Oates v Consolidated Capital Services Ltd

SPIGELMAN CJ : I agree with Campbell JA.

ALLSOP P : I have had the advantage of reading the reasons for judgment of Campbell JA. I agree with the orders that he proposes and, subject to the comments below, with his Honour’s reasons.

As to the question of the use of the extrinsic material discussed at [126]-[134] I would only say that my agreement with his Honour’s reasons should not be taken as acceptance of a proposition that the material is to be viewed differently where it confirms rather than tends against any particular construction: cf Braverus Maritime Inc v Port Kembla Coal Terminal Ltd [2005] FCAFC 256; 148 FCR 68 at 81 [36]; Cameron Brae Pty Ltd v Commissioner of Taxation [2007] FCAFC 135; 161 FCR 468 at 471 [3].

As to the question of the transfer of shares point, I would tend to the conclusion that the conduct of the oral argument discussed by Campbell JA at [197] ff entitled the primary judge to approach the matter as he did. Nevertheless, I otherwise agree with Campbell JA’s analysis of the issues thereafter.

CAMPBELL JA : Nature of the Case

Mr Tom Oates, Mr Garrick Hawkins and Mr Scott Tyne were associated with a business venture that, in the period 2001 to 2004, was involved in the development and marketing of structured finance products in the United Kingdom and elsewhere in Europe. The business venture was carried out using a group of three companies.

The holding company in the group was an Irish company, Consolidated Capital Acceptances Limited (“ CCL Ireland ”). The shares in CCL Ireland were held by a nominee for Mr Oates (as to 20%), by interests associated with Messrs Hawkins and Tyne (35% each), and also by a Mr Tony Mallin (as to 10%). Messrs Oates, Hawkins and Tyne were all directors of CCL Ireland.

CCL Ireland held all the shares in Consolidated Capital Services Pty Ltd (“ CCL Australia ”) a company incorporated and registered in New South Wales. Messrs Oates, Hawkins and Tyne were all directors of CCL Australia.

CCL Australia in turn held all the shares in Consolidated Capital Limited (“ CCL UK ”), a company incorporated and registered in England and Wales. Messrs Oates, Hawkins and Tyne were also directors of CCL UK. CCL Australia, CCL UK and CCL Ireland were referred to collectively as “the Consolidated Capital Group” .

On 18 August 2004 Mr Oates resigned as a director of CCL Australia, CCL UK and CCL Ireland. On 24 August 2004 Messrs Hawkins and Tyne executed a deed, called the CCL Reorganisation Deed. It was executed by them both in their own personal capacities, and in their capacities as directors of the various CCL companies. It purported to transfer to Messrs Hawkins and Tyne various rights of CCL Australia, CCL UK and CCL Ireland. I will consider the provisions of that Deed in more detail later.

Mr Oates complains that Messrs Hawkins and Tyne have thereby appropriated to themselves, or to companies they controlled, certain commercial advantages that should have accrued to CCL Australia or CCL UK. Those commercial advantages were, broadly, of the nature of intellectual property and business opportunities.

Mr Oates wishes to cause CCL Australia to bring proceedings against Messrs Hawkins and Tyne alleging that they had breached fiduciary duties and other directors’ duties owed to CCL Australia, and also to cause CCL Australia, in its capacity as a member of CCL UK, to bring litigation against Messrs Hawkins and Tyne alleging that they had breached fiduciary duties and other directors’ duties owed to CCL UK. To enable those two types of litigation to be brought, Mr Oates commenced proceedings in the Equity Division of the Supreme Court of NSW against CCL Australia and CCL UK, seeking leave under section 237 Corporations Act 2001 (Cth) to enable such litigation to be brought. The parties agreed that no forum non conveniens point would be taken in either the application for leave or any subsequent proceedings.

Barrett J dismissed Mr Oates’ application: Oates v Consolidated Capital Services Limited [2008] NSWSC 464; (2008) 218 FLR 73; 66 ACSR 277. Mr Oates seeks to have this Court reverse Barrett J’s decision.

After the appeal had been instituted, Mr Oates filed a Notice of Motion in the appeal proceedings, seeking an order that Mr Hawkins and Mr Tyne “be joined as respondents to these proceedings”. That Notice of Motion was heard at the same time as the appeal from Barrett J.

CCL Australia and CCL UK were the First and Second Respondents to the appeal, and appeared by the one set of counsel and solicitors. While ASIC was joined to the appeal as Third Respondent, it filed a submitting appearance and took no part in the argument. Messrs Hawkins and Tyne were represented by Mr Robb QC on the hearing of the Notice of Motion, but took no part in the hearing of the appeal. Mr Robb commendably took the view that, even if his clients were ultimately to be joined to the appeal, the representatives of CCL Australia and CCL UK would have already said everything that could have been said by Messrs Hawkins and Tyne. Derivative Actions Under the General Law

Under the general law there is a usual principle that only a corporation can sue for a wrong done to it, but there were some exceptional circumstances, recognised in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 and cases following it, when a member of the corporation was entitled to sue to enforce a right of the corporation. Cases that were brought by a member within one of those exceptional circumstances were referred to as “derivative actions”. Entitlement to bring a derivative action was restricted, as the practice concerning derivative actions first developed, to members of the corporation.

More recently, at least some jurisdictions have responded to the practice of business affairs being run through groups of companies by recognising the possibility of a member of a corporation bringing an action to sue for a wrong done to that corporation’s subsidiary. The possibility of bringing under the general law such a “double derivative action” has been recognised in decisions in litigation entitled Waddington Ltd v Chan Chun Hoo in both the Hong Kong Court of Appeal ([2006] HKCA 196; [2006] 2 HKLRD 896 – “ Waddington CA ”) and in the Hong Kong Court of Final Appeal ([2008] HKCFA 63; [2008] HKEC 1498 – “ Waddington Final Appeal ” ). Though a statutory derivative action has been introduced in Hong Kong, the Waddington litigation was commenced before that legislation came into operation, and so was decided in accordance with the common law ( Waddington Final Appeal [22]). It is not necessary to decide whether that extension of the general law is correct in principle.

In Australia the general law position concerning derivative actions has been significantly altered by Part 2F.1A Corporations Act 2001 , which runs from sections 236 to 242 inclusive. The Statutory Derivative Action

Sections 236 and 237 Corporations Act 2001 (Cth) provide: “ 236 Bringing, or intervening in, proceedings on behalf of a company (1) A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if: (a) the person is: (i) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or (ii) an officer or former officer of the company; and (b) the person is acting with leave granted under section 237. (2) Proceedings brought on behalf of a company must be brought in the company’s name. (3) The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished. 237 Applying for and granting leave (1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings. (2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings — there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied. (3) A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that: (a) the proceedings are: (i) by the company against a third party; or (ii) by a third party against the company; and (b) the company has decided: (i) not to bring the proceedings; or (ii) not to defend the proceedings; or (iii) to discontinue, settle or compromise the proceedings; and (c) all of the directors who participated in that decision: (i) acted in good faith for a proper purpose; and (ii) did not have a material personal interest in the decision; and (iii) informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate; and (iv) rationally believed that the decision was in the best interests of the company. The director’s belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold. (4) For the purposes of subsection (3): (a) a person is a third party if: (i) the company is a public company and the person is not a related party of the company; or (ii) the company is not a public company and the person would not be a related party of the company if the company were a public company; and (b) proceedings by or against the company include any appeal from a decision made in proceedings by or against the company.”

It is common ground that Mr Oates falls within section 236(1)(a) by virtue of being a former officer of CCL Australia, and thus has standing under section 237(1) to apply to the court for leave under section 237. He does not have standing to apply for leave under section 237 in any way other than by being a former officer of CCL Australia. When he is not and never has been a member of CCL Australia he would not have had standing under the general law to bring a derivative action that sought to enforce any right of CCL Australia.

The proceedings in relation to which leave can be granted under section 236 are ones in which “a company” plays a role. The dictionary contained in section 9 Corporations Act 2001 states that: “ company means a company registered under this Act ...” . Section 9 goes on to say that concerning certain identified provisions of the Act “company” has a wider meaning than that, but none of those wider meanings apply to sections 236-242. This Court held in Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 245 ALR 780; 65 ACSR 661 at [124]-[125] that a company in liquidation is not a “company” within the meaning of sections 236 and 237, but that restriction on the meaning of “company” in sections 236 and 237 does not impinge on the facts of the present case.

CCL Australia was incorporated and registered in New South Wales in April 2001, a date before the Corporations Act 2001 commenced (15 July 2001). However, the transitional provisions in section 1378 Corporations Act 2001 have the effect that the registration of CCL Australia may be dealt with after the commencement of the 2001 Act: “… as if it were a registration of the company under Part 2A.2 of this Act as a company of whichever of the company types listed in subsection (2) corresponds to its previous class and type.”

It follows from this that CCL Australia is a “company” within the meaning of sections 236 and 237 Corporations Act 2001 , but CCL UK is not. The CCL Reorganisation Deed

Mr Hawkins and Mr Tyne executed the CCL Reorganisation Deed in both their individual capacities and in their capacity as directors of the various CCL companies.

Under the heading “Background” the Deed made various statements. It referred to Messrs Hawkins, Tyne and Oates having together conducted an investment banking business (referred to as “the Old Business” ), from which Mr Oates had resigned. It said that “the Old Business was conducted through the medium of” CCL UK. It said: “Hawkins, Tyne and Oates were each employees of CCL Australia. Their services were contracted to CCL UK by way of a service agreement between CCL UK and CCL Australia.”

It stated that the Old Business was funded by way of various advances made by Messrs Hawkins and Tyne to CCL Ireland, the repayment of which was jointly and severally guaranteed by CCL Australia and CCL UK. It stated that the loans were repayable upon demand, that demand had been made by the Deed, but none of the companies had the means of paying the loans, and hence the agreement had been entered.

The operative part of the document contained an acknowledgment: “… that all: (a) financial structures and concepts developed in the context of the Old Business; and (b) all documents and economic models produced in the context of the Old Business,” (which were together referred to as the “Intellectual Property”) were the sole and exclusive property of CCL Ireland. Messrs Hawkins and Tyne released CCL Ireland, CCL Australia and CCL UK from their obligations to repay the loans or perform the guarantees. In return CCL Ireland assigned to Messrs Hawkins and Tyne: “… all its right, title and interest in and to: (a) its shareholding in CCL Australia; and (b) the Intellectual Property.”

CCL Australia assigned to Messrs Hawkins and Tyne: “… all its right, title and interest in and to: (a) its shareholding in CCL UK; and (b) the Intellectual Property (if any).”

CCL UK assigned to Messrs Hawkins and Tyne: “… all its right, title and interest (if any) in and to the Intellectual Property.” The Claims Sought to be Brought

Mr Oates’ counsel put before Barrett J a draft of the Statement of Claim that set out the allegations that Mr Oates wished eventually to have made in proceedings. It alleged that Mr Oates had been a director of the various CCL companies from dates in 2001 until 18 August 2004. It alleged that Mr Hawkins and Mr Tyne had each, at all relevant times, been directors of CCL Australia, CCL UK, and CCL Ireland.

One theme in the Statement of Claim was that in the period 2001 to 2004 certain “CCL Products” were “developed by officers of CCL Australia and/or CCL UK” , that they were primarily developed by Mr Oates “in his capacity as an executive director of CCL Australia and/or CCL UK” , and that each of the CCL Products “was the confidential property of CCL Australia and/or CCL UK” . In 2004 “CCL Australia and/or CCL UK ” sought to derive fees and income from participating in transactions known as “Acquiring Income Transactions” and “Swap Novation Transactions” . In the period from 2001 to 24 August 2004 Mr Hawkins, Mr Tyne and Mr Oates also developed business opportunities “for the Consolidated Capital Group” directed to deriving income from participating in Acquiring Income Transactions, Swap Novation Transactions, transactions involving the CCL Products and other similar transactions. These transactions were referred to collectively as “the CCL Business Opportunities” .

The Statement of Claim alleged that the CCL Business Opportunities were developed by Messrs Hawkins, Tyne and Oates “in their respective capacities as officers and directors of CCL Australia and/or CCL UK” . The Statement of Claim also said that the CCL Business Opportunities “were the business opportunities of CCL Australia and/or CCL UK” .

Messrs Hawkins and Tyne, in their respective capacities as a director of CCL Australia, were each alleged to owe duties to CCL Australia of the following types: “(a) a duty to act in good faith and in the best interests of the company’s shareholders as a whole; (b) a duty to exercise his powers for proper purposes; (c) a duty not to place himself into a position in which his personal interests did or might conflict with the interests of the company; (d) a duty not to misappropriate the company’s property for personal or a third party interest; (e) a duty not to misuse his position for personal or a third party’s possible advantage; (f) a duty not to use for his personal benefit any business opportunity belonging to the company.”

In their respective capacities as a director of CCL UK, each of Mr Hawkins and Mr Tyne were alleged to owe to CCL UK duties stated in the same terms.

Next, the Statement of Claim pleaded the entering into of the CCL Reorganisation Deed. The Statement of Claim made separate mention of the various assignments effected by the CCL Reorganisation Deed, including the assignment by CCL Australia to Messrs Hawkins and Tyne of its right, title and interest to both its shareholding in CCL UK, and the Intellectual Property. It alleged that the assignments in that Deed were not supported by consideration passing from either Mr Hawkins or Mr Tyne to any of the companies in the Consolidated Capital Group, or alternatively were at an undervalue. The entering into of the CCL Reorganisation Deed was alleged to be a breach by Mr Hawkins and Mr Tyne of their duties to CCL Australia and CCL UK earlier set out.

Next, the Statement of Claim alleged that the entering into of the various assignments involved a breach of section 320 Companies Act 1985 (UK). Inter alia, that section prohibits a company entering into an arrangement whereby a director of the company or its holding company acquires one or more non-cash assets “of the requisite value” from the company, unless the arrangement is first approved by a resolution of the company in general meeting and (if the director is a director of its holding company) by a resolution in general meeting of the holding company. The Statement of Claim alleged that the assignment effected by the CCL Reorganisation Deed was of assets that exceeded the requisite value of the assets of CCL UK and CCL Australia, that there were no resolutions of CCL UK, CCL Australia or CCL Ireland to approve them, and hence that they breached section 320. The Statement of Claim alleged that section 320 imposed duties on Mr Hawkins and Mr Tyne as directors of both CCL UK and CCL Australia, that Mr Hawkins and Mr Tyne breached each of those statutory duties, and that each of CCL UK and CCL Australia had a cause of action in respect of breaches of section 320. It alleged that “CCL UK and/or CCL Australia” had thereby suffered loss and damage, that the assignments were void pursuant to section 322(1) Companies Act 1985 (UK), and that each of Mr Hawkins and Mr Tyne were liable to account to CCL UK for any gain that they had made directly or indirectly from the use of the CCL Products and the CCL Business Opportunities, pursuant to section 322(3) Companies Act 1985 (UK).

The Statement of Claim pleads not only that the entering of the CCL Reorganisation Deed is a breach of duties owed to the two separate companies. As well, under the heading “Diversion of Business Opportunities of the Consolidated Capital Group” it identifies several companies, alleges that they came under the control of Messrs Hawkins and Tyne in October 2004, and that Mr Hawkins, Mr Tyne and some of those companies derived income from the CCL Business Opportunities after 24 August 2004. Those circumstances are also alleged to give rise to breaches on the part of Mr Hawkins and Mr Tyne of their duties “to CCL Australia and/or CCL UK” .

The Statement of Claim also contains an allegation of breach of duty owed to Mr Oates personally, that need not be further considered for present purposes.

The Orders that Mr Oates Claimed in the Further Amended Originating Process, so far as relevant to this appeal, were that he: “… be given leave pursuant to section 237 of the Corporations Act to bring proceedings under section 236 of the Corporations Act in the name of CCL Australia against”: Mr Hawkins, Mr Tyne , and two companies to which Mr Oates alleged corporate business opportunities of CCL Australia had been wrongly diverted. That order was one designed to remedy the wrongs he alleged had been done to CCL Australia. Another order sought was: “3. … the Plaintiff acting on behalf of CCL Australia pursuant to section 237 of the Corporations Act , be given leave to bring derivative proceedings in the name of Consolidated Capital Limited (‘ CCL UK ’) against the defendants”. That order was one designed to remedy the wrongs he alleged had been done to CCL UK. The Proceedings Below

The parties to the proceedings below were Mr Oates as plaintiff, CCL Australia as first defendant, and CCL UK as second defendant. Only CCL Australia presented argument at the hearing. It contended that leave for Mr Oates to bring proceedings on behalf of CCL Australia should be refused, for two reasons. The first was that there was no serious question to be tried (as required by section 237(2)(d)) since any appropriated commercial advantages did not belong to CCL Australia. The second was that, even if there was a serious question to be tried, the expense and complexity of the proceedings would be quite disproportionate to any relief ultimately awarded, so it was not in the best interests of CCL Australia for Mr Oates to be granted leave, and thus section 237(2)(c) was not satisfied.

CCL Australia also contended that a grant of leave under section 237 to Mr Oates, in his capacity as a former officer of CCL Australia, could never put him in a position from which he could cause the wrongs that he said had been done to CCL UK to be sued for. It was common ground that any proceedings that sought to vindicate rights of CCL UK would need to be brought as a derivative action under the common law, and that the only person who could bring such an action to vindicate rights of a corporation was a member of the corporation. CCL Australia contended that a grant of leave under section 237 could not put Mr Oates into a position where he could cause CCL Australia to instigate a derivative action of that type.

Second, CCL Australia contended that under the general law a derivative action could not be brought by a corporation’s sole shareholder. Barrett J rejected this second contention, and no appeal is brought from that aspect of his decision, so it need not be considered further.

Barrett J upheld the contention that a grant of leave under section 237 could never put Mr Oates into a position where he could cause litigation to be brought that sued on breaches of duty owed to CCL UK.

Mr Oates’ claim to be granted leave to bring proceedings on behalf of CCL Australia was rejected because Barrett J was not satisfied that Mr Oates had made out a serious question to be tried. The evidence before his Honour included 10 volumes of contemporaneous documentation concerning the structure that was adopted for the CCL Group, and the actual operation of companies in the group. His Honour found (at [57]) that those documents: “… show, virtually without exception, that it was [CCL UK] that sought legal and taxation advice on matters of structuring and that it was [CCL UK] that was put forward as the potential supplier. There can be no real doubt that all business dealings were, on their face, dealings by [CCL UK].”

That finding is not criticised on the appeal.

One of the concerns evident from the documentation was that the structure that was adopted should be as tax effective as possible. At the time, of the three countries in which companies in the CCL Group were incorporated, Ireland had the lowest corporate tax rate, and Australia the highest.

In an affidavit dated 19 October 2007, Mr Oates explained how the structure operated. In his explanation CCL UK was “the operating entity” : “It would pay rent and salaries etc of people that worked for it in the UK. It would carry out its operations and services as agent or otherwise for and on behalf of its parent. It would recover these costs back plus a margin of say 10% and would only be taxed on this 10% margin in the UK …”

Barrett J recognised (at [57]) that the conclusion that would ordinarily be drawn from the fact that it was CCL UK that was carrying out virtually all of the activities of advancing the business (namely, that CCL UK was acting in its own interests) could be displaced by proof that it was in truth acting as an agent for CCL Australia. His Honour said (at [58]): “The so-called intellectual property on which the litigation proposed by Mr Oates is based can only be a combination of the personal skills of the three individuals and the knowledge obtained from the external sources to which I have referred. There is little evidence about which company employed the individuals. The document in which Mr Hawkins and Mr Tyne set out the arrangement for the transfer of business to their own companies says that the three were employees of [CCL Australia]. On the other hand, there is evidence that it was [CCL UK] that paid the salaries, being funded by Mr Hawkins and Mr Tyne to do so (as I have said, the venture itself never made any money).”

Mr Tyne had deposed to how he understood the companies in the group would act and interrelate. The Judge summarised that understanding (at [55]) as: “He agrees that the structure was tax driven and draws attention to the different corporate tax rates in the United Kingdom (33%) and Ireland (10%). The intention was, he says, that [CCL Australia] would be (he says remain) the employer of the three individuals and that [CCL Ireland] would procure [CCL Australia] to provide their services to [CCL UK] in order to meet clients’ needs, with [CCL UK] paying to [CCL Ireland] a fee representing a ‘substantial percentage’ of [CCL UK’s] profits. In that way, profits generated in the United Kingdom and prima facie subject to tax at the rate of 33% would be reduced by the impact of the fee paid by [CCL UK] to [CCL Ireland] and that fee, in turn, would be taxed at the Irish rate of only 10%. In the event that happened, there was no occasion for the viability of any such agreement to be tested. The enterprise never generated any profits.”

Barrett J summarised the difference between the two contentions (at [56]) as: “According to Mr Tyne’s version of the intended modus operandi , [CCL UK] was to be the entity which, in its own right and for its own benefit, sought business, interacted with potential clients and developed structured finance ‘products’ . Under Mr Oates’ version, [CCL UK] would indeed do those things, but as a ‘representative office’ or agent of [CCL Australia].”

His Honour considered (at [59]) how the objective of minimising tax would fare under the two accounts of the proposed structure. He noted that the proposed structure to which Mr Oates deposed would result in the vast bulk of the profits being derived in Australia, the highest tax jurisdiction, and that no explanation was given of how a large part of those profits would then be transferred to CCL Ireland. He noted that transfer by loan or dividend would not reduce the taxable income of CCL Australia, and continued (at [60]): “Rather, one surmises that it would have been necessary for [CCL Australia] to incur some outgoing on revenue account in effecting the transfer of funds to [CCL Ireland]. The provision of services by the Irish company to the Australian company for a fee payable by the Australian company might have produced that result. But there is no suggestion that any such sale and purchase of services played a part in the planning. On the contrary, Mr Oates’ email of 13 March 2001 … contemplated that the Australian company would provide services to the Irish company, a course that would logically involve payments by the Irish company to the Australian company rather than vice-versa .”

He took the view (at [61]) that the version for which Mr Tyne contended, “does at least seem to hang together in a coherent, if potentially artificial, way.” On Mr Tyne’s version, the English company would be the source of services created by it in its own right and from its own resources.

Barrett J concluded (at [68]-[69]) that the tax implications of the two structures “makes entirely implausible the possibility that the agency model was adopted.” Thus, he concluded that Mr Oates had not succeeded in showing there was any arguable basis for the contention that CCL UK operated as an agent of CCL Australia. That led, in his Honour’s view, to the conclusion that there was no foundation for a finding that CCL Australia, rather than CCL UK “owned” the commercial advantages allegedly wrongfully diverted by Mr Hawkins and Mr Tyne to themselves or their associated interests. For that reason, his Honour concluded that he was not satisfied that there was a serious question to be tried, so far as the alleged wrongs done to CCL Australia were concerned. PART A – ENFORCING RIGHTS OF CCL UK

Sections 260-263 Companies Act 2006 (UK) have replaced the common law derivative action in England with a statutory derivative action with effect from 1 October 2007. On the hearing of the appeal it was common ground that that statute does not apply to causes of action that arose before the commencement of the legislation and that any cause of action that CCL UK had concerning the matters alleged in the draft Statement of Claim arose before that commencement. Hence the bringing by a shareholder of a derivative action to enforce rights of CCL UK is governed by the general law. Section 237 a Freestanding Power?

Barrett J’s consideration of whether to grant leave concerning wrongs allegedly done to CCL UK proceeded on the assumption that, if leave were granted under section 237 to bring proceedings, those proceedings would need to be proceedings “on behalf of a company” . Mr Leeming SC, counsel for Mr Oates on the appeal, submits that the judge was mistaken in making that assumption. Rather, he submits, section 236 sets out who may bring proceedings on behalf of a company, but section 237 does not use the expression “on behalf of a company” . He submits that all that is required, before section 237 is activated, is that the applicant meet one or other of the descriptions set out in section 236(1)(a), the applicant applies to the court “for leave to bring, or to intervene in, proceedings” , and that the applicant satisfies such of the five matters listed in section 237(2)(a)-(e) as are applicable to the particular application being made. (Section 237(2)(d) does not apply to an application for leave to intervene in proceedings, but that qualification does not impact on the present case.)

He submits that section 237(2) requires the court to grant such an application if it is satisfied of the five matters listed in section 237(2)(a)-(e). Mr Leeming points to statements to that effect in Carpenter v Pioneer Park Pty Ltd (in liq) [2004] NSWSC 1007; (2004) 211 ALR 457; 51 ACSR 299 at [31] per Barrett J, and Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 at [16] per Austin J. Particularly clear, he submits, is the statement of Brereton J in Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [13] that: “A consequence of the conclusion that, if all five criteria be satisfied, leave must be granted, and that otherwise leave must be refused, is that the relevant considerations are limited to the five specified criteria.” Brereton J repeated this statement in Magafas v Carantinos [2006] NSWSC 1459 at [8].

Thus, Mr Leeming submits, Barrett J was in error in adding a criterion to the list, namely, that the proceedings concerned be ones “on behalf of a company” within the meaning of section 236(1).

I do not accept this submission. As a matter of statutory construction, sections 236 and 237 are to be read together. When they are read together, the only type of leave that can be granted under section 237 is leave to bring proceedings on behalf of the company, or leave to intervene in any proceedings to which the company is (already) a party for one of the purposes listed in chapeau to section 236(1).

The reasons for reaching this conclusion are: Entries on the list of types of person contained in section 236(1)(a) all operate by reference to the expression “the company” . “The company” in section 236(1)(a) refers back to the chapeau of section 236(1), so that “the company” is the company on behalf of which the person in question may bring proceedings, or the company that is (already) a party to proceedings in which the person in question seeks to intervene for the purpose identified in the chapeau to section 236(1). Thus, Mr Oates is a person referred to section 236(1)(a) because he is a former officer of a company on behalf of which he seeks to bring proceedings, namely CCL Australia. The only type of person who is empowered by section 237(1) to apply for leave is “a person referred to in paragraph 236(1)(a). In this way, when section 237 entitles someone to apply to the Court for leave to bring proceedings, the requirement for proceedings to be brought “on behalf of” a company is incorporated in section 237 itself. The five criteria in section 237(2) themselves contain, in paras (a), (c) and (e) reference to “the company” . That expression likewise refers back to the chapeau of section 236(1). If section 237 contained a freestanding power, there would be nothing for “the company” in section 237(2) to refer back to.

The cases upon which Mr Leeming relies for this argument do not in my view support the conclusion he draws from them. In Magafas v Carantinos Brereton J began his discussion of the prerequisites for leave by saying, at [7]: “On an application under Corporations Act , s 237, for leave to bring proceedings on behalf of a corporation by way of the statutory derivative action created by s 236, the issues are those specified as the prerequisites of which the Court must be satisfied under s 237(2), namely …”. Those words make express that the leave being considered in section 237 is leave to bring proceedings on behalf of the corporation.

Brereton J in Maher v Honeysett at [12] said: “Section 237 identifies five criteria which, if satisfied, require the Court to grant the leave referred to in s 236.”

Similarly, in Chahwan v Euphoric Pty Ltd at [117] Tobias JA (with whom Beazley JA and Bell JA (as her Honour then was) agreed) accepted that: “… if the s 237(2) criteria are satisfied, the court must grant leave: there is no residual discretion.” Tobias JA repeated the substance of that finding at [124](d).

The leave referred to in section 236 is, of course, (relevantly here) leave to bring proceedings on behalf of a company.

While Barrett J in Carpenter v Pioneer Park and Austin J in Fiduciary v Morningstar Research made statements to the effect that leave must be granted if all five criteria are satisfied, those remarks were made in a context where the leave that was being sought was in fact leave to bring proceedings on behalf of a company. The general words of Barrett J and Austin J in those cases must be understood by reference to the context in which they were spoken: Quinn v Leathen [1901] AC 495 at 506 per Earl of Halsbury LC; Leaway Pty Ltd v Newcastle City Council (No 2) [2005] NSWSC 826; (2005) 220 ALR 757 at [75]-[84].

In reasoning on the basis that the leave granted under section 237 had to be leave to bring proceedings on behalf of the company, Barrett J was not illicitly adding an extra criterion to the list of matters that must be satisfied before leave can be granted. Rather, he was applying the correct construction of this section. Is Action to Enforce CCL UK’s Rights “Proceedings on Behalf of” CCL Australia?

Barrett J said (at [27]) that the “crucial question” was: “… if Mr Oates caused [CCL Australia] to adopt the role of plaintiff in derivative proceedings based on alleged wrongs done to [CCL UK] and aimed at obtaining remedies for [CCL UK] (with [CCL UK] itself joined as a defendant), would Mr Oates be bringing those proceedings ‘on behalf of’ [CCL Australia]?”

The reason why his Honour viewed that as the crucial question was: “… because all that can be done by someone who has one of the s 236(1)(a) relationships with a company and obtains a grant of leave under s 237 is to ‘bring proceedings on behalf of’ that company.”

Mr Leeming submits that his Honour thereby addressed the wrong question. When CCL UK is not a “company” , the abolition of the right under the general law to bring proceedings “on behalf of a company” by section 236(3) has no application to it, and neither can a grant of leave under section 237 enable proceedings to be brought on behalf of it. Thus, any action brought against Mr Hawkins, Mr Tyne and their associated companies to enforce any rights of CCL UK could only be brought under the general law.

Mr Leeming submits that, even accepting that any derivative action to enforce the rights of CCL UK can only be brought under the general law by a member of CCL UK, and that CCL Australia is the only member of CCL UK, there is still scope for Mr Oates to obtain leave under section 236 that is relevant to such an action. One way in which Mr Leeming submits this could happen is if Mr Oates is granted leave under section 236 to bring proceedings on behalf of CCL Australia seeking leave (under the general law) for CCL Australia to bring or continue derivative proceedings for the benefit of CCL UK. Another route is by an application by Mr Oates to take a step in proceedings commenced on behalf of CCL Australia, in the event that the CCL Australia application is successful. The particular relief that Mr Oates had sought from Barrett J was, he says, the first of these types of relief – see para [39] above.

That submission gives rise to a question of whether under the general law it is either possible or necessary for a court to grant to a member of a corporation leave to commence or maintain a derivative action. The argument on that topic has proceeded without examining any questions of conflicts of laws, and on the basis that no statutory provisions or rules of court bear upon the question. Is Leave Possible, or Necessary, to Start a General Law Derivative Action?

The famous decision of Sir James Wigram VC in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 was a decision given concerning a demurrer to a bill. As stated at Hare 461; ER 190: “The bill was filed … by [A and B] on behalf of themselves and all other the shareholders or proprietors of shares in the company called [C], except such of the same shareholders or proprietors of shares as were defendants thereto …”

The company in question was incorporated by an Act of Parliament. Counsel seeking the demurrer specifically argued (at Hare 485; ER 200): “… that the suit complaining of injuries to the corporation was wholly informal in having only some of its individual members, and not the corporation itself, before the Court; that this defect would not be cured by adding the corporation as parties Defendants, for the Plaintiffs were not entitled to represent the corporate body, even as distinguished from the Defendants and for the purpose of impeaching the transactions complained of …”

Sir James Wigram stated (at Hare 490-1; ER 202): “It was not, nor could it successfully be, argued that it was a matter of course for any individual members of a corporation thus to assume to themselves the right of suing in the name of the corporation. In law the corporation and the aggregate members of the corporation are not the same thing for purposes like this; and the only question can be whether the facts alleged in this case justify a departure from the rule which, prima facie , would require that the corporation should sue in its own name and in its corporate character, or in the name of someone whom the law has appointed to be its representative.”

In other words, his approach was to examine the allegations that had been made in the bill already filed, and see whether the facts so alleged were such as justified an individual member bringing proceedings to enforce a right of the company. The proceedings that the Vice-Chancellor was deciding were like any other demurrer proceedings – they started from the recognition that an action had already been commenced by the filing of the bill, and decided whether the facts alleged in the bill would, if true, show a state of affairs concerning which the law would grant a remedy.

Sir James Wigram said (at Hare 491-2; ER 202-3): “The first objection taken in the argument for the Defendants was that the individual members of the corporation cannot in any case sue in the form in which this bill is framed. During the argument I intimated an opinion, to which, upon further consideration, I fully adhere, that the rule was much too broadly stated on the part of the Defendants. I think there are cases in which a suit might properly be so framed. Corporations like this, of a private nature, are in truth little more than private partnerships; and in cases which may easily be suggested it would be too much to hold that a society of private persons associated together in undertakings, which, though certainly beneficial to the public, are nevertheless matters of private property, are to be deprived of their civil rights, inter se , because, in order to make their common objects more attainable, the Crown or the Legislature may have conferred upon them the benefit of a corporate character. If a case should arise of injury to a corporation by some of its members, for which no adequate remedy remained, except that of a suit by individual corporators in their private characters, and asking in such character the protection of those rights to which in their corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Cottenham in Wallworth v Holt (4 Myl & Cr 635; see also 17 Ves 320 per Lord Eldon) and other cases would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue.”

That passage involves specific recognition that it is sometimes possible for an action to be brought by a member of a company, on behalf of themselves and all the other shareholders other than the defendants.

The balance of the judgment involved detailed consideration of when a member of a corporation could bring an action to enforce a right of the corporation, and whether the allegations in the particular bill in question measured up to those requirements. There is no suggestion in the judgment, however, that there is any requirement for the court to grant leave before the action can commence.

In East Pant Du United Lead Mining Company (Limited) v Merryweather (1864) 2 H & M 254; 71 ER 460 Sir William Page Wood VC considered a situation where a company had purchased a lead mine from one of its directors for a consideration paid partly in cash and partly in shares. Proceedings to set aside the sale were begun, at the instigation of a shareholder, in the name of the company. The solicitor who acted for that shareholder in commencing that action had not been authorised by the Board of Directors to do so. An extraordinary general meeting of the company resulted in a motion for adoption of the bill being defeated in circumstances where the majority was attained only by the defendant-director voting the shares with which he had been issued as part consideration for the purchase of the mine.

The Vice-Chancellor directed that the bill be taken off the file, saying, at H & M 261; ER 463: “At a general meeting, therefore, Mr Merryweather’s votes must be held to be good so long as he continues to hold his shares. Further than this the Court cannot be asked now to give an opinion, for to do so would be to decide the very question at issue in the cause.”

That case establishes that a shareholder is not entitled to sue in the name of the company to enforce a right of the company, unless duly authorised by the company. Taking the bill off the file was an appropriate remedy, once it was established that the solicitor who had filed the bill did not have authority to act for the company that was the nominal plaintiff. The case says nothing about a derivative action that is framed in the way that the action in Foss v Harbottle was framed.

In Atwool v Merryweather (1867) LR 5 Eq 464n; 37 LJ Ch 35 another attempt was made to attack the same transaction that had been the subject of the East Pant Du United case. This time, a bill had been filed by a plaintiff on behalf of himself and all the other shareholders of the company (other than the defendants) seeking to set aside the contract between the company and two of the defendants. One of the defendants submitted (at LR Eq 467 col 1) that, “the proper course would have been for the Plaintiff to have filed a bill for leave to use the name of the company against the parties to the contract” . (See also LJ Ch 37 col 2.) Sir William Page Wood VC, at LR Eq 468 col 2; LJ Ch 39 col 1, rejected that submission, saying: “I do not think that circuitous course is necessary under any circumstances.” That manner of proceeding was in accord with Foss v Harbottle , and was approved by the Court of Appeal in Chancery in Menier v Hooper’s Telegraph Works (1874) LR 9 Ch App 350.

In Wallersteiner v Moir (No 2) [1975] QB 373 Lord Denning MR considered the problem that arose if a company was defrauded by directors who hold a majority of shares. He said, at 390C-1B: “In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress. In Foss v Harbottle , 2 Hare 461, 491-492 [67 ER 189, 202], Sir James Wigram VC saw the problem and suggested a solution. He thought that the company could sue ‘in the name of some one whom the law has appointed to be its representative.’ A suit could be brought ‘by individual corporators in their private characters, and asking in such character the protection of those rights to which in their corporate character they were entitled ...’ This suggestion found its fulfilment in the Merryweather case which came before Sir William Page Wood VC on two occasions: see (1864) 2 Hem & M 254 [71 ER 460] (sub nom East Pant Du United Lead Mining Co Ltd v Merryweather ) and LR 5 Eq 464n. It was accepted there that the minority shareholders might file a bill asking leave to use the name of the company: see 2 Hem & M 254, 259; LR 5 Eq 467-468n. If they showed reasonable ground for charging the directors with fraud, the court would appoint the minority shareholders as representatives of the company to bring proceedings in the name of the company against the wrong doing directors. By that means the company would sue in its own name for the wrong done to it. That would be, however, a circuitous course, as Lord Hatherley LC said himself, at any rate in cases where the fraud itself could be proved on the initial application. To avoid that circuity, Lord Hatherley LC held that the minority shareholders themselves could bring an action in their own names (but in truth on behalf of the company) against the wrong-doing directors for the damage done by them to the company, provided always that it was impossible to get the company itself to sue them. He ordered the fraudulent directors in that case to repay the sums to the company, be it noted, with interest: see LR 5 Eq at 469n. His decision was emphatically approved by this court in Menier v Hooper’s Telegraph (1874) 9 Ch App 350 and Mason v Harris (1879) 11 Ch D 97. The form of the action is always ‘A B (a minority shareholder) on behalf of himself and all other shareholders of the Company’ against the wrongdoing directors and the company. That form of action was said by Lord Davey to be a ‘mere matter of procedure in order to give a remedy for a wrong which would otherwise escape redress’: see Burland v Earle [1902] AC 83, 93. Stripped of mere procedure, the principle is that, where the wrongdoers themselves control the company, an action can be brought on behalf of the company by the minority shareholders on the footing that they are its representatives to obtain redress on its behalf.” (Sir William Page Wood VC was appointed as Lord Chancellor after he had decided the Merryweather cases, and became Lord Hatherley.)

The first two paragraphs just quoted are, with respect, capable of misleading. The notion of the law appointing someone to be the representative of a company does not necessarily involve the court granting any leave to use the company’s name. It can be sufficient if an individual shareholder sues on behalf of himself and other shareholders in circumstances where the law recognises that he is entitled to do so. That way of reading the words of Wigram VC is in my view more in accord with the immediate context in which the few words that Lord Denning quotes from Foss v Harbottle appear (that immediate context being set out at para [73] above), and with the flow of thought of the judgment as a whole.

Further, when Lord Denning says that in the first of the Merryweather cases “it was accepted there that the minority shareholders might file a bill asking leave to use the name of the company”, the reference that he gives, at 259 of Hemming & Miller’s report (ER 462-3) is to a passage of argument, not to the judgment. In the course of that argument, reported on p 259, Mr Rolt QC, counsel for the company, said: “The onus of shewing that the bill has been adopted by the company relies on the minority filing it; but the shareholders have by the amendment, which was finally carried, negatived the adoption of the bill, and expressed their wish to refer the whole matter to arbitration… It is not shewn that the Plaintiffs have done their best to get leave to use the name of the company, which is essential. A bill might be framed, although not in the present form, to do justice, if necessary.”

The “leave to use the name of the company” that Mr Rolt mentioned may well refer to leave from the company itself. In any event, the notion of a plaintiff obtaining leave to use the name of the company does not appear anywhere in the Vice-Chancellor’s judgment in the first of the Merryweather cases. As well, the second Merryweather case was not an “initial application” – it was as final as litigation can be, for the orders made (at LR Eq 468-9n; LJ Ch 39) included orders for Merryweather to repay the purchase money with interest and deliver up the certificates for the shares with which he had been issued, and that the company be wound up. Sir William Page Wood said nothing about the “circuitous course” not being necessary only if fraud “could be proved on the initial application” – indeed he said nothing about “initial applications” at all.

The other two judges in the Court of Appeal did not join in Lord Denning’s account of the history of the derivative action. In these circumstances Wallersteiner v Moir (No 2) is not authority for leave to commence a derivative action ever having been part of the procedure under the general law.

A procedural device of the plaintiff in a derivative action approaching the court at an early stage to seek the approval of the court to the continuance of the action was suggested in Wallersteiner v Moir (No 2) . The English Court of Appeal was there considering a situation in which a shareholder who had brought a derivative action had achieved some success in the action, but the action was not complete, and the shareholder was concerned about his potential future liability for costs. The potential avenues through which he might obtain such protection were listed by Lord Denning MR at 389H as being: “(1) indemnity from the company; (2) legal aid; and (3) contingency fee.”

All members of the Court of Appeal held that legal aid was not available, Lord Denning MR, at 395, would have allowed a derivative action to be brought on the basis of a contingency fee arrangement with solicitors, but Buckley LJ, at 403, and Scarman LJ, at 407, would not permit contingency fees in those circumstances. However all three members of the Court of Appeal approved a procedure that was adapted from that available to a trustee of seeking directions of the court concerning the conduct of litigation. If a trustee conducted the litigation in accordance with such directions, the trustee was entitled to an indemnity for costs from the trust estate. Lord Denning put it this way, at 392: “In order to be entitled to this indemnity, the minority shareholder soon after issuing his writ should apply for the sanction of the court in somewhat the same way as a trustee does: see In r e Beddoe, Downes v Cottam [1893] 1 Ch 547, 557-558. In a derivative action, I would suggest this procedure: the minority shareholder should apply ex parte to the master for directions, supported by an opinion of counsel as to whether there is a reasonable case or not. The master may then, if he thinks fit, straightaway approve the continuance of the proceedings until close of pleadings, or until after discovery or until trial (rather as a legal aid committee does). The master need not, however, decide it ex parte. He can, if he thinks fit, require notice to be given to one or two of the other minority shareholders—as representatives of the rest—so as to see if there is any reasonable objection. (In this very case another minority shareholder took this very point in letters to us.) But this preliminary application should be simple and inexpensive. It should not be allowed to escalate into a minor trial. The master should simply ask himself: is there a reasonable case for the minority shareholder to bring at the expense (eventually) of the company? If there is, let it go ahead.”

Buckley LJ, at 404F-5C, was of a similar opinion: “After issuing his writ a minority shareholder plaintiff could apply by summons in the action for directions as to whether he should proceed in the action and, if so, to what stage without further directions. I think that such an application should in the first instance be made ex parte. In a relatively simple case the court may feel able to deal with the matter without joinder of any other party. When the summons comes before the court, directions could be given as to whether the company or another minority shareholder or the defendants or any of them or anyone else should be made respondents and whether any respondent should be appointed to act in a representative capacity for the purposes of the summons. The court might at this stage think it desirable to require the plaintiff to circularise or convene a meeting of other minority shareholders and to place their views, so far as ascertained, before the court. The summons should be supported by affidavit evidence of any relevant facts, to which instruction to counsel and his opinion thereon should be exhibited. The respondent or respondents to the summons, if any, would also be permitted to file evidence. The evidence of other parties would not be disclosed to the defendants in the action unless the court so directed, and the defendants, if made respondents to the summons, would not be permitted to be present when the merits of the application were discussed. Upon the effective hearing of the summons the court would determine whether the plaintiff should be authorised to proceed with the action and, if so, to what stage he should be authorised to do so without further directions from the court. The plaintiff, acting under the authority of such a direction, would be secure in the knowledge that, when the costs of the action should come to be dealt with, this would be on the basis, as between himself and the company, that he has acted reasonably and ought prima facie to be treated by the trial judge as entitled to an order that the company should pay his costs, which should, I think, normally be taxed on a basis not less favourable than the common fund basis, and should indemnify him against any costs he may be ordered to pay to the defendants. Should the court not think fit to authorise the plaintiff to proceed, he would do so at his own risk as to the costs. A procedure on these lines could, I think, be adopted without any amendment or addition to the rules of court, although it might well be thought desirable that an appropriate rule should be made.”

Scarman LJ, at 407D, agreed with the procedural proposed by Buckley LJ, saying it: “… would be suitable and should be adopted until such time as a rule of court is made which covers the situation.”

It is to be observed that the procedure thus endorsed by the Court of Appeal was not seeking leave to commence the action, but applying for directions in the action at an early stage after it was commenced. Further, there was no compulsion on a member bringing a derivative action to make any such application. Rather, the making of such an application was envisaged to be an act of self-protection on the part of the member, to provide some assurance that his or her costs would ultimately be paid from the company's assets, and that there was nothing to stop a member from pressing on with the action without such protection if he or she chose to do so.

Mr Leeming submits that Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 shows the possibility of obtaining leave to proceed with a derivative action, at general law. Prudential was a decision on an appeal to the English Court of Appeal from orders made at the final hearing of a derivative action. The trial judge had held that two directors had conspired to injure the company, and that the plaintiff-shareholder was entitled to prosecute an action on behalf of the company to obtain a remedy concerning that conspiracy. Before the final hearing, the defendants in the action had applied to have a preliminary issue decided concerning whether the plaintiff was entitled to maintain the claim against them. The trial judge refused that application, and there was no interlocutory appeal from his decision to do so. The trial judge refused the application for a preliminary determination of the question notwithstanding that it was clearly put to him (extracted at 211-2) that, at least by that time, the defendants had neither shareholding nor board control, and an independent board had decided, with the abstention of the one defendant who remained a director, to defend the action.

In the course of the appeal from the final orders in the case, the Court of Appeal (Cumming-Bruce, Templeman and Brightman LJJ) made some obiter observations, as follows, at 221: “… we have no doubt whatever that Vinelott J erred in dismissing the summons of May 10, 1979. He ought to have determined as a preliminary issue whether the plaintiffs were entitled to sue on behalf of Newman by bringing a derivative action. It cannot have been right to have subjected the company to a 30-day action (as it was then estimated to be) in order to enable him to decide whether the plaintiffs were entitled in law to subject the company to a 30-day action. Such an approach defeats the whole purpose of the rule in Foss v Harbottle and sanctions the very mischief that the rule is designed to prevent. By the time a derivative action is concluded, the rule in Foss v Harbottle can have little, if any, role to play. Either the wrong is proved, thereby establishing conclusively the rights of the company; or the wrong is not proved, so cadit quaestio.”

The course their Lordships were here recommending was the trial of a preliminary issue of the plaintiff’s standing to bring the action, not an application for “leave to proceed” .

At the time, Order 33, rule 4 of the English Rules of the Supreme Court 1965 provided: “(1) In every action begun by writ, an order made on the summons for directions shall determine the place and mode of the trial … (2) In any such action … one or more questions or issues may be ordered to be tried before the others.”

The type of “preliminary issue” that their Lordships contemplated was an unusual one. They said (at 221H-2B): “… we do not think that the right to bring a derivative action should be decided as a preliminary issue upon the hypothesis that all the allegations in the statement of claim of ‘fraud’ and ‘control’ are facts, as they would be on the trial of a preliminary point of law. In our view, whatever may be the properly defined boundaries of the exception to the rule, the plaintiff ought at least to be required before proceeding with his action to establish a prima facie case (i) that the company is entitled to the relief claimed, and (ii) that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle . On the latter issue it may well be right for the judge trying the preliminary issue to grant a sufficient adjournment to enable a meeting of shareholders to be convened by the board, so that he can reach a conclusion in the light of the conduct of, and proceedings at, that meeting.”

I say it is procedurally unusual because usually a preliminary issue in a case involves a decision, on a final basis, of one of the issues in the case, and not merely the establishment of a prima facie case. Even accepting this unusual feature of the “preliminary issue” that their Lordships propose, an application for trial of such a preliminary issue presupposes that there is litigation on foot in which that preliminary issue can be determined.

Prudential Assurance v Newman provides no support for the notion that under the general law leave was necessary before a representative action could be commenced .

Eventually in England Order 15, rule 12A was added to the Rules of the Supreme Court in 1994 (to apply to actions commencing on or after 1 September 1994), which provided, inter alia : “(1) This rule applies to every action begun by writ by one or more shareholders of a company where the cause of action is vested in the company and relief is accordingly sought on its behalf (referred to in this rule as a “derivative action”). (2) Where a defendant in a derivative action has given notice of intention to defend, the plaintiff must apply to the Court for leave to continue the action. … (9) If the plaintiff does not apply for leave to continue the action as required by paragraph (2) within the time laid down in paragraph (4), any defendant who has given notice of intention to defend may apply for an order to dismiss the action on any claim made in it by way of derivative action. … (13) The plaintiff may include in an application under paragraph (2) an application for an indemnity out of the assets of the company in respect of costs incurred or to be incurred in the action and the Court may grant such indemnity upon such terms as may in the circumstances be appropriate.”

Even under this new English practice leave was not required to start a derivative action, only to continue it.

An application for leave nunc pro tunc to commence and continue a derivative action was considered by de Jersey CJ in Virgtel Ltd v Zabusky [2006] QSC 66; [2006] 2 Qd R 81, but closer examination of the case does not assist Mr Leeming’s contention. In Virtgtel the company whose rights were said to be infringed was a Nigerian corporation. Under Nigerian law a derivative action could only be brought with the leave of the Federal High Court, and no such leave had been obtained (at 88 [43]). De Jersey CJ, at 88 [43], accepted evidence of a Nigerian lawyer that that requirement applied only to proceedings in Nigeria. Further, his Honour held that the question of whether a derivative proceeding had been duly commenced was a procedural question, and thus was determined in accordance with Australian law (at 88-91 [44]-[58]). (That part of his Honour’s decision need not be considered for the purpose of this appeal.) At 93 [67], his Honour said of the application for leave to commence the proceedings: "What the applicants in reality seek through their application is a preliminary adjudication of the competence of the proceeding, a preliminary determination of the character mentioned in Prudential Insurance Company Ltd v Newman Industries Ltd , 221-222. That is effectively what the applicants seek through their prayer for a grant of leave nunc pro tunc . I approach their application on that basis."

The order actually made, at 100 [106] was a declaration that the applicants “were entitled to commence, and may continue this proceeding, as a derivative action on behalf of the [Nigerian company].” As a declaration, it had the status of a final determination of the right of the plaintiff to bring the action – it was not a preliminary granting of leave to bring the action.

In discussing the historical development of the derivative action, neither B S Prunty, “The Shareholders’ Derivative Suit: Notes on its Derivation” (1957) 32 NYU L Rev 980 nor A J Boyle, “The Minority Shareholder in the Nineteenth Century: A Study in Anglo-American History” (1965) 28 Mod L Rev 317 make any mention of leave to commence a derivative action ever having been part of the English law concerning derivative actions.

To the extent to which the judgment of Lord Millett NPJ in Waddington Final Appeal at [49]-[51] suggests that an application for leave was ever part of the nineteenth century procedure in England it does not, with respect, seem correct.

To summarise, a plaintiff who seeks to bring a derivative action under the general law must allege, in the initiating process, facts that show that he or she falls within a recognised exception to the prima facie rule that the proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is the corporation itself. If the initiating process fails to make those allegations, it is liable to be struck out if the defendant chooses to apply to have it struck out. If the initiating process makes allegations which, if true, would suffice to enable the plaintiff to enforce a right owed to the company in which the plaintiff was a shareholder, but the defendant asserts that the allegations are so insubstantial that the matter should not go to trial, the defendant can move to seek summary dismissal of the claim. If trial of the merits of the action would be long and complicated, a defendant might choose to have a question of the plaintiff’s standing to bring a derivative action decided as a preliminary question. But there is no requirement under the general law relating to derivative actions for leave to be obtained before a plaintiff commences such an action.

This is a sufficient reason why Barrett J was right in refusing to give the type of relief that Mr Oates sought to enable him to enforce rights of CCL UK, identified in para [39] above.

There was lengthy argument about whether, if CCL Australia were to bring proceedings seeking leave to bring action under the general law against CCL UK, those proceedings for leave would be “proceedings on behalf of” CCL Australia, within the meaning of section 236. In accordance with what this judgement has already decided, that question does not arise. However, as it has been argued, I shall state my views concerning it, on the counterfactual hypothesis that such leave proceedings are possible. Would a General Law Leave Application be “Proceedings on Behalf of” CCL Australia?

Mr Leeming submits that a general law leave application that CCL Australia brought to enforce rights of CCL UK would amount to “proceedings on behalf of” CCL Australia, within the meaning of section 236. He submits that section 15AA Acts Interpretation Act 1901 (Cth) requires the court, in construing section 236, to prefer a construction that would promote the purpose or object underlying the Act to one that would not promote that purpose or object. He submits that section 236 is beneficial or remedial nature and thus, if ambiguous, to be construed “so as to give the most complete remedy which is consistent ‘with the actual language employed’ and to which its words ‘are fairly open’” : Khouri v Government Insurance Office (NSW) (1984) 165 CLR 622 at 638; Amaca Pty Ltd v Cremer [2006] NSWCA 164; (2006) 66 NSWLR 400 at 410-11 [48]-[51]. He draws attention to the statement of Santow J in Karam v Australia and New Zealand Banking Group Ltd [2000] NSWSC 596; (2000) 34 ASCR 545, where his Honour stated at 553 [27]: “The statutory derivative action, as is clear from its antecedents in terms of a number of different reform proposals culminating in CLERPA, was intended to be remedial. That is borne out by the explanatory memorandum introducing these amendments. At para 15 it enumerates a number of difficulties associated with the common law action and clearly indicates that the legislation, with appropriate checks and balances, is seen as ameliorative: paras 16-17.”

Mr Leeming submits that there is no suggestion that the words “on behalf of a company” were intended to erect “a new technical barrier” to the bringing of derivative actions.

Considering the provisions just as a piece of text, first, the language of section 236(1) draws the distinction between a “company” and a “corporation” . Section 236 confers entitlement on a person only to bring proceedings on behalf of a “company” (not on behalf of a “corporation” that is not a “company” ). Under the Corporations Act the definition of “corporation” is considerably wider than the definition of the term “company”. Under section 57A(1)(b) of that Act, “corporation” is defined to include “any body corporate (whether incorporated in this jurisdiction or elsewhere)”. The term “company”, on the other hand, is limited to companies registered under the Corporations Act (see para [21] above).

Second, the scope of the entitlement to bring proceedings that is conferred by section 236(1)(a) on “a member, former member, or person entitled to be a member” (any one of which I will call a “MEMBER” ) is different to the scope of the entitlement that is conferred by section 236(1)(b) on “an officer or former officer” (either of which I will call an “OFFICER” ). Section 236(1)(a) confers an entitlement to bring proceedings on not only a MEMBER of the “company” , but also on a person who is a MEMBER of “a related body corporate” . While there is a definition of “body corporate” in section 9 Corporations Act it is only an inclusive definition, and so does not detract from the width of the expression “body corporate” under the general law, as meaning any body whatsoever that has corporate personality. The definition of “related body corporate” is found in section 50 Corporations Act , which provides: “Where a body corporate is: (a) a holding company of another body corporate; or (b) a subsidiary of another body corporate; or (c) a subsidiary of a holding company of another body corporate; the first-mentioned body and the other body are related to each other.”

The definition of “holding company” is provided by section 9 Corporations Act , and is: “ holding company , in relation to a body corporate, means a body corporate of which the first body corporate is a subsidiary.”

It is a consequence of that latter definition that it is possible for a corporation that is not a “company” to still be the “holding company” of another body corporate. Thus, for example, in the present case CCL Ireland is the “holding company” of CCL Australia, even though CCL Ireland is not a “company” within the language of the Corporations Act .

Because section 236(1)(a) entitles either a MEMBER of a “company” , or a MEMBER of a “related body corporate” to bring proceedings on behalf of a company, section 236(1)(a) provides for a type of double derivative (or even a multiple derivative) action to be available to a MEMBER. That is because (without trying to exhaust all possible permutations) – if corporation A is the holding company of company B, a MEMBER of corporation A is entitled by section 236(1)(a) to bring proceedings on behalf of company B; – if corporation A is the holding company of corporation B, and corporation B is in turn the holding company of company C, a MEMBER of corporation A is entitled to bring proceedings on behalf of company C; and – if company A is the holding company of corporation B, a MEMBER of corporation B is entitled by section 236(1)(a) to being proceedings on behalf of company A.

However it is only an OFFICER of a “company” (not of a “corporation” ) who has an entitlement to being proceedings conferred on him by section 236(1)(b), and the only proceedings that such an OFFICER can bring are ones on behalf of the “company” of which he or she is an OFFICER. Thus, there is no double or multiple derivative action available under section 236 to a person whose only claim to standing is that he or she is an OFFICER of the holding company of a company, or an OFFICER of a subsidiary of the company.

Third, there is no definition of “proceedings” in the legislation. The word “proceedings” is capable of covering the whole variety of forensic exercises which may occur in a court: Proust v Blake (1989) 17 NSWLR 267 at 270 per Samuels JA (with whom Mathews J agreed); Re Doran Constructions Pty Ltd (in liq) [2002] NSWSC 215; (2002) 194 ALR 101; 168 FLR 116 at [100]-[102] and cases there cited. There is nothing about the word “proceedings” in itself that could make it inapplicable to an application for leave to be given to Mr Oates to bring proceedings asserting CCL Australia’s right to bring a derivative action that enforces the rights of CCL UK. The question though, is whether a meaning of “proceedings” that extends so far is the intended one in the context of section 236.

Some assistance can be gained from section 236(3). The right of a person at general law that was abolished by that section was the right of a member of a company to bring proceedings that sought a remedy for the company from someone who had wronged the company. In other words, the “proceedings on behalf of a company” referred to in section 236(3) were proceedings in which a member of a company was entitled to assert a cause of action of the company, for the ultimate benefit of the company. When section 236(3) abolishes the right of a person at general law to bring “proceedings on behalf of the company” , and sections 236 and 237 between them create a new statutory regime under which a person may “bring proceedings on behalf of a company” , that provides a fairly persuasive reason for believing that “proceedings on behalf of a company” in section 236(1) refers to proceedings in which a member of a company asserts a cause of action of the company, for the ultimate benefit of the company. This court has previously used the scope of the general law right that was abolished by section 263(3) as an aid to construction of section 236(1) in Chawan v Euphoric Pty Ltd .

The expression “on behalf of the company” also appears in section 236(2). The purpose of that provision, in my view, is to make the form of the action accord with the substantial reality that underlies it, namely that it is the right of the company that is being asserted in the proceedings.

Some assistance can also be gained from section 237(3). Section 237(3) is an aid to the operation of section 237(2)(c), which in turn (as explained above) sets out the criteria for the court granting leave to bring proceedings on behalf of the company. Section 237(3) creates a presumption that it is not in the best interests of the company to bring such “proceedings on behalf of the company” in circumstances that include that the proceedings are “by the company against the third party” , and where independent directors have formed a belief that not bringing the proceedings was in the best interests of the company. The sort of circumstances in which those criteria would come to operate are where the proceedings in question are ones that the company could bring independently of the granting of any leave under section 237. The only type of proceedings that a company can bring independently of section 237, are proceedings where it is asserting a legal right of its own. Further, the sort of circumstance in which the bringing of proceedings would be in the best interests of the company would be when the benefit that the company would derive from the bringing of proceedings outweighed the costs and risk that the company would suffer in bringing them. That again seems to contemplate proceedings in which the company is enforcing a right that it can legally enforce in court independently of any grant of leave under section 237 from the enforcement of which it is capable of benefiting.

Assistance can also be gained from the way in which section 236 confers an entitlement to bring a double derivative or multiple derivative action on a MEMBER but not on an OFFICER, and from the way in which it is only an entitlement to bring proceedings on behalf of a company (not on behalf of a corporation that is not a company) that is conferred. It can be inferred from these attributes of the text of section 236(1) that the legislative intention was that the procedure it created should enable what is in substance a double derivative action to be brought on behalf of a company by a MEMBER, but not by an OFFICER. It does not seem consistent with this intention for the statute to enable an OFFICER of a company to be granted standing to bring a general law proceeding whereby he or she can cause the company of which he or she is an OFFICER to bring a general law derivative action to enforce a right of a corporation that is a subsidiary of that company. Thus is a further reason why the statute should not be interpreted as enabling a general law leave application that CCL Australia brought to enforce the rights of CCL UK to amount to “proceedings on behalf of ” CCL Australia.

It can readily be recognised that the new statutory provisions concerning derivative actions were intended to be remedial legislation. However, the aspects of the language of the sections that I have been discussing show that permitting the statute to be used to permit Mr Oates to bring in the name of CCL Australia an application “for general law leave” to bring an action to enforce rights of CCL UK is not consistent with the actual language employed. As well, application of any principle of construction concerning remedial legislation is assisted if the evil that the legislation was designed to remedy is identified. Insofar as the evil concerned matters of standing to bring a derivative action under the general law, it was that the practice of corporations operating through groups meant that a member of a corporation that was the holding company of another company did not have standing to complain of a wrong done to that other company, even though the shareholder could have real financial consequences flowing through to him from the wrong that had been done to the subsidiary. Officers and former officers of a holding company do not have any analogous personal interest in righting a wrong that has been done to a subsidiary. When that is the evil concerning standing that the legislation seeks to remedy, there is no gap in the remedial scheme if a former officer of a company cannot (by virtue of being a former officer) achieve the result that he or she causes litigation to be run to correct a wrong that has been done to a subsidiary of the company.

The language “on behalf of the company” has a history of use in connection with derivative actions. In Wallersteiner v Moir (No 2) at 391, Lord Denning MR explained the principle behind derivative actions as being: “… where the wrongdoers themselves control the company, an action can be brought on behalf of the company by the minority shareholders on the footing that they are its representatives to obtain redress on its behalf. I am glad to find this principle well stated by Professor Gower in Modern Company Law , 3rd ed (1969), p 587, in words which I would gratefully adopt: ‘Where such an action is allowed, the member is not really suing on his own behalf nor on behalf of the members generally, but on behalf of the company itself. Although … he will have to frame his action as a representative one on behalf of himself and all the members other than the wrongdoers, this gives a misleading impression of what really occurs. The plaintiff shareholder is not acting as a representative of the other shareholders, but as a representative of the company. … In the United States … this type of action has been given the distinctive name of a ‘derivative action,’ recognising that its true nature is that the individual member sues on behalf of the company to enforce rights derived from it..” (emphasis added)

The sense in which a derivative action is brought “on behalf of the company” is thus the opposite of the procedural form that the action takes, in which the plaintiff sues “on behalf of” himself and all the other members other than the defendants. It is “on behalf of” the company in the sense that it is the company whose rights are asserted, and the company that receives the benefit of any success in the action. When legislation deals with an area of law in which there is a widely used meaning to a particular expression, and the legislation employs that expression, that provides a reason for believing that the expression was intended to have the meaning it is widely understood to have in connection with that particular subject matter.

Barrett J was correct when he said, at [19]-[23]: “… [CCL Australia], as a member of [CCL UK], would sue under some applicable exception to the ‘proper plaintiff rule’ ( Foss v Harbottle (1843) 2 Hare 461; 67 ER 189). The proper plaintiff rule was said in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 210 to be based on ‘the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested’. In some circumstances, a shareholder (“A”) can bring an action against a person (“B”) to recover damages or secure other relief on behalf of the company in which shares are held (“C”) for an injury done to the company (“C”) by that person (“B”). Such circumstances warrant departure from the proper plaintiff rule so that the shareholder maintains an action for the purpose of enforcement of the company’s rights against others ( Peninsular and Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189 at 223) or brings an action to enforce the company’s claim ( Nurcombe v Nurcombe [1985] 1 WLR 370 at 378. But the shareholder does this ‘on behalf of himself and all other members of the defendant company’ ( Campbell v Kitchen & Sons Ltd (1910) 12 CLR 513 at 514). The form of the action is important. The shareholder’s grievance is twofold: first, that wrong has been done to the company in which the shareholder holds shares and, second, that the company itself has not taken steps to seek redress against the wrongdoer. The particular shareholder then sues, as has been said, on behalf of himself and the other members. The correct form of the proceeding is one in which the complaining shareholder is plaintiff: Menier v Hooper’s Telegraph Works (1874) LR 9 Ch App 350; Alexander v Automatic Telephone Co [1900] 2 Ch 56. The company, however, must be made a defendant. This is because ‘the company must be party to the suit in order to be bound by the result of the action and to receive the money received in the action’: Spokes v The Grosvenor Hotel and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124 at 128. The shareholder’s position as plaintiff is thus no more than a procedural device to deal with the difficulty that those able to set the company in motion have not done so. The right the shareholder asserts as nominal plaintiff is the right of the company; and if a remedy is awarded by the court, it is the company, not the shareholder, that is the beneficiary of the judgment or order awarding the remedy. As was said in the Spokes case (at 129), ‘what is recovered cannot be paid to the plaintiff representing the minority, but must go into the coffers of the company’.”

The provisions that now appear in sections 236-242 Corporations Act first appeared in the Corporations Law , in accordance with the Corporate Law Economic Reform Program Act 1999 (Cth). That legislation contains no express statement of the “purpose or object underlying the Act” to which section 15AA Acts Interpretation Act could be applied.

We were taken in some detail through the various reports of law advisory bodies that ultimately resulted in statutory derivative action contained in the Corporate Law Economic Reform Program Act 1999 .

The Corporate Law Economic Reform Program Act 1999 was an Act to amend the Corporations Law , and so needs to be understood in that legislative context. The Corporations Law and the Corporations Act both made the same distinction between a “company” and a “corporation” (see para [110] above).

Report No 12 of the Companies and Securities Law Review Committee, “Enforcement of the Duties of Directors and Officers of a Company by Means of a Statutory Derivative Action” , November 1990, said, at [6], in connection with the rule in Foss v Harbottle , that “existing law is inadequate to provide a method of enforcement where a company improperly refuses or fails to pursue a cause of action . ” It recommended, at [23], a provision that conferred extremely wide standing for the bringing of derivative proceedings, extending to: “any member, or former member, of the corporation or of a related corporation;” and to “any director or officer, or former director or officer, of the corporation or of a related corporation;” , and other classes of people as well. It contemplated that an application could be made to the court “for leave to take proceedings in the name and on behalf of a corporation . ”

Such a provision, had it been enacted, would have empowered the court to give leave to Mr Oates to bring proceedings in the name and on behalf of CCL UK, by virtue of his being a former director of a related corporation of CCL UK, namely CCL Australia. It is to be noted that the fact that CCL UK is not a “company” within the language then used in Australian corporations legislation would be no bar to the granting of such leave, because CCL UK would, nonetheless, be a “corporation” .

In the Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs, “Corporate Practices and the Rights of Shareholders” , November 1991, (the “Lavarch Committee Report” ), Recommendation 26 (at para [6.3.33]) provided for a former director of a related corporation to have standing to seek leave of the court “to proceed on behalf of the company” . Had legislation in that form been introduced, Mr Oates would not have been able to obtain leave under the statutory provision to bring proceedings on behalf of CCL UK, because CCL UK was not a “company” .

The Companies and Securities Advisory Committee, “Report on a Statutory Derivative Action” , July 1993, further narrowed the recommended class of possible applicants to bring a statutory derivative action. It stated, at page 15, that it: “… believes that the class of applicants should be limited to the Commission, current members, directors and other officers … of the company itself, and persons presently entitled to be registered as members. Creditors, former corporate officers and members, option holders or current or former officers or creditors of related companies would be excluded.”

The Corporate Law Economic Reform Program Proposals for Reform: Paper No 3 (1997), “Directors’ Duties and Corporate Governance” recommended, at page 83, a form of derivative action in which a former officer of the company (but not of a related body corporate) would have standing to bring a derivative action “on behalf of a company” . In those respects it was identical to the Draft Provisions and Commentary that were released in September 1995 (Attorney-General’s Department, “Proceedings on Behalf of a Company (Statutory Derivative Action): Draft provisions and commentary” , September 1995). The 1997 paper said that the draft provisions had been “generally supported in terms of their effectiveness in achieving the objectives of a derivative action” .

The Explanatory Memorandum issued in 1998 concerning the Corporate Law Economic Reform Program Bill stated, at [6.25], that the bill, as so introduced, would enable an application for leave to be made by: “● members of the company (including those with a present entitlement to be registered); ● former members of a company or related body corporate; and ● directors and officers, present and former, of the company.”

This history shows that while it was at one time contemplated that a director of a holding corporation of, first a corporation, then a company, should be able to seek leave to bring proceedings on behalf of the company, the legislation as ultimately introduced deliberately did not make any such provision. This examination of the course which the legislation developed confirms what seems to me to be a proper construction of its language about what is involved in bringing proceedings “on behalf of a company” . If it had led to a different conclusion there may have been a question about the extent to which such legislative history is a legitimate aid to construction (cf Harrison v Melhem [2008] NSWCA 67; [2008] Aust Torts Reports ¶81-951 (61,661) at [12]-[16], [159]-[172]; Amaca Pty Ltd v Novek [2009] NSWCA 50 at [78]-[81]), but given the outcome of the examination of legislative history is not necessary to consider that question.

If there were such a thing, under the general law, as an application for leave to bring proceedings on behalf of a corporation, an application made by Mr Oates to obtain leave, under the Corporations Act , to act in the name of CCL Australia in the bringing of proceedings to seek leave under the general law to bring a derivative action against CCL UK would be merely a preliminary step towards CCL Australia bringing a derivative action. The taking of that preliminary step would not be done with a view to obtaining a remedy to enforce a cause of action for which CCL Australia could sue in its own name. Any benefit flowing from it would go to CCL UK. In that situation, the bringing of the application for leave under the general law would not be “on behalf of” CCL Australia within the meaning of section 236(1).

In these circumstances, there is no error in Barrett J’s conclusion that leave granted under section 237 could not (whether directly or indirectly) bring about the practical result that Mr Oates could initiate, in the name of CCL Australia, a general law derivative action to assert causes of action alleged to be owed to CCL UK.

That conclusion accords with the obiter opinion of Mr Justice Ribeiro PJ (with whom Li CJ, Bokhary and Chan PJJ agreed) in Waddington Final Appeal at [24] that the Hong Kong statutory provision enabling a member of a corporation, with leave, to “bring proceedings … on behalf of the … corporation” was: “… a scheme designed to deal with a ‘simple’ derivative action and does not provide for actions brought on behalf of a company’s subsidiary or sub-subsidiary.” Error in Characterisation as “Double Derivative Action”?

Mr Leeming submits that Barrett J at [27] incorrectly characterised the application as one to commence a “double derivative action” . As Barrett J made clear at [25], he derived the expression “double derivative action” from the decision in Waddington CA . Waddington CA held, as Barrett J summarised it at [25]: “… that a shareholder in a company might bring a general law derivative action aimed at obtaining a remedy for a wholly owned subsidiary of that company for a wrong done to the subsidiary.”

Manifestly Mr Oates was not seeking to bring a “double derivative action” as so described – he was not a shareholder in CCL Australia and the action he sought to bring was not a general law derivative action, but rather a derivative action authorised by sections 236 and 237. However, the action that Mr Oates desired to bring had a close similarity to a double derivative action, in that he desired to use his relationship to CCL Australia as the means of obtaining standing to bring an action in which a wrong allegedly done to CCL UK was to be remedied. I do not read Barrett J in para [27] (in which, I note, he put the expression “double derivative action” in inverted commas) as saying anything more than that he recognises that similarity.

In any event, whether it is or is not a “double derivative action” is an arid terminological debate. Barrett J addressed the correct question of whether a grant of leave to Mr Oates under section 237 could ever have the result that he could run litigation in the name of CCL Australia that enforced rights of CCL UK. Barrett J came to the correct answer concerning that question. PART B – ENFORCING RIGHTS OF CCL AUSTRALIA “Ownership” of Products and Opportunities

Mr Leeming submits that the trial judge erred in holding that there was no foundation for a finding that it was CCL Australia which “owned” the relevant intellectual property and business opportunities. He also submits that in concluding there was no such foundation the trial judge applied a more demanding standard than was appropriate to show that there was a serious question to be tried. Ownership Arising from Employment?

Mr Leeming submits that the relevant Products and Business Opportunities were developed by Mr Hawkins, Mr Tyne and Mr Oates in their capacities as employees and directors of CCL Australia. He submits that such a conclusion follows on either the version of the arrangements advanced by Mr Tyne, or the version of the arrangement advanced by Mr Oates. He places particular importance on the three men having been employees of CCL Australia. He points to the statement of Nettle J (as his Honour then was) in Victoria University of Technology v Wilson [2004] VSC 33; (2004) 60 IPR 392 at 422 [104]: “The law is well settled upon the position of an officer or employee who makes an invention affecting the business of his or her employer. It is an implied term of employment that any invention or discovery made in the course of the employment of the employee in doing that which he is engaged and instructed to do during the time of his employment, and during working hours, and using the materials of his employers, is the property of the employer and not of the employee. Having made a discovery or invention in course of such work, the employee becomes a trustee for the employer of that invention or discovery, and he is therefore as a trustee bound to give the benefit of any such discovery or invention to his employer.” (citation omitted)

He also relies upon the discussion of this topic by French J (as his Honour then was) in University of Western Australia v Gray (No 20) [2008] FCA 498; (2008) 246 ALR 603; 76 IPR 222.

Mr Leeming’s submission involves two separate propositions – that the three men were employees of CCL Australia, and that it was in their capacity as such employees that the relevant Products and Business Opportunities came into existence.

The Court was taken to various pieces of evidence concerning whether the three men were employees. Mr Leeming pointed to the express statement to that effect in the “Background” section of the CCL Reorganisation Deed (see para [25] above).

While that statement would clearly be an admission by Messrs Hawkins and Tyne, its ultimate significance would need to be judged in light of the fact that Mr Oates attacks the CCL Reorganisation Deed as being inaccurate in numerous respects. In particular, his affidavit denies that the Group was funded with funds to or through CCL Ireland, denies that CCL UK received funds at the direction of CCL Ireland, or received any loan funds. He denies that there were any guarantees entered by CCL UK or CCL Australia.

Mr Tyne gave evidence about the manner in which Mr Oates was paid, namely that he: “… was advanced GBP £4,000 per month for around 4½ years to meet living expenses appropriate to an executive of his standing while he was working in the UK and Europe for CCL and engaging in business as set out in this affidavit. I recall that the monthly payment was, at Mr Oates’ request, treated as a loan so that Mr Oates would not have to pay tax on the sum as income.”

An affidavit of Mr Oates responds to some of the allegations in the paragraph in which the passage just quoted appears, but does not respond to the allegations quoted.

Mr Leeming also submits that the intellectual property and business opportunities were developed by Mr Oates “as an executive director” of CCL UK and CCL Australia, and that being an executive director itself involved being an employee: Austin, Ford and Ramsay , Company Directors (2005) LexisNexis Butterworths at [2.28].

There is no finding by the judge that Mr Oates was an executive director, or that the intellectual property and business opportunities were developed by Mr Oates in his capacity as an executive director of (inter alia) CCL Australia. While Mr Oates expressly stated in an affidavit that he had developed them “as an executive director of CCL UK and CCL Australia” that portion of his affidavit was admitted only as being a submission. Mr Tyne’s evidence, on the other hand, was that “there were no ‘executive directors’ , merely directors of [CCL Australia]” . Mr Oates’ affidavit in reply reiterated that he believed he was an executive director, but referred to no resolution or piece of paper that conferred on him that status. That evidence is insufficient to establish that he was an “executive director” , or even that there was a serious question to be tried that he was an “executive director” .

The documentation does not contain any service agreement concerning any of the three men.

However, it is not necessary to rely on these evidentiary matters for this Court to reach the view that there was a serious question to be tried that the three men were employees of CCL Australia. I say this notwithstanding the oddity that Mr Oates’ counsel told the trial judge in the opening (tp 8) “our case is that he was not an employee, your Honour.”

Mr Tyne’s evidence about the manner in which the group structure was intended to operate (set out at para [49] above) itself proceeded on the basis that CCL Australia had, in some fashion, the capacity to bring it about that CCL UK was provided with the services of Messrs Oates, Hawkins and Tyne. The judge accepted that account of the likely arrangement. Thus he accepted that the intention was that CCL Australia would remain the employer of the three individuals. There is no challenge to that finding by Notice of Contention.

It is critical to whether it was in their capacity as employees of CCL Australia that the relevant Products and Business Opportunities came into existence that there is no evidence about the terms on which their services would be provided to CCL UK. The principles stated by Nettle J in Victoria University , and by French J in University of Western Australia are concerned with entitlement, as between employer and employee, to inventions or discoveries made by the employee. Even if, as between employer and employee, the employer is entitled to the employee’s work product, when an employer contracts to make the services of its employee available to another person, who it is that owns the work product of that employee depends upon the terms of the agreement by which the employee’s services were made available. It is not at all uncommon when the services of employees are lent, for the work product of the employee during the period of the “loan” , to belong to the enterprise to which the services have been loaned. To take an example from another field of endeavour, if a labour hire company makes a manual worker available to a manufacturer of widgets, it is usually the manufacturer of the widgets who is entitled to the benefit of the employee’s work product.

I note that the judge was not asked to decide that it was in their capacity as employees of CCL Australia that the three men brought the relevant Products and Business Opportunities into existence. However, there is no need to base any decision on that. When there is no evidence about the terms on which the services of the men were provided to CCL UK, it is speculation whether those terms would have entitled CCL Australia, or CCL UK, to their work product. To the extent that inferences could be drawn from the circumstances, there is some implausibility in the arrangement having been one that would have resulted in valuable intangible rights coming to be held in the highest taxing jurisdiction (Australia). The judge was not in error in failing to conclude that there was a serious question to be tried that CCL Australia had “ownership” of the Products and Business Opportunities by virtue of their having been developed by the three men in their capacity as employees of CCL Australia. What Did “Ownership” Consist Of?

While both the judge and the parties were content to use the shorthand of referring to “ownership” of the CCL Products and Business Opportunities, it is of some significance what such “ownership” consists in. It seems to be common ground in the evidence that whenever a CCL Product was disclosed to a potential customer it was done on the basis of an express confidentiality agreement, or an understanding relating to confidentiality. To the extent to which that conferred any rights on anyone, it took the form of a contractual right to enforce an express confidentiality agreement, or else an equitable right to enforce an obligation of confidentiality. Mr Tyne gave evidence that: “Mr Oates and I developed a standard form letter which we would require a third party to send on their letterhead to [CCL UK] and addressed to [CCL UK]. No confidentiality letter that I saw ever mentioned [CCL Ireland] or [CCL Australia].”

Mr Oates’ affidavit in reply did not take issue with those statements. Thus, one would infer that any contractual rights to enforce an obligation of confidentiality would inhere in CCL UK.

An equity of confidentiality arises from the circumstances in which information was communicated or obtained: Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 437-8 per Deane J (with whom Gibbs CJ, Mason, Wilson and Dawson JJ agreed). There is no suggestion on the evidence of any entity to which the CCL Products were disclosed knowing that it was dealing with any entity other than CCL UK. In that circumstance, the prima facie conclusion would be that any equitable obligation of confidentiality was owed to CCL UK. More relevantly for present purposes, there is no serious question to be tried that either contractual or equitable obligations of confidence were owed by any customer or potential customer to CCL Australia.

Property rights concerning the CCL Products would also, in the ordinary case, exist in the pieces of paper or computer hardware in which precedents and advices that embodied the information constituting the Products, and that could be itself disclosed directly, or drawn upon for the purpose of disclosing to a potential customer. Given the circumstances in which the London office operated, there is no basis for concluding that it might eventually be made out that any such pieces of paper or computer hardware were the property of CCL Australia.

Another aspect of the “ownership” of those Products would be who had an entitlement to enforce, against Messrs Oates, Hawkins and Tyne, any obligation to keep the information relating to the Products secret, or use it only for limited purposes. Any such obligations would not differ in substance from the directors’ obligation that Mr Oates has pleaded Mr Hawkins and Mr Tyne have breached.

Insofar as there is “ownership” of business opportunities, it consists in an obligation owed by someone who is aware of those business opportunities to utilise the business opportunities only for the benefit of the “owner” . In the present case, all the business opportunities in question were ones that, on the evidence, were developed by CCL UK.

The reason why Barrett J held there was no serious question to be tried, concerning the case against CCL Australia, was that the way in which Mr Oates contended that CCL Australia had “ownership” of the CCL Products and the CCL Business Opportunities was through CCL UK acting as an agent for CCL Australia as undisclosed principal. He held that there was no serious question to be tried concerning the existence of that agency. I am not persuaded that the matters to which Mr Leeming points shows that his Honour made any error in that respect. Serious Question to be Tried

Mr Leeming submitted that the trial judge determined the issues as if it were a final hearing, rather than considering whether Mr Oates had met the lower threshold of establishing a “serious question to be tried” . He submits that under section 237(2)(d) there is no requirement for the court to make factual determinations about contested issues: Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 at 707-8 [6] per Austin J; South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343 at 357 [80] per Middleton J. He submits that in deciding whether there is a serious question to be tried the court will not normally enter into the merits of the proposed derivative action to any great degree: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at 318-9 [25] per Palmer J; Carpenter v Pioneer Park at [17] per Barrett J. He submits that that standard is “relatively low” : Maher v Honeysett at [19] per Brereton J; Ehsman v Nutectime International Pty Ltd at 718 [59] per Austin J.

Before reaching his conclusion about whether there was a serious question to be tried, Barrett J stated that the way in which the court must proceed in answering that question is as stated by Debelle J (with whom Sulan and Vanstone JJ agreed) in Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90; (2008) 65 ACSR 700 at 711 [40]. Barrett J, at [64], set out the following passage from Ragless : “Finally, s 237(2)(d) requires that the court must be satisfied that there is a serious question to be tried. This is a familiar pre-requisite given that it is a factor to be established on an application for an interlocutory injunction. That was one reason for the test being utilised in s 237(2): Goozee [ v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 170 FLR 451; 42 ACSR 534] at [32] and p 23 of the Explanatory Memorandum which accompanied the Corporate Law Economic Reform Program Bill (‘the Bill’). The court must determine whether the applicant has demonstrated that there is a real question to be tried, that is to say, whether the applicant is able to identify the legal or equitable rights to be determined at trial in respect of which the final relief is sought: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at [91] per Gummow and Hayne JJ with whom Gleeson CJ and Gaudron J agreed. As Gleeson CJ expressed it at [15], the applicant must be able to show a sufficient colour of right of the kind sought to be vindicated by the final relief: see also Goozee at [34]. In Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65] Gummow and Hayne JJ discussed what is meant by a serious question to be tried in the context of granting an interlocutory injunction. They held that the application must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial. It is an interesting question whether s 237(2)(d) requires that the applicants be able to show a sufficient likelihood of success to justify the grant of the leave or merely that there is a real question to be tried that is not frivolous or vexatious: American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 407 per Lord Diplock. Dr Spry has suggested that Gummow and Hayne JJ have misinterpreted Lord Diplock’s analysis: Equitable Remedies (7th Ed) at (ix) to (x). It is unnecessary to determine this question which was not argued. It is sufficient for this appeal to note that even if the test in O’Neill applies, Ragless has a sufficient likelihood of success to justify a grant of leave.”

Mr Leeming does not submit that this statement of principle is incorrect.

The specific example of Barrett J imposing too high a standard to which Mr Leeming points, is para [69] of his Honour’s judgment, where he said: “Mr Oates has not succeeded in showing that there is any arguable basis for his contention that [CCL UK] operated as an agent of [CCL Australia]. That being so, he has failed to provide any form of foundation for a finding that it was [CCL Australia], rather than [CCL UK], which ‘owned’ the commercial advantages said by him to have been wrongfully diverted by Mr Hawkins and Mr Tyne to themselves or their associated interests.”

I do not see in this any misapplication by the trial judge of the correct standard for what is a serious question to be tried. If there is no form of foundation for a finding that there was the type of agency on which Mr Oates’ case concerning ownership depended, there was neither a “real question to be tried that is not frivolous or vexatious” , nor “a sufficient likelihood of success to justify the preservation of the status quo pending the trial” . Breach of Duty to CCL Australia?

Mr Leeming starts his argument on this topic by reminding us that: (a) section 183(1) Corporations Act prohibits a person who obtains information because he is an officer or employee of a corporation from improperly using that information to gain an advantage for themselves or someone else, or to cause detriment to the corporation; (b) section 182 imposes similar obligations in relation to the use of a position as a director; and (c) directors as fiduciaries must not (i) make an undisclosed profit from the use of corporate assets opportunities or information, or (ii) place themselves in a position in which there is a conflict or possibility of conflict between their duties and their personal interests.

He submits that the duty under section 183 Corporations Act continues until the person stops being an officer or an employee of the corporation, and the relevant information need not be information belonging to the corporation.

Mr Leeming submits that even if the relevant information was “owned” by CCL UK, there is a serious question to be tried as to whether Mr Hawkins and Mr Tyne are in breach of sections 182 and 183, with CCL Australia being the “corporation” in those sections, in the following fashion: “(a) [Mr Hawkins and Mr Tyne] obtained information concerning the CCL Products and CCL Business Opportunities (defined in the Reorganisation Deed as the ‘Intellectual Property’) because they were directors and officers of CCL Australia for the purposes of s 183 and using their position as such for the purpose of s 182; (b) clause 17 of the Reorganisation Deed expressed Mr Hawkins’ and Mr Tyne’s intention and agreement to use the Intellectual Property in the New Business to benefit themselves and the companies they established; (c) Mr Hawkins and Mr Tyne entered into transactions using the Intellectual Property for the purposes of s 183; (d) Mr Hawkins and Mr Tyne executed the Reorganisation Deed in their capacity as directors of CCL Australia and thereby used their position as directors and officer of CCL Australia to bring about the transfers of Intellectual Property for the purposes of s 182; (e) Mr Hawkins and Mr Tyne’s use of the information and their position was “improper” for the purposes of ss 182 and 183 because, among other reasons, it was in breach of statutory and fiduciary duties owed to CCL UK and CCL Australia; (f) by using the Intellectual Property in the New Business, Mr Hawkins and Mr Tyne gained an advantage for themselves and the companies associated with them in breach of ss 182(1)(a) and 183(1)(a) of the Corporations Act ; (g) Mr Hawkins and Mr Tyne also used their knowledge of the CCL Business Opportunities to take those opportunities for themselves and caused detriment to CCL Australia by depriving CCL UK of the revenue from the opportunities and thereby destroying the value of CCL Australia’s shares in CCL UK in breach of ss 182(1)(b) and 183(1)(b).”

He submits that the “no conflict” rule can be breached even if there is no improper dealing with property belonging to a party to whom the fiduciary duty is owed. Rather, he submits, the rule is as stated by Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 at 471; 23 LTOS 315 at 316 col 2.3; [1843-60] All ER Rep 249 at 252 and recently applied in Bhullar v Bhullar [2003] EWCA Civ 424; [2003] BCC 711; [2003] 2 BCLC 241 at [27], that no fiduciary “… shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect.” To similar effect is Bray v Ford [1896] AC 44 at 51; Eastland Technology Australia Pty Ltd v Whisson [2005] WASCA 144; (2005) 223 ALR 123 at 136 [65]-[66]; Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 at [1355]; Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 at [109].

He submits that, even if the relevant business opportunities were “owned” by CCL UK, Mr Hawkins and Mr Tyne breached the “no conflict” rule because: “(a) on the assumption that CCL UK ‘owned’ the relevant products and business opportunities, CCL Australia’s main asset was its shareholding in CCL UK; (b) by pursuing the CCL Business Opportunities through their New Business rather than the CCL Group, Mr Hawkins and Mr Tyne were causing harm to CCL UK by taking away its business; (c) that conduct caused corresponding harm to CCL Australia by causing a decrease in the value of CCL Australia’s shareholding in CCL UK; (d) this was a conflict between Mr Hawkins[‘] and Mr Tyne’s duties to CCL Australia and their personal interest in breach of the ‘no conflict’ rule.”

He says that the acts and omissions of Mr Hawkins and Mr Tyne in causing or failing to prevent harm to CCL Australia breached section 181 Corporations Act and their obligations of good faith and loyalty to CCL Australia. He reminds us that in Talbot v NRMA Ltd [2000] NSWSC 608; (2000) 50 NSWLR 300 at 307 [31] Hodgson CJ in Eq said that: “… if a duty requires positive action, then an omission to act could be a breach of a director’s duties…”.

He also submits it is reasonably arguable that the business opportunities of a wholly owned subsidiary should be considered to also be the business opportunities of the parent for the purpose of the business opportunity doctrine, at least where the directors and officers of the parent and subsidiary overlap completely.

Mr Gleeson SC, counsel for the Respondents, submits that this argument should not be entertained, because it is a different case to the case that was run below.

The principles in accordance with which any such argument is decided are laid down by Mason CJ, Wilson, Brennan and Dawson JJ in Water Board v Moustakas (1988) 180 CLR 491 at 180: “In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet. … The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings. Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged: See Dare v Pulham (1982) 148 CLR 658. It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal.”

The draft Statement of Claim pleaded the duties that Messrs Hawkins and Tyne owed to CCL Australia and to CCL UK in exactly the same terms (para [33] above). It pleaded three different breaches. One such allegation was made in a rolled up fashion, namely that the entering of the CCL Reorganisation Deed without Mr Oates’ consent was a breach of those duties (Statement of Claim para 55). Another breach was said to be that the entering of the CCL Reorganisation Deed involved a breach of section 320 Companies Act 1985 (UK), actionable at the suit of CCL Australia (Statement of Claim paras 59 and 60). Another is that by conducting some (apparently abortive) negotiations with Mr Oates to acquire his interest in the Consolidated Capital group without disclosing “all material facts and circumstances affecting the value of Mr Oates’ interest in the Consolidated Capital Group” , Messrs Hawkins and Tyne breached their duties to CCL Australia and/or CCL UK (Statement of Claim para 91).

While a pleading of breach of the kind made in paras 55 and 91 the Statement of Claim is lacking in specificity, it could not be said that the argument now put is outside the scope of the pleading. On the other hand though, it would be easy, even for an attentive reader coming to the pleadings without previously having been alerted to the type of argument that Mr Leeming now seeks to put, not to get the point that that type of argument was being put forward.

Further, on re-reading both the oral and written submissions made on Mr Oates’ behalf in the court below, there is no trace of the arguments now sought to be put. Apart from an argument concerning the transfer of the shares of CCL Australia in CCL UK, to which I will turn in a moment, there was no articulation of a “fallback” position that would give CCL Australia a remedy even if the assets of substantial value in the group lay with CCL UK. There was no submission about how it might be said that any knowledge that Messrs Hawkins and Tyne had about the assets and business opportunities that had been developed by CCL UK was knowledge that they had derived in their position as officers of CCL Australia.

In Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 646, Mason P (with whom Gleeson CJ and Priestley JA relevantly agreed) stated the following principles: “‘ ¼ it is a sound general principle, leading not only to the maintenance of fair play, but also to the repression of unnecessary litigation, that parties must be bound by the course they deliberately adopted at the trial’: Rowe v Australian United Steam Navigation Co Ltd (1909) 9 CLR 1 at 24, per Isaacs J; see also Browne v Dunn (1893) 6 R 67 at 75; Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 284. In Coulton [ Coulton v Holcombe (1986) 162 CLR 1] (at 7), Gibbs CJ, Wilson J, Brennan J and Dawson J said that: ‘It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.’” See also Chilcotin Pty Ltd v Cenelage Pty Ltd [1999] NSWCA 11 at [15]-[18].

In Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 77 ALJR 1598; 200 ALR 447 Gleeson CJ, McHugh and Gummow JJ said, at [51]-[52]: “It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial: University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483; 60 ALR 68 at 71; Coulton v Holcombe (1986) 162 CLR 1 at 8-9; Liftronic Pty Ltd v Unver (2001) 75 ALJR 867 at 875 [44]; 179 ALR 321 at 330-1; Water Board v Moustakas (1988) 180 CLR 491 at 496-7; cf R v Birks (1990) 19 NSWLR 677 at 683-5. Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination. Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action: Multicon Engineering Pty Ltd v Federal Airports Corp (1997) 47 NSWLR 631 at 645-6. Not only is the successful party put to expense that may not be recoverable on a party and party taxation but a new trial inevitably inflicts on the parties worry, inconvenience and an interference with their personal and business affairs. As Water Board v Moustakas (1988) 180 CLR 491 at 498 makes clear, a point may be a new point even though it is within the pleadings or particulars. The pleadings and particulars are frequently decisive in determining whether a party is seeking to raise a new point on appeal. But they are not conclusive. To determine whether a party is raising a new point on appeal, it is ‘necessary to look to the actual conduct of the proceedings’: Water Board v Moustakas at 497. Thus in Water Board , the plaintiff's case at trial had been that his employer was negligent in failing to prevent traffic from crossing in to the lane in which he was working. On appeal, the Court of Appeal of New South Wales allowed the plaintiff to raise a case that the employer was negligent in failing to provide a barrier to prevent the plaintiff from straying into the adjoining lane. This Court held that, although this alternative case was within the particulars, it had not been the plaintiff's case at the trial and the Court of Appeal had erred in allowing it to be raised on appeal.”

In my view Mr Oates should not be permitted to recast his case on appeal in the manner in which Mr Leeming seeks to do. Failure to Deal with Contentions about Transfer of Shares in CCL UK

Mr Leeming submits that, even if the CCL Products and the CCL Business Opportunities were “owned” by CCL UK, and even if there was no agency relationship between CCL Australia and CCL UK, the assignment effected by clause 15 of the CCL Reorganisation Deed of all the property of CCL Australia included, at the least, an assignment of all the shares in CCL UK. Mr Leeming submits that the trial judge erred in failing to deal with Mr Oates’ case concerning that point. Mr Leeming submits that when Mr Oates’ case on that point is considered, it should result in him being granted leave to being proceedings on behalf of CCL Australia to sue concerning the transfer of the shares in CCL UK.

Indisputably, the trial judge did not deal with that point.

Mr Gleeson submits that the matter was “barely pressed” below. He submits that if such a case were to have been pressed seriously, it would have required close attention by Mr Oates, through his evidence, to the question of the nature and quantum of the damage alleged to be suffered by CCL Australia through the assignments, and he did not embark on that task. Further, no oral submissions were made to the judge concerning a cause of action arising from the transfer of the shares.

Additionally, Mr Gleeson submits that it is a matter that could and probably would have been the subject of addition evidence before the trial judge, and hence cannot now be run on appeal: Water Board v Moustakas at 497; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481, at 483; 60 ALR 68 at 71; Coulton v Holcombe (1986) 162 CLR 1 at 7-8; O’Brien v Komesaroff (1982) 150 CLR 310 at 319.

Considering those submissions requires some analysis of the manner of progress of the proceedings below. The Written Submissions Below

Counsel for Mr Oates prepared two sets of written submissions in chief. One of them, dated 23 October 2007, related to the CCL Australia application. Those submissions attached a draft Statement of Claim, and identified it as the one “on which Mr Oates intends to rely” . That Statement of Claim pleaded the duties set out in para [33] above, of which only paras (d) and (f) alleged duties relating to property or business opportunities of the company. It expressly pleaded that the CCL Reorganisation Deed assigned CCL’s right, title and interest in both its shareholding in CCL UK, and the Intellectual Property. It pleaded a breach of section 320 Companies Act 1985 (UK) concerning those assignments collectively, and pleaded that the making of the assignments (plural) was a breach by Mr Hawkins and Mr Tyne of the duties to CCL Australia that had been pleaded.

While the bulk of the submissions of 23 October 2007 dealt with entitlement to the CCL Products and the CCL Business Opportunities, there was also a separate heading in the submissions that read: “ Transfer of CCL Australia Share in CCL UK 67. Further causes of action arise from the purported assignment and transfer to themselves by Hawkins and Tyne of all rights and shareholdings of CCL Ireland in CCL Australia; and CCL Australia in CCL UK under the CCL Reorganisation Deed. 68. CCL Australia and CCL UK have causes of action against Hawkins and Tyne in that: a. the premise of the whole transaction was the resignation of Mr Oates, which was induced by the wrongdoing of Messrs Hawkins and Tyne; b. the transfers were without consideration that reflected the value of the rights and shares; c. were effected contrary to the provisions of s320 of the Companies Act 1985 UK because they required approval by resolution of the companies in general meeting.”.

The submission went on to make contentions about why there was a “serious issue to be tried in relation to these causes of action” .

CCL Australia’s submissions, dated 1 November 2007, made no mention at all of the claim relating to the transfer of CCL Australia shares in CCL UK.

Mr Oates’ submissions in reply were filed on 19 March 2008. In an overview of the application, they said: “2. In the draft Statement of Claim (as amended) an action is raised for the recovery of the proceeds and benefits of intellectual property, business opportunities and other assets belonging to one or both of the First Defendant (“ CCL Australia ”) and the Second Defendant (“ CCL UK ”), misappropriated by the other Defendants.”

The summary of the plaintiff’s case alleged that part of the wrongdoing was that Messrs Hawkins and Tyne: “… using their powers as directors, by a deed purported to assign to themselves the intellectual property in the product and the entire shareholdings of CCL Australia and CCL UK”.

Another submission in reply of Mr Oates, filed 20 March 2008, replied seriatim to various submissions of CCL Australia. It included: “… there is a real issue whether valuable consideration was given when the intellectual property and rights of the CCL group was transferred to the Defendants; … The issue of funding has relevance to the issue of whether there was adequate consideration for the alienation of the CCL Products, CCL Business Opportunities and CCL Australia’s share in CCL UK. … a. Messrs Hawkins [and] Tyne purported to transfer valuable rights out of CCL Australia and CCL UK; b. the vehicle for doing so was the Reorganisation of Business Agreement, which included a transfer of CCL Australia’s share in CCL UK to Hawkins and Tyne. If the CCL Products and CCL Business Opportunities were owned by CCL UK, then that share had great value, and the same argument applies that insufficient consideration was given for it; c. the fact that a deal was done using CCL Products and/or CCL Business Opportunities is evidence of their value, because there appears to be no dispute that the Merrill Lynch deal generated huge profits”

The penultimate paragraph of those submissions provides a summary, that includes: “b. there is a real issue to be tried whether or not CCL Australia ‘owned’ the CCL Products and CCL Business Opportunities[.] … c. there is a real issue to be tried that the purported alienation of the CCL Products and CCL Business Opportunities (and CCL Australia’s share in CCL UK) was for insufficient value”.

All those written submissions were handed to the judge at the start of the hearing. The Oral Argument

Very early in the hearing, senior counsel appearing for CCL Australia told the judge that “we have refined the arguments we want to put down to one.” He summarised the “nub of the case” as being that Messrs Hawkins and Tyne: “… have effectively appropriated for themselves the intellectual property that was developed and owned by one or other of the companies in the group. The important question that arises on this application, your Honour, is which company in the group owned that intellectual property. Going beyond this application, we, of course, deny the broader allegations of appropriation and the like. We confine our arguments here to the question of ownership because the application under section 236 as it is primarily put by Mr Oates is on the basis that the Australian company was the owner of this intellectual property …”

At the start of his address, counsel for Mr Oates referred to what his opponent had said: “… about the one big issue being the ownership of the intellectual property, that has been clarified in my understanding to be the only factual dispute that is centred around that issue. But the remaining aspects which have been raised in the issues are still current.”

Later in his oral submissions he took the judge in detail through the draft Statement of Claim. Part of his address was: “Paragraph 49 then described what happened; a series of facts which give rise to the cause of action which is that Mr Oates resigned on 18 August and on 24 August, Messrs Hawkins and Tyne executed a document which was known as the CCL Reorganisation Deed, and that can be found at tab 177. Without needing to take your Honour to that immediately, that document purported to enter into a series of transactions in terms of which the shareholding in Australia and UK, was assigned to Messrs Hawkins and Tyne and there was also an assignment of any intellectual property that might exist to the same gentlemen.”

There was no other mention in oral submissions about a separate claim that Messrs Hawkins and Tyne had acted in breach of their duty to CCL Australia by assigning the shares it held in CCL UK. The address of counsel for Mr Oates used the written submissions as a framework, but did not expressly draw attention to the portions in the written submissions that related to the transfer of shares case. But there was no abandonment by counsel for Mr Oates of the transfer of shares claim.

In these circumstances, in my view the issue was before the judge, and should have been dealt with, even though senior counsel for CCL Australia made no submissions on the issue. Decision

I do not accept that this Court should decline to permit the transfer of shares point to be agitated here. The point was made in advance of the trial in the written submissions of Mr Oates that the legal representatives of CCL Australia were served with, and CCL Australia had the opportunity to put whatever evidence or submissions it wished concerning it.

Nor do I accept that the only way in which Mr Oates could succeed in showing that there was a serious question to be tried on that point would be by giving detailed evidence about the nature and quantum of the damage alleged to be suffered by CCL Australia through the assignment of the shares. Subject to one matter that I discuss below, it would suffice, in my view, for the evidence before the judge to point to there being a factual foundation for concluding that the shares in CCL UK had value in CCL Australia’s hands before they were transferred.

There was no serious question to be tried that there was any view other than that it was CCL UK that would have the benefit of exploitation of the CCL Products and the CCL Business Opportunities. There is evidence from Mr Oates of having discussions with Merrill Lynch concerning the use of some of the CCL Products, that there was agreement in principle that Merrill Lynch would split fees it derived from entering such transactions 50:50 with a Consolidated Capital entity, and of Consolidated Capital Holdings (a company controlled by Messrs Hawkins and Tyne) having concluded in late 2004 various transactions with Merrill Lynch. An email from a Merrill Lynch officer to Mr Hawkins and Mr Tyne dated 16 October 2004 states: “Subject to docs and the usual stuff, we have won the Abbey swaps – around £120 m of gain, £36 m of tax – split 42% to the good guys. A good way to end the week – and a busy few weeks ahead to make it all work.”

There is affidavit evidence from Mr Tyne that on or before 4 October 2004 he and Mr Hawkins had no knowledge that Merrill Lynch had won or was about to win Swap Novation Transactions with the Royal Bank of Scotland and Abbey National. Even if it were correct that any income-producing contracts were not entered until October 2004 or later, that would not be sufficient to show that there was no serious question to be tried about whether profits arising from any such transaction were the product of the CCL Products or the CCL Business Opportunities, as those items existed before the CCL Reorganisation Deed was entered.

In my view, the evidence before the trial judge showed that there is a serious question to be tried, in both of the senses adverted to by Debelle J in Ragless , that the shares in CCL UK had a value before they were transferred, and that they were transferred for less than that value. Reflective Loss

The “one matter” that I referred to earlier is this. Mr Gleeson submitted that any action that CCL Australia might bring against Messrs Hawkins and Tyne for breach of directors’ duties in transferring the shares it held in CCL UK for an undervalue would fail because of the reflective loss principle. I now turn to consider that principle.

In Prudential Assurance v Newman Industries (No 2) at 222-3 the English Court of Appeal considered a situation where a shareholder sued directors alleging that the directors had conspired to injure the company, and indirectly, the shareholders. The directors were alleged to have carried out their conspiracy by issuing a fraudulent circular inducing shareholders to vote in favour of the company purchasing certain assets at what proved to be an overvalue. For the shareholder to suffer loss in consequence of the conspiracy was an essential part of its cause of action. Their Lordships held, at 222G-3E, that the shareholders’ claim for personal loss was misconceived: “… if directors convene a meeting on the basis of a fraudulent circular, a shareholder will have a right of action to recover any loss which he has been personally caused in consequence of the fraudulent circular; this might include the expense of attending the meeting. But what he cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a ‘loss’ is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only ‘loss’ is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent shareholding. The plaintiff’s shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company. A simple illustration will prove the logic of this approach. Suppose that the sole asset of a company is a cash box containing £100,000. The company has an issued share capital of 100 shares, 99 of which are held by the plaintiff. The plaintiff holds the key of the cash box. The defendant by a fraudulent misrepresentation persuades the plaintiff to part with the key. The defendant then robs the company of all of its money. The effect of the fraud and the subsequent robbery, assuming that the defendant successfully flees with his plunder, is (i) to denude the company of all its assets; and (ii) to reduce the sale value of the plaintiff’s shares from a figure approaching £100,000 to nil. There are two wrongs, the deceit practised on the plaintiff and the robbery of the company. But the deceit on the plaintiff causes the plaintiff no loss which is separate and distinct from the loss to the company. The deceit was merely a step in the robbery. The plaintiff obviously cannot recover personally some £100,000 damages in addition to the £100,000 damages recoverable by the company.”

In Gould v Vaggelas (1984) 157 CLR 215, a misrepresentation had caused Mr and Mrs Gould to enter a contract to purchase, on behalf of a company yet to be incorporated, certain business assets. The company was then incorporated, as a two dollar company, and on settlement of the contract took title to the assets. The Goulds personally succeeded in recovering damages for deceit, consisting of (i) the value of property they transferred to the vendor in partial payment of the purchase price, (ii) the value of property the Goulds mortgaged to banks to secure guarantees given to the banks for loans to the company, and that the banks sold, (iii) the amount of a residual obligation of the Goulds under the guarantees, plus (iv) an amount of interest.

Gibbs CJ stated the principle for assessing damages at 219-20: “Any loss suffered by Gould Holdings as a consequence of the fraud can be recovered only by the company itself. Even if the company had not commenced an action within the limitation period, its failure to enforce its own rights would not have enhanced the rights of the Goulds: see Prudential Assurance v Newman Industries (No 2) [1982] Ch 204 at 223. However, although the Goulds cannot recover damages merely because Gould Holdings has suffered damage, and cannot recover damages which are merely a reflection of a loss suffered by the company, they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company.” See also at 231-2 per Murphy J, 245-6 per Wilson J, and 253-4 per Brennan J. The losses that the Goulds claimed were held to be separate losses to those that the company had incurred, and thus to be recoverable by the Goulds.

In Johnson v Gore Wood & Co [2002] 2 AC 1 at 35E-36A Lord Bingham of Cornhill (with whom Lord Goff of Chieveley agreed on this point) said, at 35-36: “These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, particularly at pp 222-223, Heron International [ Ltd v Lord Grade [1983] BCLC 244], particularly at pp 261-262, George Fischer [ (Great Britain) Ltd v Multi Construction Ltd [1995] 1 BCLC 260], particularly at pp 266 and 270-271, Gerber [ Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443] and Stein v Blake [[1998] 1 All ER 724], particularly at pp 726-729. (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, 195-196, George Fischer and Gerber . (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by a breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other.”

Lord Cooke of Thorndon, at 43B, accepted Lord Bingham’s three propositions, but regarded them as not exhaustive.

Lord Hutton, at 55G, followed the principle laid down in Prudential Assurance , but said: “… it is important to emphasise that the principle does not apply where the loss suffered by the shareholder is separate and distinct from the loss suffered by the company.”

Lord Millett, at 62, considered the situation where a company suffers loss caused by the breach of a duty owed both to the company and the shareholder: “If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved. Justice to the defendant requires the exclusion of one claim or the other; protection of the interests of the company’s creditors requires that it is the company which is allowed to recover to the exclusion of the shareholder.”

At 63, his Lordship rejected a proposition that the principle stated in Prudential Assurance v Newman is confined to the case where the defendant is not in breach of any duty owed to the shareholder personally. He points out that the example of the loss of the key in the “cashbox” example given in Prudential Assurance v Newman demonstrates “that the principle applies even where the loss is caused by a wrong actionable at the suit of the shareholder personally.”

As the various judgments in Johnson v Gore Wood show, application of these principles requires close attention to be paid to each head of damage that is claimed in an action to see whether that particular head of damage is one that, if awarded, would result in a shareholder receiving compensation for a loss which is nothing more than a reflection of a loss that has been suffered by the company.

These principles have been accepted in this Court: Chen v Karandonis [2002] NSWCA 412 at [35]-[44] per Beazley JA, with whom Heydon JA and Hodgson JA agreed.

The remedies that Mr Oates seeks to obtain for CCL Australia concerning the transfer of the shares in CCL UK, as articulated in the Statement of Claim, seems to be a declaration that the assignment of the shares is void ab initio , an order for compensation pursuant to section 1317H(1) Corporations Act 2001 (Cth), and “damages and/or equitable compensation” . Section 1317H relevantly provides: “(1) A Court may order a person to compensate a corporation … for damage suffered by the corporation … if: (a) the person has contravened a corporation … civil penalty provision in relation to the corporation … ; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. Note: An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E. Damage includes profits (2) In determining the damage suffered by the corporation or scheme for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.”

Any loss that CCL Australia might have suffered in consequence of being deprived of its shares is the value of those shares. It will be no part of its case to assert that it has suffered a loss in consequence of a duty that Messrs Hawkins and Tyne owed to CCL UK having been breached. Similarly, it will be no part of its case to assert that any profit of which it has been deprived, in consequence of the transfer of the shares, is a profit it did not derive because of a duty that Messrs Hawkins and Tyne owed to CCL UK was breached. Thus, it would not breach the reflective loss principle by the positive assertions it needed to make in seeking a remedy.

However, there is another sense in which the reflective loss principle shows that any action by CCL Australia for wrongful transfer of its shares in CCL UK will not yield a remedy worth having. All that CCL Australia can complain about, in any action it brings against CCL UK, is the transfer of the shares. The same document that effected the transfer of the shares also stripped out of CCL UK those assets that had previously given the shares in CCL UK a value. The right to sue concerning the stripping of those assets out of CCL UK can be asserted by CCL UK alone. It would be an infringement of the reflective loss principle if the damages or other remedy recoverable by CCL Australia were assessed on the basis that that stripping had not occurred. Thus, even if a court were ultimately to decide that there had been a legal wrong done to CCL Australia by Messrs Hawkins and Tyne when they caused the transfer of the shares in CCL UK to occur, the damages or other remedy that could be claimed for that wrong would not be substantial.

To put it another way, if the view of the facts that is most favourable to Mr Oates were to be adopted, the principle on which any loss caused by transfer of the shares would be assessed is to notionally put CCL Australia into the position it would have been in if that transfer had not occurred. That position would be that it was the owner of shares that had become, through a wrong done by Messrs Tyne and Hawkins to CCL UK, of no value. It would be restoring CCL Australia to the position of the shareholder who had been tricked into handing over the key to the company’s cashbox considered in Prudential Assurance v Newman . Indeed, the position of CCL Australia is somewhat less favourable than that of the key-owner, in that it was not even a necessary step for Messrs Hawkins and Tyne to obtain a single CCL Australia share to be able to appropriate to themselves the CCL Products and the CCL Business Opportunities.

Mr Leeming submitted that, even if the reflective loss principle applied to any claim for common law damages, it would not be applicable to equitable remedies. I do not agree. The reflective loss principle applies to remedies in all areas of the law. When the law takes the step of conferring legal personality on a corporation, the artificiality of so doing brings with it a need to alter the way in which all remedies operate as between natural persons to take account of that artificiality. When the item of property concerning which a legal wrong has been done is a share in a corporation, the remedies available for that wrong must recognise the reality that the value of that share is derived from the assets of the corporation. The considerations of principle to which Lord Millet referred in Johnson v Gore Wood , in the passage quoted at para [214] above, are general ones that apply to all types of remedy.

The High Court’s decision in Friend v Brooker [2009] HCA 21; (2009) 83 ALJR 724; 255 ALR 601, delivered since the argument in this appeal, illustrates that the reflective loss principle applies to equitable obligations and remedies. The High Court held that no equity of contribution existed between the two shareholders of a company when one of them borrowed money that he made available to the company. French CJ, Gummow, Hayne and Bell JJ reached that conclusion partly because the two shareholders were not under a co-ordinate liability to repay the debt, but also because, as they put it at [86]: “… equity does not impose fiduciary duties between the parties to a deliberate commercial decision to adopt a corporate structure in which they would owe duties, but to the corporation and as directors. Why … should equity intervene in such a fashion when the company, by which Mr Brooker and Mr Friend carried on the business, failed and, in the result, their personal losses will not be in equal amounts?”

Had the two men chosen to carry on the business by means of a partnership, the right of one to have the other reimburse him (through the medium of the taking of the partnership accounts) for half the amount of the borrowing would have been undoubted, but their having chosen to conduct the business using a corporate structure made an essential difference.

So far as a remedy of account of profits is concerned, the remedy would also not be substantial. The extension provided by section 1317H(2) to the notion of “damage” concerns “profits made by any person resulting from the contravention or the offence” (emphasis added). Similarly, under the general law, a remedy of account of profits for breach of fiduciary duty extends to profits made in consequence of the breach of fiduciary duty. Spigelman CJ stated the relevant principles in O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-3: “The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation: Nocton v Lord Ashburton [1914] AC 932 at 952, per Viscount Haldane LC; see the discussion by Justice Gummow writing extra-judicially in “Compensation for Breach of Fiduciary Duty” in Youdan (ed) Equity Fiduciaries and Trusts (1989) at 57-61; see also Meagher, Gummow and Lehane, Equity: Doctrines and Remedies , 3rd ed, pars 552-553; Davidson, “The Equitable Remedy of Compensation” (1982) 13 Melb Uni L Rev 349 especially at 372; Davies, “Equitable Compensation: Causation Forseeability and Remoteness” in Waters (ed) Equity Fiduciaries and Trusts (1993) at 304-305; Tilbury, “Equitable Compensation” in Parkinson (ed) The Principles of Equity (1996) pars 2202-2207, 2211. In Target Holdings Ltd v Redferns [1996] 1 AC 421, Lord Browne-Wilkinson said (at 432E-H): ‘At common law there are two principles fundamental to the award of damages. First, that the defendant's wrongful act must cause the damage complained of. Second, that the plaintiff is to be put ‘in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation’ Livingston v Rawyards Coal Co (1880) 5 App Cas 25 at 39, per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same.’ His Lordship's ultimate conclusion (at 439) was: ‘Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests. To make good a loss in fact suffered by the beneficiaries and which, using hindsight and common­ sense, can be seen to have been caused by the breach.’ In Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129, her Ladyship Justice McLachlin, who was in the minority, said (at 163E-G): ‘In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, ie the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which on a common sense view of causation, were caused by the breach.’ In my opinion this also represents the law in Australia. (Unlike some other aspects of Canadian fiduciary law, including the majority's approach in that case: see Breen v Williams (1996) 186 CLR 71 at 94-95, per Dawson J and Toohey J; (at 112-113), per Gaudron J and McHugh J; (at 137), per Gummow J.)”

In O'Halloran , at 277, Spigelman CJ approved the application of the “strict standard applicable to a trustee of a traditional trust with respect to improper application of trust property” to “the case of a director of a company, such as managing director, (or a group of directors) who has (or have) the power to dispose of company property and who does (or do) dispose of such property for an improper purpose.” In O'Halloran , at 275, Spigelman CJ had stated the test applicable to trustees who misapply trust property as being that adopted by Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 434D-G: “If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed. … Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred. … Thus the common law rules of remoteness of damage and causation do not apply. However, there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable viz the fact that the loss would not have occurred but for the breach.” See also Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at 90 [431]-[432], Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at 501–3, [43]–[47]; White v Shortall [2006] NSWSC 1379; (2006) 68 NSWLR 650 at 700 [270].

Application of that test of causation means that it is often of no avail to a company director who has disposed of company property in breach of fiduciary duty to establish that the property was likely to be lost to the company in any event without any breach of fiduciary duty, or that the property could have been taken from the company, by some means other than that actually employed, without any breach of fiduciary duty. The reason why it is often of no avail to a company director who has disposed of company property in breach of fiduciary duty to establish these matters is because the enquiry of the court is whether, in the facts as they actually existed, the company would not have lost the property but for the breach of fiduciary duty. (I say “often of no avail” because this Court in Beach Petroleum v Kennedy at 93 [444] did not approve a general proposition that “in no case involving breach of fiduciary duty, may a court consider what would have happened if the duty had been performed . ” )

But on the facts of the present case, when the CCL Reorganisation Deed actually was entered, and transferred to Messrs Hawkins and Tyne the assets by reason of which the CCL Australia shares had value, and when the shares in CCL UK would thus have become valueless even if the CCL Reorganisation Deed had not transferred them away from CCL Australia, there is no serious question to be tried that any profit has been made in consequence of any breach of fiduciary duty that might have been involved in effecting the transfer of the shares.

No attention was paid in argument on the appeal to the manner in which the alleged breach of section 320 Companies Act 1985 (UK) might result in a remedy, but even if the transfer of the shares was held to be void, and the shares in CCL UK were revested in CCL Australia, that would involve the revesting of an asset of no substantial worth.

If the only remedy that CCL Australia could obtain, consistently with the reflective loss principle, concerning the transfer of the shares in CCL UK is a remedy of no substantial value, it follows that it is not in the best interests of the company that Mr Oates be granted leave to pursue such an action on its behalf, and in addition there is no serious question to be tried. Thus, in deciding for myself the question that the trial judge did not decide, I would decline to grant Mr Oates leave to bring proceedings on behalf of CCL Australia concerning the transfer of CCL Australia’s shares in CCL UK. Failure of Mr Hawkins to Give Evidence

There is a separate ground of appeal (that both parties agree is a subsidiary one) alleging error in that the judge did not take into consideration the absence of any evidence from Mr Hawkins. Mr Leeming submits that the judge should have drawn inferences adverse to Mr Hawkins from his failure to give evidence.

In my view the judge was not in error in this respect, for two reasons. First, Mr Tyne gave evidence concerning Mr Hawkins’ state of mind at relevant times. No objection was taken to that evidence being read. The only submission that was made to the judge concerning absence of evidence from Mr Hawkins, was on an extremely narrow point, namely that it was only on or after 4 October 2004 that they knew “that Merrill Lynch had won or was about to win swap novation transactions” . The submission was that there was no evidence from Mr Hawkins as to his knowledge (inferentially, on that topic). However, the evidence from Mr Tyne that was read without objection said: “On or before 4 October 2004 Mr Hawkins and I had no knowledge that Merrill Lynch had won or was about to win swap novation transactions” . When evidence in that form has been allowed to be read unchallenged, a submission that Mr Hawkins gave no evidence on that topic lacks cogency.

Second, any failure of Mr Hawkins to give evidence would do nothing more than license (but not compel) the judge to infer that the evidence of that absent witness, if called, would not have assisted the party who failed to call the witness, and also to draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn: Manly Council v Byrne [2004] NSWCA 123 at [51]-[52]; Howell v Macquarie University [2008] NSWCA 26 at [97]-[98].

Concerning the first type of inference, CCL Australia was in no need of help concerning when Mr Hawkins first knew about the entering of the transactions, because evidence on that precise topic was read. Concerning the second type of inference open, Barrett J did not draw any inference that was unfavourable to CCL Australia, and so no occasion arose for him to draw any inference more strongly.

I would not uphold this ground of appeal. In Which Entity are Shares in CCL Australia Vested?

CCL Australia was at one time deregistered, but White J restored it to the register to enable it to be served with the present application: Oates v Consolidated Capital Services Pty Ltd [2007] NSWSC 680. CCL Ireland has been dissolved under the laws of Ireland. Barrett J said, at [2], that while the shares in CCL Australia may continue to be registered in the name of CCL Ireland: “… those shares are now vested in the Irish State in consequence of the dissolution and by operation of s 28(2)(b) of the State Property Act 1954 (Ireland). There was a finding to that effect by White J at an earlier stage of these proceedings: Oates v Consolidated Capital Services Pty Ltd [2007] NSWSC 680.”

There was no issue before Barrett J concerning in whom those shares were vested. At the start of the second day of the hearing the judge specifically enquired whether it was common ground that the shares in the Australian company were vested in CCL Ireland. Counsel for CCL Australia confirmed that that was so, and counsel for Mr Oates did not demur. Thus, the passage I have just quoted from the judgment records a common assumption, but does not make a decision. Further, it is a common assumption concerning a matter that did not bear upon the questions the judge was called on to decide. Mr Leeming submits that the judge was in error in holding that the shares in CCL Australia were vested in the Irish state, and submits that the judge should have held that the shares are vested in ASIC by operation of section 588 Corporations Act .

In these circumstances, I see no reason why this ground of appeal should be entertained.

In the result, in my view, all grounds of appeal have failed. In that circumstance, it is not necessary to consider an issue raised on a Notice of Contention: that the trial judge should have refused leave on the ground that it was not in the best interests of the company to do so, or alternatively should have granted leave only on a condition that Mr Oates undertake personally to indemnify the proposed plaintiff for all costs. Another matter raised by Notice of Contention, that the judge should have found there was no serious question to be tried because there was no opportunity lost, was abandoned in argument. The Notice of Motion of Joinder

Mr Oates seeks the joinder of Messrs Hawkins and Tyne to the appeal pursuant to one or both of two rules of court. The first is Uniform Civil Procedure Rules 2005 (“ UCPR ”) rule 6.24(1). It provides: “If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party.”

The second is UCPR 51.4(1). It provides: “Each person who: (a) is directly affected by the relief sought, or (b) is interested in maintaining the decision of the court below, must be joined as a respondent.”

Mr Leeming has made clear that the order he seeks is for joinder in these Court of Appeal proceedings, not an order that operates retrospectively to join Messrs Hawkins and Tyne to the proceedings below.

The forensic point of seeking the joinder of Messrs Hawkins and Tyne was so that submissions could be made on behalf of Mr Oates that various costs orders should be made against them in the event that Mr Oates had any measure of success on the appeal. Senior Counsel briefed for Messrs Hawkins and Tyne attended on the argument of the Notice of Motion, but took no part in the argument of the substantive appeal.

When the failure of the appeal shows that there is no forensic point to be achieved by making the order sought in the Notice of Motion, in my view it should be dismissed with costs. Ground of Appeal Number 6

By a late amendment, the Notice of Appeal was amended to seek an order that if Mr Hawkins and Mr Tyne were not joined as respondents to the proceedings, they pay the Appellant’s costs below and of the appeal. Argument concerning that ground of appeal was deferred, in the interests of obtaining more time to argue about the principal issues in the appeal.

Mr Leeming made clear in argument that this ground of appeal was designed to protect his client’s position about who should pay his costs, in the event that he obtained a cost order. As in my view his client should not obtain a costs order, there is no occasion for any relief under Ground 6. Orders

I propose the following orders: (1) Appeal dismissed with costs. (2) Notice of Motion to join Messrs Hawkins and Tyne dismissed with costs.