The application for leave to bring derivative claims
30 As mentioned, the cross-claimants (being Mr Guy, Charge Hub, and Guy O'Sullivan) seek orders by paragraph 2 of their interlocutory application that Mr Guy and Guy O'Sullivan have leave nunc pro tunc under s 237 of the Corporations Act to bring or otherwise intervene in proceedings on behalf of and against Smart EV Solutions and Smart Grid Investments in the form of the amended notice of cross-claim filed on 11 June 2024.
31 Some background is required as to why this application was made. The most obvious and direct motivation for the application is to seek to address the issues raised by the interlocutory application filed by Smart EV Solutions and Smart Grid Investments on 26 July 2024, in which summary judgment is sought. The foundation for seeking that order is that the relief sought by the first and second cross-claimants, being Mr Guy and Charge Hub, against Smart EV Solutions pursuant to s 233 of the Corporations Act was not available. The persons who might bring a proceeding for relief under s 233 are identified in s 234 of the Corporations Act and, relevantly for present purposes include a person who is a member of the company. Neither Mr Guy nor Charge Hub are, or were, members of Smart EV Solutions, and their claim for relief under s 233 would necessarily fail.
32 It is relevant to note that the relief sought in the interlocutory application brought by Smart EV Solutions and Smart Grid Investments is reflective of their defence to the cross-claim filed in April 2024, which includes an assertion that Mr Guy and Charge Hub lacked standing to bring the claims for relief under s 233. In the face of the applicants seeking judgment on this point, the cross-claimants' response was to make the present application for leave pursuant to ss 236 and 237 to bring certain of the claims articulated in the statement of cross-claim on behalf of Smart EV Solutions and Smart Grid Investments as derivative actions. No new statement of cross-claim was filed and the causes of action in respect of which the orders for leave were sought remained those advanced by the cross-claimants, as did the relief.
33 As these reasons disclose, that attempt to avoid the consequences of the interlocutory application for judgment - by effectively seeking orders that the claims were to be brought as derivative actions - was rash. It was not appropriately considered, with one of the matters to which attention was not given being the need for there to be a new and different pleading which met the requirements of ss 236 or 237 of the Corporations Act. No new cross-claim was formulated and no new statement of cross-claim was prepared advancing claims on behalf of either Smart EV Solutions or Smart Grid Investments or any other person capable of bringing the derivative claims. All that was relied upon was the original (earlier amended) cross-claim and amended statement of cross-claim brought by Mr Guy, Charge Hub and Guy O'Sullivan.
34 At this juncture, it is useful to set out the relevant parts of ss 236 and 237 of the Corporations Act:
236 Bringing, or intervening in, proceedings on behalf of a company
(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.
237 Applying for and granting leave
(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.
…
(Notes omitted).
35 Prior to the Court proceeding with the hearing of the applications, an opportunity was given to the cross-claimants to seek an adjournment so as to reorganise themselves and to produce a statement of claim which would conform to the requirements of ss 236 and 237. Despite that being offered on several occasions, it was rejected. Therefore, the matter must be dealt with on the basis that the Court is asked to give leave for Mr Guy and Guy O'Sullivan to pursue the current statement of cross-claim as a derivative claim on behalf of Smart EV Solutions and/or Smart Grid Investments.
36 This immediately encounters a problem. By s 236(2) of the Corporations Act, any proceedings in respect of which leave is given are to be brought on behalf of the company in the company's name. In this case, the proceedings are not brought in either of the companies' names, rather, they are in the name of the cross-claimants. No relief is sought on behalf of Smart EV Solutions or Smart Grid Investments. On one view, that might be seen to be formalistic, but it is not. Though, in certain proceedings, the company need not be named as a plaintiff: see Power v Ekstein (2010) 77 ACSR 302, 315 - 316 [33] - [34]: this is not such a case. The manner in which a claim is articulated is not just one of the form of the proceedings, it is a matter of substance. The proceedings for which leave is given must relate to claims belonging to the company, for relief to the company, and are at the company's risk. This was made clear by the New South Wales Court of Appeal in Oates v Consolidated Capital Services Pty Ltd (2009) 76 NSWLR 69, 93 [118]:
The expression "on behalf of the company" also appears in s 236(2). The purpose of that provision, in my view, is to make the form of the action accord with the substantial reality that underlies it, namely that it is the right of the company that is being asserted in the proceedings.
37 Here, this basic threshold requirement has not been met. The claims in respect of which leave is sought are advanced by the cross-claimants, Mr Guy, Charge Hub and Guy O'Sullivan to enforce their own rights, claims and interests. Indeed, the pleading expressly states that those persons suffered loss as a result of the conduct alleged and that they are the entities which seek relief. There is not a skerrick of an allegation which suggests that either Smart EV Solutions or Smart Grid Investments suffered any loss which the proceedings in respect of which leave is sought are intended to remediate. The substance of the claims advanced are not for the benefit of either Smart Grid Investments or Smart EV Solutions.
38 By paragraph 2 of the interlocutory application, orders were also sought that the first and third cross-claimants have leave to intervene in the proceedings on behalf of both Smart Grid Investments and Smart EV Solutions. As the matter progressed, it became clear that there is no proceeding in which Mr Guy or Guy O'Sullivan seek to intervene and pursue on behalf of either Smart EV Solutions or Smart Grid Investments. None were identified in submissions, and none can be identified in the pleadings. Indeed, it would be odd if the cross-claimants truly wished to intervene in any parts of the proceedings - Smart EV Solutions and Smart Grid Investments have claimed against Mr Guy and his other companies, but it was not suggested that intervention in those proceedings were sought. The relief in this respect is entirely misconceived.
39 Even if it were assumed that the applications were for leave so that the first and third cross-claimants could bring proceedings on behalf of the two companies, there would be further insurmountable difficulties. During the hearing, Mr Jordaan, the solicitor appearing for the cross-claimants, was asked to identify the claims of Smart EV Solutions in respect of which the cross-claimants sought to leave to bring on its behalf. No clear answer was given. That is not surprising as neither the amended notice of cross-claim nor the amended statement of cross-claim identifies any causes of action which might be pursued by or on behalf of Smart EV Solutions. On the contrary, part of the relief sought by the cross-claim is against Smart EV Solutions, being the appointment of a provisional liquidator to it.
40 In reply, Mr Jordaan suggested that there was a claim against the directors for breach of their directors' duties. It is true that somewhere in the pleading under the heading, "Further Oppressive conduct of the First and Second Cross-respondents", there are allegations about the directors of Smart EV Solutions to the effect that they were mismanaging Smart EV Solutions. Some consequential pleading is made to the effect that, as a result of their conduct, Smart EV Solutions has, or ought to have, suffered loss and/or damage, being a decrease in the value of its shares, or the value of the shares held by the third cross-claimant. But the real gravamen of the complaint is that the shares in Smart Grid Investments were devalued even if, in part, that is derivatively upon a devaluation of Smart EV Solutions' shares. In substance, there were no claims articulated in the pleading against the directors of Smart EV Solutions which might lead to an award of damages in favour of that company. No relief was sought against them and, on that basis, there was no real claim that Smart EV Solutions has which is articulated in the pleading against any third party. Indeed, a substantive claim is against it, and it could hardly be said to be for its benefit to grant leave for proceedings to be brought against it.
41 In relation to Smart Grid Investments, the position is perhaps slightly different. That is because, on one view of the pleading, it might be possible to eke out a claim that the conduct of Smart EV Solutions was, or occurred in such a manner which was, oppressive to Smart Grid Investments. At least, there is relief sought against Smart EV Solutions. However, if one were to proceed on the basis that the claim advanced by Smart Grid Investments is in respect of alleged oppressive conduct, it would be immediately noticed that Smart Grid Investments is the 100 per cent shareholder in Smart EV Solutions. It is conceptually difficult to see how a court might be persuaded to exercise power in favour of the shareholder that has 100 per cent voting rights in the company to grant the relief sought. Smart Grid Investments is entitled to replace all of the directors of Smart EV Solutions and relief by way of the appointment of a provisional liquidator hardly seems appropriate.
42 There is no need to resolve that conceptual difficulty, but it does serve to identify that the reality is that the proceedings are not being brought for the benefit of Smart Grid Investments, but rather, for the benefit of the shareholders, or a shareholder of that company itself, Guy O'Sullivan.
43 Looking at the requirements under s 237(2) which must be satisfied, it cannot be doubted that it is probable that Smart Grid Investments would not bring a claim against Smart EV Solutions for the relief sought in the proceedings. The consequence is that s 237(2)(a) is satisfied.
44 However, the observation made above that the proceedings are not really brought for the benefit of Smart Grid Investments creates significant problems. Whilst Mr Di Lizia, counsel for the applicants, was not prepared to go so far as to say that the application was not brought in good faith, the fact that the claim is really for the benefit of Guy O'Sullivan, rather than for the benefit of Smart Grid Investments, is sufficient to prevent the Court from concluding that s 237(2)(b) is satisfied in this case. The timing of the application under ss 236 and 237 of the Corporations Act bear this out. There was never any intention to bring a claim by Smart Grid Investments for its benefit. It was only when the lack of standing of the cross-claimants to bring a claim against Smart EV Solutions was brought to their attention that the application for leave to bring the claim derivatively was made.
45 The next important element is whether or not it is in the best interests of the company, that is, Smart Grid Investments, that leave be granted to bring the derivative proceedings: s 237(2)(c). In this instance, one difficulty is that the interests being advanced by Guy O'Sullivan are its own rather than those of Smart Grid Investments. Secondly, and more importantly, the point in issue is whether the benefits which might be derived from the outcome of the proposed proceedings outweigh the risks and the costs which exist in all forms of litigation: see In the matter of Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 [31]. In this case, there will necessarily be substantial costs involved if the action is allowed to proceed. There was no offer of an indemnity by the cross-claimants in respect of those costs, save until very late in the hearing when Mr Jordaan indicated that he had obtained instructions that his clients would give such an indemnity. Even if an indemnity can be given, it is too little and too late. It is too late because the respondents to the application do not have time to assess it, but, moreover, it is too little because nothing is known of its value. There was no offer to put money into Court or to assess the amount of costs likely to be paid or the costs which are likely to be payable if the action fails. On that basis, the requirement in s 237(2)(c) that the grant of leave is in the best interests of the company is not satisfied.
46 The next requirement is found in s 237(2)(d), being that there is a serious question to be tried. It can be accepted for present purposes that that element is one in respect of which there is a low threshold to be met or an undemanding test: see Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd [2022] FCA 743 [73]. However, even though the test is undemanding, in the present case it is not satisfied. Overall, the claims advanced in the cross-claim do not have any prospects of success. The most significant issue is that the cross-claim does not seek final relief in any substantive form. The only substantial relief sought is the appointment of a provisional liquidator which, as indicated by its name, is only interlocutory: see Re Rothwells Ltd [1990] 2 Qd R 181, 186; Re Scobie; Ex parte Commissioner of Taxation (1995) 59 FCR 177, 186; Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319 [49].
47 It was submitted by Mr Jordaan on behalf of the cross-claimants that the Court ought to appoint a provisional liquidator to undertake the investigations into the affairs of Smart EV Solutions in relation to a number of matters which cause Mr Guy concern, including the conduct of the directors, and to make a report to the Court about them. Mr Jordaan suggested that, thereafter, other relief might be sought. That is wholly inappropriate. The relief to which a party is entitled to bring or seek in a proceeding of this nature is for final relief. A provisional liquidator might be appointed to preserve property for purposes ancillary to final relief or in the enforcement of final relief, but the appointment is not, per se, final relief in support of a cause of action. Here, even if all the allegations were established, there would be no justification to make some indefinite appointment of a provisional liquidator for some unexplained, unidentified and unarticulated reasons and in respect of some unknown relief which is not presently identified. It follows that the proposed proceedings would fail.
48 The application for leave also does not satisfy the requirements of s 237(2)(e). It was not denied by the cross-claimants that 14 days' notice in writing of their intention to apply for leave was not given to either Smart EV Solutions or to Smart Grid Investments. Presumably, that was because the making of the application was a reaction to the notification to the cross-claimants that they lacked standing to bring the oppression claim against Smart EV Solutions. Nonetheless, the giving of notice is not merely a matter of form. It is essential to allow the company in question the opportunity to consider the circumstances of the claim being made and what it will do in response to it. Indeed, it might be prompted to indicate that it will pursue the proposed proceedings itself. It follows that the giving of notice is an important preliminary step. Additionally, for the reasons identified previously as to why other subsections of s 237(2) have not been satisfied, this is not a case where it would be appropriate to dispense with the requirement to provide notice.
49 In those circumstances, the application for leave to bring the derivative proceedings must be dismissed.