Treadtel International Pty Ltd v Cocco

1. [1]

   GLEESON JA: I agree with Barrett AJA. Without in any way detracting from his Honour’s comprehensive reasons, I would add the following comments in relation to one matter.

2. [2]

   One of the bases on which the respondent, Mr Cocco, sought to justify the contested amendments to his pleading which introduced the winding up claim and the oppression claim in relation to Treadtel International Pty Ltd (Treadtel) was that they were appropriate for avoiding multiplicity of proceedings: s 64(2) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act). That contention should be rejected.

3. [3]

   The power to grant leave to amend pleadings is to be exercised, subject to s 58 of the Civil Procedure Act, in accordance with the dictates of justice and requires regard to be had to the overriding purpose of the rules – to facilitate the just, quick and cheap resolution of the real issues in the proceedings (s 56) – as well as the efficient and timely disposal of the proceedings (s 57). Three observations can be made in the present case.

4. [4]

   First, the dictates of justice did not favour a grant of leave to add the amendments to the existing proceedings. To permit that course involved ignoring the statutory requirements that the classes of persons who may apply for a winding up order in relation to a company or relief in the case of oppression are those listed respectively in ss 462 and 234 of the Corporations Act 2001 (Cth). For the reasons given by Barrett AJA, Mr Cocco is not presently either a member (or contributory), or (on his alternative case) a creditor of Treadtel.

5. [5]

   Secondly, the real issues in the proceedings did not include Mr Cocco’s new claims for relief the subject of the contested amendments. The new claims were contingent on Mr Cocco first succeeding in establishing his claim (a) to be a member of Treadtel – by having the register of Treadtel rectified to reflect his holding of the “trust share” presently held by Mr Crosher or, alternatively (and only in the case of the winding up claim), (b) to be a creditor, or at least a contingent or prospective creditor, of Treadtel – based on an untried and unascertained claim for unliquidated damages for breach of the so-called “Milan agreement”, the making and existence of which Mr Cocco denied.

6. [6]

   Thirdly, allowing the introduction of the contested amendments was inconsistent with the efficient and timely disposition of the proceedings as then constituted. Prior to those amendments, the issues raised by the proceedings were relatively straightforward. Mr Cocco had sought an order that the share register of Treadtel be rectified so as to record him as the holder of the trust share (then held by Mr Crosher). Mr Crosher disputed that claim for relief on the basis that Mr Cocco had allegedly relinquished his equitable interest in the trust share by virtue of the making of the Milan agreement. In response, Mr Cocco denied the making and existence of the Milan agreement and, in the alternative, if (which he denied) there was an enforceable agreement reached for the transfer of Mr Cocco’s equitable interest in the trust share to Mr Crosher, Mr Cocco was entitled to damages against Treadtel for breach of other alleged terms of the Milan agreement.

7. [7]

   What Mr Cocco sought to achieve by the contested amendments was to have determined in the same proceedings the very matters upon which his standing to apply for a winding up order and for relief in the case of oppression depended. But acceptance of this “cut-through” approach would necessarily introduce additional costly and time-consuming contentions relating to alleged oppression and winding up on an asserted just and equitable basis that should not be permitted to go forward in the same proceedings as those in which Mr Cocco sought to establish that he was a member, or alternatively, a creditor of Treadtel.

8. [8]

   LEEMING JA: I agree with Barrett AJA's reasons and the orders he proposes. I also agree with the comments made by Gleeson JA.

9. [9]

   BARRETT AJA: This matter raises questions about locus standi to sue for certain statutory relief under the Corporations Act 2001 (Cth) and whether the issue of standing should be determined before the claims for statutory relief are heard. The questions arise because defendants seek to challenge a grant of leave for a plaintiff to amend his statement of claim.

10. [10]

    In Equity Division proceedings that have yet to come to trial, Mr Cocco sues two defendants, Treadtel International Pty Ltd (“Treadtel”) and Mr Crosher. Treadtel is engaged in a business of wholesaling motor tyres and like items. Its activities extend beyond Australia.

11. [11]

    For reasons published on 20 June 2016, [1] Robb J granted leave for Mr Cocco to amend his statement of claim. Treadtel and Mr Crosher maintain that his Honour should not have done so. Subject to leave to appeal being granted, they ask this Court to set aside the primary judge’s orders and to allow only significantly curtailed amendment of Mr Cocco’s claim. Argument on the grounds of appeal was heard concurrently with argument on the application for leave to appeal.

The proceedings

1. [12]

   The issued share capital of Treadtel consists of two ordinary shares. Mr Crosher is registered as the holder of both shares. By an originating process filed as long ago as July 2014, Mr Cocco sought an order under s 175 of the Corporations Act that the share register of Treadtel be rectified so as to record that, from 9 July 2014, one of the shares has been held by Mr Cocco. The share in question was originally held by Mr Crosher’s former wife, Marisa Crosher, and is referred to in pleadings and submissions as the “trust share”. It is convenient to adopt that terminology.

2. [13]

   It was ordered in October 2014 that the matter proceed on pleadings. On 3 November 2014, Mr Cocco filed a statement of claim. He there maintained his claim for an order under s 175 of the Corporations Act and added ancillary claims regarding the trust share, including a claim for a declaration that Mr Crosher held the trust share on trust for Mr Cocco; an order that Mr Crosher transfer the trust share to Mr Cocco; an order that Treadtel and Mr Crosher record Mr Cocco as the holder of the trust share in the register of members; and an order that Mr Crosher account to Mr Cocco for any dividends or other distributions paid in respect of the trust share held on trust for Mr Cocco for the period Mr Crosher was the registered holder of that share.

3. [14]

   The case pleaded in the 3 November 2014 statement of claim was to the effect that, on formation of Treadtel in about January 2000, one share was issued to Mr Crosher and one was issued to Marisa Crosher; Mr Crosher became the sole director of Treadtel in April 2006; some time before 10 August 2001, Marisa Crosher agreed to hold her share on trust for the benefit of Mr Cocco as evidenced by an undated trust deed between Marisa Crosher and Mr Cocco; the trust deed declared an absolute trust and that Marisa Crosher would execute a transfer to Mr Cocco (or as directed by him) on his request; the register of Treadtel recorded Marisa Crosher as the holder of the one share but not the beneficial owner of it; pursuant to consent orders of the Family Court of Australia, the trust share was transferred by Marisa Crosher to Mr Crosher who then became the registered holder of it; Mr Cocco did not consent to that transfer; upon transfer to Mr Crosher, the trust share came to be held by him on trust for Mr Cocco subject to the trust deed and he was required to transfer it to Mr Cocco as and when directed; it was “a requirement of law” that, following registration of the transfer from Marisa Crosher to Mr Crosher, the share register record that he did not hold the trust share beneficially; from about 30 May 2007 the share register has erroneously recorded that with effect from 30 May 2007 Mr Crosher was the beneficial owner of the trust share; and on or after 22 May 2014, Mr Cocco requested Mr Crosher to cause the register to be rectified to reflect Mr Cocco’s beneficial ownership of the trust share.

4. [15]

   By defences dated 2 and 12 December 2014, Mr Crosher and Treadtel admitted that Marisa Crosher declared by the trust deed that she held the trust share on trust for Mr Cocco. They also admitted the Family Court orders and their effect as contended, as well as transfer of the trust share by Marisa Crosher to Mr Crosher. However, both defendants denied any entitlement of Mr Cocco after 12 February 2012 to call for or direct a transfer of the trust share. They alleged that Mr Cocco had, by an oral agreement made on that day in Milan, Italy, agreed to relinquish in favour of Mr Crosher his interest in Treadtel (including his beneficial interest in the trust share). They also alleged agreement by Mr Cocco that he would claim no interest in respect of the businesses operated by Treadtel and its subsidiaries. Terms of that so-called “Milan agreement” were then pleaded. These included the transfer to Mr Cocco of an interest in a Czech company and certain other European assets.

5. [16]

   As the primary judge observed, [2] the effect of the pleadings to that point was that Mr Cocco’s case in respect of entitlement to the trust share was confessed, subject to a plea in avoidance that Mr Cocco had entered into the Milan agreement and, by so doing, relinquished his beneficial interest in the trust share to Mr Crosher, with the result that he was no longer entitled to require transfer of the share to himself.

6. [17]

   By replies dated 22 December 2014, Mr Cocco admitted that he and Mr Crosher had met in Milan on 12 February 2012, but denied the agreement pleaded by Mr Crosher and Treadtel. Mr Cocco pleaded in the alternative that, if there was an agreement with respect to the trust share, it was an agreement that he would transfer his beneficial interest to Mr Crosher upon payment of €375,000 (which had not been paid) and that Treadtel itself would reimburse Mr Cocco for the costs to be incurred in winding up the business established by TD Srl, an Italian subsidiary of Treadtel.

7. [18]

   By a cross-claim dated 23 February 2015, Treadtel alleged that it had transferred assets to Mr Cocco (as envisaged by the Milan agreement) and that he had not given the agreed consideration for them. On that basis, Treadtel sought judgment for money sums and ancillary relief.

8. [19]

   At that point, therefore, the parties’ dispute concerned not only the trust share and entitlements to it, but also rights to elements of the businesses established by Mr Cocco and Mr Crosher through Treadtel and its subsidiaries in various parts of the world and the making and effect of the Milan agreement. It was in that context that Mr Cocco put forward the amended statement of claim that came before the primary judge. By that draft pleading, Mr Cocco sought three groups of orders, as follows:

9. [20]

   Claims in the first group ((a) to (g) above) are those originally advanced in relation to Mr Cocco’s alleged entitlement to the trust share (see [14] above). Claims in the second group ((i) to (k) above) are claims for statutory relief premised squarely on Mr Cocco’s continuing status in relation to Treadtel. The claims in the third group ((m) and (n) above) are based on the Milan agreement (which, on Mr Cocco’s principal case, never became binding so as to be the source of legal rights and obligations) and the proposition that, as is alleged against him, Mr Cocco thereby agreed to relinquish his interest in Treadtel in return for a particular consideration.

10. [21]

    The position taken by Mr Cocco through the amended statement of claim thus involves two propositions in the alternative. The first is that he is entitled to the trust share (and should be recorded as the holder of it) and is accordingly entitled to certain statutory relief available to a stakeholder in Treadtel. The second claim (quite inconsistent with the first) is that, having agreed to relinquish his stake in Treadtel (and the trust share), he is entitled to receive an agreed consideration from Mr Crosher and also has a claim in damages against Treadtel.

The decision of the primary judge

1. [22]

   Eligible claimants for relief under Pt 2F.1 are identified in s 234. Eligible claimants for relief under Pt 5.4A are identified in s 462(1). In each case, standing depends on the existence of a particular relationship between the applicant and the company concerned. In the present context, standing for the purposes of Pt 2F.1 depends on Mr Cocco’s being a “member” of Treadtel (s 234(a)) while his standing for the purposes of Pt 5.4A depends upon his being either a “contributory” of Treadtel (as referred to in s 462(2)(c)) or a “creditor (including a contingent or prospective creditor)” of Treadtel (as referred to in s 462(2)(b)).

2. [23]

   By the amended statement of claim considered by the primary judge, Mr Cocco asserted three alternative grounds on which he considered himself entitled to make application under Pt 2F.1 and Pt 5.4A. A fourth ground related to Pt 5.4A alone. Mr Cocco acknowledged that he was not within the statutory definition of “member” because his name was not entered in the register. The three grounds on which he nevertheless claimed standing under Pt 2F.1 (and, in terms of the s 9 definition of “contributory”, under Pt 5.4A) were as follows:

3. [24]

   In relation to the Pt 5.4A claim only, the fourth ground alleged by Mr Cocco was that, on one or more of the first to third grounds, he is within the definition of “contributory” and, in the alternative, has standing as a “contingent or prospective creditor” of Treadtel.

4. [25]

   The primary judge decided that the second of the four grounds was “sufficiently arguable in the circumstances” to justify the court permitting Mr Cocco to make the allegation of “member” status for the purposes of Pt 2F.1. [3] Having reached that point, his Honour held that Mr Cocco should also be allowed to plead the first and second grounds in relation to Pt 2F.1 on the principle discussed in Wickstead v Browne (1992) 30 NSWLR 1. [4] As to standing under Pt 5.4A to seek winding up, the primary judge held that his conclusion on the second ground was sufficient to indicate arguable status as a contributory and that the asserted fourth ground was sufficiently arguable to cause Mr Cocco to be regarded as a contingent or prospective creditor of Treadtel. [5]

5. [26]

   In the result, therefore, the primary judge granted leave to file an amended statement of claim which pleaded both a case to be recognised as having standing to claim relief under both Pt 2F.1 and Pt 5.4A and a substantive case for the grant of both forms of statutory relief.

Grounds of appeal

1. [27]

   Treadtel and Mr Crosher wish to obtain from this Court an order setting aside the grant of leave to amend made by the primary judge and substituting a grant of leave limited to the claims other than those which seek relief under Pt 2F.1 and Pt 5.4A of the Corporations Act (as well as the associated claims that go to standing to seek such relief). On the view they advance, the only claims that should be allowed to progress to trial in the current proceedings are those concerning Mr Cocco’s entitlement to the trust share (and whether he should be recognised as the holder of it) and the alternative claims for damages and other monetary relief on the basis of Mr Crosher’s failure to pay a consideration referable to Mr Cocco’s relinquishing of the trust share. They emphasise that it is only if the claims concerning entitlement to the trust share are determined favourably to Mr Cocco that he will be shown to have standing to initiate claims for substantive relief under Pt 2F.1 and Pt 5.4A; and if he fails to make good his entitlement to the share, his want of standing to seek such substantive relief will mean that litigation of significant areas of controversy is unavailable to him and will be avoided.

2. [28]

   The grounds of appeal advanced in the draft notice of appeal are based on two propositions. The first is that a plaintiff who, according to the legislation, must have a particular status in order to bring a substantive claim under Pt 2F.1 or Pt 5.4A cannot, in a single proceeding, litigate concurrently the substantive claim and the question whether he or she possesses the standing required to pursue that claim. The second proposition (which becomes relevant only if the first is not accepted) is that, in this particular case, Treadtel and Mr Crosher, as defendants, will be exposed to unwarranted prejudice if compelled to defend the substantive claims brought under Pt 5F.1 and Pt 5.4A by a plaintiff who may ultimately be shown to lack standing to bring those claims.

Approach to the present application

1. [29]

   The question whether Mr Cocco should be allowed to amend by filing the amended statement of claim was a discretionary question of practice and procedure. Because the decision was discretionary, appellate intervention is permissible only on grounds identified in House v The King (1936) 55 CLR 499; [1936] HCA 40 at 504–5, namely, that the decision is affected by extraneous or irrelevant matters, or the judge has mistaken the facts, acted on a wrong principle or failed to take into account a material consideration, or the decision is unreasonable or plainly unjust. The fact that a matter of practice and procedure is involved means that, if leave to appeal is granted, this Court will be required to exercise the “added restraint” that that circumstance attracts (Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39 at 176) and will be “extremely reluctant to interfere” (In the Will of F B Gilbert (dec) (1946) 46 SR (NSW) 318).

2. [30]

   In assessing the decision of the primary judge, this Court must also bear in mind that his Honour’s task, upon an application for leave to amend, was not to arrive at any concluded view as to the ultimate merits of the pleaded allegations. The central inquiry is that indicated by Dey v Victorian Railways Commissioners (1949) 78 CLR 62; [1949] HCA 1 at 91, General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 at 130 and, more recently, Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 where Gaudron, McHugh, Gummow and Hayne JJ said at [57]:

3. [31]

   The question for the primary judge was therefore whether the relevant claims are so obviously untenable or groundless that there exists “a high degree of certainty” that they will fail if allowed to proceed to trial; and whether this is one of the “clearest of cases” in which the court may accordingly intervene to prevent the claims being litigated. The question for this Court is whether the primary judge, in answering that question in the negative as to the whole of the amended statement of claim, fell into error requiring correction in accordance with the principles of appellate intervention to which I have referred.

4. [32]

   An anterior question is whether leave to appeal is warranted. As to that, I am content to say that, although care must be taken in deciding whether to entertain interlocutory appeals, [7] the central issues presented by this case are of importance not only to the orderly progress of the particular litigation but also to the due administration of the corporations legislation. For that reason, they merit the attention of this Court and leave to appeal should be granted.

Standing under Pt 2F.1 – legislation

1. [33]

   Pt 2F.1 headed “Oppressive conduct of affairs” consists of four sections, ss 232, 233, 234 and 235. Mr Cocco wishes to obtain orders under s 233 which, so far as relevant, provides:

2. [34]

   The court’s power to make such an order is conferred by s 232:

3. [35]

   The matter of standing to apply for such an order is dealt with by s 234:

4. [36]

   The meaning of “member” – a word used in all three sections – emerges from s 231:

Standing under Pt 5.4A – legislation

1. [37]

   Pt 5.4A, headed “Winding up by the Court on other grounds”, consists of three sections, ss 461, 462 and 464 (the Act contains no s 463). Section 461, so far as relevant to this case, provides as follows:

2. [38]

   The matter of standing is dealt with by s 462, [8] the relevant parts of which are:

3. [39]

   The term “contributory”, as it applies to a company limited by shares such as Treadtel, is defined by paragraph (a) of the definition in s 9: [9]

Standing under Pt 5.4A – alleged creditor status

1. [40]

   It is convenient to deal first with the question whether, for the purposes of s 462(2)(b), Mr Cocco is, on the allegations in the amended statement of claim, within the description “a creditor (including a contingent or prospective creditor) of the company”.

2. [41]

   In asserting standing as a creditor, Mr Cocco relies on the Milan agreement. He alleges in the amended statement of claim that, in the course of the 8 February 2012 meeting at which that agreement was concluded (if it was concluded at all), he and Mr Crosher “agreed a framework to result in the buy-out of Cocco’s interest in Treadtel or Cocco’s share in Treadtel”. One element of the “buy-out terms” so agreed, it is said, is that Treadtel would pay Mr Cocco €6,000 per month in respect of Mr Cocco’s funding of the closing down of TD Srl, Mr Cocco having agreed to fund closing down costs of approximately €306,000. That element involving payment by Treadtel of €6,000 per month is one of several pleaded in sub-paras (a) to (e) of para 60 of the amended statement of claim. Then follows sub-para (f):

3. [42]

   Mr Cocco goes on to plead that the terms have not been performed by Mr Crosher and Treadtel and, in particular:

4. [43]

   Mr Cocco’s claim in respect of alleged breaches by Treadtel (framed in terms that “Treadtel has failed to repay Cocco for the costs of closing down TD Srl”) is:

5. [44]

   There is a separate claim against Mr Crosher for damages, a money sum (€375,000) and interest. The sum of €375,000 is said to be the agreed consideration for the transfer of Mr Cocco’s interest in Treadtel.

6. [45]

   The primary judge dealt with Mr Cocco’s claim to seek winding up as a contingent or prospective creditor of Treadtell as follows: [10]

7. [46]

   There is, in that part of the judgment, no reference to the way in which Mr Cocco’s pleaded claim against Treadtel (as distinct from Mr Crosher) is framed. It is true that Mr Cocco “wishes to plead that he is entitled to be paid debts in performance of that agreement, which remain outstanding”. But his debt claims are articulated only against Mr Crosher. The claim against Treadtel is specifically pleaded as a claim for damages.

8. [47]

   It is axiomatic that a claim for damages differs in nature and in substance from a claim for debt. Mr Cocco does not consider himself to be a person to whom Treadtel presently owes money. Rather, he says that Treadtel has breached a contractual obligation owed to him (despite, it seems, the absence of the “series of legally enforceable contracts” referred to in his pleading) and thereby rendered itself liable to an action for damages for breach of contract. The contract apparently alleged cannot be equated with one under which a right to claim money will arise progressively or upon some future event, [11] so that it can be said that there exists an obligation making Mr Cocco a contingent or prospective creditor.

9. [48]

   It may readily be accepted that a claim for damages for breach of contract is provable in a winding up. Section 553(1) makes admissible to proof “all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date”. These categories extend far beyond the concepts suggested by the expression “contingent or prospective creditor”. [12] When it comes to standing to seek winding up, however, the case law has tended to exhibit a measure of uncertainty whether someone with no more than an untested claim for unliquidated damages qualifies.

10. [49]

    There is, in my view, a great deal to be said for the position adopted by Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311, as interpreted by Young J in Alati v Wei Sheung [2000] NSWSC 601; (2000) 34 ACSR 489 at [17]. Santow J said (at 323):

11. [50]

    Young J saw the rationale for this conclusion as that explained by Santow J himself in Mandarin International Developments Pty Ltd v Growthcorp (Aust) Pty Ltd (1998) 143 FLR 408 at 422, that is, that if a debt is genuinely disputed and the dispute is yet to be dealt with on its merits, one cannot say that the person with the disputed debt is a creditor, and therefore that person cannot be a contingent creditor. [14]

12. [51]

    An alternative view (preferred by Mansfield J in Commissioner of Taxation v Simionato Holdings Pty Ltd [1997] FCA 125; (1997) 15 ACLC 477 and by Logan J in Eskdale South Cattle Company Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 1125 [15] ) is that, as long as there is a claim made arising from facts, events or circumstances, including but not limited to contractual arrangements which existed prior to the winding up proceeding, that claim may qualify the claimant as a contingent or prospective creditor.

13. [52]

    It is instructive to consider the decision of Mansfield J where, it may be noted, the issue was not whether a person with an undetermined damages claim had standing to seek winding up but, rather, whether what his Honour called “the possible liability” of the company to such a person should be taken into account when determining whether solvency had been proved. After referring to the decision of the High Court in Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455; [1969] HCA 47, Mansfield J considered several cases in which courts had considered the general question whether an entity which has an arguable claim for damages against the company may properly be regarded as a contingent or prospective creditor.

14. [53]

    The first such case is Re Gasbourne Pty Ltd [1984] VR 801. The issue there was whether an entity with a claim for unliquidated damages only should be recognised as qualified to appear to oppose the making of a winding up order on an application initiated by another party. The question was answered in the affirmative. That says nothing, in any direct way, about the standing of such a person to apply for a winding up order.

15. [54]

    Mansfield J next referred to Re PMC Investments Pty Ltd (1991) 9 ACLC 1559 where winding up of a defaulting purchaser of land was sought by a vendor who claimed creditor status by reference to the difference between the agreed purchase price and the diminished value of the land, after allowing for the forfeited deposit. Williams J held that the vendor had standing as a contingent or prospective creditor to seek winding up. Significantly, however, he added:

16. [55]

    Williams J thus recognised what was, in a sense, provisional standing – standing subject to the possibility that the initial favourable impression might be displaced.

17. [56]

    The question in the third case mentioned by Mansfield J, Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294, was again as to standing to seek a winding up order. The applicant was a person with whom the company had made a contract to share future profits from certain investments. At the time of the hearing, the investments were said to be worthless but the applicant relied on the possibility of future increase in value to argue creditor status. The court held that there was insufficient evidence to demonstrate any such possibility and that, in any event, the quantification of any profit would depend on the proper construction of the contract, with the result that there was no proper evidentiary basis upon which to find that the applicant was a contingent creditor with standing under s 462.

18. [57]

    The view to be taken of a contingent or prospective creditor will, in my opinion, differ according to the purpose for which the creditor’s position is under consideration. Recognition as someone qualified to be heard on another applicant’s winding up petition or as someone whose claim should be taken into account in judging solvency is one thing. Recognition as someone who may initiate winding up proceedings is another. It is a well-established rule of practice that a person who claims to be a creditor but whose debt is disputed on genuine grounds will not be permitted to initiate or pursue a winding up application. The report of the decision of Jessel MR in Cercle Restaurant Castiglione Co v Lavery (1881) 18 Ch D 555 contains, as a footnote, that judge’s judgment in Niger Merchants Co v Capper (1877) 18 Ch D 557n where reference was made to an earlier decision of Malins V-C in Cadiz Waterworks Co v Barnett (1874) LR 19 Eq 182 in which the pursuit of winding up proceedings was enjoined “on the ground that it is the object of the Court to restrain the assertion of doubtful rights in a manner productive of irreparable damage”. As Ungoed-Thomas J said of the winding up jurisdiction in his influential judgment in Mann v Goldstein [1968] 1 WLR 1091 at 1098-9:

19. [58]

    The rationale of the several decisions I have mentioned concerning contingent and prospective creditors is, it seems to me, that such a creditor will not be permitted to apply for winding up unless there is an existing obligation of the company (as required by the decision in Community Development Pty Ltd v Engwirda Construction Co), which obligation can be viewed with a high degree of assurance as a source of financial liability. Thus, in a case such as Re PMC Investments Pty Ltd, a defaulting purchaser under a conveyancing transaction may be seen to be subject to a relevant obligation where the standard contractual position is uncontroversial and the value of the property is shown to be such that the default has occasioned loss to the vendor, even though no proceedings for damages have crystallised that liability. But the position is otherwise where, as in Thomas v Mackay Investments Pty Ltd, the existence of the obligation, as well as the quantification of any damage, is dependent on the resolution of disputed or otherwise unclear legal rights and duties by means of proceedings for damages brought against the company.

20. [59]

    The present case is, to my mind, one of disputed or otherwise unclear legal rights and duties when it comes to the question whether Treadtel is, by reason of an action for unliquidated damages maintainable by Mr Cocco, subject to an obligation that makes Mr Cocco a contingent or prospective creditor (it is not, and cannot be, argued that he is a present creditor). The obligation of Treadtel upon which Mr Cocco relies as the foundation of his standing to seek winding up is, on his own case, a contractual obligation derived from the Milan agreement. Yet Mr Cocco himself disputes the making and existence of the Milan agreement and the contractual force of the buy-out terms alleged against him. In asserting his standing to seek remedies available to a shareholder, he relies on the absence of any contractual commitment to relinquish the trust share to Mr Crosher and denies the contractual force that his opponents ascribe to the Milan agreement. In mounting his winding up case, however, Mr Cocco advances the proposition that the Milan agreement is the source of a right for him to sue Treadtel for damages.

21. [60]

    On the face of his own pleading, Mr Cocco causes his status as a creditor to be questioned. That, coupled with the circumstance that proof of the Milan agreement will involve the trial of obviously controversial issues, is sufficient to warrant a conclusion that Mr Cocco’s asserted status as a contingent or prospective creditor is based on disputed or otherwise unclear legal rights and duties destructive of any argument that he should, at this stage, be permitted to petition for winding up of Treadtel.

22. [61]

    In the particular circumstances, the primary judge acted on a wrong principle when he held that, for the purposes of the claim under Pt 5.4A advanced in the amended statement of claim, Mr Cocco had an arguable case to bring winding up proceedings on the basis of status as a contingent or prospective creditor of Treadtel.

Standing under Pt 5.4A – s 462(4)

1. [62]

   A separate obstacle arises at the threshold under s 462(4) which states that the court “must not hear an application” for winding up by a contingent or prospective creditor (or plaintiffs including such a person) “unless and until” such security for costs has been given as the court thinks reasonable (s 462(4)(a)) [16] and a prima facie case for winding up “has been established to the Court’s satisfaction” (s 462(4)(b)). [17]

2. [63]

   Section 462(4) imposes on the court an obligation to desist from hearing a winding up proceeding until the two conditions have been satisfied. The plaintiff affected by the section is therefore not at liberty to move for a winding up order unless any application for security for costs made by the defendant company has been heard and determined (and any security ordered has been furnished) and the plaintiff has sought and obtained the court’s decision that a prima facie case for winding up has been shown. The court, as a matter of case management, will no doubt make directions to ensure that the first aspect does not become an instrument of delay in the hands of the company. As to the second, it will seek to ensure that the plaintiff’s motion comes on promptly for hearing. And, if circumstances so require, it will stay proceedings on the winding up application itself until the preliminary matters have been disposed of.

3. [64]

   Neither of the s 462(4) matters has a direct impact on the content of a plaintiff’s pleaded case for winding up. But the section does emphasise matters that, on the material before this Court, have played no part in the Equity Division proceedings to date and may be relevant to any re-exercise of discretion by this Court.

Standing under Pt 5.4A - alleged contributory status

1. [65]

   The primary judge decided that Mr Cocco should be permitted to plead standing under Pt 5.4A not only as a contingent or future creditor on the basis discussed above but also on the footing that he is a contributory. The particular aspect of the s 9 definition of “contributory” upon which his Honour focused was para (a)(ii) which refers to “a holder of fully paid shares in the company”. [18] The judge considered that the second ground on which Mr Cocco alleged status as a “member” for the purposes of Pt 2F.1 was sufficiently arguable to allow that claim to go to trial and that that conclusion applied also the allied question of alleged status as “a holder of fully paid shares in the company” as referred to in the definition of “contributory”. [19]

2. [66]

   The rationale underlying the second ground was explained by the primary judge at [71]. It proceeds by several steps: Mr Crosher is a bare trustee of the trust share for Mr Cocco; as Mr Crosher is recorded on the share register of Treadtel as being a member, he has standing to bring proceedings as a member or the holder of shares; but Mr Crosher cannot be expected to pursue a claim for the relief Mr Cocco wishes to seek because he has a conflict of interest and is practically disabled from commencing the proceedings because he would effectively be suing himself.

3. [67]

   In dealing with the second ground, his Honour said: [20]

4. [68]

   The three authorities to which his Honour here referred are Niord v Adelaide Petroleum NL (1990) 54 SASR 87, Re Independent Quarries Pty Ltd (1993) 12 ACSR 188 and Titlow v Intercapital Group (Australia) Pty Ltd (1966) 65 FCR 449. In the first and third of these cases, the view was taken that, for the purposes of forerunners of Pt 2F.1, a person was a “member” only if their name appeared in the register of members. In the second case, a person whose name was not on the register but who held a share certificate sealed by the company was said to be a “member”. [21]

5. [69]

   It was emphasised in submissions to this Court that none of the three cases concerned circumstances analogous to those alleged by Mr Cocco in his second ground, that is, where a share is allegedly held upon a bare trust by a person who controls the content of the register, refuses to acknowledge the beneficiary’s right to be registered and, because he is effectively the object of proceedings that the beneficiary wishes to institute, cannot realistically be expected to commence those proceedings for the beneficiary’s benefit. Those circumstances, it was said, are sufficient to invoke the equitable principle that a beneficiary may take in his or her own name the proceedings that the trustee could take but will not. [22]

6. [70]

   The discussion in this part of his Honour’s judgment centred on the question whether equity allows a beneficiary, in appropriate circumstances, to sue upon a cause of action made available to the trustee by statute. That question was answered in the affirmative.

7. [71]

   A question also requiring attention goes to the nature of the equitable assistance the beneficiary requires in order to be able to mount the statutory claim. Dealing with a common law debt claim, James LJ said in Sharpe v San Paulo Railway Company (1873) LR 8 Ch App 597 at 609-10:

8. [72]

   The reason there must be “the proper order for using the trustee’s name” is that, as was recognised in Hayim v Citibank NA [1987] AC 730 at 748, the beneficiary’s direct cause of action arises only if the court is satisfied that there are “special circumstances” indicating some proper reason for proceedings to be taken.

9. [73]

   There is some difference of opinion in the decided cases whether a beneficiary wishing to proceed in this way requires an anterior grant of “leave”, [23] or whether the necessary screening process can and should be undertaken in the substantive proceeding. In Chahwan v Euphoric Pty Ltd [2009] NSWSC 805; (2009) 73 ACSR 252 at [34], Brereton J was of the view that no advance ruling is required. In Randa Lee Investments Pty Ltd v Ballan [2015] VSC 178 at [12], Sifris J was of the opposite opinion. The decision of this Court in El Sayed v El Hawach (2015) 88 NSWLR 214; [2015] NSWCA 26 at [56]-[57] favoured the latter view in the particular circumstances of that case and referred to the potential need for evidence to sustain the necessary finding of “special circumstances” relevant to the welfare of the trust estate.

10. [74]

    I suspect that there is no hard and fast rule and that much depends on context. The need for a safeguard by way of screening by the court as a prelude to a derivative suit by a beneficiary upon a cause of action maintainable by the trustee is understandable where certain conditions prevail – for example, where there are several beneficiaries one of whom purports to act for the estate as a whole; where there is a question about the benefit that the estate will derive from pursuit of the proceedings; [24] or where it is necessary to discover whether the trustee’s decision not to proceed has some sound basis. [25] In straightforward cases, there will be no need for such a safeguard.

11. [75]

    As Windeyer J explained in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9; [1963] HCA 21 at 27, the position before the enactment of provisions such as s 12 of the Conveyancing Act 1919 (NSW) was that an assignee of a legal debt could not in his own name bring an action against the debtor to recover the debt. The original creditor had to be the plaintiff on the record in the common law action because he remained at law the owner of the chose in action. That rule has been relaxed to some extent as equity and common law have come to be administered together. A person to whom a legal chose in action is assigned in equity and whose equitable title is not contested by the assignor may now sue in his or her own name to recover the debt and will be entitled to a judgment at law, provided that the assignor has been joined as a defendant before judgment is given. [26] The proviso is important. The need for the assignor (who is, at law, the proper plaintiff) to be joined as a defendant is to ensure that he or she is bound by the judgment and cannot sue the debtor again. [27]

12. [76]

    An undisputed equitable assignee who proceeds in this way is not required to obtain any advance clearance from the court. Use of the name of the assignor (an element essential at common law) is seen by equity as “so much a formality” that, if the assignor does not consent to be a co-plaintiff, he can be added as a defendant; and if the party sued does not take the technical point of want of party, the court may ignore it: National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 37 FLR 404 at 412 per Blackburn CJ. [28]

13. [77]

    In Roberts v Gill & Co [2011] 1 AC 240; [2010] UKSC 22 at [102], Lord Walker of Gestingthorpe JSC observed that a bare trustee who holds property as nominee for the benefit of another occupies a position closely analogous with that of the assignor under an undisputed equitable assignment. The analogy arises because there is a sole trustee, a sole beneficiary, no conceivable third party interest and no need for concern about prudent administration of a trust estate.

14. [78]

    If Mr Crosher in truth holds the trust share upon a bare trust for Mr Cocco, equity regards Mr Cocco as entitled to sue in his own name upon a cause of action maintainable by Mr Crosher by reason of his shareholding. Mr Cocco could thus, for example, sue the company for a dividend declared but unpaid on the share, provided that he joined Mr Crosher as a defendant. But such an action would not be one brought or maintained by the shareholder. Proceedings initiated by Mr Cocco by virtue of his equitable entitlement would be proceedings brought by Mr Cocco. Only if Mr Cocco resorted to the alternative process of compelling Mr Crosher to sue in Mr Crosher’s name for the benefit of Mr Cocco would the proceedings be proceedings brought by the shareholder. In former times, a person in the position that Mr Cocco considers himself to occupy could procure such proceedings by filing a bill in equity and obtaining an injunction in personam to allow the use of the name of the necessary plaintiff. [29] While, for reasons stated, such equitable intervention is unnecessary where the objective of the beneficiary is merely to obtain a judgment binding on the debtor, it is an indispensable step where there is a statutory need for the trustee to be (and to be seen to be) the moving party.

15. [79]

    On the pleadings as they stand, Mr Crosher does not accept that he holds the trust share on a bare trust for Mr Cocco. He denies any entitlement of Mr Cocco to call for or direct a transfer of the trust share after 12 February 2012. It is that dispute that would fall to be determined in any proceedings brought by Mr Cocco in equity to compel Mr Crosher to lend his name as plaintiff to the substantive proceedings that Mr Cocco wishes to commence.

16. [80]

    The existence of this dispute on the face of the pleadings is critical. Reference has already been made to the principle that a person who claims to be a creditor but whose debt is disputed on genuine grounds will not be permitted to initiate or pursue a winding up application. The same reasoning applies to a contributory’s application for winding up. There were formerly provisions making a contributory’s standing dependent on the shares in respect of which he or she was a contributory having been held for at least six months. [30] In Re Gattopardo Ltd [1969] 1 WLR 619, the petitioner had been registered as the holder of shares for less than six months but consent orders made more than six months earlier in proceedings between the petitioner and the former holder of her shares had declared that she was entitled to be registered as the holder. A transfer was executed and registered less than six months before the petition was presented. It was held that standing as a contributory dated only from the registration and could not be regarded as having arisen when the consent orders became binding on the petitioner and her predecessor in title.

17. [81]

    Different considerations applied in Re Patent Steam Engine Company (1878) 8 Ch D 464 where the company itself had been a party to proceedings in which it was ordered to allot shares forthwith to certain persons and to register them as shareholders accordingly. Although the names of those persons had not been on the register for the required period when they petitioned for winding up, the court made the winding up order on the footing that lack of formal standing was a product of the company’s default in prompt compliance with the earlier order.

18. [82]

    The Patent Steam Engine Company decision was recognised as anomalous in Re Gattopardo Ltd (above) at 622 and subsequently in Re Exclusive Master Book-Binding and Manufacturing Pty Ltd (1977) 17 SASR 522. In the latter case (at 525), Bray CJ saw doubt as having been cast on Patent Steam Engine Company by observations of Russell LJ in Re Gattopardo Ltd. Bray CJ also referred with approval to the decision in Re A Company [1894] 2 Ch 349 at 351 where the principle that equity regards as done that which ought to have been done was unsuccessfully invoked by a petitioner claiming to be entitled to an allotment of shares. [31] Vaughan Williams J held that the petitioner lacked standing as a contributory and enjoined continuation of the winding up proceedings, saying (at 351):

19. [83]

    That observation sums up the difficulty faced by Mr Cocco. His claim is, in effect, that he has done all that he can possibly do to become a member of Treadtel and that equity ought to compel Mr Crosher and Treadtel itself to take the steps necessary on their part to complete his status. [32] That may well be an arguable position for Mr Cocco to take as against those parties (or, at least, against Mr Crosher) regarding rights to the trust share and registration of Mr Cocco as the holder of it. But it is not an arguable position that it is open to him to take in initiating winding up proceedings as a contributory by reason of his asserted entitlement to the trust share as beneficiary. [33] Such proceedings are not the occasion for testing the standing of the applicant. A long line of cases makes it clear that the court should not entertain a petition presented by an applicant whose standing is disputed on cogent grounds. The primary judge acted on a wrong principle when he held that, for the purposes of the claim under Pt 5.4A pleaded in the amended statement of claim, it was sufficient for Mr Cocco to put forward an arguable case of standing as a contributory of Treadtel.

Standing under Pt 5.4A - conclusions

1. [84]

   Under s 462(2) of the Corporations Act, an application for a winding up order may be made by a person within one of the categories there specified. Application by a person not within any of those categories is not permitted and the court may not order winding up on such an application. [34] That is made plain by s 462(5).

2. [85]

   Mr Cocco cannot maintain a winding up application in his own name as a contributory of Treadtel unless and until his dispute with Mr Crosher about the trust share leads to a result that sees him recorded in the register of members as the holder of that share. Nor can he maintain an application as a contingent or prospective creditor while his principal case is that the Milan agreement is not the source of legally recognisable rights and obligations. Apposite, therefore, are observations in two decided cases to which I now turn. The first is Re JN2 Ltd [1977] 3 All ER 1104. Observations of Brightman J in that case at 1108 -1109 warrant quotation in full:

3. [86]

   The second case is Gerlach v Beyond Ltd (NSWSC unreported, McLelland J, 13 July 1992, BC9201750). That case arose under provisions of the Corporations Law identical with the Corporations Act provisions now under consideration. A non-member claiming standing in winding up proceedings advanced arguments similar to those relied on by Mr Cocco. McLelland J rejected those arguments, saying:

4. [87]

   McLelland J also said:

5. [88]

   In the present case, Pt 5.4A is not engaged by the allegations in Mr Cocco’s amended statement of claim. On the case there articulated, Mr Cocco does not have and cannot attain standing as a creditor under s 462(2)(b) and will have no standing as a contributory under s 462(2)(c) unless and until he becomes registered as the holder of the trust share. [35] He must establish his title to sue; and he must do so before proceeding with the substantive claim for winding up he wishes to bring under Pt 5.4A.

6. [89]

   As counsel for Treadtel and Mr Crosher correctly observed, the mere initiation of winding up proceedings has serious consequences for the defendant company and its constituency. Kirby J observed in Emanuele v Australian Securities Commission (1997) 188 CLR 114; [1997] HCA 20 (at 143, 145-6) that every species of winding up application has potential to damage the company’s reputation and to undermine its capacity to trade, with serious consequences for the company. The fact that an application has been made necessarily becomes the subject of lodgement with ASIC through which the information that proceedings are pending becomes generally available. The court must take notice of that reality in matters such as the present. It is a reality that tells positively against any course of action exposing a company to relevant risks except where the course of action is clearly mandated by the legislation.

7. [90]

   In the present case, the dispute is essentially a dispute between Mr Cocco and Mr Crosher. Treadtel, a company with existing business activities, sits between them. The court should not assist an attempt by either protagonist to put Treadtel into liquidation against the will of the other unless and until he has shown himself to be a person qualified to seek that relief. Mr Cocco’s failure to plead in his amended statement of claim matters establishing present and immediate standing under s 462(1)(b) or s 462(1)(c) means that the primary judge’s decision to allow amendments dependent on such standing was unreasonable and plainly unjust.

Standing under Pt 2F.1 – alleged member status

1. [91]

   The question central to Mr Cocco’s standing under Pt 2F.1 is whether he is a “member” of Treadtel. His difficulty is that he is not within any of the categories specified in s 231 (see [36] above). In particular, his name is not entered in the register of members, as referred to in para (b) of the s 231 definition.

2. [92]

   Treadtel and Mr Crosher challenge the primary judge’s decision that Mr Cocco is arguably a “member” in consequence of his claimed entitlement as the beneficiary of a bare trust in respect of the trust share. That decision was made in a statutory context in which the catalogue of eligible applicants includes persons with certain kinds of rights to shares short of registered holding. Section 234(d) affords standing to “a person to whom a share in the company has been transmitted by will or by operation of law”. The inclusion of that category of eligible applicant is traceable to a recommendation of the Jenkins Committee in its report of 1962. [36] The Committee said: [37]

3. [93]

   Australia’s adoption of a like reform suggests that similar reasoning was at work. [38] That being so, the legislative intention may be taken to have been to assimilate the position of a person entitled to shares by transmission by will or operation of law to the position of a registered holder that and, by implication, not to extend like status to someone having (or claiming) some other kind of beneficial interest or ownership right in respect of a share.

4. [94]

   The concept of “transmission” referred to in s 234(d) is to be gathered from s 1072E of the Act. In the case of a deceased or bankrupt person registered as the holder of shares, that section permits registration instead of the trustee, executor or administrator of the deceased estate or the trustee in bankruptcy as the holder. It cannot be argued (nor was it argued) that Mr Cocco was in any relevant sense entitled by transmission so as to be within s 234(d).

5. [95]

   In some other jurisdictions where standing under provisions akin to those in Pt 2F.1 is afforded to a “member” [39] and entry in the register of members is the determining factor, attempts have been made to rely on an enlarged concept of “member”. Such an attempt met with a measure of apparent success in Owen Sim Liang Khui v Piasau Jaya Sdn Bhd [1996] 1 MLJ 113, a case under the Malaysian legislation. The Federal Court of Malaysia held that an applicant must show that his name appears on the company’s register of members at the date of the presentation of the petition. But the court emphasised that this was a general as opposed to a universal rule, as there might be cases where an application of the rule will work unfairness. Gopal Sri Ram JCA said (at 135):

6. [96]

   As explained in the subsequent Malaysian case of Julian Suresh Candiah v Axis IP Sdn Bhd [2013] 1 LNS 982 at [105], however, Owen Sim Liang Khui v Piasau Jaya Sdn Bhd did not, in truth, sanction any expansion of the class of permitted applicants or lay down any general proposition regarding the meaning of “member” [40] in the particular statutory context. Rather, it was a case in which uncontroversial principles of estoppel were applied, on the particular facts, to prevent reliance by other parties on the applicant’s lack of statutory status. [41] The court merely prevented a litigant raising a defence upon which equitable considerations made it unconscionable for that litigant to rely.

7. [97]

   In the present case, the arguments advanced in support of Mr Cocco’s status as a contributory under s 462(2)(c) are repeated in relation to status as a “member” for the purposes of Pt 2F.1. For the same reasons, those arguments cannot succeed. Mr Cocco’s claim to be able to sue as beneficiary of a bare trust in respect of the trust share [42] does not avail him in his search for “member” status for Pt 2F.1 purposes any more than it avails him in his search for “contributory” status for the purposes of Pt 5.4A. The three decided cases to which the primary judge paid particular attention (see [68] above) all concerned Pt 2F.1 or predecessor provisions. Those cases tell decisively against any attempt by Mr Cocco to obtain access to that statutory regime through some extended meaning of “member”. [43]

8. [98]

   It is, to my mind, particularly pertinent to the circumstances of this case to quote the following passage in the judgment of Lord Collins of Mapesbury JSC in Enviroco Ltd v Farstad Supply A/S [2011] UKSC 16; [2011] 1 WLR 921 at [37]-[38]:

9. [99]

   The scheme of the legislation there described is indistinguishable from that of our own Corporations Act. Someone wishing to claim a right as a “member” must first obtain entry of their name in the register, if necessary by preliminary proceedings. [44]

10. [100]

    Relevant, in that connection, are observations of Sifris J in the recent case of Rodda v Lifestyle Loans Vic Pty Ltd [2015] VSC 628; (2015) 303 FLR 227. The circumstances there were similar to those now before this Court. The plaintiff in Pt 2F.1 proceedings had never been on the company’s register of members but claimed that he should have been and that he had a real prospect of making good that claim. On that basis, he said, his substantive claims under Pt 2F.1 should be allowed to proceed to trial, his locus standi being one of the matters to be litigated. Sifris J rejected that submission. His Honour’s reasons were as follows (at [17]-[19]):

11. [101]

    The primary judge acted on a wrong principle when he held that, for the purposes of the claim under Pt 2F.1 pleaded in the amended statement of claim, it was sufficient for Mr Cocco to put forward the particular case of standing as a “member” of Treadtel. Given Mr Cocco’s failure to plead matters establishing present and immediate standing as a “member” under s 233, the primary judge’s decision to allow amendments dependent on such standing was unreasonable and plainly unjust.

Conclusion

1. [102]

   There may be occasions on which it is appropriate for the court to determine, upon the hearing of substantive proceedings, a question going to disputed standing of a plaintiff. That has been said to be so where, for example, the dispute is one that it is “very easy to decide”: Re QBS Pty Ltd [1967] Qd R 218 per Gibbs J; see also Re Ocean City Ltd [1993] FCA 86; (1993) 10 ACSR 483, Lanepoint Enterprises Pty Ltd v Australian Securities and Investments Commission [2010] FCAFC 49; (2010) 78 ACSR 499 at [52]-[59]. A case in which an issue of disputed standing surfaces at the final hearing is, however, to be distinguished from one such as the present in which a question about the course the litigation should take is raised for decision by the court and involves potentially difficult questions of standing depending for their resolution on matters of evidence and, potentially, issues of credibility (on the material currently available, it seems that four persons were present at the meeting in Milan on 12 February 2012). Even allowing for the principle of just, quick and cheap resolution of the real issues in proceedings that, in accordance with s 56(1) of the Civil Procedure Act 2005 (NSW), must be applied in every matter of procedure and case management, the decision in this case to allow Mr Cocco to proceed towards a final hearing under both Pt 2F.1 and Pt 5.4A despite obviously disputed and equivocal standing is one that cannot stand. No question of re-exercise of discretion by this Court arises.

2. [103]

   Orders should be made as follows:

   1. (1)

      Grant leave to appeal.

   2. (2)

      Direct that a notice of appeal in the form of the draft notice of appeal in the white folder be filed within seven days.

   3. (3)

      Appeal allowed.

   4. (4)

      Set aside Order 1 made in the Equity Division on 8 September 2016 and order in lieu that the plaintiff have leave to file an amended statement of claim in the form annexed to the orders of 8 September 2016 and marked “A” but with the following omitted therefrom:

   5. (5)

      Order, in addition to the orders for costs made in the Equity Division on 8 September 2016, as follows:

   6. (6)

      That the respondent pay the appellants’ costs of the summons seeking leave to appeal and of the appeal.