In the matter of A S P Aluminium Holdings Pty Ltd

1. [1]

   By Originating Process dated 20 October 2023, several Plaintiffs bring an oppression claim. The First Plaintiff, Villefranche Investments Pty Ltd (“VIPL”) as trustee for a trust also seeks interlocutory relief granting it leave under s 237 of the Corporations Act 2001 (Cth) (“Act”) to bring derivative proceedings on behalf of the First Defendant, ASP Aluminium Holdings Pty Ltd (“Holdings”) against two existing Defendants in the proceedings, Ms Lolita Younes and Lolita Investments Pty Ltd (“LIPL”) and several proposed Defendants, in the form set out in a proposed Statement of Claim (“SOC”), as amended as identified in the course of the hearing. Holdings is the holding company of the Alspec Group, which conducts a business relating to the design, manufacture and distribution of aluminium products for the architectural, residential, industrial and home improvement markets. That business has a substantial revenue and substantial profits although, in recent years, Holdings has paid reduced dividends to shareholders including its minority shareholders.

2. [2]

   VIPL’s application for leave to bring these derivative proceedings was opposed by Holdings and by Ms Younes and LIPL. Consistent with well established case law, the proposed Defendants other than Ms Younes and LIPL did not need to be, and were not, joined in or heard in the application: Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 1 ACSR 245; [2004] NSWSC 973 at [16]-[17]; Roche v Winnote Pty Ltd (2006) 57 ACSR 138; [2006] NSWSC 231 at [20]-[22]; Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480; Huang v Wang (2016) 114 ACSR 586; [2016] NSWCA 164 (“Huang v Wang”) per Barrett AJA at [85]-[87]. This Judgment determines the application for leave to bring the derivative proceedings.

Affidavit evidence and some matters of chronology

1. [3]

   VIPL reads the affidavit dated 20 October 2023 (“Platford 1”) of its solicitor, Ms Platford, who identifies the background to the proceedings and notes steps which had previously been taken by several of the Plaintiffs to obtain access to documents in respect of Holdings. Ms Platford also refers to a previous application made by, inter alia, VIPL to the Takeovers Panel, where the Panel did not grant relief on the basis that, inter alia, the claims were more appropriately determined by a Court. Ms Platford also addresses each of the criteria that are applicable to determining whether the Court should grant leave to bring derivative proceedings under s 237 of the Act, to which I will refer below, and to documentary evidence on which VIPL relies in support of the leave application. I will address that documentary and other evidence, to the extent it is necessary to do so, in the chronology of events that I set out below and in dealing with the applicable criteria for the grant of leave.

2. [4]

   By a second affidavit dated 2 February 2024 (“Platford 2”), Ms Platford referred to a report obtained from an industrial leasing expert, Mr Kempthorne, to which I refer below and annexed a revised proposed SOC and outlined the amendments made in that document, which is (as I noted above) to be further amended as identified in the course of the hearing. Ms Platford also refers to earlier proceedings between the parties to which reference was made in the Defendants’ evidence, and notes that VIPL was not party to a settlement agreement of earlier proceedings or party to other proceedings to which the Defendants referred. I also note that the events which are the subject of the proposed derivative claim largely or entirely postdate the earlier proceedings.

3. [5]

   VIPL also read the affidavit dated 14 February 2024 of Mr Justin Reynolds, who is an accountant of many years of experience who has provided accounting services to VIPL and its controllers and holds a power of attorney for VIPL. Mr Reynolds’ evidence addresses the assets of VIPL, so far as that is relevant to the value of an indemnity which it offers as to any liability which may be incurred by Holdings in respect of the proposed proceedings. VIPL has now offered a revised undertaking as to that matter which all parties accept sufficiently protects Holdings’ interests.

4. [6]

   Holdings reads the affidavit dated 15 December 2023 of its solicitor, Ms Fernandez (“Fernandez 1”), who refers to its corporate history, correspondence with solicitors acting for VIPL from September 2020, a previous application brought by VIPL under s 247A of the Act, previous proceedings before the Takeovers Panel, and correspondence between solicitors in respect of the purchase of a “corporate boat” and dealings with the Edgecliff premises which are in issue in the proposed derivative proceedings. Ms Fernandez also refers to previous proceedings between VIPL and Holdings in evidence, which Ms Platford responds in her second affidavit to which I referred above. By her second affidavit dated 22 January 2024 (“Fernandez 2”), Ms Fernandez led evidence relating to claims for confidentiality by Holdings in respect of documents, which were not pressed by Senior Counsel acting for Holdings in the hearing.

5. [7]

   Holdings also relies on the affidavit dated 22 December 2023 of one of its directors, Mr Seymour, who refers to aspects of its corporate history and the previous proceedings. Mr Seymour addresses aspects of the directors’ decision-making in respect of funding development costs of and a lease of part of a property situated at Luddenham Rd, Orchard Hills (“Luddenham Rd property”) owned by Atilol Holdings Pty Ltd (“Atilol”), a company controlled by Ms Younes. I address matters relating to that property in the chronology and in dealing with the applicable criteria for the grant of leave below. Mr Seymour was not cross-examined and it is preferable that I largely do not reach findings as to his substantive evidence, beyond the matters which need to be addressed in order to determine this application, where Holdings may rely on that evidence at a final hearing and it may then need to be addressed by a trial judge. Mr Seymour also briefly addressed the position in respect of the Edgecliff premises. Holdings also read an affidavit dated 15 December 2023 of Mr Spiros Contominas, who is the Specifications Manager of the Alspec business, which addresses issues relating to the Edgecliff premises.

6. [8]

   By a third affidavit dated 6 February 2024 (“Fernandez 3”), Ms Fernandez addressed Holdings entry into a Binding Heads of Agreement (“HOA”) with Atilol on that date, about a week before the commencement of this hearing. Holdings now places substantial weight on that agreement in order to resist the grant of leave to VIPL to bring derivative proceedings in respect of the Luddenham Rd property. Holdings also tendered its 2023 financial report (Ex D1.1) and evidence of the qualifications of the members of the Orchard Hills Committee (Ex D1.2).

7. [9]

   Ms Younes and LIPL read the affidavit dated 15 December 2023 of their solicitor, Ms Russell (“Russell 1”). Ms Russell noted that Ms Younes was one of the five directors of Holdings, Holdings was the holding company of the companies known as the Alspec Group, and the business operations of the Group were conducted by another entity, Aluminium Specialities Group Pty Ltd (“ASG”). Ms Russell noted that Ms Younes had been the domestic partner and later the wife of Mr Miller, a founder of the Alspec Group. It appears that Ms Younes is also the ex-wife of the current chief executive of the Alspec Group, Mr Nakhle, who plays a significant role in the events to which I refer below. Ms Russell identifies Ms Younes’ role as a director and shareholder of other companies including LIPL and Youla Holdings Pty Ltd (“Youla”) which sold a very substantial motor yacht to Holdings. Ms Russell contends that VIPL’s application for leave to bring the proposed derivative proceedings is not brought in good faith, referring to the commencement of earlier proceedings by VIPL and other minority shareholders of Holdings. That proposition has the difficulties that, as I noted above, the events which are the subject of these proposed proceedings largely took place after the other proceedings concluded; second, the Takeovers Panel did not determine the application brought before it, partly because it would be preferable that a Court do so, and that is hardly a reason for a Court not to do so; and, third, that it does not engage with the merits of the claims that VIPL seeks to bring on behalf of Holdings.

8. [10]

   Ms Russell also there outlined events relating to Ms Younes’ and Atilol’s acquisition of the Luddenham Rd property. Although no objection is taken to that evidence, it is not apparent Ms Russell had any personal knowledge of many of those events and her evidence is presumably given on instructions from Ms Younes who did not give evidence. Ms Russell also gives evidence, by way of assertion, as to Ms Younes’ lack of involvement in decision-making regarding the acquisition of the “corporate boat” from Youla and as to her lack of involvement in decision-making regarding the purchase of the Edgecliff premises by a company associated with Mr Nakhle. By a second affidavit dated 13 February 2024, Ms Russell referred to correspondence between the parties relating to the question whether the claims brought by VIPL could be raised in the oppression proceedings rather than in derivative proceedings. Ms Younes and LIPL also tendered further correspondence between the parties’ solicitors (Ex D2.1) directed to the circumstances in which the Court will grant leave to bring derivative proceedings, where an oppression claim is also under way.

9. [11]

   I now set out a brief chronology of some matters of general significance, which I have drawn partly from a helpful chronology prepared by VIPL, partly from the affidavit evidence and partly from the documentation to which I was taken in the course of the proceedings. I will set out the chronology of events relating to particular claims in dealing with whether a serious question to be tried is established in respect of those claims. ASG was incorporated in August 1974 (Platford 1, [40]). Mr Gates, the husband of Ms Gates, whom is the principal of VIPL, worked with the Alspec Group for many years from 1978 on (Platford 1, [41]). Holdings was incorporated in 1981 as the holding company of the Alspec Group (Platford 1, [42]-[43]). From October 1983 on, Holdings issued shares to employees who became minority shareholders in Holdings (Platford 1, [47]). Holdings and other companies in the Alspec Group have operated from premises at Eastern Creek since 2004 (Seymour, [77]-[78]). Until 2010, Ms Younes was married to the current chief executive of the Alspec Group, Mr Nakhle (Platford 1, [37]). Subsequently, in November 2017, she married Mr Millard, the then controlling shareholder of Holdings (Platford 1 [37], Russell 1 [7]).

10. [12]

    By about November 2018, Mr Millard had become dissatisfied with the then board of Holdings (Seymour, [31]). Oppression proceedings were commenced by several shareholders in November 2018; Mr Seymour and Ms Younes were appointed as directors of Holdings on 6 December 2018 (Seymour, [48], [53]); and the then oppression proceedings were quickly settled and discontinued on 12 December 2018 (Platford 2, [26]). Messrs Barraket, O’Neill and Nakhle were then also appointed as directors of Holdings in April 2019 (Seymour, [53]; Fernandez 1, [76]) and Mr Nakhle was appointed as chief executive officer of Holdings and Mr Barraket as chair of Holdings (Ex J1, 2245). On 26 March 2021, Ms Younes, through interposed companies, became the indirect majority shareholder of Holdings, then holding 56.62% of its shares (Ex J1, 2061-2062; 2100 - 2102, 2139).

11. [13]

    On 5 October 2023, VIPL notified Holdings of its intention to apply for leave to bring a derivative action (Ex J1, 2350; Platford 1, [106]).

Applicable principles

1. [14]

   Counsel referred to the principles applicable to the grant of leave under s 237 of the Act and I have drawn below on Counsels’ submissions and my summary of those principles in Re Legal Practice Management Group Pty Ltd [2018] NSWSC 527 at [50]–[54] (“Legal Practice Management Group”); Re Global Advanced Metals Pty Ltd (2019) 141 ACSR 222; [2019] NSWSC 1804 (“Global Advanced Metals”) and Mount Gilead Pty Ltd & Hobhouse v L Macarthur-Onslow (2021) 398 ALR 629; [2021] NSWSC 948 (“Mount Gilead”), affirmed by the Court of Appeal in Mount Gilead Pty Ltd v Macarthur-Stanham (as executor of Estate of late Lee Macarthur-Onslow) (2023) 168 ACSR 32; [2023] NSWCA 37. In an application for leave to bring statutory derivative proceedings, VIPL must satisfy the criteria for the grant of leave specified in s 237(2) of the Act. In order to grant leave under that section, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. Those matters are that it is probable that Holdings will not itself bring the proceedings; VIPL is acting in good faith; it is in Holdings’ best interests that VIPL be granted leave; there is a serious question to be tried; and at least 14 days before making the application, VIPL gave written notice to Holdings of her intention to apply for leave and of the reasons for applying, or the Court should dispense with that requirement.

2. [15]

   VIPL bears the onus of establishing that each of these matters is satisfied on the balance of probabilities: Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583 (“Swansson”) at [26]; Huang v Wang. If all the requirements of s 237(2) are satisfied, the Court must grant leave to bring the proposed proceedings. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12]–[13]. Whether an application for leave under s 237 of the Act is treated as final or interlocutory, leave to bring a derivative action is not given lightly: Swansson at [24]. No party sought to rely on the statutory presumption in s 237(3) of the Act in this application. It is common ground that VIPL has standing to bring a claim under s 237 of the Act, satisfying the standing requirement in s 236 of the Act where it is a shareholder which holds 46,834 shares in Holdings, comprising about 17% of issued shares in Holdings.

Whether Holdings will bring the proceedings

1. [16]

   Holdings accepts, and the other Defendants do not contest, that the first of the requirements for a grant of leave to bring a derivative action under s 237(2)(a) of the Act, that it is likely that Holdings would not itself bring the proceedings, is satisfied.

Whether VIPL is acting in good faith

1. [17]

   The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Act, is that VIPL must establish to the Court’s satisfaction that she is acting in good faith. Factors relevant to the good faith requirement at least include whether VIPL has an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief, and whether VIPL is seeking to bring the action for a collateral purpose.

2. [18]

   In Swansson, Palmer J (at [36]) observed that:

3. [19]

   Palmer J also there observed (at [42]) that where those in control of a company refuse to take proceedings to redress a wrong which appears to have been done to it, the Court should permit a derivative action to be instituted by those within the categories allowed by s 236(1) of the Act, and that such a person:

4. [20]

   That observation was approved in Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661; [2008] NSWCA 52 (“Chahwan”) at [70] and Tobias JA there noted (at [74]) that:

5. [21]

   It is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant’s shares would be increased, and VIPL plainly falls within that category where it has a significant shareholding in Holdings : Swansson at [38]; Re Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432; [2011] NSWSC 1235 (“Gladstone Pacific Nickel”) at [58]; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Limited [2012] NSWSC 462.

6. [22]

   In Re Lotus Property Fund No 8 Pty Ltd [2020] NSWSC 1349 at [75]-[76], Stevenson J in turn observed that:

7. [23]

   I accept that several factors identified by VIPL support a finding that VIPL holds an honest belief in the existence of good causes of action and is acting in good faith in respect of the claims. First, I will find below that there is a serious question to be tried in respect of each of the claims; VIPL has proposed arrangements, which the Defendants now accept are satisfactory, to indemnify Holdings in respect of its potential liability to costs in respect of the proposed proceedings; and it is apparent that VIPL has devoted significant efforts to preparation of its claims and to the identification of the documentary evidence that supports them. Second, a recovery, whether of the amount paid to Atilol to date in respect of the Luddenham Rd transaction and interest, or a portion of the profit made by Atilol on a rezoning of the Luddenham Rd property, would increase Holdings’ assets and the corresponding value of VIPL’s shares in Holdings.

8. [24]

   Mr Yezerski, with whom Mr Hord appears for VIPL, acknowledges that there has been a history of disputes between VIPL and Holdings or its indirect majority shareholders. Mr Withers, with whom Mr Puttick and Ms Dyon appear for Holdings, in turn pointed to the discontinuance of proceedings previously brought by VIPL to seek access to books and records of Holdings, without acknowledging that that occurred after Holdings produced those books and records for VIPL’s inspection; and pointed to VIPL’s lack of success in proceedings in the Takeover Panel, without recognising the Panel’s observation that the relevant matters were best determined by a Court, a result that VIPL now seeks. It seems to me that that history does not deprive VIPL of good faith and, instead, reflects previous issues as to the management of Holdings, and that is more rather than less reason to find that VIPL is acting in good faith in bringing the proceedings.

Whether a serious question to be tried is established against the several Defendants

1. [25]

   The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Act, is that the grant of such leave is in Holdings’ best interests. I will defer dealing with this question until after I have addressed the question whether a serious question to be tried is established. The fourth requirement for the grant of leave, under s 237(2)(d) of the Act, is that there is a serious question to be tried in the proceedings, which has to be determined in respect of each of the several Defendants and by reference to the three transactions as to which VIPL seeks to bring claims on Holdings’ behalf.

2. [26]

   In Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534; [2002] NSWSC 640 at [34], Barrett J observed that:

3. [27]

   Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd (2010) 79 ACSR 293; [2010] FCA 763 (“MG Corrosion”) at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra (2011) 82 ACSR 367; [2011] FCAFC 31.

4. [28]

   In Gladstone Pacific Nickel, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]):

5. [29]

   I have referred above to the authorities which indicate that the test for a serious question to be tried is a “relatively low threshold”: Swansson at [25]; Gladstone Pacific Nickel at [56]. An application of this character does not involve a consideration of the underlying merits of the proposed litigation, except to the extent that it is necessary to determine whether there is a serious question to be tried and it will not generally be appropriate for the Court to attempt to resolve disputed questions of fact in such an application: Swansson at [25]; Gladstone Pacific Nickel at [56]; Huang v Wang at [60]: Legal Practice Management Group at [94]. The need for evidence to establish the factual basis of a serious question to be tried was noted in Charlton v Baber (2003) 47 ACSR 31; [2003] NSWSC 745, where Barrett J held that a serious question to be tried in respect of a breach of directors’ duties was not established, where an assertion of loans on uncommercial terms and without adequate security was not supported by evidence of the terms of the loans. The need for evidence to support such claims was also recognised by Gilmour J in MG Corrosion at [141], approved in Hannon v Doyle (2011) 82 ACSR 259; [2011] NSWSC 10 at [48].

6. [30]

   The parties and particularly Holdings devoted considerable attention to a close review of VIPL’s pleaded case and the evidence supporting it. I proceed on the basis that it is not necessary for VIPL to establish that it can presently prove, by admissible evidence, each paragraph to its claims and each particularised matter in order to establish a serious question to be tried in respect of its substantive claims against the Defendants and proposed Defendants. I should only determine what is necessary to determine whether it has established such a question, where other matters will have to be determined by a trial judge at a hearing. I largely do not address the parties’ submissions as to whether VIPL, on Holdings’ behalf, could or could not establish matters which may provide alternative bases for relief, where I find that it can establish a serious question to be tried as to at least one basis for relief in respect of each of the challenged transactions against the relevant Defendants.

7. [31]

   I now turn to the structure of the claim that VIPL seeks to bring on Holdings’ behalf. I have here drawn on the proposed SOC that is annexed to Ms Platford’s first affidavit and the note of proposed changes to it that was provided in the course of submissions (MFI 1) and a helpful table prepared by VIPL, which identifies those parts of the proposed SOC that relate to the oppression claim and the derivative claim (MFI 2). Prayers 3 – 11 of the proposed SOC set out the relief that VIPL seeks to claim on Holdings’ behalf claimed which, importantly, includes a claim for compensation under s 1317H of the Act against Ms Younes, Mr Nakhle and Messrs Seymour, O’Neill and Barraket and a claim for compensation against Atilol under that section. I will refer to the basis on which compensation can be calculated under that section below. VIPL also seeks to bring a claim for Holdings for an account of profits made by Ms Younes and Mr Nakhle from their alleged breaches of fiduciary duty and a claim for an account of profits made by Atilol on the basis that it is Ms Younes’ or Mr Nakhle’s alter ego or on the basis of knowing receipt or knowing assistance.

8. [32]

   Paragraphs 66–127 of the proposed SOC plead matters relating to the Luddenham Rd property, to which I will shortly turn, which are also relied on in respect of the oppression claim. It appears to be common ground that Ms Younes was the sole shareholder of Atilol from 27 March 2013 until late March 2022, and its sole director until 14 March 2022, when Mr Nakhle’s and Ms Younes’ daughter replaced her in those positions. The proposed SOC pleads that, but it is not necessary to decide whether, Ms Younes remained a director of Atilol within the extended meaning of s 9 of the Act after 14 March 2022. The proposed SOC also pleads (at [78]) that Mr Nakhle was a director of Atilol within that extended meaning, or alternatively was an attorney for Atilol on several occasions and owed fiduciary duties to Atilol arising from that role. The parties drew attention to the factual matters relating to those allegations and to the applicable case law. It is not necessary for me to address those allegations and it is preferable not to do so where they will likely need to be addressed by a trial judge, where those allegations are not necessary to establish a seriously arguable claim by Holdings against Ms Younes or Mr Nakhle.

9. [33]

   Paragraphs 128–135 of the proposed SOC deal with the purchase of a “corporate boat” from Youla, a company controlled by Ms Younes, a matter which is also relied on in the oppression claim. Paragraphs 136-147 of the proposed SOC deal with the circumstances in which Lopana Pty Ltd (“Lopana”), a company owned by Mr Nakhle, purchased the Edgecliff premises in which a subsidiary of Holdings had a showroom and Holdings paid a substantial amount of rent in advance to assist him to do so, and is a matter also relied on in the oppression claim. Paragraphs 171-187 of the proposed SOC plead claims for breach of directors’ duties and paragraphs 188-205 plead accessorial liability of Atilol to Ms Younes’ and Mr Nakhle’s alleged breaches of duty.

The proposed claim as to the Luddenham Rd property

1. [34]

   As I noted above, paragraphs 66–127 of the proposed SOC plead matters relating to the Luddenham Rd property. In opening submissions, Mr Yezerski summarises the claim which VIPL seeks to bring on behalf of Holdings in respect of the Luddenham Rd property as follows:

2. [35]

   Mr Yezerski emphasises that it appears to be common ground that the directors of Holdings caused it to expend in excess of $5 million developing the Luddenham Rd Property without securing any contractual commitment from Atilol in relation to that property, until after the proceedings were commenced and immediately before this hearing.

3. [36]

   Mr Withers, for Holdings, in turn provides a detailed narrative of the factual basis of the Luddenham Rd transaction, largely directed to the proposition that it is desirable for Holdings to move from its current Eastern Creek premises to the Luddenham Rd property, implicitly, if a rezoning of the property is ultimately achieved and a suitable facility is ultimately constructed on that property. It does not, of course, follow from the suggested desirability of that outcome that it is desirable for Holdings to achieve that result on any terms. Mr Withers also emphasises Ms Younes’ disclosure of her interest and abstention from discussions concerning the transaction and I address the case law concerning that matter below.

4. [37]

   I now turn to the chronology of events in respect of the Luddenham Rd property. The owner of that property, Atilol, was incorporated on 27 March 2013 with Ms Younes as its sole shareholder and director (Platford 1 [59]; Ex J1, 3304). In May 2013, Atilol contracted to purchase a first portion of the Luddenham Rd property with a completion date of 31 December 2015. That land was then zoned as RU2 rural landscape land (Platford 1 [72]; Russell 1 [31]; Ex J1, 2268, 2270, 3085). In August 2015, Atilol contracted to purchase the second portion of the Luddenham Rd property with the same zoning (Platford 1 [72]; Russell 1 [34]; Ex J1, 2268, 3086).

5. [38]

   At a board meeting of Holdings on 30 August 2018, the then board of Holdings discussed relocating from Alspec Group’s Eastern Creek premises within about two to three years (Seymour, [83]). Nonetheless, on 20 August 2019, a lease of the Eastern Creek Premises between ASG as lessee and A S Group Properties Limited (“ASGP”) as lessor was executed by Mr Nakhle and Mr Seymour for ASG and by Mr Nakhle and Mr Woolcott for ASGP (Ex J1, 2274; Platford 1, [68]).

6. [39]

   The minutes of Holdings’ board meeting on 24 April 2020 (Ex J1, 1235; Platford 1, [74]-[75]; Seymour, [94]; Fernandez 2, [21]) refer to capacity issues with Alspec Group’s Eastern Creek premises and observe that:

7. [40]

   Mr Yezerski submits, with considerable force, that:

8. [41]

   By a memorandum dated 4 May 2020 from Mr Nakhle (Ex J1, 1238; Seymour, [102]) addressed to Ms Younes (notwithstanding that she had previously abstained from discussion on the matter) and three other board members, Mr Nakhle attached cashflow requirements relating to “rezoning this proposed new land at Orchard Hills owned by Atilol PL, Ms Lolita Younes (Millard)”. Mr Nakhle referred to the cost for the Alspec Group to buy land and build a new building and referred to a suggested scarcity of “raw zoned land” in Sydney and the expense of such lands. He also identified the elements of “this proposal”, and provided the board with a schedule identifying two options.

9. [42]

   Mr Yezerski submits, again with considerable force, that:

10. [43]

    It seems that Mr Nakhle’s analysis of the advantages of a move to the Luddenham Road premises conducted in 2020 (again, subject to rezoning occurring and any construction of those premises) did not take account of costs of the Alspec Group vacating the Eastern Creek premises and other premises which it leased, and any steps that would need to be taken to dispose of the Eastern Creek premises or use them for other purposes, where they were owned by another company in which Holdings had an interest. Mr Nakhle’s analysis also did not address the fact that Holdings interest in the company that owned the Eastern Creek premises had the result that a significant part of the economic benefit from the rent paid by ASG for those premises was retained within the Alspec Group, whereas rent paid to Atilol would not benefit the Alspec Group or its shareholders other than Ms Younes and possibly Mr Nakhle. Although Mr Nakhle’s spreadsheet analysed the cost of acquiring land, rather than leasing it from Atilol, it also seems to have taken no account of the fact that the land, once acquired, would be an asset of the Alspec Group which would have continuing and possibly increasing capital value. As Mr Yezerski points out, the figures contained in that spreadsheet also do not wholly correspond to those contained in the memorandum provided to directors.

11. [44]

    At a further board meeting on 5 May 2020, the Luddenham Rd proposal and funding of $600,000 for it to the end of September 2020 was discussed (Ex J1, 1244; Platford 1, [77]; Seymour, [105]; Fernandez 2 [21]). Ms Younes did not attend that meeting. There was reference to Mr Nakhle’s 4 May memorandum; further reference to the capacity issues concerning the Eastern Creek premises and the opportunity as to the Luddenham Rd property owned by Atilol which is again noted as an entity associated with Ms Younes, and the minutes record:

12. [45]

    On 24 June 2020, ASG as lessee and Atilol executed a non-binding proposed ground lease for part of the Luddenham Rd property (Ex J1, 1246; Platford 1, [78]; Seymour, [109]). That document recorded a commencing rent, although, presumably in consequence of the fact that agreement was not binding, ASG has recently agreed to pay a substantially higher “current estimate” of the initial rent, by an agreement dated 6 February 2024 which I address below. The 24 June non-binding proposed lease also provided that:

13. [46]

    Mr Yezerski submits that the manner in which that document was signed demonstrates that:

14. [47]

    Mr Yezerski also submits that:

15. [48]

    A draft memorandum dated 22 February 2021 from Mr Barraket to shareholders in Holdings (Ex J1, 1405) referred to the suggested relocation of the Alspec Group’s operations and stated that Holdings “is to fund the Penrith City Council approvals required for the Department of Planning and all relevant authorities”, consistent with what was contemplated by the 24 June non-binding lease; that the budget provided for Holdings to spend $4.213 million up to “commencement on site”; and that Holdings had expended $1.015 million on the Luddenham Rd proposal as at that date. There is no evidence that draft memorandum was sent to shareholders and there is evidence it was not sent to VIPL.

16. [49]

    On 28 April 2021, Ms Younes executed a Term Sheet for the development of Luddenham Rd property between Atilol as the landowner and HB&B as developer (Ex J1, 1535; Platford 1, [82]).

17. [50]

    On 14 March 2022, Ms Younes was replaced, or purportedly replaced, by Ms Michelle Nakhle, Ms Younes’ and Mr Nakhle’s daughter, as the sole director of Atilol (Ex J1, 3304; Platford 1, [37](c), [62], [87]) and, on 23 March 2022, Ms Younes transferred all shares in Atilol to Michelle Nakhle (Ex J1, 1675-6; Platford 1, [63], [88]).

18. [51]

    On 2 May 2022, ASG (as lessee) and Ms Younes (as lessor) executed a Letter of Intent (Ex J1, 1691; Platford 1, [92]) which recorded that Ms Younes was the owner of the Luddenham Rd property that was available for lease, presumably reflecting the reality of Ms Younes’ control of that property; recorded that that letter again did not create a binding agreement and was not enforceable; provided for an estimated rental price of $625,000 payable monthly (or about $7.5 million annually) commencing in July 2024, although it did not indicate whether that was inclusive or exclusive of GST; and provided for ASG to pay Ms Younes a bond deposit of $1.875 million on or before 1 July 2024, although it is not apparent that there was then any realistic prospect that the relevant premises would be available for ASG to occupy by that time. That document was executed by Ms Younes as landlord and provided for execution by Mr Nakhle as chief executive officer of ASG, although the document in evidence is not executed by Mr Nakhle. It appears this document was prepared for submission in respect of the New South Wales Government Jobs Plus Program (Ex J1, 1692) and, in May 2022, Holdings submitted a “Jobs Plus Program Application” to that program (Ex J1, 1705; Platford 1, [90]). In opening, Mr Yezerski submits, again with force, that:

19. [52]

    On 28 June 2022, Mr Nakhle executed the transfer of part of the Luddenham Rd property to a third party, under a power of attorney for Atilol in its capacity as trustee of the Atilol Family Trust (Ex J1, 1729: Platford 1, [61]) and that sale appears to have completed on 19 August 2022 for $6,658,740 (Ex J1, 1727; Platford 1, [94]). That sale price suggests that the value of the Luddenham Rd property had significantly increased by that date.

20. [53]

    As I noted above, on 5 October 2023, VIPL notified Holdings of its intention to apply for leave to bring a derivative action (Ex J1, 2350; Platford 1, [106]). On 12 October 2023, a non-binding HOA between Atilol and Holdings was prepared but not executed (Ex J1, 2361; Seymour, [118]). VIPL commenced these proceedings and sought leave to bring the derivative proceedings on 20 October 2023.

21. [54]

    By circular resolution dated 22 November 2023 signed by Mr Barraket as chair and Messrs Seymour and Bertram as directors, the board of Holdings noted that Holdings had previously expended funds “in respect of a proposed relocation” to the Luddenham Rd property (implicitly, after any rezoning occurred and a building was constructed) and that ASG was contemplating entering an HOA in respect of the property and resolved to engage the solicitors acting for it in these proceedings to commission the “Orchard Hills Committee” which was asked to express a view as to whether the non-binding HOA was reasonable (Ex J1, 2395; Seymour, [120]). That circular resolution noted that Mr Nakhle and Ms Younes had recused themselves from considering and voting on the resolution, but did not identify any interests in the matter that led them to do so. That note raises several questions. First, by this time, Ms Younes had apparently been replaced by her daughter as director and shareholder of Atilol and the nature of any continuing interest in that company that might require that she not participate in this meeting was not identified; and, second, the nature of Mr Nakhle’s interest that might require that he not participate and why he could previously promote the transaction as chief executive and participate in previous directors’ meetings but could not now participate in this meeting was also not identified. Mr Puttick speculated in closing submissions, without evidence, that Mr Nakhle disqualified himself because he was a proposed defendant in these proceedings, but so were Messrs Barraket and Seymour who did not disclose any interest or withdraw from that meeting and voted on that resolution despite its likely connection with the proceedings.

22. [55]

    Knight Frank prepared a valuation report (rental assessment) for the Luddenham Rd property as at 24 November 2023 (Ex J1, 3561). Holdings did not seek to tender that document as an expert report and only tendered it subject to the limitation which I have noted above. The Orchard Hills Committee was briefed on relevant background by a memorandum dated 27 November 2023 from the solicitors acting for Holdings in these proceedings (Ex J1, 2410), which Holdings accepted should only be admitted on the basis that it was proof of the process adopted in respect of the property, rather than evidence of the proof of any fact asserted in it. On 27 November 2023, a further non-binding proposed HOA between Atilol and ASG was prepared but not executed (Ex J1, 3045; Seymour, [119]). On 13 December 2023, the Orchard Hills Committee was provided with an updated version of a Knight Frank valuation report (Ex J1, 3588; Seymour, [122]), which Holdings also tendered not as an expert report and subject to the same limitation as the earlier report. VIPL advances several criticisms of the approach adopted in the Knight Frank reports, which it is not necessary to address where Holdings did not seek to tender those reports as expert evidence or establish the truth of the facts assumed by Knight Frank or of the conclusions that it reached.

23. [56]

    On 14 December 2023, the Orchard Hills Committee provided its written opinion to the solicitors acting for Holdings in the proceedings (Ex J1, 3087; Seymour, [123]). Holdings tendered that opinion subject to the limitation that it was proof of the process adopted in respect of the property, rather than as evidence of the proof of any fact asserted in it. The Committee identified relevant questions as:

24. [57]

    The executive summary of the Committee’s opinion indicated that:

25. [58]

    In expressing that view, the Committee also expressly assumed that there were no other currently available premises that would meet ASG’s needs, although it noted a matter referred to in a report of a real estate consultant which may be inconsistent with that assumption. It also expressly referred to the “considerable timing, and potential cost, risk associated with proceeding in accordance with the HOA” and assumed that the HOA and final documentation would include appropriate protection for ASG if the project was late or not completed by a specified date, and identified several issues and points for consideration in respect of the HOA. That Committee’s opinion is of little or no assistance here, because the assumptions on which it is based are not established. In any event, that Committee, understandably, appears to have addressed the position as it stood in December 2023, rather than the question how Holdings found itself at that time without any right to occupy the Luddenham Rd property, notwithstanding that it had spent nearly $5 million in order to fund development approval for the whole of that property, as to which it was to occupy a smaller part.

26. [59]

    On 19 December 2023, a further proposed HOA between Atilol and ASG was prepared and not executed (Ex J1, 3093; Seymour, [124]). That document recorded that, by that date, ASG had spent $4,941,989 (excluding GST) (or $5,436,187.90 including GST), on developing and rezoning the Luddenham Rd property. In opening submissions, Mr Yezerski submits that had occurred notwithstanding that:

27. [60]

    On 20 December 2023, the board of Holdings noted the report of the Orchard Hills Committee and a proposed HOA between Atilol and ASG and the suggested benefits of relocating to Orchard Hills (implicitly, if a rezoning occurred and the new premises were constructed) and resolved to approve that HOA. The minutes (Ex J1, 3106) recorded that the Chair had requested Mr Nakhle and Ms Younes not attend the meeting “due to their material personal interest in the matter to be discussed.” That request raises the same questions that I noted above in respect of the 23 November circulating resolution.

28. [61]

    On 6 February 2024, shortly before this hearing commenced, Ms Nakhle for Atilol and Mr Barraket and Mr Seymour for ASG executed a binding HOA between ASG and Atilol relating to the development and lease of the Luddenham Rd property (Fernandez 3, Annexure A). Despite its title, that agreement still does not provide a binding rental for the premises to be occupied by ASG (if they are ultimately developed), but only a “current estimate” of the initial rent at a level that significantly exceeds the rental contemplated by the previous non-binding HOA, and it provides for a rental incentive. That agreement again records that, as at 31 January 2024, ASG had incurred costs in excess of $4.9 million, exclusive of GST, to develop the Luddenham Rd property and contained a somewhat self-serving statement that:

29. [62]

    That binding HOA does not provide for a credit for development costs already paid by Holdings or ASG against future rental payable if the lease proceeds. It provides for termination of the agreement for lease if development is not obtained by a specified Approval Sunset Date, and practical completion does not occur by a specified date, although those dates may be extended, and also does not provide for repayment of the amounts paid out by ASG on termination of the lease for those reasons, but only if a rezoning is not obtained.

30. [63]

    VIPL does not presently rely on the terms of this agreement to support the proposed claim by Holdings which is directed to events which precede this document. Holdings places substantial weight on this document in answer to that claim. It does not seem to me that this agreement could deprive that claim of the features necessary to satisfy s 237 of the Act, where it is not capable of extinguishing any breaches which had previously occurred; Holdings does not seek to prove the truth of the assumptions that underly the opinion of the Orchard Hills Committee as to the terms of the agreement or the correctness of that opinion; the agreement does not provide for repayment of the development costs paid by Holdings or ASG if the lease proceeds, or allow a credit for them against future rental, or provide for their repayment if the lease does not proceed other than by reason of a failure to obtain rezoning; and an unsecured contractual right to repayment of a substantial amount in specified circumstances is, obviously enough, not the same as that money in Holdings’ bank account.

31. [64]

    I should add that VIPL also relies, in respect of the Luddenham Rd property, on a report dated 1 February 2022 of Mr Kempthorne, a certified valuer, which was tendered as an expert report and in order to prove the truth of its content. Mr Kempthorne has extensive experience in the leasing, management and valuation of major commercial and industrial investments and confirmed his compliance with the Expert Witness Code of Conduct. His evidence was that it was not ordinary or reasonable commercial practice for a commercial lessee to fund the rezoning costs for property owned by an unrelated potential lessor without any binding and legally enforceable agreement between those parties. Mr Kempthorne also expressed the view, unsurprisingly, that the view taken by the Orchards Hill Committee provided no assistance in determining whether Holdings or ASG could have negotiated binding and more favourable terms with a potential lessor of the Luddenham Rd property or a similar property in 2020. He noted that the market for industrial land for rent in outer western Sydney in 2020 was favourable for prospective tenants by reason of the large amount of prime industrial space that was available to prospective tenants; that rents for industrial space were increasing in 2020, so that it was imperative in 2020 that prospective tenants secure binding lease arrangements so as to lock in the then favourable terms available; and that prospective tenants were then obtaining incentives for long-term leases in the vicinity of 12-15% of the gross annual rent over the life of the lease. There is no reason to doubt Mr Kempthorne’s evidence as to these matters where Holdings, Ms Younes and Atilol do not seek to lead probative evidence to the contrary.

32. [65]

    VPIL seeks to bring claims that Holdings’ directors (other than Ms Younes) breached their equitable and statutory directors’ duties by their conduct in respect of the Luddenham Rd property, including the statutory duty of care and diligence under s 180 of the Act and the similar equitable (although non-fiduciary) duty. The applicable principles are well established and it is sufficient to refer to my summary of them in Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 (“Colorado”) at [408] as follows:

33. [66]

    I also recognise that the question whether this duty is breached requires balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450; 11 ACSR 162 at 209; Re FAL Healthy Beverages Pty Ltd [2017] NSWSC 476 at [55].

34. [67]

    In summary, VIPL summarises the case that it seeks to bring on Holdings’ behalf in respect of the Luddenham Rd property against Holdings’ directors (other than Ms Younes) as follows:

35. [68]

    Mr Withers characterises this claim somewhat differently, as follows:

36. [69]

    I have addressed the limited basis on which Holdings tendered evidence as to the terms of the transaction above, which has the result that it cannot establish the transaction is on arm’s length terms or that its benefits will exceed its costs. Mr Withers also emphasises the steps that Holdings has now taken in respect of establishing the Orchard Hills Committee to assess the transaction, but I have pointed above to the reasons, involving both limits to the Committee’s view and the legal character of the relevant claims, that have the consequence that that does not assist Holdings.

37. [70]

    Mr Withers also submits that:

38. [71]

    It seems to me that there are two fundamental difficulties with this submission. The first is that the proposition that Holdings had “not been able to identify anything suitable” has, at best, a slender evidentiary foundation, to seek to establish the (perhaps surprising) position that there was one and only one available site in the whole of greater Western Sydney for Holdings’ relocation which was, by coincidence, owned by Atilol. The second is that the suggestion that Holdings was justified in advancing funds for rezoning and development costs, if correct, does not have the consequence that it was justified in doing so without obtaining any binding right to occupy the premises or have those funds repaid with interest if it was unable to do so, or documenting the relevant arrangements.

39. [72]

    Mr Withers submits that:

40. [73]

    Again, I do not accept that submission excludes a seriously arguable case against the relevant Defendants, where the matters to which Holdings refer again do not provide an explanation for advancing the substantial funds to Atilol without acquiring a right to occupy the property or documenting the transaction. For completeness, I note that Holdings does not expressly rely on s 237(3) of the Act, in respect of proceedings against a third party. It is unlikely that that section could apply, where it appears that none of the Defendants in this matter are a “third party” for the purposes of s 237(4) of the Act, since each of them would be a related party of the company if it were a public company. If s 237(3) of the Act applied, I would have found that the rebuttable presumption contained in that section was rebutted, having regard to the matters to which I refer in this judgment.

41. [74]

    Mr Withers also submits that any contention that Holdings board failed adequately to conduct due diligence is rebutted, albeit after the event:

42. [75]

    The claim that VIPL seeks to bring for Holdings is plainly not limited to an attack on the process adopted by Holdings’ board and at least extends to its substantive outcome, that Holdings expended in the order of $5 million in development costs without obtaining any legal right to occupy the premises, at least prior to the rights that it obtained under the recent binding HOA, which I noted above do not fix the rent payable or secure repayment of the development costs it has paid in a range of outcomes. I am also not persuaded this proposition displaces or substantially undermines a seriously arguable case against the Defendants, for the reasons that I have noted above in respect of the Knight Frank reports and Orchard Hills Committee conclusion, including the limited basis on which Holdings sought to tender them and the matters that were left unresolved by them.

43. [76]

    Mr Withers emphasises Mr Seymour’s evidence as to the benefits of relocating the Alspec Group’s business to the Orchard Hills property (Seymour [126]-[129]). It seems to me that these matters also do not deprive the claim that VIPL seeks to bring for Holdings of its character as raising a serious question to be tried, where the fact that the transaction, when documented, would be in Holdings’ interests has not been established here, by reason of the limited basis on which Holdings tendered the Knight Frank reports and the recommendation of the Orchard Hills Committee; and, in any event, that fact would not answer the seriously arguable breaches of duty which had occurred between 2020 and 2024, in Holdings advancing substantial funds for the benefit of Atilol without obtaining a right to occupy the Luddenham Road property or documenting the basis on which that was done.

44. [77]

    In summary, VIPL here contends that each of the relevant directors of Holdings breached duty of care and diligence by endorsing the Luddenham Rd proposal in the circumstances on 24 April 2020; causing or permitting Holdings to spend up to $600,000 by the end of September 2020 on the Luddenham Rd proposal; approving the execution of the proposed lease terms on 24 June 2020; failing to take steps by 24 June 2020 (at the latest) to ensure that Mr Nakhle was excluded from any decisions or actions in connection with the Luddenham Rd proposal in circumstances where his conflict of interest was apparent; and authorising or permitting the funds of Holdings or the Alspec Group to be spent on the rezoning and development of the Luddenham Rd property; and approving the execution of the letter of intent on 2 May 2022. I am comfortably satisfied, for the reasons set out in my account of the facts above, that a serious question to be tried is established in respect of this claim against Holdings’ directors other than Ms Younes (who did not participate in the relevant meetings).

45. [78]

    VIPL also seeks to bring claims under ss 181 and 182 of the Act and at general law against Ms Younes and Mr Nakhle. In opening submissions, Mr Yezerski submits that:

46. [79]

    The parties addressed the question whether there is a seriously arguable case that Ms Younes breached those duties despite her not participating in Holdings’ board meetings in respect of the development and lease of the Luddenham Rd property. The case law indicates that the duties of a conflicted director will not necessarily be satisfied by that director disclosing his or her interest in a transaction and refraining from voting on the transaction: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109; 12 ACLC 674 (on appeal from Permanent Building Society (in liq) v McGee above); Fitzsimmons v R (1997) 23 ACSR 355; 15 ACLC 666; Adler at [735(4)] where Santow J summarised the applicable principle as follows:

47. [80]

    This issue was also addressed, albeit in respect of s 184 of the Act, in Duncan v Independent Commission Against Corruption [2016] NSWCA 143; see also R Teele Langford and I M Ramsay, “Conflicted Directors: What is Required to Avoid a Breach of Duty” (2014) J Eq 108.

48. [81]

    It seems to me that Mr Withers’ subtle attempt to distinguish those cases, or restrict them to circumstances where matters were known to one director and not others, is not sufficient to exclude a seriously arguable case that these principles are applicable here.

49. [82]

    Mr Withers also submits that:

50. [83]

    Mr Withers then placed significant weight upon these matters in oral submissions, before, at the conclusion of oral submissions, he reversed Holdings’ position and accepted that there was a serious question to be tried that Ms Younes was in a position of power and influence over Holdings board, by reason of the matters pleaded in the relevant paragraphs of the draft Statement of Claim, where Ms Younes and associated entities had previously made a submission substantially to that effect before the Takeovers Panel.

51. [84]

    In opening submissions, Mr Withers also submitted for Holdings that:

52. [85]

    It seems to me that this submission does not answer the fact that, as I have noted above, from 2020 until immediately prior to this hearing, Holdings had paid substantial funds for development costs for the Luddenham Rd property for Atilol’s benefit without obtaining either a right to occupy that property or documenting the basis on which those funds were paid for that purpose. The second half of the paragraph is undermined by the concession now made by Holdings as to Ms Younes’ power and influence over Holdings’ board.

53. [86]

    It seems to me that a seriously arguable case for breach of duty is available against Ms Younes on this basis, where it is seriously arguable that she must have known that the entry into an arrangement where Holdings or ASG would spend substantial funds for Atilol’s (and, indirectly, her) benefit without then having any right to occupy the Luddenham Rd premises (if a rezoning was obtained and they were then constructed) was manifestly disadvantageous to Holdings, and there is a seriously arguable case that she breached ss 181 or 182 of the Act or the broadly corresponding fiduciary duties by not exercising the influence which it is now accepted she had over Holdings’ decision-making to prevent that occurring. I am satisfied that a serious question to be tried is established in respect of the claim against Ms Younes in respect of the Luddenham Rd property for these reasons.

54. [87]

    The parties also addressed the question whether Mr Nakhle arguably breached those duties, which partly depends on whether he is a de facto or shadow director of Atilol, or owed duties to Atilol as its agent or attorney that were in conflict with his duties owed to Holdings. Mr Withers, although appearing for Holdings rather than for Mr Nakhle, vigorously contended that claim was not arguable. It is not necessary to address that question, where there is at least a serious question to be tried that Mr Nakhle breached s 180 of the Act and the corresponding general law duty by permitting Holdings to expend substantial funds without acquiring any right to occupy the Luddenham Rd property and that is sufficient to satisfy the requirement for a serious question to be tried for the claim against him in respect of the Luddenham Rd property.

The proposed claim as to the “corporate boat”

1. [88]

   As I noted above, paragraphs 128–135 of the proposed SOC deal with the purchase of a “corporate boat” from Youla, a company controlled by Ms Younes, a matter which is also relied on in the oppression case. In opening submissions, Mr Yezerski describes the claim that VIPL seeks to bring for Holdings in respect of the “corporate boat” as follows:

2. [89]

   I now set out the chronology of events in respect of the proposed claim as to the purchase of a “corporate boat” from Youla. In late 2019 or early 2020, Mr O'Neill, the Alspec Group’s National Marketing Manager and a proposed Defendant in his capacity as a director of Holdings, engaged Indesign Media Asia Pacific (Indesign) to consider marketing strategies and Indesign sent Mr O’Neill a two page report (Fernandez 1, Ex J1, 1096-7) setting out a four-point marketing plan which referred to offering “corporate hospitality”, including by reference to:

3. [90]

   By a marketing report dated 4 February 2020 (Ex J1, 1155; Platford 1, [98]; Fernandez 1, [86]), Mr O’Neill also referred to corporate hospitality conducted by the Alspec business and recorded that:

4. [91]

   An attached “SWOT Analysis” identifies many “strengths” of the purchase of a corporate boat; three suggested “weaknesses”, of which one is a suggested benefit, and includes several photographs of large motor yachts; and concludes that:

5. [92]

   In opening submissions, Mr Yezerski points to the suggested “deficiencies” in that report and points out that:

6. [93]

   Ms Fernandez’s evidence is that Holdings’ board considered this report at a board meeting on 18 February 2020, although no further steps were taken until 2021. The purchase of a “corporate boat” was again discussed at a board meeting on 23 September 2021, contemplating an expenditure in the range $1.2 million to $1.8 million (Ex J1, 1576); Fernandez 1, [88]-[91]). Mr O’Neill there referred to corporate opportunities including a company boat and the board “supported Mr O’Neill’s recommendation to explore the strategic brand opportunities and revert with specific details and costings”. A suitable vessel was then identified promptly which was, perhaps by coincidence, available for sale by Youla, a company wholly owned by Ms Younes. Ms Fernandez’s evidence is that, after the 23 September 2021 board meeting, Mr O'Neill became aware that Youla owned a yacht which might be “suitable” for the Alspec Group and that, in late October 2021, Mr O’Neill conducted internet searches for listings of vessels similar to that which was proposed to be acquired from Youla to determine the appropriate price for the vessel.

7. [94]

   On 22 October 2021, Youla issued an invoice to Holdings in the amount of $1.65 million (inclusive of GST) for a “Princess P58” motor vessel and Mr Nakhle and Mr O’Neill at some point signed that invoice under the words “Okay to pay” (Ex J1, 1592; Fernandez 1, [93]). After the invoice was issued, there is a further reference to Mr O’Neill reporting as to the opportunity of a “company boat” in the minutes of a meeting of the board on 26 October 2021 without reference to that invoice (Ex J1, 1166; the minutes of the same meeting also appear in different terms at 1595; Fernandez 1, [93]; Fernandez 2, [21]). On 1 November 2021, Holdings paid Youla’s invoice for the yacht purchase (Fernandez 1, [93]). The purchase of the “corporate boat” was then disclosed in Holdings’ 2022 financial report issued on 26 September 2022 (Ex J1, 1827; Fernandez 1, [93]).

8. [95]

   Mr Yezerski points out that Holdings has not led evidence that there was any negotiation with Youla as to the price to be paid to purchase the vessel, or that any valuer or adviser was used to value it before purchase, or that the board recognised Ms Younes’ conflict as a director of Holdings and as owner of its proposed counterparty to the transaction. Mr Yezerski summarises the claim that VIPL seeks to bring on behalf of Holdings in respect of this transaction as follows:

9. [96]

   It seems to me plain that there is a seriously arguable case in respect of this claim and I do not understand any of the Defendants to have contended to the contrary. I will address Holdings’ contention that it is not in its best interests to grant leave to bring this claim as a derivative action below.

The proposed claim as to the Edgecliff premises

1. [97]

   As I noted above, paragraphs 136-147 of the proposed SOC deal with the circumstances in which Lopana (as I noted above, a company owned by Mr Nakhle) purchased the Edgecliff premises in which the Alspec Group had a showroom and Holdings paid a substantial amount of rent in advance to assist him to do so. In opening submissions, Mr Yezerski describes the claim that VIPL seeks to bring for Holdings in respect of the Edgecliff premises as follows:

2. [98]

   I now set out the chronology of events in respect of the proposed claim as to the Edgecliff premises. On 31 January 2022, Lopana acquired the Edgecliff premises, which were then leased by the Alspec Group, from Precious Corporation Pty Ltd for $4 million (Ex J1, 1634, 1995, 3409; Platford 1, [101] – [102]; Fernandez 1, [78]-[82]). On the same date, a lease between ASG as lessee and Lopana as lessor for the Edgecliff premises was executed by Mr O’Neill for ASG and by Mr Nakhle for Lopana (Ex J1, 1634; Platford 1, [101]-[103]; Seymour, [132]; Fernandez 1, [80]-[82]).

3. [99]

   On 23 December 2022, the solicitors for VIPL wrote to Holdings’ solicitors noting that:

4. [100]

   Some two and a half months later, by letter dated 10 March 2023, Holdings’ solicitors responded that the lease related to the Edgecliff premises and that:

5. [101]

   It is, of course, not immediately apparent that it follows from the proposition that it was desirable for Holdings to retain access to those premises that it was also desirable that Mr Nakhle or an entity associated with him, rather than Holdings, should acquire them, and Holdings should pay a substantial amount of rent in advance in order to permit him or it to do so.

6. [102]

   Mr Yezerski summarises VIPL’s claim in respect of this transaction as follows:

7. [103]

   It also seems to me plain that VIPL has established a seriously arguable case in respect of this claim, and I do not understand any of the Defendants to have contended to the contrary.

The proposed accessorial claim against Atilol

1. [104]

   In opening submissions, Mr Yezerski identifies the several ways in which VIPL puts Holdings’ claim against Atilol. First, Ms Yezerski submits that:

2. [105]

   It seems to me that the factual basis of this claim is seriously arguable. At the time of the earlier alleged breaches on which VIPL relies, and until March 2022, Ms Younes was Atilol’s sole director and sole shareholder. A factual basis for this claim is also seriously arguable after Ms Younes’ and Mr Nakhle’s daughter became Atilol’s shareholder in March 2022, where the letter of intent dated 2 May 2022 and her abstaining from later board decisions both arguably assume her continued control of Atilol.

3. [106]

   Mr Withers responds that the claim against Ms Younes as Atilol’s alter ego is not seriously arguable as a matter of law. He submits that there is:

4. [107]

   Turning now to the applicable case law, in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; 287 ALR 22; [2012] FCAFC 6 (“Grimaldi”), the Full Court of the Federal Court observed (at [242]-243]) that:

5. [108]

   The Full Court also there observed (at [556]) that:

6. [109]

   The authorities were reviewed by Beech J in EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183 at [406]. In Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; 311 ALR 494; 101 ACSR 167; [2014] NSWCA 266 at [74], Leeming JA noted that category of liability without expanding upon its scope. In Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265 (“Cornerstone”) at [96]ff, Jackson J pointed to examples of this principle, while not deciding whether it applied in that case. His Honour noted that:

7. [110]

   In Chickabo Pty Ltd v Zphere Pty Ltd (No 3) [2020] VSC 464 at [40], Sifris JA in turn observed that:

8. [111]

   The observations in Grimaldi above were also applied by the Court of Appeal in Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580; 116 ACSR 566; [2016] NSWCA 347 at [178], where Sackville AJA observed that the Full Court in Grimaldi:

9. [112]

   The approach in Grimaldi to holding the corporate alter ego of a defaulting fiduciary liable for that fiduciary’s breach was also applied by Ball J in Twigg v Twigg (No 4) (2016) 147 ACSR 389; [2020] NSWSC 1159 at [138] (affirmed by the Court of Appeal as Twigg v Twigg (2022) 402 ALR 119; [2022] NSWCA 68) and in my judgments in Mudgee Dolomite & Lime Pty Ltd v Murdoch [2020] NSWSC 1510 at [162] and Re Sirrah Pty Ltd (in prov liq) (2021) 152 ACSR 212; [2021] NSWSC 413. I have here not neglected Leeming JA’s reference in Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12 at [27]-[28] to:

10. [113]

    I am not persuaded that, having regards to the case law that I have noted above, Mr Withers’ submissions deprive the claim that VIPL seeks to put for Holdings on this basis of a seriously arguable character. As Professor Glister demonstrated in his chapter, “Equitable Liability of Corporate Accessories” (in PS Davies & J Penner, Equity, Trusts and Commerce, 2017, pp 275-302), cases including Gencor ACP Ltd v Dalby (cited in Grimaldi) and CMS Dolphin Ltd v Simonet (cited in Cornerstone) have treated the alleged wrongdoer and his or her alter ego as relevantly the same actor in imposing accessorial liability, with each made liable for the gains made and losses caused by the other. I accept that a second and narrower approach is potentially available, as also noted by Professor Glister and here pressed by Mr Withers, which relies on the fact that a company is the alleged wrongdoer’s alter ego to attribute knowledge to it, as a step in imposing liability upon it. However, the availability of that second approach does not have the consequence that the first approach is not seriously arguable here, by reference to the existing case law, and a trial judge or appellate court might well adopt that first approach.

11. [114]

    It therefore seems to me that there is a seriously arguable case that Atilol was, at relevant times, the corporate creature, vehicle or alter ego of Ms Younes and that that would be sufficient to support the claim against Atilol, where I found above that there is a seriously arguable case for breach of duty against Ms Younes in respect of monies that were paid to, or for the benefit of, Atilol.

12. [115]

    Mr Yezerski also identifies several other bases on which VIPL would put Holdings’ accessorial claim against Atilol, as follows:

13. [116]

    Holdings, Ms Younes and LIPL in turn advance detailed criticisms of the viability of those other accessorial claims against Atilol. For example, Mr Withers submits that there is no seriously arguable claim against Atilol and that allegations of a fraudulent and dishonest design are not properly pleaded against it, so as to support a claim for knowing assistance. It is not necessary to address these submissions where I have found that a seriously arguable case against Atilol is available on the basis that it is Ms Younes’ alter-ego and any question of the adequacy of the pleadings as to alternative claims should properly be left to case management in the proceedings rather than addressed in an application for leave to bring derivative proceedings under s 237 of the Act. It is only necessary for Holdings to succeed on one basis of its accessorial claims against Atilol in order to recover compensation or an account of profits; I have found that it has at least one seriously arguable claim available to it; and there is no utility in my then assessing multiple alternative claims which may need to be determined by a trial judge at a final hearing.

Prospects of recovering damages, compensation or an account of profits

1. [117]

   I will deal below with the prospect of VIPL, on Holdings’ behalf, recovering damages or compensation or an account of profits in the proceedings, which is best addressed in determining whether they are in Holdings’ best interests, consistent with the view that I took in Global Advanced Metals and Mount Gilead. If it were necessary for VIPL to establish a serious question to be tried that Holdings could recover substantial damages, compensation or an account of profits, it seems to me that it has done so for the reasons noted below.

Whether the proposed proceedings are in Holdings’ best interests

1. [118]

   As I noted above, the third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Act, is that the grant of such leave is in Holdings’ best interests. The relevant principles were summarised in Swansson at [55]–[60], where Palmer J noted that that provision required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the relevant company’s best interests. In order to prove that leave is in the best interests of the company, an applicant should generally give evidence of the character of the company, in the sense of the nature of the company’s operations; the business of the company so that the effects of the proposed litigation on the conduct of its business may be appreciated; whether there are other means of obtaining the same redress so that the company does not have to be brought into litigation against its will; and the proposed defendant’s ability to meet at least a substantial part of any judgment in favour of the company so that the Court may ascertain whether the action would be of practical benefit to the company. In Gladstone Pacific Nickel, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the company if the action is unsuccessful. The “best interests” of Holdings involve its separate and independent welfare, predominantly reflecting the interests of its shareholders: Huang v Wang at [59].

2. [119]

   Whether it is in the best interests of Holdings to bring a claim depends not only on whether it might succeed as to liability, but whether there would be any practical benefit from its success. In Re Imperium Projects Pty Ltd [2015] NSWSC 16 at [14], I observed that it did not follow that it was in a company’s best interests that a remedy be pursued, merely because it appeared to have suffered an actionable wrong, and any assessment of the company’s best interests depended on matters including “the strength of the suggested claims”. In Re Sirrah Pty Ltd [2018] NSWSC 1802 at [21], I also noted that, where a serious question to be tried exists, and there is a prospect of substantial recovery if the proceedings are successful, it may well be in a company’s best interests that it have the opportunity to make that recovery, so long as it is not exposed to an unjustified risk of costs in doing so. In South Johnstone Mill Ltd v Dennis (2007) 244 ALR 730; (2007) 64 ACSR 447; [2007] FCA 1448, in a claim for sale at undervalue brought against receivers and managers, Middleton J found that there was sufficient evidence of damage, without determining whether the applicant’s expert evidence was admissible, where an inference supporting a claim for substantial compensation could be drawn from the documentary evidence.

3. [120]

   In opening written submissions, Mr Yezerski identifies several matters which go to the question whether the proceedings are in Holdings’ best interests as follows:

4. [121]

   Mr Yezerski also summarises the basis of Holdings’ claim for loss and damage in respect of the Luddenham Rd property in opening submissions as follows:

5. [122]

   He also submits that:

6. [123]

   I bear in mind that the compensation available to a plaintiff under s 1317H of the Act extends, in a proper case, to profits made by a third party: Grimaldi at [630]–[631]; V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; 93 ACSR 76; [2013] FCAFC 16 at [54], [58], [82]; Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40 at [46]ff.

7. [124]

   Mr Withers contends that VIPL has not led sufficient evidence to establish the loss that it seeks to recover for Holdings in this claim and that VIPL has not advanced a coherent case of loss on Holdings’ behalf. I do not accept that submission, where Holdings is now out of funds for the monies which it has paid out for Atilol’s benefit in respect of the Luddenham Rd property, although it is possible that those funds may be repaid in the future or that the development may proceed in the future; and, if a rezoning occurs and the development proceeds, Holdings would then have a seriously arguable case for an account of profits against Atilol for the reasons noted below. Mr Withers also submits that Holdings will suffer “irreparable harm” by bringing proceedings against Atilol in respect of the rezoning and development of the Luddenham Rd property. It seems to me that the limited evidence supporting that proposition is speculative in character. Holdings also points out that the Defendants are involved in running the Alspec businesses, with Mr Nakhle as the current chief executive officer, and I recognise that other Defendants (other than Atilol) are some of the directors of Holdings. I accept that that is a relevant matter and I have had regard to it, but it needs to be balanced against the strength of Atilol’s claims against those persons, the benefits of recovery and the risk to a company of it remaining under the control of persons who have arguably breached their statutory and general law duties to it.

8. [125]

   In reply (T164-165), Mr Yezerski summarises the potential recovery for Holdings from the claim to brought by VIPL as follows:

9. [126]

   Holdings also relies on the entry into the binding HOA with Atilol, following assessment by the Orchard Hills Committee in answer to these claims. It seems to me that the matters raised by Holdings in response to VIPL’s formulation of Holdings’ claim for loss and damage do not have the result that the claim is not in Holdings’ best interests, and the basis of that conclusion is straightforward. Where there is a seriously arguable case for breach of directors’ duties in respect of the steps taken by the directors, including Ms Younes, Mr Nakhle and non-executive directors in respect of the Luddenham Rd property from 2020 onwards, then the entry into the binding agreement shortly before this hearing commenced does not extinguish any previous breach of directors’ duties. Second, it is not established that the binding agreement is on arms’ length terms, where Holdings did not seek to establish the factual basis of the Knight Frank opinions, the accuracy of those opinions, the assumptions which underlay the report of the Orchard Hills Committee or the accuracy of the view it had formed. Third, Holdings, at the date of this hearing, had suffered a loss in excess of $5 million from funding development costs for the Luddenham Rd property and it has, at best, an unsecured contractual right to recover those costs in some but not all circumstances under that binding agreement. Fourth, if the rezoning of the Luddenham Rd property is approved, then the available evidence, including the recent sale of part of the Luddenham Rd property at a higher price to which I referred above, is sufficient to support an inference that there has been or will be a significant uplift in the value of that property reflecting the prospect or fact of rezoning. In those circumstances, s 1317H of the Act would potentially extend to the profit made by Ms Younes or Atilol as a result of a breach of ss 180-182 of the Act. It was not suggested the fact that that profit might then be unrealised by Atilol prevents an order under that section. Notwithstanding the possibly narrower approach taken by Ball J in Gladstone Pacific Nickel, I also leave open the possibility that, in a sufficiently strong case, it may be in a company’s best interests to bring proceedings in order to vindicate its rights and the rights of its shareholders, and the public interest in the proper governance of companies where it has the financial capacity to do so, rather than to take no steps to enforce its rights against wrongdoers who remain in control of it, even if that could not bring about substantial recoveries, but that is not this case..

10. [127]

    Mr Withers submitted that it is not in Holdings’ best interests to bring those derivative claims that could be (and are) brought as oppression claims, although he accepted that the claim against Atilol could not be brought as an oppression claim and would require such leave, referring to my observations in Legal Practice Management Group at [62]-[63]. Mr Kelly with whom Mr Johnstone appears for Ms Younes and LIPL also submits that leave to bring derivative proceedings is unnecessary, because the relevant claims can be advanced in oppression proceedings and advances criticisms as to the pleading of the claims against Ms Younes and LIPL, which it is not necessary or appropriate to address in this application, rather than the case management of the proceedings of this kind. Mr Kelly draws attention to the fact that only VIPL, and not all the Plaintiffs who bring the oppression proceedings, seeks leave to pursue the derivative proceedings. I have regard to that matter, although it seems to me to have no consequence, where the proceedings brought by VIPL on Holdings’ behalf would, if successful, benefit Holdings by recovery of compensation or an account of profits and would benefit all of its shareholders, including the other Plaintiffs in the oppression proceedings who do not seek to bring them, by increasing the value of their shares.

11. [128]

    Both Mr Withers and Mr Kelly submit, and I accept, that several cases have recognised the possibility that a shareholder can pursue a claim for breach of a general law duty or statutory duties owed to a company, in a claim under ss 232-233 of the Act, without necessarily seeking leave to bring a statutory derivative action under s 237 of the Act: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 at [142]-[143], [526]-[528]; LPD Holdings (Aust) Pty Ltd v Phillips (2013) 281 FLR 227 at 236-237; [2013] QSC 225; Re JGS Investment Holdings Pty Ltd [2014] NSWSC 1532 at [13], [21]; Parker v Auswild; Bermuller v Auswild [2022] VSCA 8 at [131]-[138].

12. [129]

    In Legal Practice Management Group at [61]ff, to which Counsel referred, I observed that:

13. [130]

    These issues were also addressed at some length by Derrington J in CIP Group Pty Ltd v So [2022] FCA 1490 (“CIP”) at [78], [83]-84], [86], [88]), although Mr Withers and Mr Kelly challenge the reasoning in this decision. It is not necessary to address that reasoning in order to determine this application on the pragmatic grounds noted below. In any event, I understood Mr Kelly fairly to concede that the availability of oppression proceedings as an alternative to, or in addition to, derivative proceedings does not, or does not necessarily, prevent the grant of leave to bring derivative proceedings for the reasons noted in Legal Practice Management Group.

14. [131]

    I am satisfied that the fact that Plaintiffs could and do bring an oppression claim in respect of the Luddenham Rd property does not have the consequence that it is not in Holdings’ best interests to bring an overlapping claim as a derivative claim. First, the availability of relief by way of compensation orders in favour of Holdings in oppression proceedings may be controversial, as I recognised in Legal Practice Management Group and as the debate here as to the reasoning in CIP in submissions amply demonstrates, and it would not be in Holdings’ interests that its claim should be exposed to the risk of failure on that basis. Second, Mr Withers accepts that a claim against Atilol could only be brought as a derivative action. Third, an oppression claim would not allow any recovery for the benefit of the significant number of shareholders in Holdings who are neither Plaintiffs nor associated with the Defendants, who would benefit from a recovery by Holdings in a derivative action. Fourth, there is no disadvantage of substance to Holdings or the Defendants in granting leave to bring a derivative action seeking relief which the Defendants themselves contend could be granted against them in an oppression claim, and the additional costs of bringing the claim as a derivative claim will be marginal, where the same issues would arise in respect of the same parties in the Plaintiffs’ oppression claim.

15. [132]

    Mr Withers also submits that it is not in Holdings’ best interests to bring the claim in respect of the “corporate boat” because that claim can be (and is) brought by VIPL in its oppression suit. He also submits that, where the “corporate boat” was acquired for about $1.5 million, any loss to Holdings would be “relatively unsubstantial” compared to the costs of a derivative suit. I do not accept those submissions. First, while I accept that the claim could be (and is) brought by VIPL in an oppression suit, it seems to me that it is not in Holdings’ best interests that it should be left to the uncertainty as to the form of the relief that would be granted in that claim, which would not necessarily include either a buy out order for VIPL’s benefit or compensation for Holdings’ benefit. Conversely, there is no disadvantage of substance to Holdings in granting leave to bring a derivative action in respect of relief which Holdings itself contends could be granted against it in an oppression suit. The amount of $1.5 million involved in this transaction is not de minimus, although I recognise that the “corporate boat” would have a resale value which neither party seeks to establish. Here, the costs of bringing the claim as a derivative claim will also be marginal where leave will already be granted to Holdings to bring a derivative action in respect of the Luddenham Road transaction, and Holdings accepts that the same issues would arise, likely in respect of the same parties, in respect of this issue as in the Plaintiffs’ oppression claim.

16. [133]

    Holdings’ response to the oppression claim in respect of the Edgecliff property is also primarily that it is not in its best interests to grant leave to bring that claim, for the same reasons that it is not in Holdings’ best interests to grant leave to bring the claim in respect of the “corporate boat”. Mr Withers also submits that VIPL has not here articulated a claim for loss or profit in respect of the Edgecliff property. I do not accept the former submission, for the same reasons I do not accept it in respect of the claim as to the “corporate boat”. I do not accept the latter submission where it is apparent that a substantial payment was made to Lopana as an advance of rent, without any adjustment to take account of the early payment of that amount, and Holdings is at least out-of-pocket for its costs of funding that amount. It seems to me that, here, the potential recovery does not need to be large to have the consequence that the claim is in Holdings’ best interests, where the costs of bringing the claim as a derivative claim will be marginal, since leave will already be granted to Holdings to bring a derivative action in respect of the Luddenham Road transaction and the ”corporate boat”, and Holdings accepts that the same issues would arise, likely in respect of the same parties, in respect of this issue as in the Plaintiffs’ oppression claim.

17. [134]

    The question whether VIPL offers an adequate indemnity in favour of Holdings in respect of the costs to which it would be exposed if the proceedings were unsuccessful is also relevant to whether the proceedings are in Holdings’ best interests. The case law has recognised that a relevant and significant matter in determining whether the proceedings are in a company’s best interests is the adequacy of an indemnity in respect of the costs to which the company would be exposed by the conduct of proceedings and in the event of their failure: Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137; App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 at [19]. VIPL offers a deed poll by which it undertakes to meet Holdings’ costs of and any order for costs against it in the proceedings and offers a representation and undertaking to the Court (MFI 7) as to the level of its unencumbered net assets and the maintenance of those assets, in a form which the Defendants accept is sufficient for that purpose.

Notice requirement

1. [135]

   It is common ground that the notice requirement under s 237 of the Act has been satisfied.

Determination

1. [136]

   For these reasons, I grant the leave to commence the derivative proceedings sought by VIPL under s 237 of the Act and will make further orders as to the conduct of the proceedings.