they are still on the Register as shareholders of the Company. 16 In 1992 Messrs McCarter and Ladd as directors of the Company purported to resolve to issue and the Company purported to issue to PFL Properties 29,804 B class shares in the Company which issue was invalid for the same reasons. That issue was of particular impact. 17 Until December 2008 there were only in truth ever, according to Mr Sartori, three A class shareholders, namely, himself, Mr McCarter and Mr Ladd. Notwithstanding this, allegedly one or more of Messrs McCarter, Ladd, MacKenzie and M/s Cox prior to December 2008 purported to resolve to issue and the Company purported to issue four additional A class shares in the Company which issue is said to be void for the same reasons. 18 Mr Sartori claims that in the absence of orders setting aside the further A class purported share issue, the PFL Properties purported share issue and the B class purported share issue, he will suffer loss and damage. 19 The loss and damage which the applicants would suffer is put in the following terms: The assets of [the Company] are: (a) Cash of $5,335,029.42. (b) Judgment debt of $2,577,072.49 and interest on the judgment debt of $152,365.00. (c) The sum of $1,000,000 held on trust by Diane (sic-Dianne) Cox pursuant to section 200J of the Corporations Act. (d) Not less than $1,836,848.54 arising from a scheme run up until September 2007 to skim 4% of payments made to subcontractors who elected to accept a 4% discount in return for immediate payment of their invoices, the 4% being paid to a company owned and controlled by [the Company]'s directors, Ataquil Pty Ltd, the payments being fraudulently characterised as being made pursuant to a factoring business purportedly conducted by Ataquil Pty Ltd trading as HI Investments. (e) A receivable non-current asset of $2,953,649.05 owing by PFL Properties Pty Ltd recorded in the books of account of [the Company]; (f) Interest accruing on the above. The liabilities of [the Company] are: (a) a tax liability estimated to be $84,000, (b) various legal fees from time to time; (c) minor trade creditors being a Workers compensation claim referred to the insurer and a contested claim for damaged goods. In the absence of an order that the share register be corrected upon the finalisation of the winding up the Applicants would only be entitled to receive a distribution of 2.7% as opposed to a distribution of 25% of the net assets of [the Company] upon a completion of the winding up. 20 The second proposed applicant, Perth Freightlines Pty Ltd ACN 129 516 990 and the third proposed applicant, VFS Group Pty Ltd ACN 121 880 751, together with Mr Steve Iliopoulos, the fourth proposed applicant (the assignee applicants), are said to be assignees as a result of a deed of assignment dated 28 November 2009 under which Mr Sartori assigned all causes of action he had against the Company (now in liquidation) including the present claim. In addition, by a share sale agreement of the same date between Mr Sartori as vendor and those three proposed applicants as purchasers, he sold them his one A class and 1249 B class shares in the Company. I will discuss these agreements in more detail below. 21 Mr Sartori and the proposed applicants would contend that the only lawful shareholders of the Company at any time were Mr Ladd as to one A class share, Mr McCarter as to one A class share, Mr Davidson as to one A class share and Mr Sartori. As such, the resolution of the purported members to voluntarily wind up the Company was said to be invalid, void and unenforceable as it was not a meeting of the rightful members. 22 The consequence of that insofar as the current state of affairs of the Company, being in liquidation, are concerned is said to be as follows: 46 Further, in the premises, the Purported Liquidators: 46.1 were never lawfully appointed as liquidators of [the Company]; 46.2 never had any statutory powers to so act as liquidators; 46.3 never had the lawful authority to cause [the Company]: 46.3.1 to commence and prosecute a commercial arbitration against the Second, Third and Fourth Applicants; 46.3.2 to apply for and then enter judgment in the Supreme Court of Victoria on 19 November 2009 in proceeding No 9483 of 2009 ("the judgment") for the sum of the final award by the Hon W Gillard QC against the Second, Third and Fourth Applicants; 46.3.3 to issue a bankruptcy notice dated 22 December 2009 against the Fourth Applicant based upon the judgment; 46.3.4 to serve a statutory demand dated 22 December 2009 on the Second and third Applicants based upon the judgment; 46.3.5 to otherwise seek to enforce the judgment. 47 Further in the premises the judgment was entered against the second, third and fourth applicants by [the Company] unlawfully and the judgment is entitled to be set aside by the second, third and fourth applicants. 23 It follows, accordingly, Mr Sartori argues, that he is entitled to a declaration that the shares issued in contravention of reg 41 are void on the basis of Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 29. Secondly and, alternatively, relief is sought under s 232 and 233 of the Corporations Act 2001 (Cth) (CA) in relation to the directors' duties and an order under s 233 for the cancellation of the shares issued in contravention of reg 41. 24 Relief sought in a proposed amended application also includes a claim under s 175 CA which provides as follows: 175 Correction of registers (1) A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected. (2) If the Court orders the company or scheme to correct the register, it may also order the company or scheme to compensate a party to the application for loss or damage suffered. (3) If: (a) the Court orders a company or scheme to correct its register of members; and (b) the company or scheme has lodged a list of its members with ASIC; the company or scheme must lodge notice of the correction with ASIC.

The assignee applicants 25 The reason for the joinder of the assignee applicants is that they seek the benefit of the assignment to them of Mr Sartori's rights. Mr Sartori is the registered shareholder bringing (and remaining in) the proceeding to pursue the complaints about the conduct of the former board and the effect it had on his then shareholding. 26 The proposed assignee applicants were the purchasers of the major asset of the Company, a national trucking business. They declined to make payment for the purchase giving rise to an arbitration to resolve a dispute between the Company and the purchasers. The arbitration was resolved adversely to the purchasers and the arbitration judgment registered. The argument is that there was no power on the part of the purported liquidators to act as liquidators, to commence an arbitration against the second, third and fourth proposed applicants; nor to have judgment under such an arbitration registered; nor to issue a bankruptcy notice; nor to serve a statutory demand; nor otherwise to seek orders to enforce the judgment. 27 The applicants say that if they are successful in obtaining those declarations, they would seek an order that the purported liquidators do all such things as are necessary as to take steps to set aside a judgment of the Supreme Court of Victoria. Additionally, damages are sought pursuant to s 175(2) CA. 28 Mr Sartori says that the liquidators are holding some $5 million in cash together with other assets. If the applicants are successful in increasing their shareholding percentage from 2.7% to 25%, they anticipate receiving 25% of the assets. They contend that the assets are in the order of $11-$12 million.

The principles 29 Order 6 r 8 of the Federal Court Rules (FCR) provides as follows: 8 Addition of parties (1) Where a person who is not a party: (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon; the Court may order that the person be added as a party and make orders for the further conduct of the proceeding. (2) A person shall not be added as an applicant without the person's consent. 30 Joinder is sought of the proposed additional respondents as they are members of the Company whose shareholding would be adversely affected by the relief sought in the proposed amended statement of claim. Where all of the proposed additional respondents have property interests that will be impacted in the same way by the applicants' claim, it is appropriate for all the parties related to the one subject matter to be dealt with at one time: John Cooke & Co Pty Ltd v Commonwealth (1922) 31 CLR 394 at 411. The appropriate tests for considering in joinder is whether the applicants' rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action (Re Trade Practices Commission v Milreis Pty Ltd; Ex parte Thomson Publications (Aust) Pty Ltd (1978) 18 ALR 17). 31 If Mr Sartori and/or the proposed applicants are entitled to pursue the proceeding, then the principles in those authorities would require that the prospective respondents be joined as their interests would most certainly be affected.

Opposition to the relief 32 Arguments against the relief have been raised by the first respondent (to which I will refer as the liquidator respondent) and the remaining respondents (to whom I will refer as the director respondents). Those arguments go to issues concerning delay, limitation expiry, capacity and abuse of process. To consider the arguments it will be necessary to examine the evidence in closer detail. 33 Before doing so, however, it must be said that Mr Sartori has pursued this proceeding in a most languid fashion until recently. That said, there are some reasons for the delay. As noted, on 28 November 2009, Mr Sartori sold his shares in the Company and purported to assign various causes of action to the proposed assignee applicants. A deed entered into on that date was supplemented by a collateral deed in April 2010 which was between the same parties which confirmed the scope of the original assignment. However, the Company is in voluntary liquidation. The share transfer was submitted to the liquidators (as there can be no transfer without the approval of the liquidator). The liquidators declined to register the transfer unless the judgment debt owing by the assignee applicants to the Company was first paid. 34 As a result, proceedings were brought in the Supreme Court of Victoria pursuant to s 493A(5) CA seeking an order authorising the transfer. Those proceedings were heard in late June 2010 and judgment was given in August 2010 by Davies J in Re BM2008 Pty Ltd (in liq) [2010] VSC 337. As observed by her Honour (at [1]) the liquidators consented to the transfer but on the condition that the purchaser plaintiffs pay a judgment debt owed to the Company. Section 493A(6) CA prescribes that the Court may set aside a condition of consent if it is satisfied that the condition 'is not in the best interests of the company's creditors as a whole'. Her Honour declined to set aside the condition imposed by the liquidators. There is a convenient summary of the relevant facts from her Honour's judgment (at [3]-[6]): 3 The company went into voluntary liquidation on a member's winding up. The company was solvent when it was placed into liquidation. The directors made a declaration of solvency, estimating the surplus of assets over liabilities to be in excess of $8,000,000. Shareholders will receive a distribution of the surplus assets, although the final amount has yet to be determined. 4 Prior to being placed into liquidation the company had conducted a national transport business which it had sold to the first plaintiff ("Perth Freight Lines"). The terms of sale were in writing in a "Business Acquisition Agreement" entered into by the parties on 25 June 2008 and Perth Freight Lines' performance of the agreement was guaranteed by the second and third plaintiffs. Although the sale of business settled on 8 August 2008, Perth Freight Lines disputed its obligation to pay some of the monies due under the agreement, which remained outstanding because of the dispute. The dispute was arbitrated, following which the arbitrator made an award in favour of the company of an amount of $2,320,485.20 plus interest. On 11 August 2009 the plaintiffs sought leave to appeal to the Supreme Court of Victoria against the award of the arbitrator under s 38(4)(b) of the Commercial Arbitration Act 1984 (VIC). On 19 November 2009, Hargrave J refused leave to appeal and gave leave to the company to enforce the award as a judgment debt. The judgment debt has not been paid and remains outstanding to the company. 5 Under a Share Sale Agreement made 28 November 2009, Sartori agreed to sell his shares in the company to the plaintiffs for the total purchase price of $2,500. Clause 4 of that agreement provided: Each of the parties hereto agrees without further consideration to execute and procure the execution of all further documents and do all such acts or things necessary to obtain the consent of the Liquidator of the Company to the transfer herein unconditionally or upon conditions which the Vendor hereby agrees to satisfy and in the event that the Liquidator refuses to give consent to the transfer herein then the Vendor shall use all necessary endeavours to obtain authorisation of the transfer from a Court having jurisdiction under 493A of the Corporations Act 2001 to assist the Purchasers to obtain that authorization. Title to and risk in the shares remains solely with the Vendor and shall pass to the Purchasers only upon satisfaction of the matters set out in this clause. 6 On 3 December 2009 the plaintiffs' solicitors wrote to the liquidators seeking their consent to the transfer of the shares. It was apparent to the liquidators upon receipt of that request that the purchasers of the shares were the plaintiffs against whom the company was entitled to enforce the arbitrator's award. By letter received 9 December 2009, the liquidators' solicitors sought various information from the plaintiffs' solicitors including details of how it was said that the transfer was "in the best interests of the company's creditors (or indeed the company) as a whole" and seeking advice as to when the judgment debt would be repaid. The plaintiffs' solicitors responded on 14 December 2009 that the sole question for the liquidators under s 493A(2) of the Act was whether or not the transfer was in the best interests of the company's creditors as a whole. The letter also noted that as the company had no creditors there was no basis upon which the liquidators could fail to give consent to the transfers. On 16 December 2009 the liquidators' solicitors responded (omitting formal parts): We are instructed that pursuant to s 493A(1) of the Corporations Act 2001, our client consents to the transfer of the shares referred to in the Share Sale Agreement between Garry James Sartori and Perth Freight Lines Pty Ltd, VFS Group Pty Ltd and Steve Iliopoulos (collectively, the "purchasers") dated 28 November 2009 subject to the Purchasers paying to the Company all amounts owing by them under the Business Acquisition Agreement made on 25 June 2008 (being the amounts subject to the award of the arbitrator appointed pursuant to the Commercial Arbitration Act 1984 and the decision of the Supreme Court of Victoria in proceeding No. 8280 of 2009). 35 Her Honour was satisfied that the shareholders were 'creditors' as that expression is used in s 493A CA and therefore concluded that the condition imposed by the liquidators was in the best interest for the Company's creditors as a whole because payment of the judgment debt would augment the assets that the liquidators must distribute amongst the shareholders being persons entitled to the surplus of the Company's profit after payment of all debts.

Limitation point 36 The respondents contend that any cause of action arising out of the issue of shares in 1981 in purported breach of reg 41 arose on the date of issue of those shares. They argue that if the Articles of the Company are to be regarded as a simple contract, the limitation period in respect of that alleged breach lapsed in 1987 under s 38(1)(c)(v) of the Limitation Act 1935 (WA) and otherwise in 2001 if the Articles are to be regarded as a specialty (s 38(1)(e)(ii) of the Limitation Act 1935 (WA)). 37 However, the applicants contend that the Limitation Act 1935 (WA) does not have application but more importantly, would contend that in accordance with the decision in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 that the determination of the limitation question should not be dealt with on a summary basis. In Wardley Mason CJ, Dawson, Gaudron and McHugh JJ said (at 533): 31. We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question. Magman International illustrates the problems which can arise, particularly in a case involving foreign loans. 38 I am unable to say at this point that this is the 'plainest of cases' as referred to by the plurality in Wardley. It is possible to imagine circumstances in which that is not the position. 39 This should not, however, be thought to totally shut out the respondents from pursuing on a subsequent occasion on an interlocutory basis a limitation point if they can demonstrate that it does fall into the category of the 'clearest of cases'.

The assignment point - capacity 40 The Company (which until 10 August 2008 was known as Perth Freightlines Pty Ltd) had previously operated a trucking business in and from Melbourne and operated between Melbourne and other Australian cities including Perth. By a written contract of 25 June 2008, the Company sold the business to Perth Freightlines Pty Ltd. 41 Under that business sale agreement, the obligations of the purchasers were guaranteed by Viking Fleet Services Pty Ltd and Mr Iliopoulos. The agreement settled on 8 August 2008 and on 16 December 2008, Mr Sartori together with Mr Small (no longer an applicant), commenced this proceeding. On 22 December 2008, the members of the Company resolved to liquidate it, appointing Mr Victor Raymond Dye and Mr Roger Darren Grant as liquidators of the Company. 42 Almost a year later, on 19 November 2009, a judgment in the Supreme Court of Victoria was entered in favour of the Company against the purchaser (Perth Freightlines Pty Ltd) and the guarantors referred to above, Viking Fleet Services Pty Ltd and Mr Iliopoulos. The judgment was for the sum of $2,577,072.49 together with costs in respect of monies owed to the Company under the business sale agreement. It was shortly after that judgment was entered, on 28 November 2009, that Mr Sartori and the proposed assignees applicants entered into the separate written agreements which have been described as the Share Sale Agreement and Deed of Assignment. 43 The respondent directors contend and for present purposes, it may be accepted, that the effect of the Share Sale Agreement is that Mr Sartori agreed that subject to obtaining the liquidators' consent and in consideration of the receipt of the sum of $2500, he would sell to the proposed parties to this proceeding one A class share in the Company and 1249 B class shares in the Company and would assist them to be substituted for Mr Sartori as a party to the proceeding. The Deed of Assignment recites, amongst other things, that Mr Sartori is the registered holder and beneficial owner of one A class share and 1249 B class shares in the Company and that he 'has an entitlement against [the Company] as the registered holder and beneficial owner of the class A share and the class B share of the [the Company] the value of distribution from the [Company]'. The Deed of Assignment also contends that Mr Sartori has a further claim against the Company to a further distribution and/or damages resulting from the issue of the B class shares and further recites that the proposed parties purchased and/or guaranteed the purchase of the business formerly operated by the Company. Under the Deed of Assignment Mr Sartori purported to assign, for the consideration of the receipt of $20 to the proposed parties as joint proprietors, all his rights, title and interest in this, (amongst other) causes of action. 44 Statutory demands for the judgment debt were pursued against Perth Freightlines Pty Ltd and the guarantor, Viking Fleet Services Pty Ltd. Mr Iliopoulos was served with a bankruptcy notice claiming the judgment debt. Some time shortly after 22 December 2009, the purchaser and the Viking Fleet Services Pty Ltd commenced action number SC2010/80 in the Supreme Court of Victoria seeking to set aside the statutory demands. 45 As to the current proceedings, the assertion by Mr Sartori that he held at all material times one A class ordinary share has been not admitted by the liquidator respondents and is denied by the other respondents. For present purposes, however, I will assume the correctness of the assertion. 46 On the assignment point, Mr Abbott for the director respondents argues that whilst causes of action are generally assignable, the assignment of a 'bare right to litigate' and statutory causes of action require special consideration. A bare right to litigate is generally where the right is not related to or dependant on any property, or where that person does not have the underlying property, which the cause of action seeks to protect. The underlying reason for such a rule has been to avoid the champertous trading in litigation, although modern trends in this area would suggest that the approach in the older cases has been substantially modified. Litigation funding has become commonplace. In Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 a number of these principles were considered and discussed. In the joint judgment of Gummow, Hayne and Crennan JJ, their Honours noted (at [77]), that as in the context of litigation funding a survey of the state of the English law, as it stood by the early years of the 20th century, revealed that the law of maintenance and champerty depended more upon assertion of consequences said to follow from the existence of the common law criminal offences of maintenance and champerty, than it did upon any close analysis or clear exposition of the policy to which the rules were intended to give effect. 47 It was noted at [81]-[82] that (footnotes omitted): [81] It is important to notice that the House of Lord's conclusion in Trendtex (that the provision permitting sale of the cause of action was contrary to public policy - as "savour[ing] of champerty" and involving "trafficking in litigation") was not held to afford a defence to the claim that was made and was not itself a reason to stay the further prosecution of the action. The order for stay that was made was founded upon the exclusive jurisdiction clause, not upon any consideration of public policy concerning maintenance or champerty. [82] Indeed, as the respondents pointed out in the argument of the present appeals, before the enactment of the Abolition Act or its United Kingdom progenitor, the Criminal Law Act 1967, maintenance or champerty had not been held to constitute a defence to an action on the claim that was maintained, or a ground for staying such an action. Of course it may be said that, at least for the most part, the cases reported about maintenance and champerty were principally directed to whether the maintenance agreement was to be enforced or to whether the named plaintiff had sufficient title to bring the action that was said to be maintained. But that does not detract from the validity of the observation that there was no case where maintenance or champerty was held to be a defence to, or reason enough to stay, the action that was maintained. 48 In TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444 Finklestein J said (at [79]-[81]): 79 I said that the receivers "purported" to assign the causes of action for there is a general rule that a personal right to litigate cannot be assigned either at law or in equity, but an impersonal right in the nature of a proprietary right can be assigned provided the circumstances warrant it. Thus, it has been said that causes of action in tort, which are regarded as personal rights, cannot be assigned: Poulton v Commonwealth (1952) 89 CLR 540 at 571, 602. The bar on assignments of personal actions would include actions in equity that are of a personal kind: Glegg v Bromley [1912] 3 KB 474 at 489-492. An action for breach of confidential information is a personal action. 80 There is in England an exception to the bar on the assignment of personal rights. In Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 703 Lord Roskill (with the concurrence of the other Law Lords) said: "In English law an assignee who can show that he has a genuine commercial interest in enforcement of the claim of another and to that extent takes a assignment of that claim to himself is entitled to enforce the assignment unless by the terms of the assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance ... The Court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that property right or interest, or, if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bear cause of action or as savouring of maintenance." 81 In Australia there is a debate whether the Trendtex principle should be adopted. The cases for and against (the latter all being decisions of the Federal Court) are collected in Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd (2004) 188 FLR 278. It may be that the debate is now over for the High Court in Campbell's Cash and Carry Ltd v Fostif Pty Ltd (2006) 80 ALJR 1441 seems to have approved Trendtex. In any event, my own view is that the logic of Lord Roskill's view is inescapable. This is especially so when, as here, the cause of action is connected with, or relates to, rights or interests owned, or that will fall into the ownership, of the assignee. 49 Statutory causes of action have been held not to be assignable because the right of recovery is restricted to the person entitled to the relief as described in the particular statutory provision. Claims involving ss 52, 82 and 87 of the Trade Practices Act 1974 (Cth) and s 420A of the Corporations Law (1999) (Controller's duty of care in exercising power of sale) and s 232 CA cannot be assigned (Mijac Investments Pty Ltd v Graham (No.2) [2009] FCA 773; 72 ACSR 684 at [33]). 50 The interest must be one which arises independently of the arrangement to maintain the proceedings and must have existed prior to the assignment. 51 The respondents argue that, in the context of these proceedings, even if Trendtex Trading Corporation v Credit Suisse [1982] AC 679 can apply to statutory causes of action, the proposed parties do not satisfy the requirements of having a genuine commercial interest in maintaining the cause of action that existed before the assignment occurred. They contend that the cause of action pleaded in these proceedings does not purport to be in respect of liquidated sums and can thus be considered a 'bare right of action' arising from s 232 and s 233 CA.

Abuse of process 52 The maintenance and champerty argument raises considerations (such as a pre-existing interest) which are also relevant to the argument on abuse of process. The proposed parties have not produced any evidence of a commercial relationship with Mr Sartori prior to the purported assignment and the proposed parties did not have any interest in the Company at any time relevant to this proceeding. 53 The proposed parties' entire connection to the Company is that prior to the commencement of these proceedings they purchased the business previously conducted by the Company. 54 In the context of the Victorian proceedings to set aside the statutory demands, the apparent use which the proposed parties intend to make of the purportedly assigned cause of action extends further than the purchase of a cause of action to be pursued for a profit in the isolation of these proceedings. 55 The respondents argue that: (a) In that context it can be seen that the proposed parties' 'commercial interest' in the Share Sale Agreement and the Deed of Assignment and, therefore, the purported assignment of the cause of action pleaded in this proceeding, is the extent to which that cause of action (if successful) might be capable of being set off against the judgment debt; (b) Such a 'commercial interest' is insufficient to enliven the principles in Trendtex. Something more than a mere personal interest in profiting from the outcome of the proceedings is required. The use of the cause of action as a set off against a judgment debt is merely a personal interest; and (c) That potential underscores that the purported assignment is not efficacious and the proposed joinder should be rejected. 56 The proposed assignee applicants, however, argue that while they are not the registered proprietors of those shares, they are the equitable proprietors of the shares. They seek to constitute the proceedings in the manner appropriate for the enforcement by them as equitable assignees of the choses in action in relation to the declaration that the additional shares issued in contravention of reg 41 are void. As equitable assignees, they argue, they are entitled to bring proceedings to enforce the choses of action but subject to the procedural requirement that the assignor be joined as an additional party to the proceedings so that the assignor become bound by the decision and the parties sued are protected: Three Rivers DC v Bank of England (No.1)[1996] QB 292 at 313 per Lord Justice Gibson. The assignee applicants assert that the assignment in the present instance is not simply the assignment of a bare right to litigate but rather a cause of action annexed to a right of property, namely, the shares which is assigned along with the property. It is argued that the assignment is incidental and subsidiary to the sale of the shares and part of a bona fide transaction, the object of which was to transfer to the assignee applicants property in the shares with all the incidents which attached to that property in the hands of the assignor. In those circumstances, a transaction is not a transfer of the mere right of litigation: Re Kenneth Wright Distributors Pty Ltd (in liq); WJ Vine Pty Ltd v Paul [1973] VR 161 per Kaye J at 167. Because the assignment is incidental and subsidiary to the property transfer, the applicants contend that the circumstances may be distinguished from those in Trendtex 57 In my view these matters are arguable and the proposed assignee applicants should not be shut out of the action as there is insufficient evidence at this stage on which a decision could be made in order to do so. The proper conclusion to reach on this topic is a matter for decision in light of the evidence at trial not on what is, in effect, a summary application: Whyked Pty Ltd t/as Ezysend v Yahoo Australia and New Zealand Pty Ltd [2006] NSWSC 650 per Bergin J (at [26]). 58 The applicants appear to accept that the alternative cause of action based on s 233 CA being a statutory cause of action cannot be assigned (Mijac Investments). Had the proceedings in the Supreme Court of Victoria pursued by the proposed applicants succeeded, the position might have been different. This aspect of the pleading in its present draft form as annexed to the affidavit of the solicitor for the proposed applicants will therefore require reconsideration. Indeed, opposition to that cause of action was the very basis on which the liquidators had opposed the proposed applicants joinder as they lacked standing for the purposes of s 234 CA. Section 231(b) CA relevantly defines a member of a company to be a person whose 'name is entered on the register of members'. The applicants appear to accept this submission from the liquidators that a person who is not registered as a member lacks standing to seek relief under s 232 and s 233 CA. 59 The director respondents raise a number of additional points such as the fact that no evidence has been given by Mr Sartori as to why he waited for 16 years before attempting to set aside the allotment of shares to the respondents. Further, they argue that there is no indication of the basis for the framing of the relief, it only sets aside part of the shares allotted under the resolution attacked in these proceedings. He does not seek to set aside the allotment of shares in his favour as a result of the attack to the resolution.

CONCLUSION 60 In my view all these points are reasonably raised for the respondents, some apparently carrying greater weight than others. It is equally possible that they may be capable of being answered. For present purposes, however, I could not conclude on the present state of the known facts that Mr Sartori and the proposed applicants could not possibly succeed on their claim, nor could I conclude, if they are to be permitted to pursue it at least for the present, that the proposed assignee applicants and the proposed respondents should not be joined. To the contrary, for so long as the claim is capable of being pursued it is necessary that all those persons be joined. Notwithstanding the substantial delay in this claim being pursued by Mr Sartori, (some of which is explained), it is desirable that it be brought to a head either by trial or by a more comprehensive interlocutory procedure without undue delay. The interests of a number of persons who have not, on the face of the matter had involvement with the dealings the subject of the proceeding, are capable of being affected. Finally as to the proposed amended application and statement of claim, I will give leave to amend substantially in the form of these documents. By this I intend to convey that the pleading still requires further amendment as acknowledged by senior counsel in oral argument. Not least of the questions pertains to the purported assignment of a chose in action based on statute.

Mr Small's discontinuance 61 On the ultimate return of the motions pursued by Mr Sartori, Mr Small indicated that he wished to discontinue his involvement in the proceeding. Leave to discontinue was granted on the basis that Mr Small pay the costs of the respondents to be taxed if not agreed.

Costs 62 Although Mr Sartori and now the proposed applicants have ultimately succeeded on this motion, that success has come about only after a period of extensive and repeated delay and disregard for directions made by the Court by Mr Sartori and formerly by Mr Small. The final form of the relief as argued orally differed on a significant point of principle from that initially pursued and did so on a basis raised, correctly, by the respondents (for example, the addition of rather than substitution of the assignee applicants). In all those circumstances, I consider the most appropriate costs order is that costs be in the cause. I will allow any party who disagrees with such an order to make submissions within 14 days, failing which the order will stand.

Transfer 63 Since consideration of the transfer motion in Sartori No 1 and as a result of orders made in this judgment, it is entirely possible that a time for review of the most logical venue for this litigation has arisen or soon will arise. Until the position on that topic is made clearer by affidavit evidence I do not propose taking my own steps to transfer the proceeding to the Victoria District Registry but I should highlight the fact that the composition of parties and legal representatives has now changed considerably since the considerations which were addressed in Sartori No 1. As indicated in Sartori No 1, should circumstances change, the appropriate venue may require consideration. For the present, I will leave it to the parties to consider that possibility. 64 The orders will be: 1. Steve Iliopoulos, Perth Freightlines Pty Ltd ACN 129 516 990 and VFS Group Pty Ltd ACN 121 880 751 all of 41 Buchanan Road, Brooklyn, Victoria be added as applicants to this proceeding. 2. The applicants have leave to join as respondents to this proceeding Dianne Margaret Cox, Wallis Securities Pty Ltd, Tony Kosovic, Arthur William Ransom, Neil Warren, Hugh Young, Janet Irene Napier, Kevin Joseph Small and Robert Ivan Guthrie. 3. Leave to amend the application and leave to amend the statement of claim is granted in accordance with the minute. 4. Costs of the motion be in the cause. 5. Any party wishing to make submissions to the contrary of costs being in the cause must file and serve the submissions within 14 days, failing which the costs order will stand. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Companies Act 1961(Vic)reg 41

Trade Practices Act 1974(Cth)

Corporations Act 2001(Cth)ss 175, 232, 233

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