In the matter of Imperium Projects Pty Limited [2017] NSWSC 141 (8 February 2017)

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In the matter of Imperium Projects Pty Limited [2017] NSWSC 141 (8 February 2017)

Last Updated: 3 March 2017

Supreme Court

New South Wales

Case Name:	In the matter of Imperium Projects Pty Limited
Medium Neutral Citation:	[2017] NSWSC 141
Hearing Date(s):	8 February 2017
Decision Date:	8 February 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Refuse leave to the First Plaintiff to file its Further Amended Statement of Claim as proposed and allow opportunity for repleading. Order that the Second Plaintiff be removed as a party to the proceedings. Dismiss the notice of motion seeking to set aside the subpoena issued to Westpac Banking Corporation with costs and order that the parties have access to the documents produced by Westpac Banking Corporation.
Catchwords:	PROCEDURE – Application for leave to file further amended statement of claim – where amendment would remove company in liquidation as a defendant – whether the company is a necessary party to the proceedings – whether further amended statement of claim is adequately pleaded. PROCEDURE – Costs – Application for leave to file further amended statement of claim – where applicant is refused leave to file proposed amended statement of claim but leave would be granted if it were partly repleaded – where application said to be consequential on an external event – where motion not yet substantively determined.
Legislation Cited:	- Corporations Act 2001 (Cth), ss 232–3, 236–7, 493A, 500 - Civil Procedure Act 2005 (NSW), ss 56–8, 64 - Uniform Civil Procedure Rules 2005 (NSW), r 33.4
Cases Cited:	- Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 - Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 - Dodrill v Irish Restaurant & Bar Co Pty Ltd [2009] QSC 317 - Dymocks Book Arcade Pty Ltd v Capital Ltd [2011] NSWSC 1433 - Frauenstein v Firinha [2009] FCA 55 - Gunns Ltd v Marr [2005] VSC 251 - Hillig v Darkinjung Pty Ltd [2007] NSWSC 683 - Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 - Re Cheal Industries Pty Ltd; Fitzpatrick v Cheal [2012] NSWSC 261; (2012) 264 FLR 313 - Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274; (2010) 77 ACSR 616 - Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282 - William Buck (WA) Pty Ltd v Faulkner [No 6] [2013] WASC 342 - Young v Hones [2013] NSWSC 580
Texts Cited:	- RJ Turner, “Directors’ Fiduciary Duties and Oppression in closely-held Corporations” (2013) 31 C&SLJ 278
Category:	Procedural and other rulings
Parties:	Michael Hourican (Plaintiff) Imperium Projects Pty Ltd (Second Plaintiff) Justin Mahaffy (Second Defendant) Peter Lord (Third Defendant)
Representation:	Counsel: R.A. Parsons (Plaintiff) D. Eardley (Second Defendant) P. Folino-Gallo (Third Defendant) Solicitors: Etheringtons (Plaintiff) Downeys Lawyers (Second Defendant) Sydney Law Practice (Third Defendant)
File Number(s):	2013/385193

JUDGMENT – EX TEMPORE (REVISED 9 FEBRUARY 2017)

Amended application

By Notice of Motion filed on 21 November 2016, the First Plaintiff, Mr Michael Hourican, seeks leave to file a Further Amended Originating Process in a form contained in the exhibit to his affidavit dated 21 November 2016. He also seeks leave to file a Further Amended Statement of Claim in the form of a document also contained in that exhibit. He seeks an order that Imperium Projects Pty Limited (in liq) (“Company”), presently the First Defendant in the proceedings, be removed as party to the proceedings, leaving two natural persons, who are, in the case of Mr Mahaffy and were, in the case of Mr Lord, directors of the Company as defendants.
Mr Hourican also seeks an order that there be no order as to costs in relation to the motion, the amendments or the discontinuance. The questions raised by that order have been deferred to be dealt with after delivery of this judgment. Two other issues raised by other motions will also be dealt with separately, although one of those issues, an application to strike-out the present version of the Amended Statement of Claim, may be mooted by the result of this application.
It is desirable that I first refer to the terms of the Further Amended Originating Process and Further Amended Statement of Claim before saying something further as to the history of the proceedings, the relevant principles, and the submissions made by the parties. The proposed Further Amended Originating Process seeks to omit certain orders which would have no continuing utility, as the Company has now been placed in voluntary administration and subsequently in liquidation, in circumstances to which I will refer below. It also seeks to omit certain claims that had previously been made by the Company, in the nature of a derivative action. On one view, that amendment is simply consequential upon the fact that the leave to bring the derivative action was granted, in respect of a solvent company, or an apparently solvent company, and different issues may well arise where the Company is now in liquidation. The other substantive amendment sought to be made in the Further Amended Originating Process is to seek an order under s 233 of the Corporations Act 2001 (Cth) that Mr Hourican's shares in the Company be purchased by Messrs Mahaffy and Lord. That order also appears to be consequential upon the fact that the Company is in liquidation, since the order that Mr Hourican previously sought for purchase of those shares, implicitly by the Company, with an appropriate reduction of its share capital, is not likely to be available where the Company is now in liquidation.
I do not understand there to be any opposition by the Second and Third Defendants to the filing of the Further Amended Originating Process. Mr Eardley, who appears for the Second Defendant Mr Mahaffy, indicated that he did not oppose the amendment to file that document, and Mr Folino-Gallo, who appears for Mr Lord, did not address substantive submissions that amounted to opposition to it. However, as a practical matter, the filing of any Further Amended Originating Process ought to take place in conjunction with the filing of any Further Amended Statement of Claim.
The Further Amended Statement of Claim also makes some amendments which appear to be uncontroversial and others which are plainly controversial, to which I will refer below. The first amendment made is to remove the Company as the Second Plaintiff and First Defendant named in the Amended Statement of Claim. It appears that the position following directions made by Robb J, in mid-2016, is that the Company was in any event no longer the Second Plaintiff and remained as a defendant in the proceedings. Several amendments are made to the particulars provided, in respect of claims as to alleged expenditures by the Second and Third Defendants. Those amendments appear to provide further particulars, and amend the total amounts identified for transactions by the Second and Third Defendants, based on additional evidence which has emerged in the course of the hearing. There was little focus upon those amendments in the course of submissions.
The more controversial amendments, which were opposed by both Mr Mahaffy and by Mr Lord, although on somewhat different grounds, appear in proposed paragraphs 59–61 of the proposed Further Amended Statement of Claim. Proposed paragraph 59 pleads that:

“[Mr Mahaffy] to the exclusion of [Mr Hourican] has so managed the Company, the Business, the affairs of the Company that the Company has become moribund and ceased trading and the going concern value of the Business has been entirely lost to the Company."

Proposed paragraph 60 pleads that:

“[Mr Mahaffy] has caused the Company to be placed in voluntary administration and permitted it to be placed into liquidation while stripping the Company of the Business, the going concern value of the Business, the value of the current contracts, cash flow and profit and diverting some or all of the same to other entities."

That paragraph is in turn particularised only by reference to identification of the other entities identified to date, namely Imperium Projects Australia Pty Limited and Viewspec Glass and Aluminium Pty Ltd.

Proposed paragraph 61 pleads that:

“[Mr Mahaffy] has diverted specific business and business opportunities from the Company to other entities in which [Mr Mahaffy] and/or his privies or persons closely associated with him are interested."

Mr Eardley, who appears for Mr Mahaffy, focussed on the particular form of the pleading of those paragraphs. Mr Folino-Gallo, who appears for Mr Lord, does not address that issue, possibly because it is of limited relevance to his client, where the allegations made in those paragraphs are addressed to Mr Mahaffy and not Mr Lord.
I should now say something as to the long history of these proceedings, to which reference is made in the affidavit of Mr Michael Hourican sworn 21 November 2016 on which Mr Hourican relied in these proceedings. By way of background, leave was previously granted to Mr Hourican under ss 236 and 237 of the Corporations Act to bring proceedings on behalf of the Company against Messrs Mahaffy and Lord. Mr Lord subsequently appears to have resigned as a director of the Company, while the proceedings were ongoing. The proceedings have, regrettably, proceeded at a very slow pace, having been commenced in December 2013, and allocated for a hearing of several days before Robb J which was to take place in June 2016. About two weeks before that hearing was due to take place, the Defendants’ solicitor ceased to act and, not long after, the Company was placed in voluntary administration, presumably by a resolution passed by its then director, Mr Mahaffy, and subsequently placed in liquidation.
The report of the voluntary administrator, which is exhibited to Mr Hourican's affidavit, identifies several matters which emerged from the voluntary administrator's investigations, including that the Company had suffered significant losses in the financial year 2016 and that significant payments had been made to Mr Mahaffy or interests associated to him immediately prior to the Company being placed into voluntary administration. The voluntary administrator’s report also identifies related entities of the company, Viewspec Glass and Aluminium Pty Ltd and Imperium Projects Australia Pty Limited, and identifies the possibility of substantial unfair preferences and unreasonable director-related transactions, which it notes may need to be investigated by a liquidator. The Company has, of course, now passed into liquidation as I noted above.
Not surprisingly, the hearing before Robb J in June 2016 could not proceed where the Company was placed in voluntary administration shortly before the hearing was due to commence. His Honour spent some time on that occasion in dealing with issues as to directions and the future progress of the proceedings, although the Defendants, and particularly Mr Lord, were ultimately successful in a submission that the hearing could not proceed in the relevant circumstances. Mr Hourican was granted leave to issue subpoenas by Robb J, and the evidence indicates that there were then significant delays in production of documents by, at least, Imperium Projects Australia Pty Limited in respect of those subpoenas. I need not address that question further because both Mr Eardley and Mr Folino-Gallo confirm that Messrs Mahaffy and Lord do not take any point that there was only unreasonable delay by Mr Hourican in making the relevant amendments, after June 2016 when the Company was placed in administration and the hearing before Robb J did not proceed.
I should now turn to the principles which are applicable in dealing with an amendment application of this kind. I am required to exercise my discretion whether to allow the amendments having regard to the provisions of ss 56–58 and 64 of the Civil Procedure Act 2005 (NSW). Section 56, of course, identifies the overriding purpose of the just, quick and cheap resolution of real issues in dispute in the proceedings, and s 57 requires proceedings to be managed having regard, inter alia, to the just determination of the proceedings. Section 58 requires the Court to have regard to the dictates of justice when considering an order for the amendment of a document. Section 64(2) in turn provides, subject to s 58, for all necessary amendments to be made for the purpose of determining the real questions raised by the proceedings. Matters which are relevant to determining whether an amendment should be permitted include whether that amendment is made in good faith, in a timely manner and for a proper purpose; whether the amendment would cause undue prejudice to the other party; the nature of the amendment and its importance to the amending party; and whether permitting the amendment would be consistent with the dictates of justice: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at [14] ff; Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423 at [5]–[10]. I have also had regard, by reference to the discussion of provisions that correspond to s 56 of the Civil Procedure Act in Aon Risk Services Australia Ltd v Australian National University above, both to the desirability of parties being given a proper opportunity to plead their case, and on the other hand the issues of delay and prejudice to party interests and community interests which may arise from delay, in dealing with the amendment application.
The parties made detailed submissions in respect of the question of whether the amendment should be allowed. Mr Hourican submits that the amendments are made consequential upon the fact that the Company was placed in voluntary administration immediately before the hearing which was due to commence before Robb J, and he refers to evidence that had previously been led by Mr Mahaffy in the proceedings which would have created at least an expectation that the Company was solvent and its business was travelling well. Mr Hourican submits that the fact that the Company was placed in voluntary administration and then in liquidation had the consequence that the form of relief that he previously sought was no longer practically available, and the amendments are consequential upon that matter. Mr Hourican also refers to additional allegations which are made, in respect of transactions involving Mr Mahaffy, which appear to have emerged from investigations made after the Company was placed in voluntary administration, which identified certain dealings between the Company and Imperium Projects Australia Pty Limited and other entities associated with Mr Mahaffy and his wife. It is not necessary for me, nor would it be appropriate for me, to address those matters further where they may ultimately be in issue at a final hearing.
I should first deal with Mr Lord's grounds of opposition to the application, which were wider than Mr Mahaffy's grounds of opposition, and which were put by Mr Folino-Gallo in detailed written submissions and in oral submissions. Mr Folino-Gallo submits, both in written submissions and in oral submissions, is that the Company must be party to the proceedings by reason of the fact that the proceedings are in the nature of an oppression claim, and that leave under s 500(2) of the Corporations Act is required and, if it is sought by Mr Hourican, should not be granted. Mr Hourican's position, at least as matters presently stand, is that he does not seek to join the Company as party to the proceeding, and indeed seeks to remove it as party to the proceeding, when the derivative action is no longer to be pursued, and that he does not seek relief against it where it is in liquidation. Mr Hourican sought to reserve, however, the possibility of joining the Company, and seeking leave under s 500 of the Corporations Act, if that became necessary. I need not address that question given the findings that I reach on other grounds.
The critical step in Mr Folino-Gallo's submission was that the Company was a necessary party to the proceeding, notwithstanding that no relief was sought against it. Unless that step in his submission was made good, then there would be no proceedings against the Company for which leave could be required under s 500(2) of Corporations Act. Mr Folino-Gallo relied, for that submission, on an observation of Kenneth Martin J in William Buck (WA) Pty Ltd v Faulkner [No 6] [2013] WASC 342 at [37](iii) where his Honour observed, by reference to the High Court's decision in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, that no narrow view is to be taken of s 232 of the Corporations Act but that:

“[N]evertheless, the statutory oppression action is brought at root by a corporate shareholder, as a member, against a corporation. Any evaluation of surrounding context must respect the actual legal relationships that exist..."

Two matters should be noted about that observation. The first is, that so far as reference is made to the observations of the plurality of the High Court in Campbell v Backoffice Investments Pty Ltd above, their Honours had there noted no more than that s 232 of the Corporations Act should not be read narrowly. They were there addressing the question whether, inter alia, wrongful exclusion from management may be a form of oppression, and not any question of whether a company was a necessary party to an oppression claim. Kenneth Martin J’s observation quoted above was made in the course of his Honour’s outlining his approach to the particular dispute before him, which also did not involve a question of whether a company ought to be joined as party to oppression proceedings. It seems to me that his Honour's observation is plainly correct as a description of a common form of oppression action.
Section 232 of the Corporations Act provides that the Court may make an order under s 233 of the Act if the conduct of a company's affairs, or an actual or proposed act or omission by or on behalf of a company, or a resolution, or a proposed resolution, of members or a class of members of a company is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to or unfairly discriminatory against a member or members whether in that capacity or in another capacity. Plainly, that section draws attention to the conduct of a company’s affairs, and to steps which may be taken by or on behalf of the company in respect of its affairs. Section 233 of the Corporations Act in turn specifies a series of remedies that may be available in an oppression case, a number of which involve orders against the company, including, for example, an order that the company be wound up, that its existing constitution be modified or repealed, or regulating the conduct of the company's affairs in the future. In a common case, a company will be joined as party to an oppression action, not necessarily because it is the subject of the application, but because findings are sought to bind it and orders are sought against it. It does not follow that, because it will commonly be the case that the company is a necessary party to an oppression action, it is always a necessary party to an oppression action.
In the present case, Mr Hourican does not seek to bind the Company, by findings of fact against it, and does not seek relief against it. Instead, he seeks orders against Messrs Mahaffy and Lord, although those orders relate to the affairs of the Company. Mr Folino-Gallo draws attention to the fact that Mr Hourican also seeks any other order that the Court sees fit, and suggests that the Court might, in those circumstances, make an order against the Company. The difficulty with that proposition is that, of course, the Court could only make an order against the Company if it were party to the proceedings. If it is not, then the Court cannot do so.
In these circumstances, it seems to me that, where no relief is sought against the Company, and no findings are sought which bind it in any way that affects its legal interests, it is not a necessary party to the proceedings, although it is a proper party to the proceedings, in the sense that it could seek to be joined to them as a party if it wished to appear in them. Although the Court will need to adjudicate factual questions which relate to the Company, in the course of determining whether to grant relief against Mr Mahaffy and Mr Lord, the findings it makes will bind only Mr Mahaffy and Mr Lord and not the Company or its liquidator. Where the Company is not a necessary party to the proceedings, and no relief is sought against it, then no question of requiring leave for the continuance of proceedings against it arises. Mr Hourican in turn will not be able to seek relief which will affect the Company, at least without later joining the Company, which it may be difficult to do where he has now elected to dispense with its involvement. It does not appear that there is any likelihood that he would need to do so, as his claim is presently put. So far as he seeks an order for the purchase of his shares by Messrs Mahaffy and Lord, there is no reason to think that a liquidator would not give effect to a judgment of the Court, which binds Messrs Mahaffy and Lord, subject to any necessary consent of the liquidator or leave of the Court which may be required under s 493A of the Corporations Act for transfer of the shares in a company in voluntary liquidation.
Mr Folino-Gallo's second submission was that Mr Lord's expectations as to the conduct of the proceedings, and the risks which he faced in the proceedings, would be frustrated by the expansion of the relief which is now sought against him. Mr Folino-Gallo submits that Mr Lord previously understood, having regard to the nature of the derivative action brought by Mr Hourican on the Company's behalf against him, that his exposure was limited to a money amount claimed against him, and the value of his equity in the Company, and that his exposure would now be larger, where Mr Hourican seeks orders that he purchase the shares in the Company at their value prior to the actions of which Mr Hourican complains. Mr Folino-Gallo also relied on particular detriment to Mr Lord, so far as he had previously led evidence of fact, and may now have to lead additional factual evidence or additional expert evidence. The proposition that Mr Lord may need to lead additional factual evidence was ultimately not pressed in oral submissions, when Mr Folino-Gallo properly recognised that Mr Lord had already addressed the factual history of the Company in his evidence in the proceedings, and that it was not possible to identify any further matter which he would seek to address in respect of the amendment.
It does not seem to me that these matters provide a basis not to allow the amendment, having regard to ss 56–58 and 64 of the Civil Procedure Act. No doubt, the parties or some of them anticipated, until the Company was placed in voluntary administration, that the proceedings would continue on the basis that the Company was solvent and that orders could be practically made against it for the repurchase of Mr Hourican's shares in it. The fact that the Company was placed in voluntary administration and then liquidation falsified that position. So far as Mr Hourican was concerned, it suggested that the relief that was sought previously was no longer practicable and, consequentially, that any relief would need to be sought against other persons.
It is possible that the relief now sought against Mr Lord will increase his exposure in the proceedings, although that is by no means certain, since it is not possible to quantify, at this point, either the amount that he would be required to pay to purchase Mr Hourican's shares or the amount of the loss to which he was previously exposed in respect of his equity in an apparently valuable and solvent entity. In any event, this is not a case where, for example, representations are alleged to have been made by Mr Hourican that the case would only continue on a particular basis. It also cannot be said that there is any fault on the part of Mr Hourican, so far as the fact that the Company was placed in voluntary administration and subsequently liquidation frustrated the basis on which he put his case, and required that it be recast. All parties to litigation, in a sense, are hostage to surrounding events, including the failure of entities that may be party to the proceedings in the course of them, and any amendments that may need to be made to address the consequences of that failure. Mr Folino-Gallo recognised the significance of the intervening event of the Company’s liquidation, but submitted that Mr Hourican could, previously, have sought an order that Messrs Mahaffy and Lord purchase his shares. That proposition is true but has the difficulty that there was no particular reason for Mr Hourican to seek such an order, against Messrs Mahaffy and Lord, where the Company was apparently solvent and capable of complying with an order made against it, and the need now to seek such an order against Messrs Mahaffy and Lord only arose from the Company's insolvency.
Mr Folino-Gallo also submits that the claim that Mr Hourican seeks to bring is parallel to a claim that might be brought by the liquidator and, he submits, would lead to Mr Hourican having priority over other creditors. It seems to me that there are significant parallels between the claim brought by Mr Hourican and a claim that could potentially be brought by the liquidator, although there is no evidence that the liquidator proposes to bring such a claim, which would at least depend on whether it is funded to do so. In particular, the claim pleaded involves allegations of transfer of assets out of the Company, on which Mr Hourican relies to establish oppression, and on which a liquidator could potentially rely to establish other causes of action, for example, breach of directors’ duties or uncommercial transactions. It is possible that those claims would overlap at a factual level. It is also possible that, if Mr Hourican succeeds, the consequence is that Messrs Mahaffy and Lord are required to buy out his shares at a value determined at an earlier point in time. If the liquidator then brings an action against Mr Lord, its fruits would be available first to the creditors, and then to Messrs Mahaffy and Lord as contributories of the Company, to the extent that any recoveries exceed creditors’ claims and costs. There is nothing illogical about that result.
Mr Folino-Gallo's criticism of that result essentially depends on the proposition that Mr Hourican's claim may have the result that the liquidator is unable to recover, in any claim brought against Mr Lord, because Mr Hourican has already done so. That submission may be rejected on both a narrower and a wider basis. The narrower basis is that there is no evidence that Mr Lord's assets are not sufficient to meet a claim both by Mr Hourican and the liquidator, and the suggestion that Mr Lord would be made impecunious, and will be unable to meet a liquidator’s claim, if one is brought, is speculative. The second basis on which that submission should be rejected is that the question of competing claims against defendants, whether in liquidation or more generally, is addressed by the insolvency regime, and that there is no reason to prevent one particular claim against a defendant, because another claim may or may not in future also be brought against that defendant.
It is appropriate that I should also briefly address two issues arising from the case law, although they were not fully addressed in the submissions before me or in my oral judgment. First, the authorities make clear that conduct of the kind alleged in this case, including the diversion of assets or opportunities from a company to other entities, may be capable of being treated as oppression, although it may also constitute a breach of directors’ duties: Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452; Dodrill v Irish Restaurant & Bar Co Pty Ltd [2009] QSC 317; Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282; Vadori v AAV Plumbing Pty Ltd [2010] NSWSC 274; (2010) 77 ACSR 616; Re Cheal Industries Pty Ltd; Fitzpatrick v Cheal [2012] NSWSC 261; (2012) 264 FLR 313; and see the discussion of the overlap between claims for breach of fiduciary duties and oppression in RJ Turner, “Directors’ Fiduciary Duties and Oppression in Closely-Held Corporations” (2013) 31 C&SLJ 278.
Second, a question arises as to whether order to buy out Mr Hourican’s shares could be made where the Company is now in voluntary liquidation. A similar question arose in Frauenstein v Firinha [2009] FCA 55, a decision which was delivered prior to the High Court’s decision in Campbell v Backoffice Investments Pty Ltd above. In that case, Emmett J (as his Honour then was) observed that, while it may be unlikely that orders of the kind now sought by Mr Hourican would be made in oppression proceedings where the relevant companies were respectively in administration, voluntary liquidation and liquidation, the possibility of such orders being made against persons (in that case, against persons who were directors but not shareholders of the relevant companies) could not be excluded.
In Campbell v Backoffice Investments Pty Ltd above, an oppression claim was brought in circumstances that, by the time of the trial, the relevant company was in provisional liquidation. The trial judge, Bergin CJ in Eq, had there made an order for the compulsory purchase of the shares held by the plaintiff in that company and, on appeal, the High Court held that only a winding up order should have been made in the circumstances. The plurality noted that the provisional liquidator had sold the whole of the company’s undertaking with the concurrence of the parties to the proceedings; the sale proceeds had been applied in satisfaction of the costs and expenses of the provisional liquidation and to payment of external creditors; and that the company had no business and no assets by the time of the trial, and its shares were then worthless. The plurality observed (at [179]–[180]) that “[t]hese considerations were of critical importance in deciding what order was to be made under Pt 2F.1 of the Corporations Act” and that, upon appointment of a provisional liquidator, any conduct of the company’s affairs that was oppressive to the plaintiff was brought to an end, because the other shareholder no longer controlled the company’s affairs, and the only affairs of the company being conducted were those undertaken by the liquidator with a view to realising the company’s assets. The plurality also observed that:

“In those circumstances, no order should have been made on the application under Pt 2F.1 of the Corporations Act except an order for the winding up of the company.”

The plurality expressly did not decide (at [182]) whether there was no power to make such an order or whether the discretion to make it could only be exercised by refusing to do so, and left open the possibility that the Court had power to make such an order, although there was no continuing oppression when the case came to trial.

It seems to me that the decision in Campbell v Backoffice Investments Pty Ltd above is not authority that the Court lacks the power to make such an order for a shareholder to purchase another shareholder’s shares, where a company is in provisional liquidation or liquidation, where the plurality left that question open. It also seems to me that the factual position in that case is arguably distinguishable from the position in this case. In that case, the plurality observed that the alleged oppression, in the company’s internal management, had ended when a liquidator was appointed. Here, it is alleged assets of the company have been diverted to other entities, and the liquidator has not yet taken steps to retrieve those assets, possibly because he lacks funds to do so. In those circumstances, any oppression arising from the diversion of those assets is arguably continuing rather than, as in Campbell v Backoffice Investments Pty Ltd above, having been brought to an end by the appointment of the liquidator.
It seems to me that the fact that the Company is in liquidation will be a matter which may be relevant for the trial judge, if he or she finds that oppression is established, in determining whether to grant the remedy sought by Mr Hourican. Even if that fact is a significant obstacle to the making of the orders sought, in the ultimate outcome, that is not a matter which means that leave to amend should be withheld and the Plaintiff be deprived of a hearing on the merits.
I should also add that, as a general matter and without expressing any view as to the factual position in this case, it would be unfortunate if, after a derivative action or oppression case were commenced, it could be defeated by the simple expedient of diverting the company’s business to third parties, placing the company in voluntary administration and leaving it then to pass into voluntary liquidation, and relying on the practical likelihood that an unfunded liquidator could not bring proceedings to recover such assets. In those circumstances, it seems to me that there is potential utility in an oppression action as an alternative to a derivative action.
I now return to the matters addressed in my oral judgment. In submissions in reply, Mr Folino-Gallo referred to Aon Risk Services Australia Ltd v Australian National University above, and emphasised the potential prejudice to Mr Lord if the wider proceedings were brought. I have addressed that question above. Mr Folino-Gallo also submits that there would be prejudice to the public interest, so far as the Court system is a finite public resource, and the maintenance of existing proceedings would not constitute the efficient use of available judicial and administrative resources. It seems to me that it is unfortunate, to say the least, that these proceedings have continued for the lengthy period for which they have continued, and that they could not go to hearing in mid-June 2016, when a hearing date was allocated for them. It does not seem to me to follow from that proposition that justice or the objectives of s 56 of the Civil Procedure Act would be served by denying leave to amend in circumstances that a supervening event, namely the appointment of a voluntary administrator to the Company, had occurred immediately before that hearing, with the result of the relief that had been sought in the proceedings would no longer be of any benefit to the Plaintiff. For these reasons, I do not accept Mr Lord's submissions as to why the amendment should not be allowed in the case against him.
I now turn to Mr Eardley's submissions, which focused on the narrower question of the form of the pleadings contained in paragraphs 59–61 of the proposed Further Amended Statement of Claim. Before turning to that question, it is again necessary to address the relevant principles. As Mr Eardley pointed out, pleadings have an important role in identifying the matters in issue in proceedings and allowing procedural fairness to those who are affected by such proceedings, by identifying the case which they have to meet: Gunns Ltd v Marr [2005] VSC 251 at [57]; Young v Hones [2013] NSWSC 580 at [82]. At the same time, the Court must be conscious that, as White J noted in Hillig v Darkinjung Pty Ltd [2007] NSWSC 683, the question is whether a pleading pleads material facts, discloses an arguable cause of action, and makes clear to the defendant the case that the defendant has to meet; and, as White J also noted, arguments about pleadings which have a tendency to delay the preparation of a case for hearing and which are not really necessary for the defendant to understand the case against it, should be firmly discouraged. I also have regard to the fact that, as Mr Eardley points out, the Uniform Civil Procedure Rules require that certain matters be pleaded and also allow the Court the power to strike out a pleading, relevantly, where it has a tendency to cause prejudice, embarrassment or delay, and the Court would not ordinarily grant leave to amend a pleading if it would be liable to be struck out on that basis.
It seems to me that the criticisms made by Mr Eardley of paragraphs 59–60 of the Further Amended Statement of Claim, as proposed by Mr Hourican, have substantial force, and that the Court could not grant leave to file the proposed Further Amended Statement of Claim containing those paragraphs in their present form. It seems to me that paragraph 59 has a fundamental difficulty, so far as it contains an allegation that Mr Mahaffy has managed the Company, the business, and the Company's affairs so that it has become moribund and ceased trading and the going concern value of the business has been lost to the Company. I accept that, as Mr Parsons points out, part of that allegation, as pleaded, is that Mr Mahaffy managed the Company to Mr Hourican's exclusion. However, it appears that the pleading also involves, or may involve, an allegation of mismanagement of the Company, and an allegation that that mismanagement caused the Company to become moribund or cease trading and caused its going concern value to be lost. Unless that paragraph is read in that way, it would not be anything more than an assertion, of a post hoc propter hoc character, that, first, Mr Mahaffy managed the Company, and secondly its value was lost. If the paragraph involves the allegation that Mr Mahaffy’s conduct caused the result, then proper notice to Mr Mahaffy of the claim that he has to meet at least requires that the pleading identify those aspects of his management of the Company that are said to have had that result, and how they are said to be causative of that result. If the Plaintiff contends, for example, that there was mismanagement by way of pricing of or other difficulties with construction projects, or that the alleged dissipation of assets of the Company amounts to mismanagement, then those matters should be identified in the pleading. If it is alleged that the only matter that brought about the failure of the Company was the exclusion of Mr Hourican from management, then that should also be made clear.
It seems to me that paragraph 60 has an equally fundamental difficulty, so far as it alleges that Mr Mahaffy has caused the Company to be placed in voluntary administration and permitted it to be placed in liquidation, whilst stripping the Company of its business and going concern value. It may be that, as Mr Parsons submitted, what is intended here is two statements, the first being a narrative statement of the fact that the Company was placed in voluntary administration and in liquidation, and the second being an allegation that Mr Mahaffy stripped the Company of its business and its going concern value. If that is so, those propositions are not connected, and there is no allegation that, for example, there was misconduct by Mr Mahaffy in placing the company in voluntary administration or in liquidation. If that is the case, those two propositions should be separated, so that that is made clear. As the paragraph is presently framed, it leaves open the possibility that there is an unidentified allegation of impropriety as to the steps by which the Company was placed in voluntary administration and liquidation. If it is to be alleged that was the result of improper management by Mr Mahaffy, that that in turn must be made clear.
It does not seem to me that the amendment of these paragraphs is likely to be a particularly difficult task, so as to make clear what is pleaded, and it seems to me that, given the views which I have reached as to the other challenges to the amendment, Mr Hourican should be allowed a period in which to recast the paragraphs to address their present difficulties.
Mr Eardley also criticised the form of paragraph 61 of the proposed Further Amended Statement of Claim which pleads that Mr Mahaffy had diverted specific business and business opportunities from the Company to other entities, and is particularised by reference to the diversion of a contract for construction in respect of a project at Mittagong to two identified entities. It seems to me that that paragraph sufficiently pleads that allegation, where it makes clear that there is an allegation of diversion of business and business opportunities and particularises at least one dealing which would support that allegation. Any further particulars that are reasonably necessary can properly be sought by a request for particulars, and nothing further needs to be pleaded than what is pleaded to make clear the case that Mr Mahaffy has to meet in that respect.
For these reasons, I should not grant leave to file the Further Amended Statement of Claim in its present form, containing proposed paragraphs 59 and 60 as they are presently pleaded. I would grant such leave, if paragraphs 59 and 60 are adequately pleaded to address the issues to which I have referred above. It seems to me that the preferable course, at this point, is to make an order that Mr Hourican serve a draft Further Amended Statement of Claim within 14 days, a period within which Mr Parsons has indicated that he could do so, and then relist the matter for directions. I do not propose, given the history of this matter, to adopt the course which is sometimes taken of directing parties to indicate whether they object, and leaving orders to take effect without a further directions hearing, since it seems to me that that process may well result in further avoidable delay. If there is no objection to any reformulated amendment, the Court can grant leave to file the Further Amended Statement of Claim when the matter is next listed for directions. If there is an objection, the Court can set down that objection for hearing within a short time, determine it also within a short time, and then make orders for completion of the evidence in the proceedings, to the extent that evidence has not already been filed.
A question also arose in the notice of motion filed by Mr Hourican as to whether he should be granted leave for the Company to be removed as party to the proceedings. Where the derivative action is not pursued, and I have held above that the Company is not a necessary party to the proceedings, he should be granted that leave.

Costs of the application

Mr Hourican also sought an order dealing with the costs of this application, and a wider question also arises as to the costs thrown away by the amendments, which would ordinarily be paid by Mr Hourican as the amending party. The parties’ submissions focused primarily on the first question, the costs of today, although I will also briefly address the second question, in order to reserve it to a further occasion.
Mr Hourican, by his motion, sought no order as to costs in relation to the motion, the amendments and the discontinuance of the proceedings against the Company. So far as the costs of the motion are concerned, Mr Eardley submitted that Mr Mahaffy had been successful in opposing the amendment, having regard to the findings which I have reached in respect of paragraphs 59–60 of the proposed Further Amended Statement of Claim, and that costs should follow the event. Mr Eardley also sought an order that those costs be payable forthwith and that a lump sum costs order be paid. It is not necessary for me to address the question whether the requirements for a forthwith costs order or a lump sum order would be satisfied, given the view which I have formed on other grounds. Mr Parsons responded that there should be no order as to costs, and sought to support that result on the basis that, among other matters, Mr Mahaffy and not Mr Hourican had been involved in the process by which the Company was placed in voluntary administration and then in liquidation immediately prior to the previously allocated hearing dates.
It seems to me that I should reserve the costs of the motion, for two reasons, at least until the motion has been substantively determined, and possibly to the conclusion of the hearing, after a substantive judgment has been delivered by a judge of the Court. The first reason is that, at present, the motion has not been dismissed, and it may well be allowed, albeit with further amendments to paragraphs 59–60 of the Further Amended Statement of Claim. In those circumstances, it is by no means clear that Mr Mahaffy has had a substantive success. A possible outcome of his opposition to the amendment would, on one view, be simply to have clarified the matters that the Plaintiffs need to plead. For that reason, it seems to me that the question of costs at least needs to be reserved until it is apparent whether Mr Hourican is allowed leave to amend, having clarified paragraphs 59–60, in which case its position that there should be no order as to costs may be strengthened, or is not permitted to amend, in which case Mr Mahaffy's claim for costs would be strengthened.
Mr Hourican also sought to rely on the circumstances in which the Company was placed in voluntary administration and their effect on the previous hearing, to support his submission that there should be no order for costs. Those circumstances may well be in issue in the substantive proceedings, if Mr Hourican pursues a challenge to the way in which the Company was placed in voluntary administration or liquidation, depending on the matters raised by his repleading of paragraph 60 to which I referred above. If those circumstances will be in issue at the final hearing, it seems to me that it would be inappropriate to determine the dispute in respect of them now, even on an interlocutory basis and in respect of costs, where that determination may prejudice one or other party at the final hearing. If that matter remains in issue, when paragraph 60 is repleaded, it seems to me that the question of the costs of this application should be deferred until after the determination of the substantive proceedings, which would then have to address that issue of any fault, or lack of fault, of Mr Mahaffy in respect of the circumstances in which the company was placed in voluntary administration and then liquidation. I note for completeness that Mr Folino-Gallo was content with the course that costs be reserved so far as Mr Lord is concerned.
Mr Hourican’s notice of motion also sought an order that there be no order as to costs in respect of the amendments, which would be a departure from the usual position that Mr Hourican, as the party seeking the amendments, pays the costs thrown away by the amendments. I also propose to reserve that question. It seems to me that question cannot be determined without addressing what may be a complex issue, as to whether that usual position would be qualified where intervening events, here the Company's insolvency, have forced an amendment upon a party to the proceeding. That may be a novel issue, or may be an issue that is addressed by authority, but it was not addressed by submissions before me. Mr Hourican also proposed that there be no order for costs in relation to the discontinuance of proceedings against the Company. As I understand it, such an order would not affect the indemnity that Mr Hourican was required to give in respect of the Company's costs of the derivative proceedings, which would remain in place irrespective of whether any order for costs is made in respect of that proposed discontinuance.
In these circumstances, I reserve the question of costs. The parties may raise that issue, if they wish, when the matter is next listed for directions, or otherwise it may be determined at the completion of the proceedings.

Mr Lord’s motion

The parties agreed that I should make a further direction standing over Mr Lord's motion seeking to strike out or have dismissed the Amended Statement of Claim filed 13 April 2015 and the Amended Originating Process to the next directions hearing on 28 February 2017. That motion will likely become moot if leave is granted to file Mr Hourican’s proposed Further Amended Statement of Claim.

Subpoenas to Westpac Banking Corporation and Active Steel

Mr Hourican caused the issue of a subpoena to produce documents to Westpac Banking Corporation (“Westpac”) which required production of bank statements for bank accounts in the name of Imperium Projects Australia Pty Limited and for other entities, including Viewspec Glass and Aluminium Pty Limited for specified periods.
By notice of motion filed on 24 November 2016, Mr Mahaffy seeks to set aside the subpoena issued to, inter alia, Westpac under r 33.4 of the Uniform Civil Procedure Rules. That application is supported by an affidavit of Mr Mahaffy's solicitor, Mr Downey, sworn 24 November 2016. Rule 33.4 of the Uniform Civil Procedure Rules provides that the Court may, on the application of a party or a person having a sufficient interest, set aside a subpoena in whole or in part or grant other relief in respect of it. Mr Eardley, who appears for Mr Mahaffy, accepts that paragraph 1 of the subpoena to Westpac is properly issued, but submits that paragraphs 2–5 of that subpoena constitute a fishing expedition, in the sense that they are directed to requiring production of documents of other entities, so as to explore whether a claim may exist against them.
It seems to me that the subpoena should not be set aside. First, Westpac has already produced documents in respect of the subpoena, and there is no suggestion by Westpac that it had any particular difficulty in identifying the documents to which the subpoena relates so no question of oppression arises in respect of the subpoena. There may or may not be a question whether, under the terms of the Further Amended Statement of Claim, at the time the subpoena was issued, the matters falling within paragraphs 2–5 of the subpoena were in issue in the proceedings. It is, however, plain that those matters were within the parties’ contemplation, so far as they had been agitated in argument before Robb J in mid-June 2016; his Honour had granted leave to issue subpoenas; there was a contested issue as to the circumstances in which the Company had been placed in liquidation; and allegations had been raised as to the diversion of business from the Company to other entities associated with Mr Mahaffy.
The present position has advanced beyond that because, although I have not today granted leave to file the Further Amended Statement of Claim, I have indicated that I would at least grant leave to file a Further Amended Statement of Claim including the new paragraph 61, which relevantly pleads that:

“[Mr Mahaffy] has diverted specific business and business opportunities from [Imperium Projects Pty Limited (in Liq)] to other entities in which [Mr Mahaffy] and/or his privies or persons closely associated with him are interested."

Two of the parties identified in the subpoena, namely Imperium Projects Australia Pty Limited (as to which Mr Eardley did not oppose the relevant paragraph) and Viewspec Glass and Aluminium Pty Limited (as to which Mr Eardley did oppose the relevant paragraphs) are particularised to the paragraph as parties in which the specific business and business opportunities were allegedly diverted. The other three entities are, on the evidence that has been led in the amendment application, entities that are associated with Mr Mahaffy or Mrs Mahaffy. It is not necessary for present purposes to distinguish between them, where the Plaintiff contends that Mrs Mahaffy's holding of interests in these companies is connected with Mr Mahaffy's interests.
It seems to me that the subpoena to Westpac is not a “fishing expedition” in its traditional sense of a party issuing a subpoena to see what it may find. There is an allegation, in evidence led in the proceedings, and to be advanced in paragraph 61 of the Further Amended Statement of Claim, which would be allowed irrespective of the fate of paragraphs 59–60, as they may be amended, of diversion of business and business opportunities from the Company to other entities, of the nature of those named in the subpoena. The subpoena is directed to seeking evidence of an allegation that is already put, or proposed to be put, as to the diversion of business to other entities. It seems to me that there is a legitimate forensic purpose, and that any intrusion on the confidentiality of the relevant entities is justified by the interests of justice.
I have not neglected the fact that the subpoena to Westpac was issued prior to the determination whether the amendment in paragraph 61 should be permitted. However, consistent with s 56 of the Civil Procedure Act in order to advance the just, quick and cheap resolution of the proceedings, the Court would scarcely set aside paragraphs 2–5 of the subpoena, and put the parties to the cost of separating documents produced under those paragraphs and returning them to Westpac, in circumstances that the Plaintiff could today, or in the near future, issue a subpoena in identical terms, putting Westpac to the cost of producing again the documents which had previously been produced and had then been returned to it. There would be no useful purpose in that course, and it would not, in my view, be consistent with the just, quick and cheap resolution of the proceedings.
For these reasons the notice of motion seeking to set aside the subpoena issued to Westpac should be dismissed with costs and I will order that the parties have access to the documents produced by Westpac.

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Supreme Court of New South Wales

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In the matter of Imperium Projects Pty Limited [2017] NSWSC 141 (8 February 2017)

Authorities Cited14

Referred to (14)