Vigliaroni v CPS Investment Holdings Pty Ltd & Anor [2009] VSC 254

2 This application is connected with another application made by Vigliaroni for leave to commence proceedings in the name of Concrete Precast Systems Pty Ltd, a member of the same group of companies as CPSIH, also against Gargaro. In that proceeding[1] I set out the relevant principles for the grant of leave. I will not repeat them but go straight to a consideration as to whether the requirements have been satisfied.

3 The proposed statement of claim pleads that at all relevant times the directors and shareholders of CPSIH were Vigliaroni and Gargaro and that until mid-February 2008 Gargaro was also CPSIH's financial controller, with the authority to make payments on behalf of the CPSIH by an on-line EFT facility.

4 It is alleged that Gargaro misappropriated funds of CPSIH by causing CPSIH to pay $486,891.60 to CPS Property Holdings Pty Ltd ("CPSPH") for the benefit of CPSPH to purchase property at 15 Network Drive, Carrum Downs, which CPSPH subsequently used as security to purchase another property at 17 Network Drive, Carrum Downs. Vigliaroni alleges that Gargaro had a substantial beneficial interest in the trust of which CPSPH was trustee and that he, Vigliaroni had no interest. It is alleged that Gargaro used CPSIH's funds without Vigliaroni's knowledge or consent to gain an advantage for himself and/or CPSPH and the underlying trust to the detriment of CPSIH.

5 It is claimed that CPSIH has the following causes of action:

(a) against Gargaro: breach of fiduciary and statutory duties

(b) against CPSPH: a claim for money had and received; receipt of property with knowledge of Gargaro's breach of fiduciary duty; knowing involvement in Gargaro's contraventions of the Act.

6 It is alleged that CPSIH is entitled to the following final relief:

(a) against Gargaro: equitable compensation for breach of fiduciary duty, or alternatively a compensation order under s 1317 of the Act

(b) against CPSPH: restitution of $356,891.60, a declaration that CPSPH holds its interest in 15 and 17 Network Drive, Carrum Downs on constructive trust for CPSIH, alternatively a declaration that the properties are subject to a charge in favour of CPSPH in the amount of $356,891.60, alternatively a declaration that CPSPH is liable to account to CSPIH for the benefits derived by it as a result of having knowingly received property transferred by CPSIH by reason of Gargaro's breach of fiduciary duty, alternatively equitable compensation or a compensation order under s 1317H of the Corporations Act.

7 It was not disputed that Vigliaroni has standing to bring proceedings if leave is granted under s 237 of the Act.[2]

8 It was not disputed that it is probable that CPSIH will not itself bring the proceeding and I am satisfied on the material before me that this is so.[3]

9 In dispute was whether the evidence before the Court substantiates a serious question to be tried.[4] Gargaro submitted that the burden has not been discharged.

10 In dispute also was whether Vigliaroni is acting in good faith in seeking to bring the proceeding and whether the proposed proceedings are in the best interests of the company.[5] Gargaro relied on the same matters which he submitted to the Court in proceeding number 7126 of 2009. It was submitted that:

(a) the proposed action is inextricably linked to existing actions already before the Court so that the issues are already being ventilated;

(b) the determination of the proposed proceeding is dependant on the outcome of the separation agreement proceeding;

(c) in the oppression proceeding, one form of relief sought is the buyout of shares/units by one shareholder/unitholder from the other. It was put that "[w]hile the oppression proceedings are on foot and until the determination of the separation agreement proceeding, the Court should be reluctant to grant leave to Mr Vigliaroni to commence further proceedings, which might be seen to be for a collateral purpose".[6]

11 Additionally, Gargaro submitted that Vigliaroni has a conflict of interest in bringing these proceedings on behalf of CPSIH as there is a mirror action on foot by V & G Concrete Constructions (Vic) Pty Ltd ("V & G (Vic)") in proceeding number 5073 of 2009. Vigliaroni is the sole director and an indirect shareholder of V & G (Vic). In that action, V & G (Vic) alleges the misappropriation of V & G (Vic)'s funds by Gargaro, and knowing participation of CPSPH in the misappropriation, to purchase 15 and 17 Network Drive, Carrum Downs. It is alleged that Gargaro was a financial controller of the V & G Group[7] of which V & G (Vic) was part and that the funds which Gargaro caused CPSIH to pay to CPSPH were V & G (Vic)'s funds. It is pleaded that Gargaro used his position to misappropriate the funds without the knowledge or consent of Vigliaroni.

12 It is convenient to consider these requirements together as they essentially raise the same point.

13 Putting the proceeding by V & G (Vic) to one side, I would otherwise be satisfied that both requirements were demonstrated by Vigliaroni. The proposed proceeding, if successful, will recover substantial funds for the company and I would not infer from the fact that there are other proceedings pending between the parties, and in particular, oppression proceedings brought by Vigliaroni in which the buy-out of shares/units is part of the relief sought, that there is some collateral purpose on the part of Vigliaroni. The evidence before me supports the conclusion that Vigliaroni has a legitimate interest in the recovery of funds he claims were misappropriated.

14 I do not accept the proceeding by V & G (Vic) makes any substantive difference. I accept the submission on behalf of Vigliaroni that the proposed proceeding effectively is a claim in the alternative to the claim by V & G (Vic). The Court would be required to decide which party should succeed as against CPSPH and Gargaro. V & G (Vic) does not seek relief against CPSIH, so that the proposed action, if successful, would recoup substantial funds for CPSIH.

15 In addition, if leave is given, Vigliaroni has proffered an undertaking that he will "pay and bear and indemnify [CPSIH] against all costs, charges and expenses of and incidental to the bringing and continuation of the proceedings ... however that the indemnity shall not apply with respect to any final order for costs in the proceeding, except in sofaras the Court may in future otherwise direct or allow". This is a factor to be taken into consideration of these requirements, although as I do not have before me evidence of capacity to meet any cost order, the proffering of the undertaking is not a significant factor under ss 273(2)(b) and (c). However, as no argument was put on behalf of Gargaro that the undertaking may not be adequate to protect the company against any adverse costs order, some weight should be given to it.

16 I am satisfied on the evidence before me that there is a serious question to be tried. Viglioroni swore an affidavit deposing to the management and ownership interests in relation to CPSIH and CPSPH and the underlying trust and the acquisition of the properties by CPSPH . There is a detailed affidavit from Vigliaroni and another from Tim Holland, chief financial officer of the V&G group of companies, deposing to Gargaro's position as financial officer, his access to the on-line EFT facility of CPSIH and the withdrawal of funds from CPSIH's on-line account. Gargaro did not file any evidence in rebuttal. The evidence is sufficient to demonstrate the use of CPSIH's funds to acquire the properties for the benefit of CPSPH and support the allegations of breach of fiduciary and statutory duties and accessorial liability of CPSPH.

17 Accordingly I am satisfied that the criteria in s 237(2)(a)-(d) are met. I propose to grant leave for the proposed proceedings to be brought. In my view it is appropriate to grant leave even though s 237(2)(e)(i) was not satisfied.[8] I will hear the parties on the proposed form of undertaking and the costs of this application and on whether any conditions should attach by reason of the mirror proceedings commenced by V & G (Vic).

[2] See s 236.

[3] See s 237(2)(a).

[4] See s 237(2)(d).

[5] See s 237(2)(b) and (c).

[6] Paragraph 9(b) of the second defendant's submission.

[7] The V & G Group is a group of related companies comprising V&G Investments Pty Ltd, V&G Plant Hire (SA) Pty Ltd, VVG Construction Services Pty Ltd, V&G Concrete Constructions (SA) Pty Ltd, V&G Concrete Constructions Pty Ltd, V&G Plant & Equipment Pty Ltd and V&G (Vic).

[8] See s. 237(2)(e)(ii)