Diakovasili & Anor v Order of AHEPA NSW Incorporated

By Further Amended Originating Process filed on 22 June 2023, the Plaintiffs, Ms Diakovasili and Mr Antonakos, seek a declaration that they are entitled to commence or continue proceedings in the name of the Defendant, Order of AHEPA NSW Incorporated (“AHEPA NSW”, also referred to in the evidence as “the Association”), against ten persons named in a draft Statement of Claim (“proposed SOC”) (Ex J1, 2031) or alternative relief. The proposed Defendants in those proceedings comprise nine members of the management committee of AHEPA NSW (“Nine Defendants”) who are not aligned with a faction associated with the Plaintiffs (to which I will refer, without any disrespect, as the “Plaintiffs’ faction”) and a company, Rock Princes (Sydney) Pty Ltd (“RPS”) as trustee of the Rock Princes (Sydney) Property Unit Trust. The relief claimed in this application raises two questions: first, whether derivative proceedings may be brought at general law in respect of an association incorporated under the Associations Incorporation Act 2009 (NSW) (“2009 Act”); and, second, whether, if that is possible, the Plaintiffs should be permitted to bring the proposed claim on the particular facts.

This application is brought under the general law, rather than under ss 236-237 of the Corporations Act 2001 (Cth) (“Corporations Act”) and the Plaintiffs recognise that there is no requirement at general law for leave to commence derivative proceedings, so long as an exception to the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 (“Foss v Harbottle”) is established: Oates v Consolidated Capital Services Pty Ltd (2009) 72 ACSR 506; [2009] NSWCA 183 (“Oates”) at [105]. They point out that the declarations that they seek are of a similar kind to that given in Vigtel Ltd v Zabusky [2006] 2 Qd R 81 at [106], as noted in Oates at [101]-[102]. The Plaintiffs submit, and I accept, that there is a genuine dispute as to whether they have standing to bring the proposed derivative claims, and it is desirable to determine that matter at this stage, rather than leaving the parties to incur the costs of proceedings which may later be dismissed for lack of standing.

I now set out a chronology of events, drawing partly on the Plaintiffs’ chronology and partly on the documents tendered, largely in a joint court book (Ex J1). I only make findings of fact in these proceedings to the extent necessary to determine the question whether the declaratory relief sought by the Plaintiffs in this application should be granted, and I do not determine any other fact or question that might arise in the proposed proceedings if they were properly brought. The chronology below reflects my findings, to the extent that issues are contested and it is necessary to make them for that purpose.

AHEPA NSW was incorporated in 1993, although the Australian Hellenic Educational Progressive Association has a longer history in Australia and an unincorporated association has a longer history in New South Wales. Rule 13 of the rules of AHEPA NSW, as revised in 2018 (Ex J1, 456) (“Rules”) relevantly provides for the powers of the management committee of AHEPA NSW and, importantly, provides that the management committee:

Rule 20 in turn provides (Ex J1, 460) for notice of committee meetings, requiring 7 days’ notice of regular meetings of the committee or at least 48 hours oral or written notice of “additional meetings” of the committee which must state “the general nature of the business to be transacted at the additional meeting except business which the committee members present at the additional meeting unanimously agree to treat as urgent business”. Rule 25 provides (Ex J1, 463) for the committee to convene a special general meeting whenever it thinks fit, and also requires the committee to do so on the requisition in writing of not less than 25 members and allows the members who made the requisition to convene such a special general meeting if the committee fails to do so within one month after the date of the requisition of members. That rule is relevant to special general meetings (purportedly) held by the Plaintiffs’ faction and AHEPA NSW on different dates in June 2023, which respectively authorised and did not authorise the commencement of the proposed proceedings. It will not be necessary for me to determine the validity or effect of those meetings in order to determine this application.

At least from early 2016, a dispute arose as to the relationship between AHEPA NSW and the then unincorporated national association and as to the identity of chapters of AHEPA NSW and its membership. Mr Friedgut, with whom Mr Di Lizia and later Ms Meares appeared for the Plaintiffs, accepted, in his opening submissions, that there have been two “factions” in AHEPA NSW, each of which comprised different chapters of AHEPA NSW. He also accepted that the Nine Defendants are members of a “faction” which is comprised of a greater number of chapters than the Plaintiffs’ faction has aligned to it, and that a larger number of members on the management committee of AHEPA NSW were aligned with the Nine Defendants’ faction and a smaller number with the Plaintiffs’ faction. He accepted that the Nine Defendants were all members of the majority faction and that the five other members of the management committee, not joined as Defendants, were members of the Plaintiffs’ faction.

In December 2016, AHEPA NSW brought proceedings for declaratory relief to ratify certain resolutions passed (or purportedly passed) in 2005, 2007, 2010 and 2015. Ms Melas and Ms Alexandrou (who are aligned with the Plaintiffs’ faction) opposed that relief. The parties ultimately agreed consent orders that should be made in those proceedings and, by my judgment delivered on 21 March 2018 (Re Order of AHEPA NSW Inc [2018] NSWSC 458), I addressed the question whether orders should be made under s 1322 of the Corporations Act 2001 (Cth) (as applied by the 2009 Act and the Associations Incorporation Regulation 2016 (NSW)) in respect of those matters and, on 21 March 2018, I made the agreed orders and also noted an agreement between AHEPA NSW on the one hand and Ms Melas and Ms Alexandrou on the other as to certain matters.

On 30 April 2018, AHEPA NSW held a special general meeting. AHEPA NSW then held a further special general meeting in November 2018 which became the focus of further disputes. In proceedings commenced in 2018, two members of the Plaintiffs’ faction, again including Ms Alexandrou, also sought declarations that they were members of AHEPA NSW; representative orders were again made; and those proceedings were resolved by consent in late 2018.

In January 2019, Messrs Lianos, Gouros and Kypreos, also members of the Plaintiffs’ faction, brought proceedings (“Lianos 2019”) which challenged the validity of an amendment to AHEPA NSW’s constitution at a meeting in November 2018 and also challenged resolutions passed at subsequent meetings, in the context of a proposal for AHEPA NSW to participate in a redevelopment of the Bexley Bowling Club. On 8 March 2019, Messrs Gouros, Kypreos and Lianos filed an Amended Originating process in Lianos 2019 and that case was heard by Rees J on 13-15 March 2019.

By a valuation report dated 11 March 2019, Lando Valuations (“Lando”) valued two properties owned by AHEPA NSW at Rockdale (“Rockdale Properties”) at $6 million (Ex J1, 2941). That valuation report reflects an inspection of the properties and refers to comparable rental data and sales data largely referable to late 2017 and 2018. That value was then recorded in the financial statements of AHEPA NSW for the year ended 30 June 2019 (Ex J1, 516).

Rees J delivered judgment in Lianos 2019 on 3 October 2019: Re Order of AHEPA NSW Inc. [2019] NSWSC 1329. The Plaintiffs in Lianos 2019 then brought an appeal from the orders made by Rees J in Lianos 2019, which was initially determined by the Court of Appeal in Lianos v Order of AHEPA NSW Inc [2020] NSWCA 193 (“Lianos CA 1”), although the Court of Appeal later varied significant aspects of that judgment in its subsequent judgment in Lianos v Order of AHEPA NSW Inc (No 4) [2021] NSWCA 159 (“Lianos CA 4”). A special leave application brought to the High Court was unsuccessful: Order of AHEPA NSW Inc v Lianos [2021] HCASL 113.

On 10 October 2019, Ms Alexandrou served a creditor’s statutory demand for $107,753.23 on AHEPA NSW in respect of costs of the 2016 proceedings (Ex J1, 632).

By a letter dated 2 December 2019 (Ex J1, 744) to solicitors acting for Ms Alexandrou, the solicitors acting for AHEPA NSW, responded that:

By letter dated 3 December 2019 (Ex J1, 746), the solicitors who were then acting for Ms Alexandrou and are now acting for the Plaintiffs in this application, in turn rightly recognised that reliance on AHEPA NSW’s balance sheet did not establish its solvency and observed that:

On 13 December 2019, Ms Alexandrou, again represented by the solicitors who now act for the Plaintiffs in these proceedings, brought proceedings seeking an order under s 63 of the 2009 Act that AHEPA NSW be wound up on the basis of insolvency. On 9 January 2020, under threat of winding up, AHEPA NSW paid the amount sought by Ms Alexandrou and then paid interest on that amount on 17 January 2020 (Ex J1, 637). After that occurred, the winding up proceedings were dismissed by consent. Emmett AJA delivered a judgment in respect of the costs of those proceedings in Re AHEPA NSW Incorporated [2020] NSWSC 138 (“AHEPA 2020”) and observed (at [18]) that:

By letter dated 23 January 2020 (Ex J1, 2976), Judo Bank Limited (“Judo Bank”) increased the amount of its loan to AHEPA NSW from $1.3 million to $1.5 million, and that increased loan apparently funded payment of Ms Alexandrou’s claim for costs, although I recognise that payment had previously been made. It is common ground that additional borrowing required approval by, and was approved by, AHEPA NSW’s members by special resolution in general meeting under rule 13 of the Rules.

The Plaintiffs rely on AHEPA NSW’s balance sheet as at 30 June 2019 and 30 June 2020. The 30 June 2019 balance sheet (Ex J1, 515-516) records a value for the Rockdale Properties at $6 million in March 2019 and a value for the Surry Hills Property at $7.6 million in July 2019. The 30 June 2020 balance sheet (Ex J1, 787, 795), records that AHEPA NSW owns the Rockdale Properties valued at $4.4 million in October 2020 and the Surry Hills Property valued at $14 million in March 2019, with total liabilities of $3,063,834 as at 30 June 2020 (Ex J1, 787). Those financial reports indicate substantial total equity, which would be increased if its co-ownership of another property at Kemp’s Creek was valued at market value rather than book value, but cash and cash equivalents of only $1,999 as at June 2020 (Ex J1, 794), compared with $13,634 as at 30 June 2019 (Ex J1, 515). There is evidence that the amounts held by AHEPA NSW in bank accounts as at the balance date exceed that figure, although the additional bank balance falls well short of the amount needed to meet AHEPA NSW’s debts and contingent debts as they existed on 8 September 2020, when voluntary administrators were appointed to AHEPA NSW (“VA Appointment”). While AHEPA NSW then held substantial assets, that is not sufficient to establish its solvency if those assets could not be realised in sufficient time to meet debts that have fallen due. Under rule 13 of AHEPA NSW’s Rules, to which I referred above, AHEPA NSW could not borrow or sell those assets without approval of a special resolution of members, and it is doubtful that such a resolution could have been passed (or, at least, passed in a manner that would be recognised by dissenting members and not challenged in further litigation) where the identity of members of AHEPA NSW has been a primary issue in dispute in recent litigation between it and its members. I return to that matter below.

On 26 August 2020, the Court of Appeal delivered judgment in Lianos CA 1. I bear in mind that, as Mr Friedgut points out in closing submissions, the Court of Appeal did not immediately make orders to give effect to its reasons and did not do so prior to the date of the VA Appointment. I also have regard to correspondence concerning the legal proceedings in the period between delivery of the Court of Appeal’s judgment in Lianos CA 1 and the date of the VA Appointment, and following that date, to which Mr Friedgut refers in closing submissions, although it is not necessary to set out that correspondence here.

On 29 August 2020, Mr Gouros, one of the plaintiffs in Lianos 2019 and one of the appellants in Lianos CA 1, called a meeting of AHEPA NSW’s management committee to be held on 1 September 2020 (Ex J1, 882). Mr Gouros and the Plaintiffs’ faction then contended that they were the only persons entitled to sit on the management committee. That contention was based on the Court of Appeal’s decision in Lianos CA 1, and its correctness was an open question until that decision was varied by the Court of Appeal’s decision in Lianos CA 4. On 31 August 2020, AHEPA NSW’s solicitors wrote to Mr Gouros’ solicitors asking him, inter alia, to refrain from conducting that meeting (Ex J1, 885).

On 5 September 2020, Mr Michael Hird of Cor Cordis, later appointed as one of the voluntary administrators of AHEPA NSW, met with some members of its committee of management. One of the Nine Defendants, Mr Skandalakis then sent him an email, with copies to Mr Premetis and Mr Diasporas with various documents including a meeting agenda for “Tuesday night” (Ex J1, 925, 2980).

On 6 September 2020, AHEPA NSW sent an email concerning a meeting of the management committee which contained an error as to its date (Ex J1, 890) and, on 7 September 2020, the Secretariat of the Association sent a further email confirming that the meeting of that committee was scheduled for 8 September 2020 (Ex J1, 896). That notice referred to AHEPA NSW’s adherence to the conflict of interest policy of the Australian Charities and Not for Profit Commission, but the parties did not address that policy and it is not necessary for me to do so (Ex J1, 890). It identified (Ex J1, 891) the business at the meeting as, relevantly:

Obviously enough, that agenda did not give any clear notice that a resolution for the VA Appointment would be proposed or passed at that meeting. By email dated 7 September 2020 (Ex J, 892), Mr Antonakos advised AHEPA NSW that he would not attend that meeting, unless it confirmed that he would be entitled to stay throughout the meeting, including for discussion of the privileged issues in respect of the Court of Appeal decision, in which he was in a contrary interest to AHEPA NSW. As Mr Corsaro, with whom Mr Rizk appears for AHEPA NSW, pointed out in closing submissions by reference to the affidavit evidence and cross-examination, other committee members from the Plaintiffs’ faction generally made a conscious choice not to attend the meeting on 8 September 2020, with notice that it was to occur, although without specific notice of any proposed VA Appointment.

Also on 7 September 2020, Mr Hird and Mr Skandalakis had a telephone conference (Ex J1, 3200ff). Subsequent steps took place in the Court of Appeal from 8 September 2020, including in relation to orders (Ex J1, 909ff).

There are two separate minutes of what appears to have been a single meeting of the management committee on 8 September 2020, at which the VA Appointment was made. That meeting was attended only by the Nine Defendants and not by committee members associated with the Plaintiffs’ faction. The first of those minutes (Ex J1, 898), which recorded that the meeting commenced at 8pm and concluded at 8.32pm, noted the decision of the Court of Appeal in Lianos CA 1 and referred to a proposed application to reopen the appeal hearing and seek special leave to appeal, and a proposal to form a sub-committee to deal with those matters. Those resolutions assumed that the position in respect of voluntary administration was then an open question, since the management committee and any sub-committee would necessarily be deprived of any control of those proceedings once a voluntary administrator was appointed, even if (as ultimately occurred) leave was granted to continue the proceedings while AHEPA NSW was in voluntary administration. The committee members there present, being the Nine Defendants, also resolved, as recorded in a second set of minutes (Ex J1, 904) of that meeting:

On 15 September 2020, the former solicitors for AHEPA NSW submitted an informal proof of debt (Ex J1, 933) in the voluntary administration for the total amount of $538,907.95. The first meeting of creditors of AHEPA NSW then took place on 18 September 2020 (Alexandrou 24.4.23 [24]).

On 24 September 2020, Messrs Premetis, Diamadis, Kallimanis, Fandakis and Skandalakis (who are among the Nine Defendants) submitted a Report on Company Activities and Property (“ROCAP”) to the voluntary administrators (Ex J1, 1024) which recorded amounts, inter alia, owed to Judo Bank of $1.550 million and to AHEPA NSW’s former solicitors of $538,907.95, amounts owing to the other parties in respect of Lianos 2019 and Lianos CA 1 of $961,678.67 and to its current solicitors of $64,314.21, an amount owing to Revenue NSW of $48,517.74 and numerous other debts in smaller amounts. They there stated that the Rockdale Properties were valued at $3,000,000 each for a total of $6,000,000, reflecting the value attributed to them in AHEPA NSW’s earlier financial statements for financial year 2020, and stated the value of the Surry Hills Property at $7.6 million and referred to the current market value of another asset as $3 million, reflecting the then strong asset position of AHEPA NSW.

On 30 September 2020, Mr Fandakis requested Lando again to provide a valuation of the Rockdale Properties “for assets purposes” (Ex J1, 3338). By a further valuation report dated 7 October 2020 (Ex J1, 3341), Lando valued the Rockdale Properties at $4,440,000 exclusive of GST. The report noted that the real estate market was being impacted by the uncertainty arising from the COVID-19 outbreak and that there was significant market uncertainty as at the date of the valuation. The rental data and sales data on which that valuation relied extended from late 2017 to late 2019.

By letter dated 6 October 2020 (Ex J1, 1044), the solicitors then acting for Messrs Lianos, Gouros and Kypreos in Lianos CA 1 noted that they were creditors of AHEPA NSW in the amount of $961,678.67; noted that the total amount owed by AHEPA NSW to its creditors was about $3.38 million and observed that it was:

On 7 October 2020, RPS was incorporated (Ex J1, 2721ff) and Mr Bouteris sent Mr Fandakis the valuation obtained from Lando which had valued the Rockdale Properties at $4.4 million (Ex J1,3337ff).

By the administrators’ report to creditors dated 7 October 2020 (Ex J1, 1055) they observed, under the heading “Explanation for the Association’s difficulties” that:

That report indicated a substantial estimated surplus of AHEPA NSW’s assets over liabilities, on the figures provided in the ROCAP, although the cash at bank held by AHEPA NSW at October 2020 was only $44,240 (Ex J1, 1067), well short of its then liabilities payable to the other parties in legal actions against AHEPA NSW. That report also indicated that, by that time (I note, only approximately a month after the VA Appointment), AHEPA NSW’s former solicitors had obtained two cost assessment certificates for the costs owed to them, and also provided the voluntary administrators with legal invoices in support of their claim totalling $538,908 (Ex J1, 1070).

On 19 October 2020, Mr Fandakis provided Opteon Property Group Pty Ltd (“Opteon”) with a copy of the Lando valuation dated 7 October 2020 valuing the Rockdale Properties at $4.4 million (Ex J1, 3382); Opteon inspected the properties on 23 October 2020 (Ex J1, 1408) and, on 29 October 2020, its report (Ex J1, 1408) also valued the Rockdale Properties at $4.4 million as at 23 October 2020, on a market value basis. That report also noted the major disruption to the economy and property markets caused by COVID-19 and that the economy was then in a recession, with changes in the property market expected to result in weaker tenant demand and a potential adverse effect on value, and noted the highest and best use for the property was considered to be its existing use “with longer term redevelopment potential”. It recognised the then zoning of the property, reflected a detailed inspection of the property, and referred to extensive market evidence as to comparative rentals and sales.

On 30 October 2020, I made orders validating the VA Appointment in Re Order of AHEPA NSW Incorporated [2020] NSWSC 1626. The parties confirmed, at the commencement of the hearing, that they did not object to my hearing this matter by reason of that decision. I there observed (at [2], [6]-[8], [15]) that:

On 17 November 2020, Mr Premetis submitted an outline of a proposed deed of company arrangement on behalf of RPS (“RPS DOCA”) (Ex J1, 1533) , which proposed to create a deed fund in the amount of $4.4 million to enable a return to creditors of 100 cents in the dollar, by the sale of the Rockdale Properties to RPS for “market value of $4.4 million”, on terms that provided rent free occupancy to AHEPA NSW in the first year and rental payments of substantially less than the amount of the market rent as assessed by Opteon in the second and third years. The then proposal also contemplated conditions which would have changed the status of AHEPA NSW to a public company limited by guarantee and contemplated the election of new directors and a new constitution, although those conditions were ultimately not pressed. On 7 December 2020, RPS submitted a revised RPS DOCA (Ex J1, 1573).

The voluntary administrators’ supplementary report to creditors of 9 December 2020 (Ex J1, 1589) outlined the terms of the CS DOCA and the competing RPS DOCA but did not indicate the value of the Rockdale Property by reason of “commercial sensitivity” (Ex J1, 1614). The voluntary administrators also obtained a valuation report (in draft) of the Rockdale Properties from Property Logic on or about 12 December 2020 (Ex J1, 3423). That draft report refers to the medium to longer term redevelopment prospects and capital growth of those properties as “generally sound” but pointed to a recently refused development application of the property and the neighbouring site, by reason of a failure to comply with the height limit, building envelope and design guidelines, and noted that development site values could fluctuate rapidly under changing market conditions. That draft report provided a detailed analysis of the potential for development of the property and also considered sales evidence for earlier years until late 2020. In that draft report, Property Logic valued the Rockdale Properties at $4.9 million, exclusive of GST, about $500,000 higher than the valuation obtained by RPS, but well short of the $6 million valuation for which the Plaintiffs contend.

At the resumed meeting of creditors held on 16 December 2020, the administrator noted (Ex J1, 1742) that the RPS DOCA provided for the sale of the Rockdale Property to RPS “at a price determined by a valuation they arranged” and outlined other terms of the proposed RPS DOCA; there was an extensive discussion of the competing CS DOCA and RPS DOCA in which creditors associated with proponents of the respective DOCAs supported the respective DOCAs; a resolution that AHEPA NSW execute the CS DOCA was lost, and a resolution that it execute the RPS DOCA proposed by RPS was passed by a majority of creditors. In the course of that meeting, the voluntary administrator drew the attention of creditors to the ability to challenge a DOCA, but no such challenge was subsequently brought by Capital Services or any member of the Plaintiffs’ faction.

On 17 December 2020, the Court of Appeal delivered judgment in Lianos v Order of AHEPA NSW Inc (No 3) [2020] NSWCA 340 which, inter alia, stayed its orders made in Lianos 1 until the determination of a reopening application made by several incorporated chapters of AHEPA NSW.

On 18 December 2020, the administrators and RPS executed the RPS DOCA (Premetis 11.4.23 [25]).

On 6 August 2021, the Court of Appeal made orders in Lianos CA 4 varying its orders made in Lianos CA 1.

Also in 2021, AHEPA NSW brought proceedings against members of the Plaintiffs’ faction concerning the redevelopment of the Bexley Bowling Club, which were dismissed by consent, and Mr Gouros and other members of the Plaintiffs’ faction brought proceedings against AHEPA NSW concerning several matters. Some of those matters were resolved in the course of the hearing and in my judgment in Gouros v Order of AHEPA NSW Inc [2023] NSWSC 1281, delivered at the same time as the judgment in this application. The parties also indicated that there was no objection to my also hearing this application, after I had heard those proceedings and prior to my delivery of judgment in them.

On 22 July 2022, the solicitors acting for Ms Diakovasili gave notice (Ex J1, 1978) under s 237 of the Corporations Act of her intent to seek leave to bring derivative proceedings. As I noted above, the application now relies on the general law derivative action.

By email dated 11 August 2022 (Ex D3), the solicitors acting for the Plaintiffs in this application advised Mr Alexandrou, Mr Lianos, Mr Kypreos and Ms Diakovasili that, inter alia, there had been no response from AHEPA NSW to the notice of the proposed derivative proceedings; Ms Diakovasili would be the deponent of the affidavit in support of the application for leave to bring the derivative proceedings; and the solicitors “wished to have the proceedings filed before the mediation, scheduled for 27 August 2022”. The Defendants relied on this matter to seek to establish that the Plaintiffs, or at least their solicitors, had an improper purpose in the commencement of the application or the proposed proceedings, namely to place pressure upon the Nine Defendants personally at the mediation. I do not need to reach such a finding in order to determine this application, and that inference is weakened where this application has been pressed, and the Plaintiffs continue to seek to bring the proposed proceedings, after the mediation has passed.

These proceedings were then commenced, in their original form seeking leave under ss 236-237 of the Corporations Act, in the Federal Court on 1 September 2022, and subsequently transferred to this Court: Diakovasili v The Order of AHEPA NSW Incorporated [2022] FCA 1465 at [9].

Persons associated with the Plaintiffs’ faction later requisitioned a general meeting of AHEPA NSW to authorise the commencement of the proposed proceedings by AHEPA NSW, which would have avoided the need for the declarations they now seek. On 3 April 2023, the management committee resolved that the requisitioned meeting would be held on 21 June 2023 (Ex J1, 2139). The members of the Plaintiffs’ faction then convened a meeting themselves, by a notice of meeting that indicated the members of the opposing faction associated with several incorporated chapters of AHEPA NSW would be excluded from voting (Ex J1, 2349, 2693). Unsurprisingly, the resolution authorising the proceedings then passed at that meeting which only members of the Plaintiffs’ faction attended. Also unsurprisingly, the corresponding resolution then failed at the meeting previously convened by AHEPA NSW in response to the requisition, which was not attended by members associated with the Plaintiffs’ faction (Ex J1, 2029ff, 2086ff, 2152ff, 2348ff, 2693, 2699-70). It is not necessary to address the position in respect of those meetings, given the findings which I reach on other grounds.

The solicitors acting for the Plaintiffs and others in respect of this application provided a costs disclosure letter dated 6 April 2023 (Ex D2) in respect of this application to several members of the Plaintiffs’ faction, namely Mr and Ms Alexandrou, and a company associated with them, Marine Parade Pty Ltd (“Marine Parade”), Mr Lianos, Mr Kypreos, Ms Diakovasili and Mr Antonakos. That letter recorded that all of those parties, not only the two named Plaintiffs, Ms Diakovasili and Mr Antonakos, had instructed that firm, inter alia, to:

That costs disclosure letter also contained an additional provision that:

That indemnity plainly does not extend to the costs of the proposed proceedings, since the costs agreement is directed only to the costs of the leave application and not the cost of the proposed proceedings, unless amended to extend its scope; nor does it extend to liabilities incurred by AHEPA NSW in the proposed proceedings; nor does it extend to any liability of Ms Diakovasili or Mr Antonakos for any costs order made against them in the proposed proceedings. It does no more than provide an indemnity to the two Plaintiffs for the solicitors’ costs of the leave application (as distinct from the proposed proceedings) and ensure that the solicitors can claim their costs of the leave application against Mr Alexandrou, Ms Alexandrou, Marine Parade, Mr Lianos and Mr Kypreos. There was reference, in the course of this application, to an indemnity given to Ms Diakovasili and Mr Antonakos that they understood to have a wider application, but that wider indemnity is not found in that costs agreement and the Plaintiffs did not tender any other document containing it. I return to that matter below.

The Plaintiffs read three affidavits dated 20 March 2023, 6 April 2023 and 17 August 2023 of Ms Diakovasili in support of the application. She is the First Plaintiff in this application and the first plaintiff in the proposed proceedings, and is a longstanding member of the Order of AHEPA and an elderly pensioner who is Greek-speaking. She gave her gave affidavit evidence through interpreters and the Plaintiffs also read the affidavits of the interpreters, Dimitra Gallos dated 20 March 2023 and 6 April 2023 and Voula Tamaras dated 17 August 2023, in respect of Ms Diakovasili’s affidavits. She was also cross-examined through an interpreter.

In her first affidavit, Ms Diakovasili gave evidence that, on 22 July 2022, she caused her solicitors to provide notice to AHEPA NSW of her intention to seek leave to commence derivative proceedings, then in the form of statutory derivative proceedings under ss 236-237 of the Corporations Act. She gave evidence to establish that AHEPA NSW would probably not commence the proposed proceedings, by reference to a detailed analysis of the membership of its management committee, and I accept that proposition. Ms Diakovasili also referred to steps which had been taken to reformulate this application to bring it under the general law rather than under ss 236-237 of the Corporations Act and exhibited documents to support aspects of the allegations in the proposed SOC. It was clear from the detail of that part of Ms Diakovasili’s first affidavit and her cross-examination that her evidence reflected her legal representatives’ analysis and that Ms Diakovasili had little input into it or present understanding of that analysis.

In opening submissions, Mr Friedgut particularly emphasises the evidence of Ms Diakovasili in paragraphs 56-59 and 64 of her first affidavit dated 20 March 2023 that:

Regrettably, having paid close attention to Ms Diakovasili’s evidence in cross-examination, I have concluded that this evidence does not reflect any understanding of the claims or their likely result by Ms Diakovasili, but is an unfortunate example of Ms Diakovasili adopting her legal representatives’ formulation of evidence without any real understanding of it or its basis. I make no criticism of Ms Diakovasili in that respect, where she likely had no way of knowing that course was inappropriate, or that her evidence should properly have reflected the reality, that she wishes to bring the claims because she and her faction have an adverse view of the Nine Defendants and their conduct, but she has left it to others to understand the content of the proceedings, the nature of the relief sought and whether they have any factual or legal basis.

Ms Diakovasili also there explained, by reference to documents, why the proceedings were in the best interests of AHEPA NSW. It was also clear from her cross-examination that she had little understanding of that aspect of her evidence. I accept that she genuinely believes that the affairs of AHEPA NSW have been conducted inappropriately by the Nine Defendants, but it is plain that she has no real understanding of the issues raised by the proposed proceedings and no basis to assess how the relief sought in them (if it were identified) would address her concerns.

Ms Diakovasili also addresses her financial position, referring to the equity in her home and to an indemnity that (she understood) Marine Parade (which is, as I noted above, a company controlled by Mr and Ms Alexandrou) had provided to her in respect of any liability arising from the proposed proceedings and her understanding that Marine Parade had a surplus of assets over liabilities. That indemnity is not in evidence, where the costs agreement to which I referred above does not contain it. It was not apparent, from Ms Diakovasili’s affidavit evidence or cross-examination, that she had any understanding of the fact that the proposed proceedings against ten defendants would, if unsuccessful, give rise to a substantial costs order against her and Mr Antonakos, jointly and severally; or to the risk that enforcement action might be taken against her home in respect of such costs at a time in her life where she would be vulnerable to a loss of that home; or that there was an unavoidable risk that Marine Parade either could not or would not honour that wider indemnity (if it exists) if she called on it after unsuccessful proceedings at first instance or on appeal, whether because it had been wound up in a member’s voluntary winding up or deregistered before liability under the indemnity fell due; or that breach of the undertaking that Mr and Ms Alexandrou proposed to offer to the Court on Marine Parade’s behalf may render them or it liable in contempt, but a remedy in contempt would not necessarily assist her position. I am troubled by these matters and will return to this issue below.

By her second affidavit dated 6 April 2023, Ms Diakovasili emphasised her concern over the suggested actions of the incumbent management committee of AHEPA NSW and again indicated her wish to continue as a plaintiff in the proceedings together with Mr Antonakos, who was by then proposed as a Second Plaintiff in the proceedings. She again emphasised her concern with the overall management of AHEPA NSW, although the claims sought to be made in the proposed SOC have a narrower character, focussing on the voluntary administration and sale of the Rockdale Properties under the RPS DOCA.

By her third affidavit dated 17 August 2023, Ms Diakovasili again referred to her long relationship with AHEPA NSW and observed that:

Ms Diakovasili was cross-examined and I have no doubt as to the genuineness of her commitment to AHEPA and her genuine wish to pursue the proceedings. However, I am comfortably satisfied that she has little understanding of the basis of the allegations proposed to be brought by her on AHEPA NSW’s behalf in the proposed proceedings, or of the factual matters to which they refer, or the legal issues which they raise, or the relief that may be sought in them, or the risk of the loss of her home which is her only substantial asset to which she would be exposed by the pursuit of the proposed proceedings. Even assuming that the risk of Marine Parade failing to meet its indemnity (if it exists) if she failed in the proceedings is limited, the consequence of that occurring would be catastrophic for her. That is a significant matter, to which I return below.

The Plaintiffs also read the affidavits dated 24 April 2023 and 17 August 2023 of Mr Demetrios Antonakos, who was recently joined as the Second Plaintiff in this application and would be the Second Plaintiff in the proposed proceedings. In his first affidavit dated 24 April 2023, Mr Antonakos indicated that he wished to be joined as Second Plaintiff to the proceedings to provide his “support” to Ms Diakovasili because he wished to “ensure that the orders sought” are made. He indicated that he supported the proposed SOC and that he wished to have the assets of AHEPA NSW restored, implicitly by recovering costs of the voluntary administration and compensation for the sale of the Rockdale Properties at an alleged undervalue. He referred to his belief that he could more readily provide information and documents to the solicitors acting in the proceedings and better assist in communications with them than Ms Diakovasili. That proposition is plausible given Ms Diakovasili’s age and the fact that she is Greek speaking and requires an interpreter to communicate with the solicitors. Mr Antonakos indicates that he is willing to be a plaintiff in the proceedings because (he understands) he has received an unlimited indemnity from Mr and Ms Alexandrou’s company, Marine Parade, and he refers to Mr Alexandrou’s offer of an undertaking to the Court on behalf of that company. As I noted above, that indemnity is not in evidence and the costs agreement to which I referred above does not contain it. Mr Antonakos also addresses the difficulties that the Plaintiffs’ faction had in calling a meeting to approve the proposed proceeding in March 2023, which it is not necessary for me to address given the conclusions that I reach below. He also refers to the circumstances of the VA Appointment and to his surprise that the relevant resolution had been passed.

By his second affidavit dated 17 August 2023, Mr Antonakos elaborated on the evidence given in his first affidavit as to the matters relating to the meetings convened by members of the Plaintiffs’ faction and AHEPA NSW in June 2023 in respect of the proposed proceedings.

Mr Antonakos was also cross-examined and his evidence was that he had given limited attention to this proceeding and the proposed proceedings until about March 2023, because of his involvement in other proceedings that he and others had brought against AHEPA NSW. He was cross-examined at some length as to steps which would be taken to establish the membership of AHEPA NSW in order to conduct a special general meeting. That cross-examination was complex, both in the questions asked and also in Mr Antonakos’ responses to them, which likely reflect the underlying dispute as to the status of AHEPA NSW and its constituent parts. Mr Antonakos’ evidence in cross-examination at least made clear that he and members of the Plaintiffs’ faction have taken the view that the only members who would be entitled to vote at a special general meeting were the financial members of chapters of AHEPA NSW associated with an unincorporated association, AHEPA Australia, and not members of the incorporated chapters linked with the other faction, so that any general meeting to approve a loan or any sale of property would likely have given rise to a dispute as to which members of AHEPA NSW were entitled to vote at it.

Mr Antonakos was also cross-examined as to the circumstances in which he did not attend the meeting at which the voluntary administrators were appointed to AHEPA NSW, although he had received notice of that meeting, which turned on a wider dispute as to whether he should be entitled to be present when legal issues in respect of the other proceedings brought by and against AHEPA NSW were discussed.

Mr Antonakos’ evidence is that he sought to be joined as a Second Plaintiff in the proceedings, when he had occasion to read the proposed SOC in about March 2023, and then formed the view that he wished to support the proceeding, although he was not then aware of what evidence was available to support the claim. I think it likely that Mr Antonakos’ claim that he was joined as a Second Plaintiff in the proceedings to assist with his knowledge and to promote the prospect that the relief sought would be obtained did not provide a full account of the matters which went to that decision, which may have included a recognition of Ms Diakovasili’s lack of understanding of the proceedings. Mr Antonakos’ evidence on cross-examination at least indicated that he has a better understanding of the matters raised in the proceedings than Ms Diakovasili who, as I noted above, has little or no understanding of those matters.

Mr Antonakos was cross-examined as to whether he supported the Plaintiffs’ proposed claims as put in Mr Friedgut’s opening of this application, formulated by Mr Corsaro in a somewhat heightened way (T166) as follows:

Mr Corsaro also relied on Mr Antonakos’ evidence in cross-examination that members of the Plaintiffs’ faction believe that they are the only members of AHEPA NSW, to the exclusion of other members associated with the incorporated chapters so that they would be the only persons entitled to vote at any general meeting of AHEPA NSW (T154). I return below to the lack of utility in any attempt by the management committee to convene a special general meeting to seek approval of a sale of property of AHEPA NSW, or a borrowing by AHEPA NSW, where there was a continuing dispute as to who would be entitled to vote at any general meeting.

The Plaintiffs also read two affidavits dated 24 April 2023 and 17 August 2023 of Mr Alexandrou, who is not a plaintiff in these proceedings or in the proposed proceedings but is partly funding these proceedings and proposes to cause Marine Parade, a company that he and his wife controls (as I noted above) to indemnify the Plaintiffs in the proposed proceedings.

In his first affidavit dated 24 April 2023, Mr Alexandrou referred to his involvement as a member of the management committee of AHEPA NSW between November 2019 and October 2020. He referred to meetings which had taken place between the potential voluntary administrators and some members of AHEPA NSW’s management committee prior to the VA Appointment. He also referred to his surprise at the VA Appointment and indicates that he would have voted against the resolution for the VA Appointment had he received notice of the meeting of the management committee on 8 September 2020 at which they were appointed. The evidence is not sufficient to indicate whether he was sent or received such notice. Mr Alexandrou’s evidence is that there was no mention before the meeting of 8 September 2020 of any issue regarding AHEPA NSW’s solvency, although that proposition is unsurprising, if that insolvency or likely insolvency resulted from the Court of Appeal’s decision in Lianos CA 1 delivered on 26 August 2020.

Mr Alexandrou there addresses information that was provided to him by the voluntary administrators to the extent of AHEPA NSW’s liabilities and indicates that he had not previously had access to that information. He refers to the fact that AHEPA NSW had a surplus of assets over liabilities, which is plainly the case, but is of limited assistance in assessing its solvency which is to be determined on a cashflow basis. He refers to the subsequent conduct of the voluntary administration and to the fact that the solicitor who was then acting for him had attended the hearing in which the voluntary administrators sought validation of their appointment. I should add that that solicitor did not then seek to be heard in opposition to that application. Mr Alexandrou also refers to the proposals for a DOCA made by RPS and to the steps which he took to cause a company controlled by him, Capital Services, to put forward the CS DOCA in the voluntary administration. Mr Alexandrou also refers to the list of creditors at the second creditor’s meeting, the debts of which totalled nearly $1.7 million, and makes comments as to the status of those creditors (which were admitted, by agreement of the parties, with a limiting order under s 136 of the Evidence Act 1995 (Cth) (“Evidence Act”) as evidence of his understanding only). Those comments are of limited relevance where no step was previously taken to challenge either the resolutions passed at the second meeting of creditors or the RPS DOCA that was approved by creditors at that second meeting of creditors.

Mr Alexandrou also refers to the fact that his children took an assignment of a debt of $548,907.95 claimed by the solicitors previously acting for AHEPA NSW in the several legal proceedings, notwithstanding that he raises questions as to the status of that debt, which was ultimately paid to his children in full under the RPS DOCA. He also refers to his disappointed expectation that the proposal for the CS DOCA put by Capital Services would be accepted at the second creditor’s meeting. Mr Alexandrou also addresses the position in respect of the Rockdale Properties owned by AHEPA NSW and refers to an option granted to the owner of a neighbouring property to sell those properties in 2014, which did not proceed to completion when orders were made against that owner under the Criminal Assets Recovery Act 1990 (NSW). I refer below to the limited weight that can be given to that uncompleted option in determining the value of the Rockdale Properties.

Mr Alexandrou’s evidence is that Marine Parade has indemnified or will indemnify the Plaintiffs, Ms Diakovasili and Mr Antonakos, in this proceeding and in the proposed proceedings, in respect of the legal costs which they incur in the proceedings and any adverse costs order against them, and he refers to three properties owned by Marine Parade and to its present liabilities. I noted above that no such indemnity is in evidence and the indemnity provision in the costs agreement does not have that effect. Mr Alexandrou offers an undertaking to the Court to be liable for, jointly and severally with the plaintiffs in the proposed proceedings, any amount which the plaintiffs may be liable to pay to the prospective defendants in the proposed proceedings and in respect of dealings with properties owned by Marine Parade. He also indicates that he will cause the Plaintiffs’ lawyers to be funded until the determination of the proposed proceedings including any appeal.

By his second affidavit dated 17 August 2023, Mr Alexandrou referred to attempts to access information in order to convene a meeting of members of AHEPA NSW in May 2023, and to competing special general meetings convened by interests associated with the Plaintiffs on 11 June 2023 and by AHEPA NSW on 21 June 2023. It is not necessary to address those matters given the conclusions that I have reached on other grounds.

Mr Alexandrou was cross-examined and his evidence was that he, Mr Lianos and to some extent Mr Kypreos, had personally paid the costs of this proceeding. He accepted that he was associated with the Plaintiffs’ faction and that the persons on AHEPA NSW’s management committee who were associated with that faction included Ms Bouros, Ms Alexandrou, Mr Lianos and Mr Antonakos. Mr Alexandrou accepted those persons had been acting together in connection with this proceeding although, oddly, his evidence in cross-examination was that those persons had not initiated this proceeding, and had retained the solicitors acting in this proceeding to defend other proceedings brought by AHEPA NSW but then “something completely different [implicitly, these proceedings] appeared” (T63). Mr Alexandrou’s evidence in cross-examination was that Ms Diakovasili volunteered to be the first plaintiff in this application and the proposed proceeding and he was not party to a decision that Mr Antonakos should become a second plaintiff in the application and proposed proceedings. He was cross-examined as to an email addressing the commencement of these proceedings, shortly before an unsuccessful mediation between the parties, but it is not necessary to address that issue in order to determine this application given the findings I reach below on other grounds.

Mr Alexandrou was also cross-examined as to his affidavit evidence which initially suggested that AHEPA NSW owed only $28,308 to creditors at the time the voluntary administrators were appointed. That position was plainly not correct and he fairly acknowledged in cross-examination that he had made a “mistake” as to that matter. Mr Alexandrou also accepted in cross-examination that, so far as Mr Friedgut had opened on the basis that the VA Appointment was a “device” to acquire the Rockdale Properties at undervalue, Mr Alexandrou did not think that the process started for that purpose but considered that that scheme had “evolved” (T72).

Mr Alexandrou was also cross-examined as to the meetings convened by the Plaintiffs’ faction and AHEPA NSW respectively to approve or disapprove the commencement of the proposed proceedings but it is not necessary to address those matters given the findings that I reach below. He did not accept that he had held the view that AHEPA NSW was insolvent on a cashflow basis at the time that he and RPS were proposing competing DOCAs in the voluntary administration, on the basis that he had not had access to sufficient books and records to determine that question (T78-79). He went further, later in his cross-examination, to express his view that AHEPA NSW was “not insolvent” (T79). That is likely the case now, since the RPS DOCA was completed, but it seems to me that AHEPA NSW was at least likely to become insolvent, if not insolvent in fact, at the time it was placed in voluntary administration. I return to that matter below.

Mr Alexandrou was also cross-examined as to a fundamental difficulty with calling a general meeting to approve any borrowing by AHEPA NSW to address the debts which were due by it when the voluntary administrators were appointed, or to approve any sale of property to realise funds to pay those debts, namely that there was an ongoing dispute between the two factions of AHEPA NSW as to who were the members of AHEPA NSW who were entitled to vote at such a meeting. He responded, obscurely, that there was not a dispute as to membership but as to the “validity of the membership” and whether members were financial in the relevant chapter and whether they had been “initiated” (T82). That was a distinction without a difference, where the dispute as to those matters would, I find, have given rise to a dispute as to which members were entitled to vote at any special general meeting, which would likely have resulted in further litigation between the two factions, delaying the implementation of any such borrowing or sale of property.

I note, for completeness, that I also do not accept that the fact that a resolution was successfully passed on one occasion, to pay Ms Alexandrou’s costs of earlier proceedings (T85-86), makes it likely (as distinct from possible) that that would have occurred on a second occasion in respect of the larger claim for costs of Lianos 2019 and Lianos CA 1. Whether that would occur would likely depend, in part, on whether the Plaintiffs’ faction’s then preferred result was to achieve the payment of those costs or alternatively to promote a winding up of AHEPA NSW or encourage the resignation of the Nine Defendants as committee members so as to avoid their potential liability for insolvent trading. In closing submissions, Mr Corsaro advances several other criticisms of the logic of Mr Alexandrou’s evidence, but it is not necessary to address those criticisms in detail in order to determine this application.

The Plaintiffs also read affidavits dated 24 April 2023 and 24 July 2023 of Ms Maria Alexandrou, who is Mr Alexandrou’s wife and was not cross-examined. Ms Alexandrou’s first affidavit refers to her application brought, in December 2019, to wind up AHEPA NSW under s 63 of the 2009 Act on the ground of insolvency in respect of unpaid costs arising from earlier proceedings and to the fact that, in mid-January 2020, AHEPA NSW paid the amounts owing and post-judgment interest; the winding up proceedings were dismissed by consent, subject to an argument as to costs; and, on 24 February 2020 the Court made no order as to costs. I have referred to Emmett AJA’s finding in that judgment that AHEPA NSW was then likely insolvent in the chronology that I set out above.

Ms Alexandrou also there refers to the meeting of the management committee held on 8 September 2020, and implicitly acknowledges that she was given notice of that meeting and indicates she did not attend that meeting because she expected to be excluded from substantive deliberations at the meeting, so far as they addressed the proceedings in the Court of Appeal and “there was no notice in the agenda that the Committee intended to resolve to appoint administrators”. Ms Alexandrou also refers to Mr Alexandrou’s proposal for the CS DOCA in the voluntary administration, and notes that he advised her in September 2020 that he did not want to see AHEPA NSW wound up. Presumably, Mr Alexandrou and Ms Alexandrou have different views as to that matter, possibly at different times, since she had previously sought to wind up AHEPA NSW only nine months before. Ms Alexandrou also refers to her assessment that it would have been “risky” to contest the VA Appointment, when she considered that she lacked real information about what AHEPA NSW’s management committee had been doing over the previous two or three years. Ms Alexandrou also responds to aspects of Mr Fandakis’ affidavit evidence and addresses the indemnity that (she understands) was provided by Marine Parade in respect of Ms Diakovasili’s and Mr Antonakos’ costs of the proceedings and an undertaking, in corresponding terms to that offered by Mr Alexandrou, on behalf of Marine Parade in respect of the costs of the proceedings. As I noted above, that indemnity is not in evidence and the costs agreement to which I referred above does not contain it.

By her second affidavit dated 24 July 2023 Ms Alexandrou refers to difficulties in obtaining information concerning AHEPA NSW’s membership and to a subsequent meeting convened by the Plaintiffs’ faction and AHEPA NSW respectively to approve and disapprove the commencement of the proposed proceedings held in June 2023. I have noted above that it is not necessary for me to reach findings as to those meetings in order to decide these proceedings.

The Plaintiffs read two affidavits of Mr George Lianos dated 24 April 2023 and 17 August 2023, and he was not required for cross-examination. In his first affidavit, Mr Lianos addressed the Lianos 2019 proceedings, which he commenced, and the appeal in those proceedings in Lianos CA 1. He also refers to a notice of meeting issued by Mr Gouros following the decision in Lianos CA 1 and to the position as to the identity of the President of AHEPA NSW for which he contended in reliance on that decision. Mr Lianos also referred to the notice that he had received from AHEPA NSW as to the meeting of the management committee on 8 September 2020, at which the voluntary administrators were appointed. He explained why he did not attend that meeting, since he expected to be excluded from it so far as issues in the legal proceedings were addressed. Mr Lianos also addresses subsequent developments in the Court of Appeal, and refers to his view that AHEPA NSW was not insolvent when the voluntary administrators were appointed and that it had only “minimal current liabilities” which could easily have been paid if members had been called to approve that expenditure. Although Mr Lianos was not cross-examined, it seems to me that the Plaintiffs have little or no prospect of establishing either of those propositions having regard to the objective probabilities, given the then substantial claim for costs made against AHEPA NSW by its solicitors and the contingent claim of Mr Lianos and others against it in respect of costs in Lianos 2019 and Lianos CA 1. Mr Lianos also refers to Ms Diakovasili’s reasons for commencing the proceedings, a matter which could be given greater weight if she had any real knowledge of the matters in issue in them or the relief that was likely to result from them.

By his second affidavit dated 17 August 2023, Mr Lianos also addressed the position in respect of the competing meetings called by the Plaintiffs’ faction and AHEPA NSW to approve or disapprove the proposed proceedings in 2023. It is again not necessary to address those matters, given the conclusions which I have reached on other grounds

The Plaintiffs also read the affidavit dated 17 August 2023 of Ms Lianos, who was not required for cross-examination. She also addresses matters surrounding the meetings in June 2023.

By his affidavit dated 24 April 2023, Mr Stewart Levitt, the solicitor acting for the Plaintiffs, addresses the costs which he considers will be incurred by the Plaintiffs in respect of the proceedings. He proceeds on the basis that at least half of the work related to the prospective proceedings has probably been done, because the proposed SOC has been drafted and comprehensive affidavits have been filed and served setting out the key evidence on which the Plaintiffs rely. The Court can therefore give greater weight to the proposed SOC and the extent of the available evidence in assessing whether the Plaintiffs’ claims give rise to a serious question to be tried and whether the proceedings should be permitted in the interests of justice.

Mr Levitt also takes issue with Mr Tzovaras’ estimate (to which I refer below) of the costs likely to be incurred by the defendants in the conduct of the proposed proceedings and estimates that those costs would be about half of Mr Tzovaras’ estimate of those costs. However, Mr Levitt’s estimate assumes that none of the defendants would be separately represented. That assumption may be unreasonable, where there appears to be a significant difference between, on the on hand, the position of three of the Nine Defendants who had an economic interest in RPS which acquired the Rockdale Properties and possibly also Mr Fandakis, against whom allegations in respect of the Post Appointment Breaches are made on a different basis; and, on the other hand, five of the Nine Defendants who had no economic interest and no involvement in that acquisition and whose only relevant involvement in the matters in issue was in the passage of the resolution to place AHEPA NSW in voluntary administration. Plainly, if individual defendants, or groups of them, retained separate counsel and separate solicitors, then the defendants’ costs of the proposed proceedings would significantly increase. Even on Mr Levitt’s lesser estimate, the defendants’ costs of defending the proceedings will be substantial, particularly when assessed in the context that both Plaintiffs rely on an unsecured indemnity which they understand was (or possibly will be) provided by Marine Parade to meet any order for costs made against them and risk the loss of their only assets of substance, their homes. As I noted above, that indemnity is not in evidence and the costs agreement which I noted above does not contain it.

The Plaintiffs also tendered an expert report and a supplementary expert report of Mr Goran dealing with the valuation of the Rockdale Properties, which were oddly both dated 24 April 2023 (Ex P1 and Ex P2). Mr Goran was rightly not required for cross-examination given the nature of this application, and I accept that his evidence is capable of supporting the Plaintiffs’ claim that the Rockdale Properties had a higher value than that identified in the several other valuations that were obtained prior to the approval of the RPS DOCA at the second meeting of creditors.

I turn now to the evidence on which AHEPA NSW relied. AHEPA NSW reads affidavits dated 11 April 2023 and 3 July 2023 of Mr Harry Fandakis, who was cross-examined. By agreement of the parties, significant parts of his affidavits, as to matters as fundamental as whether and when AHEPA NSW was incorporated, whether and when its rules were amended, what are the chapters of AHEPA NSW and who were the members of the management committee, were admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding only, because all of these matters are apparently disputed, notwithstanding two previous decisions of this Court at first instance and two substantive decisions of the Court of Appeal. The extent of these disputes highlights the implausibility of the suggestion put by the Plaintiffs that the management committee of AHEPA NSW could readily have called a special general meeting to seek approval for, for example, a loan or sale of assets in order to quickly address issues as to its solvency, a matter to which I return below.

Mr Fandakis refers to his involvement in the management of AHEPA NSW’s affairs since 2010 and he notes that he has had primary responsibility for overseeing its involvement in several proceedings and is the primary contact point for its legal representatives. He refers to aspects of the background and membership of AHEPA NSW, all of which are disputed, and to the history of disputes within AHEPA since 2016, although the history of its disputes is also disputed. He addresses the circumstances of the VA Appointment by reference to AHEPA NSW’s financial position as reflected in its accounts as at 30 June 2020, and its liabilities, including a loan owed to Judo Bank which was secured over the Surry Hills Property; a claim by its former solicitors in the Court of Appeal proceedings for legal costs; and an estimated liability of approximately $950,000 as a result of the adverse costs orders made by the Court of Appeal in respect of Lianos 1, which extended to costs at first instance in Lianos 2019.

Mr Fandakis there noted that the legal costs due to AHEPA NSW’s former solicitors was subject to a costs assessment and that that firm could have obtained a judgment against AHEPA NSW once that assessment was complete. I have noted in the chronology above that two assessments were completed, in respect of at least part of those costs, within about a month of the VA Appointment. It was put to Mr Fandakis in cross-examination that those amounts were not then due and payable. It seems to me that that matter is of limited relevance, where they were a contingent liability, depending only on completion of the costs assessment; two costs assessments were in fact completed within a short time of the VA Appointment; and a voluntary administrator may be appointed not only when a company or association is presently insolvent, but when it is likely to become insolvent, reflecting the statutory purpose that a company or association should be able to address impending liabilities by voluntary administration before it has reached actual insolvency.

Mr Fandakis also observed, in evidence that was partly admitted by agreement of the parties with a limiting order under s 136 of the Evidence Act as evidence of his understanding, that:

I am conscious that this application is directed to the question whether the Plaintiffs should be permitted to bring proceedings, at general law, on behalf of AHEPA NSW and is not the occasion to make findings as to contested facts on any final basis, and I proceed on that basis. It seems to me, however, that Mr Fandakis’ explanation of how these matters restricted AHEPA NSW’s ability to address its liquidity difficulties outside a voluntary administration, is cogent. I also bear in mind that it would not have been a defence to a claim for insolvent trading against the Nine Defendants that they had a hope that the membership might have approved borrowings or a sale of assets by a special resolution. It also does not seem to me that the fact, highlighted in Mr Fandakis’ cross-examination, that the Plaintiffs’ faction were once, in January 2020, prepared to approve a special resolution for a modest borrowing, to pay the costs claimed by Ms Alexandrou in respect of earlier proceedings to avoid a winding up of AHEPA NSW, provided any reason for the Nine Defendants to assume that they would again do so in respect of a much larger amount in the circumstances prevailing after the Court of Appeal’s decision in Lianos CA 1. I have addressed that matter in dealing with Mr Alexandrou’s evidence above.

Mr Fandakis also addressed the conduct of the meeting of the management committee in which the resolution to appoint the voluntary administrators were passed and the subsequent validation of the VA Appointment, to which I have referred in the chronology above. Mr Fandakis also identified, in evidence admitted by agreement of the parties with a limiting order under s 136 of the Evidence Act as his understanding only, his concerns as to whether the then proposed plaintiff in the proceedings, Ms Diakovasili, was acting in good faith and whether the proceedings would be in AHEPA NSW’s best interests.

By his second affidavit dated 3 July 2023, Mr Fandakis elaborated on the history of disputes in respect of AHEPA NSW and took issue with aspects of Mr Alexandrou’s and Mr Lianos’ evidence, and parts of that affidavit were also admitted by the parties’ agreement with a limiting order under s 136 of the Evidence Act as his understanding. Mr Fandakis there addressed, in evidence also admitted by agreement of the parties as evidence of his understanding, his concerns as to whether the Second Plaintiff, Mr Antonakos, was acting in good faith, pointing to his long history of involvement in litigation concerning AHEPA NSW, as a witness or party, and to several other matters including his delay in involving himself in the proceedings.

I have regard to the fact that, as Mr Friedgut points out in closing submissions, Mr Fandakis does not give evidence regarding the value of the Rockdale Properties and I proceed on the basis that his evidence would not have assisted AHEPA NSW in that regard. It is not necessary for me to reach a determination as to the valuation of these properties in order to determine this application, for the reasons noted below.

Mr Fandakis was cross-examined, including as to whether the monies held in AHEPA NSW’s bank account as at 30 June 2019 were greater than the amounts recorded under the description “cash at bank” or cash and cash equivalents in its financial accounts as at that date. Nothing turns on this matter, where the somewhat larger cash amount held in AHEPA NSW’s bank accounts on that date was still far short of what would be required to meet the liability to its own solicitors, still less the contingent liability to the appellants arising from the Court of Appeal’s decision in Lianos CA 1.

Mr Fandakis rightly accepted that placing AHEPA NSW in voluntary administration was a “serious and significant event” and the decision was one that had to be carefully considered and that other options should be considered to the extent of the management committee’s “knowledge and ability” (T183). He was cross-examined as to the notice given of the 8 September 2020 meeting and the time taken for that meeting. It appears that the questions whether to seek to reopen the Court of Appeal’s decision in Lianos CA 1 and bring an application for special leave to appeal to the High Court of Australia, and whether to place AHEPA NSW in voluntary administration, were discussed at the same meeting although Mr Fandakis could not recall the amount of time which was spent on the separate issues. The discussion of both matters was plainly not a lengthy discussion, of about half an hour, but it also seems to me that the fact that AHEPA NSW was insolvent or likely to become insolvent was self-evident; the implausibility of the several alternatives of further borrowings or sale of assets, depending on approval at a general meeting where there were ongoing disputes as to who could vote at that meeting, was also self-evident; and it is not apparent to me that a lengthy discussion of those matters would have much advanced them. I do not accept Mr Friedgut’s submission that the short length of the meeting is in itself indicative of a failure to “consider and comply with [director] duties” (T185).

Mr Fandakis also observed in cross-examination (T189) that:

I recognise that the Plaintiffs rely on Mr Fandakis’ recognition of the exclusion of members associated with the incorporated chapters by the Court of Appeal’s decision in Lianos CA 1 (later varied by the Court of Appeal in Lianos CA 4) to suggest that he had an improper purpose in making the VA Appointment and I address that issue below. That does not seem to me to displace the issues that then existed as to the insolvency or likely insolvency of AHEPA NSW, exacerbated by the difficulties in calling a special general meeting while the membership of AHEPA now was in dispute.

Mr Fandakis’ evidence in cross-examination, in answer to a question asking him to confirm why he believed AHEPA NSW was insolvent on 8 September 2020, was also that (T195):

Again, I note that this is not an occasion to reach findings as to Mr Fandakis’ credit or findings on a final basis as to the matters which would be determined in the proceedings, if they were properly brought. However, I recognise that the statutory purpose of Part 5.3A of the Corporations Act has always been to permit company directors (or, here, members of the management committee of AHEPA NSW) to avoid the risk of personal liability for insolvent trading by placing a company into voluntary administration.

AHEPA NSW also relied on the affidavit dated 11 April 2023 of Mr Theophilus Premetis, who is also a member of the management committee of AHEPA NSW and is associated with RPS, which acquired the Rockdale Properties under the RPS DOCA. Mr Premetis’ evidence is that he is the treasurer and a member of the committee of management of AHEPA, and has been a member of AHEPA NSW for more than 40 years. He also refers to disputes between the two factions within AHEPA NSW since about 2016, and to the circumstances in which Mr Kallimanis and he established a syndicate with 16 relatives and friends with the view to purchasing the Rockdale Properties from AHEPA NSW for market value in order to enable it to apply the resulting sale proceeds towards the discharge of its liabilities and use the balance as working capital and reserves. He refers to the conduct of the second meeting of creditors of AHEPA NSW, and to the voluntary administrators’ determination as to the creditors who were entitled to vote at that meeting and the amount of the claims for which they were entitled to vote. He also refers to valuations of the Rockdale Properties, including a valuation obtained by the voluntary administrators, the amount of which had not been disclosed to him at that time. Mr Premetis outlines the terms of the RPS DOCA and also refers to the competing CS DOCA proposed by the Plaintiffs’ faction. He refers to the entry into the RPS DOCA and RPS’s subsequent purchase of the Rockdale Properties from AHEPA NSW for the price of $4.4 million. I recognise that, as Mr Friedgut emphasised in closing submissions, Mr Premetis did not give affidavit evidence of what occurred at the meeting at which the VA Appointment was made on 8 September 2023, and I proceed on the basis that Mr Premetis’ evidence of that matter would not have assisted AHEPA NSW.

Mr Premetis was cross-examined at some length. He acknowledged the substantial value of assets held by AHEPA NSW at all relevant times, which is common ground in the proceedings, and he accepted the proposition that the price of property has “generally” increased in Sydney over the last decade and agreed that AHEPA NSW had been able to obtain approval in general meeting to borrow the amount necessary to pay the costs previously claimed by Ms Alexandrou in order to avoid a winding up order which she had sought against it (T110). He accepted that AHEPA NSW had the support of its bankers in 2019 (T111) but observed that it became impossible to raise further funds by way of a bank loan in 2020, as a result of continuing disputes within AHEPA NSW. Again recognising that this is not the occasion to reach findings as to credit or determine that question on any final basis, the position seems to me to be entirely plausible. I also recognise that, in cross-examination, Mr Premetis accepted that the views expressed in a letter dated 2 December 2019 from AHEPA NSW’s solicitors to Ms Alexandrou’s solicitors correctly expressed the view of AHEPA NSW’s management committee at that time, notably that there was “no reason to infer that the Association [was] unable to pay its debts” (T110-111). I have addressed that letter above and pointed to the cogency of the views put by Ms Alexandrou’s solicitors in their response. I note that, in any event, the question here is not the solvency of AHEPA NSW in December 2019, but its position after the Court of Appeal delivered judgment in Lianos CA 1, as assessed at the date of the VA Appointment.

Mr Premetis responded to the proposition that no orders as to costs had been made by the Court of Appeal in Lianos CA 1, at the time AHEPA NSW was placed in voluntary administration, by pointing to the fact that the management committee had a “fair idea” how much the costs that would be payable by AHEPA NSW in respect of the proceedings would be and that proposition is again a plausible one. He also pointed in cross-examination to the demand made by AHEPA NSW’s former solicitors for the costs payable to them in respect of the proceedings, in the amount of approximately $600,000, and to AHEPA NSW’s inability to pay that amount (T119-120).

Mr Premetis’ evidence in cross-examination was also that the values of the properties held by AHEPA NSW had declined by September 2020 because of COVID-19 and its effect on the rental market (T126). Although any such decline would still have left AHEPA NSW with a substantial surplus of assets over liabilities, on a balance sheet test, it is relevant to the valuation of the Rockdale Properties, which Mr Premetis claimed had declined from the amount of $6 million contemplated by an option to acquire the property granted in 2014 (which I address below) and repeated in later financial statements of AHEPA NSW, to $4.4 million in September 2020 (T126). Mr Premetis acknowledged that he, and other committee members, had not reflected that decline in the value they attributed to the Rockdale Properties in their report of affairs to the voluntary administrators but attributed that to the hope that the value of the property would be maintained (T126). It seems to me that little would ultimately turn on those matters at a hearing of the proposed proceedings, if they are properly brought, given the contemporaneous valuation evidence and the expert valuation evidence on which the Plaintiffs would rely. It is not necessary for me to determine any question of valuation in order to determine these proceedings.

I also recognise that Mr Friedgut submits that Mr Premetis’ evidence “lacks credibility” and that his evidence should be treated with caution. As I noted above, it is not necessary to reach any wider finding as to Mr Premetis’ credit in order to determine this application.

AHEPA NSW also read the affidavit dated 3 July 2023 of Dr Panayiotis Diamadis. Dr Diamadis has been a member of AHEPA NSW since it was incorporated in 1993, was a member of the prior unincorporated association, and is currently a member of the management committee and secretary of AHEPA NSW. He responds to aspects of Mr Antonakos’ affidavit, directed to the giving of notice in respect of the June 2021 meeting that discussed whether AHEPA NSW should commence these proceedings. I noted above that it is not necessary for me to determine matters arising from that meeting to determine this application. Mr Diamadis was cross-examined, particularly in respect of the events surrounding the VA Appointment at the meeting on 8 September 2023. His evidence, which it seems to me plausible although I again do not reach any finding as to credit, is that the two separate minutes of that meeting, one of which relates to the VA Appointment and the other of which relates to conduct of proceedings in the Court of Appeal, relate to the same meeting; and the meeting took about half an hour, as recorded on one of those minutes, although the minute relating to the VA Appointment wrongly recorded it as having commenced and concluded at the same time, at 8pm on that date.

AHEPA NSW also relies on the affidavits of its solicitor, Mr Tzovaras, dated 14 April 2023 and 17 August 2023, which relate to his estimate of the likely costs of the proposed proceedings and his response to Mr Levitt’s evidence of those matters. Mr Tzovaras was not cross-examined and I have addressed that issue in dealing with Mr Levitt’s evidence above.

For completeness, I have also had regard to the submissions made by Mr Friedgut in closing submissions as to the absence of production of various documents by AHEPA NSW on subpoena and notice to produce, and I proceed on the basis that documents which were not produced either did not exist or were not retained or would not have assisted AHEPA NSW in its response to this application.

The Plaintiffs proceed on the basis that, where AHEPA NSW is registered under the 2009 Act and is not a company for the purposes of the Corporations Act, the Court has no statutory jurisdiction to grant leave to bring a derivative action under ss 236-237 of the Corporations Act. A similar question as to whether ss 232-233 of the Corporations Act could apply to an incorporated association, by reason of s 95 of the 2009 Act, was noted but not decided by Robb J in Bandiera v Bilambil Community Preschool & Oosh Incorporated [2018] NSWSC 1903 and in my decision in Knox v Nile & Ors [2022] NSWSC 195 at [98]-[99].

Relevantly, s 95 of the 2009 Act declares an association to be an “excluded matter” for the purposes of s 5F of the Corporations Act in relation to the whole of the corporations legislation, but s 95(3) of the 2009 Act declares that section does not operate to exclude the operation of, inter alia, Chapter 2F of the Corporations Act which includes ss 236-237 of the Corporations Act: as to the operation of that section, see Australian Federation of Islamic Councils Inc v United Moslems of New South Wales Inc [2021] NSWCA 311 at [73]. Sections 236-237 of the Corporations Act refer to proceedings brought on behalf of a company and that term, as is defined in s 9 of the Corporations Act, does not include an association incorporated under the 2009 Act. If s 236 of the Corporations Act were to apply to AHEPA NSW as a company defined under s 9 of the Corporations Act, then any right of the Plaintiffs at general law to bring or intervene in proceedings on behalf of AHEPA NSW is abolished by s 236(3) of the Corporations Act, and any application for derivative leave would need to be brought under ss 236-237 of the Corporations Act.

It seems to me, while s 95(3) of the 2009 Act applies Ch 2F of the Corporations Act to an association incorporated under the 2009 Act, that would only be sufficient to allow a statutory derivative action under ss 236-237 of the Corporations Act and exclude a general law derivative action if those sections extended beyond a company (as defined under s 9 of the Corporations Act) to an incorporated association or, more generally, a corporation (as defined in s 57A of the Corporations Act) which includes not only a company but also a body corporate incorporated in the jurisdiction. Those sections presently extend only to a company, and not to a corporation, and a statutory derivative action under ss 236-237 is not available in respect of AHEPA NSW and any available general law action is not excluded by s 236(3) of the Corporations Act.

It remains to determine whether a general law derivative action is available in respect of an association incorporated under the 2009 Act. The Plaintiffs point to several circumstances in which the Courts have recognised exceptions to the rule in Foss v Harbottle, to permit a member or members of an unincorporated association or other body to bring a derivative proceeding. Mr Friedgut submits that:

In opening submissions, Mr Corsaro assumed for the purposes of his submissions, but did not concede, that a derivative action could be brought on behalf of an incorporated association, although he contested that proposition in closing submissions to which I refer below. Mr Corsaro there addressed the factors relevant to this application by reference to statutory criteria under ss 236-237 of the Corporations Act, although I consider it preferable to address the particular exceptions to the rule in Foss v Harbottle on which the Plaintiffs rely. I return to those matters below.

In closing submissions, Mr Corsaro submits that the rule in Foss v Harbottle has the consequence that proceedings by a corporation would generally be brought in its own name and in its corporate character, because it is a separate entity from its members, and that no individual member can maintain an action in respect of a transaction which could be ratified by the majority of the corporation’s members. He seeks to distinguish the decisions in respect of strata bodies on the basis that members of an incorporated association do not have any legal or equitable interest in that association’s property. While I accept that distinction exists, it does not seem to me to be sufficient to displace the extension of the rule in Foss v Harbottle and the exceptions to that rule to allow a claim by a member of an incorporated association for the benefit of that incorporated association, where the rights of that incorporated association otherwise could not be vindicated by action brought by it. There is no public policy reason not to allow that extension, where such a claim can only be brought where the requirements of the exceptions to that rule are satisfied.

I am satisfied that, by analogy with the other circumstances noted above where a derivative action has been permitted at general law, such an action should be permitted in respect of an incorporated association. First, it seems to me that there is here no reason to distinguish between the position of a trade union or a friendly society on the one hand and that of an incorporated association on the other, although I recognise that strata title schemes involve somewhat different issue since their owners typically own units in the relevant property. Second, there is no reason to think that allowing such an action will create a flood of actions that would cause detriment to such associations or their members, where a member would need to fall within an exception in Foss v Harbottle to bring such an action. Third, s 95 of the 2009 Act discloses no legislative intention to exclude such an action, where Ch 2F of the Corporations Act is explicitly not excluded in respect of an incorporated association under s 95(3)(a) of the 2009 Act, although the terms of ss 236-237 of the Corporations Act are not sufficiently wide to allow a statutory derivative action. In enacting the 2009 Act, the legislature could readily have excluded Pt 5.3 of the Corporations Act, together with the other parts of the Corporations Act that are excluded under s 95, had it been the legislature’s intent to exclude the right of an incorporated association to bring a derivative action.

I now turn to the scope of the derivative action at general law, which is an exception to the rule in Foss v Harbottle that the company is the proper plaintiff in an action to complain of a wrong done to it, if that wrong can be approved or ratified by ordinary resolution of the shareholders in general meeting. In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 210; 1 All ER 354; 2 WLR 31 (“Prudential”) at 37, the English Court of Appeal characterised the rule in Foss v Harbottle as embracing, first, the principle that a shareholder cannot bring an action against a third party to recover damages or to secure other relief on behalf of a company for an injury done by the third party to the company, since the company is the party injured and is therefore the proper plaintiff and the person in whom the cause of action is vested; and, second, the related principle that a shareholder cannot bring an action in to complain of an irregularity (as distinct from an illegality) in the conduct of the company's internal affairs if the irregularity is one which can be cured by a vote of the company in general meeting. For example, the rule in Foss v Harbottle would prevent a shareholder bringing an action against the directors based on an allegation of lack of care and diligence in the management of the company's affairs, or of breach of fiduciary duty to the company, if the conduct of the director could be ratified by shareholders in general meeting.

There were a number of established exceptions to the rule in Foss v Harbottle. If such an exception applied, a minority shareholder could bring the proceedings in a representative capacity, on his or her own behalf and on behalf of all shareholders in the company other than the alleged wrongdoers, and the company would be joined as a defendant in such proceedings: G R Sullivan, "Restating the Scope of the Derivative Action" (1985) 44 CLJ 236, cited in Butterworths, Australian Corporation Law: Principles and Practice (August 2023) at [3.2A.0160]. Any damages which were awarded in the proceedings would go to the benefit of the company rather than to the plaintiff who brought the proceedings.

Relevantly, a minority shareholder could bring proceedings against a director on behalf of the company if a breach of duty by the director was of a fraudulent character and the director controlled the company, or if the directors had failed to bring proceedings and the majority of shareholders had acted improperly in condoning that failure: Menier v Hooper's Telegraph Works (1874) 9 Ch App 350 per James LJ at 353 (resolution of general meeting to abandon legal proceedings and place the company in liquidation); Cook v Deeks [1916] 1 AC 554 at 564 (resolution of general meeting resolving to abandon the company's interest in a contract); Eromanga Hydrocarbons NL v Australis Mining NL (1988) 14 ACLR 486 (placement of shares alleged to have been made for improper purpose). In Burland v Earle [1902] AC 83; [1900-3] All ER Rep 1452 at 1456, Lord Davey observed that this fourth exception to the rule in Foss v Harbottle would be available if "the acts complained of are of a fraudulent character or beyond the powers of the company", and noted that cases falling within this class would include circumstances where:

There is authority that the exception to the rule in Foss v Harbottle for a transaction which involves a fraud on the minority would not apply if a breach of duty was merely negligent, and the directors had not profited from the breach. In Pavlides v Jensen [1956] Ch 565; 2 All ER 518, where the directors of a company had authorised the sale of a mine at a substantial undervalue, Danckwerts J held that the rule in Foss v Harbottle had the effect that a minority shareholder did not have standing to bring proceedings alleging that the directors had breached their duty to the company, in the absence of an allegation that the transaction was ultra vires, illegal or a fraud on the minority; and that it was open to the majority of shareholders in general meeting to resolve that proceedings should not be brought. By contrast, it appears that a derivative action could be brought if directors personally profit from a breach of a duty of care owed to the company and declined to authorise the company to take action to recover that profit: Daniels v Daniels [1978] Ch 406; 2 All ER 89; 2 WLR 73.

In Hurley v BGH Nominees Pty Ltd (1982) 31 SASR 250; 6 ACLR 791; 1 ACLC 387, a shareholder brought proceedings alleging that a director had breached his fiduciary duty to a company which was the trustee of a trust by procuring a company controlled by the director to purchase the freehold of the premises on which the trustee company carried on its business. The court held that the shareholder had standing to bring the proceedings as a derivative action relying on the fourth exception to the rule in Foss v Harbottle where a breach of fiduciary duty was fraudulent in character and could not be ratified by shareholders.

Mr Friedgut also refers to Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11; 11 ACLC 1082; 11 ACSR 785; (“Biala”) at 835-836 where Ipp J summarised the fourth exception to the rule in Foss v Harbottle as follows:

In the first instance decision in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1981] Ch 257; 2 All ER 841; [1980] 3 WLR 543 at 581, Vinelott J identified a further exception to the rule in Foss v Harbottle that would permit a derivative action to be brought if the interests of justice would otherwise be frustrated. The "interests of justice" exception to the rule appears to have some support in Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWR 782; (1969) 92 WN (NSW) 199 per Street J at 789-90. In Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 17 FCR 344, Gummow J acknowledged (at 349) that there was some support for the existence of an exception to the rule in Foss v Harbottle if "the company cannot or will not bring or continue the action and it is in the interests of justice that the action be brought or continued". Mr Friedgut also refers to Biala (at 844-848) where Ipp J observed, inter alia, that:

In Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128; 130 FLR 180; 19 ACSR 483 at 486-495, Young J noted that the "interests of justice" exception had effect that, where there has been a harm to a company, "the court may permit proceedings brought otherwise than by the company where justice so requires", and allowed the plaintiff standing under the exception, despite his finding that the plaintiff himself did not have "completely clean hands" in the matter.

The scope of the fifth exception to the rule in Foss v Harbottle was also addressed, in the context of a claim by lot owner in a strata scheme, in Eastmark Holdings Pty Ltd v Kabraji (2013) 97 ACSR 161; [2013] NSWSC 1763 (“Eastmark”) at [78]-[81] and [89], where Darke J observed that:

Here, the Plaintiffs rely on both the fourth and fifth exceptions to the rule in Foss v Harbottle, namely that the relevant conduct amounts to fraud and the wrongdoers are in control of AHEPA NSW or, alternatively, that the justice of the case requires that a derivative action be permitted. In order to determine whether those exceptions are satisfied, it will be necessary to have regard to several wider matters addressed by the parties and the nature of the claim pleaded by the Plaintiffs in the proposed SOC and the factual matters on which they rely in support of that claim. I bear in mind that, where this is an application of a preliminary character, it is not necessary that the Plaintiffs prove all of the facts necessary to be established at an ultimate hearing. However, the Court should not grant the leave sought if it is apparent that the claim as put could not satisfy the requirements for either exception to the rule.

I now turn to submissions made by the parties as to several wider issues, before addressing the substance of the Plaintiffs’ proposed claims below.

In his opening submissions, Mr Friedgut submits that:

I do not doubt the Plaintiffs have a subjective belief in the merit of the claims that they seek to bring in the proposed proceedings, although I have found above that Ms Diakovasili has little or no understanding of the content of those claims, and their subjective beliefs as to their merit are plainly affected by the long-running history of dispute and litigation between opposing factions within AHEPA NSW. I address the question whether the proposed claims give rise to a seriously arguable case against the Defendants below, recognising that question arises in the context of the exceptions to the rule in Foss v Harbottle, rather than by reference to the specific factors identified in ss 236-237 of the Corporations Act. Mr Friedgut’s submission concerning the Plaintiffs’ willingness to indemnify AHEPA NSW also requires significant qualification, where the Plaintiffs rely on their understanding that an unsecured indemnity was provided to them by Marine Parade, a company associated with Mr and Ms Alexandrou, in respect of the proposed proceedings; that indemnity is not in evidence and the costs agreement to which I referred above does not extend to the proposed proceedings; understandably, neither of the Plaintiffs wish to place their only substantial assets, their homes, at risk; and neither of them appears to have recognised the significant risk to which they were exposed by themselves giving any such indemnity in reliance on an unsecured arrangement with Marine Parade in respect of the proposed proceedings, if that arrangement in fact exists.

Mr Friedgut also submits, and frequently repeats, that it is in AHEPA NSW’s best interests that the Plaintiffs be permitted to pursue the proceedings, because any damages would go to AHEPA NSW’s benefit and, he contends, there is no “downside” to AHEPA NSW in the conduct of the proceedings. I proceed on the basis that at least the availability of the fifth exception in Foss v Harbottle, referable to the interests of justice, partly depends on whether the proceedings give rise to a serious question to be tried, and it seems to me that there would be a real detriment to AHEPA NSW and the community generally in permitting the Plaintiffs to advance claims that are not seriously arguable against the Defendants. First, that would perpetuate the cycle of repeated litigation that has consumed AHEPA NSW over several years; second, it would continue to distract AHEPA NSW and its members from undertaking any of the objectives for which it was created; and, third, it would deter members of the Greek community from joining AHEPA NSW or serving on its management committee, by identifying the risk that they too could be targeted as individuals in litigation brought by the other faction, justified by no more than the proposition that that has no “downside” to AHEPA NSW. It seems to me that Mr Freidgut’s submission gives too little weight to the real stress and cost suffered by individuals who are joined in complex litigation, particularly where the determination of any one proceeding is shortly followed by the commencement of the next.

In opening submissions, Mr Corsaro conversely emphasises AHEPA NSW’s character as a voluntary organisation and submits that:

In closing submissions, Mr Corsaro also submits that:

I have regard to these matters, although I do not proceed on the basis that volunteers necessarily owe lesser duties, as members of a management committee, than persons who are paid for their services, particularly in respect of the proper purposes and best interests duties and the no conflict and no profit rules as distinct from the duty of care and diligence.

In opening submissions, Mr Corsaro also contended that, where the Court had previously validated the VA Appointment, that created an issue estoppel and the proposed proceedings would constitute an abuse of process. It is not clear whether that submission was put in closing submissions, and I do not accept it. As Mr Friedgut made clear in submissions, the Plaintiffs do not challenge the validity of the VA Appointment, or contest the validation of their appointment, but instead allege that the VA Appointment was made in breach of duty by the Nine Defendants. No issue estoppel or abuse of process arises in respect of such a claim, although I recognise that there is an overlap between the issues as to AHEPA NSW’s solvency or likely insolvency that were addressed in the validation application and the issues which arise in this application and would arise in the proposed proceedings in that regard.

In closing submissions, Mr Corsaro submits that it is not in the best interests of AHEPA NSW to permit Ms Diakovasili or Mr Antonakos to bring proceedings on its behalf, and points to Ms Diakovasili’s lack of understanding of the proceedings or the issues involved in them, as it emerged from her cross-examination; to Mr Antonakos’ late involvement in the proceedings and the obscurity of his explanation as to how that involvement came about; and he submits that Mr Antonakos had little interest in the strength or merit of the Plaintiffs’ proposed claim, where he is relying on an indemnity given (or, I interpolate, which he rightly or wrongly understands to have been given) by Marine Parade in respect of the costs of the proposed proceedings. Mr Corsaro submitted that Ms Diakovasili and Mr Antonakos were, in reality, “de facto plaintiffs” and that the proceedings were being “promoted” by Mr and Ms Alexandrou and other members of the Plaintiffs’ faction, who have been involved in repeated proceedings against AHEPA NSW.

Mr Corsaro also submits that:

Both Mr Friedgut and Mr Corsaro also addressed the authorisation purportedly provided by the members of the Plaintiffs’ faction for the commencement of the proceedings, at the special general meeting that only they attended held in June 2023, and the decision not to bring those proceedings undertaken at the meeting also convened by AHEPA NSW in June 2023. I have noted above that I do not consider it necessary to determine the validity of either meeting or the effect of the resolutions passed at them, given the findings which I have reached on other grounds.

Mr Friedgut opened this application (T15) by reference to a claim that was not contained in the Plaintiffs’ proposed SOC as follows:

I am satisfied that I could not and should not determine this application on the basis of that wider claim, for the reason set out in my ex tempore judgment delivered on 12 October 2023 as to whether Mr Friedgut should be permitted to advance that claim in cross-examination. I do not proceed on the basis that the Plaintiffs’ proposed SOC should be understood as a final document, incapable of change or clarification in the course of the proposed proceedings. However, as I noted in that ex tempore judgment, the proposed SOC identifies, in a detailed way, the case that the Plaintiffs seek a declaration that they should be permitted to bring as a derivative action at general law. AHEPA NSW must be afforded a proper opportunity to lead evidence and be heard as to whether, in the language of the fifth exception to the rule in Foss v Harbottle, the case that the Plaintiffs seek to bring should be permitted in the interests of justice. AHEPA NSW would be deprived of that opportunity if, rather than determining whether the case that the Plaintiffs indicated they wish to bring (as identified in the proposed SOC) could or could not be brought, I instead determined whether a different case, which advanced serious allegations that are not supported by any pleading of material facts in the proposed SOC and which was first raised in opening, could be brought. As I observed in my ex tempore judgment:

For these reasons, and consistent with the ruling in the course of the hearing, I should not and do not determine this application on the basis of the unpleaded fraud or conspiracy case, where a determination of the application on that basis would deprive AHEPA NSW of procedural fairness in respect of the substantive issues in the application.

I now turn to the case which the Plaintiffs seek to bring on behalf of AHEPA NSW as set out in the proposed SOC. As I noted above, the proposed SOC identifies ten proposed defendants to the proceedings, the Nine Defendants and RPS. I first set out the structure of the Plaintiffs’ proposed claim for breach of duty in respect of the VA Appointment before turning to an assessment of its components.

The Plaintiffs first plead (proposed SOC [15]-[16]) fiduciary duties owed by the Nine Defendants (and, presumably, other committee members associated with the Plaintiffs’ faction) as follows:

The Plaintiffs then plead (proposed SOC [17]) that:

It is unclear to me how the matters identified by the Plaintiffs (in proposed SOC [28]-[31] and [34]) as supporting the allegation that the Nine Defendants had a higher degree of knowledge in relation to the proposed VA Appointment do so; it is unclear how the matters alleged (in proposed SOC [27(d)] and [37]-[38]) support an allegation of negligence or conflict do so, for the reasons noted below; it is unclear how the proposition that the Nine Defendants stood to “gain personally” is supported by the matters relied on in proposed SOC [27(d)]; and, as I note below, the positive duties which are said to follow (at proposed SOC [17(g)]) are not aspects of a fiduciary duty under Australian law, which does not support a positive duty of disclosure, although they would be relevant to any defence of disclosure which may avoid a conflict of interest.

The Plaintiffs then plead (proposed SOC [18]-[35]) matters which occurred between the delivery of reasons by Rees J on 3 October 2019 in Lianos 2019; the decision of the Court of Appeal delivered on 26 August 2020 in Lianos CA 1 in the first stage of the appeal from orders made by Rees J; and the resolution passed by the Nine Defendants on 8 September 2020 to appoint voluntary administrators to AHEPA NSW. The Plaintiffs then plead (proposed SOC [36]) that, at the date of the VA Appointment, AHEPA NSW had substantial assets, did not demonstrate other indicators of insolvency and, implicitly, was not insolvent.

The Plaintiffs plead (proposed SOC [38]) that, prior to the VA Appointment, the Nine Defendants did not take any steps, or proper or adequate steps, to investigate AHEPA NSW’s financial position, or identify whether there were “Alternatives” or implement any such Alternatives. Those “Alternatives” are in turn identified (proposed (SOC [40]) as:

The Plaintiffs then plead (proposed SOC [42]) that the Nine Defendants were proponents of or supported the VA Appointment and particularise contact between the Nine Defendants or some of them and the voluntary administrators prior to their appointment. They then plead (proposed SOC [43]-[44]) the operative allegations that the Nine Defendants acted in conflict of interest and duty when effecting the VA Appointment and acted negligently when effecting that appointment.

The Plaintiffs also plead (proposed SOC [45]) that Nine Defendants knew or should have known certain things before the VA Appointment. These include an allegation of knowledge or constructive knowledge of improper conduct, although the fact of that improper conduct is not separately pleaded, namely that the Nine Defendants knew or ought to have known, when effecting the Appointment, that:

The Plaintiffs then plead (proposed SOC [46]) that, in those circumstances, each of the Nine Defendants was “required not to invoke, or alternatively, not to follow through with the [VA] Appointment” and (proposed SOC [47]) that the VA Appointment was made in breach of fiduciary duty.

The Plaintiffs plead (proposed SOC [48]) that, but for the alleged Fiduciary Breaches (defined as the duties outlined above at proposed SOC [16] and [17(g)]), the VA Appointment would not have been made. That proposition depends, of course, on establishing the existence of the alleged Fiduciary Breaches. They also contend that, but for the Fiduciary Breaches, AHEPA NSW would have negotiated an outcome with the appellants in the Lianos CA 1 proceedings; a special general meeting would have been called to consider a special resolution to sell the Rockdale Properties at arm’s-length on the open market or to mortgage the Surry Hills Property; members would have passed a special resolution authorising that sale or grant of mortgage at a general meeting, the Rockdale Properties would have been sold on the open market and at arm’s-length; and the net equity from a sale or borrowing would have provided sufficient cash to pay bona fide creditors. Paragraph 49 of the proposed SOC then claims damage resulting from the VA Appointment, including fees, remuneration, charges and disbursements relating to the voluntary administration of AHEPA NSW and a subsequent deed administration.

The proposed SOC does not identify the relief which is to be sought in respect of these claims, although the likely scope of the relief sought is implicit in the pleaded facts and allegations and was identified by Mr Friedgut in opening submissions as follows:

The Plaintiffs’ primary claim in respect of the VA Appointment, and its only claim in respect of the alleged Post Appointment Breaches which I address below, is the claim for breach of fiduciary duty. Mr Friedgut summarised the allegation made in respect of the VA Appointment as follows:

In opening submissions, Mr Friedgut also describes this claim as follows:

Mr Friedgut also submitted in opening that:

The first aspect of this claim (proposed SOC [16(a)-(c)]) invokes a duty of good faith and the best interests and proper purposes duties. Mr Friedgut referred to a helpful summary of the equitable duties of committee members of an incorporated association by Professor A S Sievers in Associations and Clubs Law in Australia and New Zealand (The Federation Press, 3rd ed, 2010) at 146-147 as follows:

Mr Corsaro also accepts that there are judicial statements which support the proposition that officers of incorporated associations are fiduciaries in their relation to the association, and therefore owe fiduciary duties in the same way as a company director, referring to Pine Rivers, Caboolture and Redcliffe Group Training Scheme Inc v Group Training Association Queensland & Northern Territory Inc [2015] 1 Qd R 542 at 555-556. He also draws attention to the observation in G E Dal Pont, Law of Associations (LexisNexis, 1st ed, 2018), at [8.39] that:

I now turn to the nature and content of these three duties. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; 89 ACSR 1; [2012] WASCA 157 (“Bell Group (No 3)”), the Court of Appeal of the Supreme Court of Western Australia unanimously held that the general law duty to act in good faith in a company’s best interests was subjective and would be complied with if directors honestly believed they acted in the company’s best interests (at [923] per Lee AJA, at [1988] per Drummond AJA, at [2027], [2772], [2795] per Carr AJA); and that whether a director acts for an improper purpose, for the purposes of the corresponding general law duty, is determined objectively involving an assessment by the Court of what was reasonable in the circumstances (at [933] per Lee AJA, at [1988], [2027], [2073] per Drummond AJA). By contrast, Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective, although a decision would be voidable if directors acted in good faith for a purpose that was beyond their powers or for a collateral purpose (at [2923]).

In determining whether directors have exercised their powers for a proper purpose, a court will examine the power which the directors have exercised to determine the purpose for which the power was granted and the court will then determine the substantial purpose for which the power was in fact exercised, and then reach a conclusion whether that purpose was proper or not: Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68; (1974) 3 ALR 448; [1974] AC 821 per Lord Wilberforce at 835. Where directors act partly for a proper purpose and partly for an improper purpose, the court will ask whether the directors would have exercised the power "but for" the impermissible purpose: Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294; [1987] HCA 11.

As Australian law presently stands, these duties are likely not fiduciary duties, but equitable and non-fiduciary duties. The High Court has emphasised that Australian courts only recognise fiduciary duties of proscriptive or prohibitive character, imposing the obligation on the fiduciary not to obtain an unauthorised profit or to be in a position of conflict, and the existence of a fiduciary relationship does not impose a positive legal duty on the fiduciary to act in the beneficiary’s interests: Breen v Williams (1996) 186 CLR 71 at 113; [1996] HCA 57; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 197–198; [2001] HCA 31. I recognise that there may be an open question as to aspects of that position in the corporations law, and in Bell Group (No 3), the majority in the Court of Appeal of the Supreme Court of Western Australia (at [918]-[933] per Lee AJA, at [1956] and [1978] per Drummond AJA) held that the director’s duties to act in good faith and in the company’s interests and for proper purposes, although imposing positive obligations, can nonetheless be characterised as fiduciary, and Carr AJA took substantially the same view, and observed (at [2733]) that he was not prepared to hold, on the present state of authority, that duties to act in the company's interests were not fiduciary duties. In Netglory Pty Ltd v Caratti [2013] WASC 364 at [345]ff, Edelman J observed that it may be incorrect, on the current state of Australian authorities, to characterise a breach of positive duties by a director, such as duties to act in good faith and in a company’s interests and for proper purposes, as a breach of fiduciary duty.

It is necessary to assess these claims in the context of the statutory and general law regime applicable to incorporated associations and voluntary administration. The parties did not address the statutory duties of committee members of an associated incorporation, or any effect of ss 30A-30B of the 2009 Act which relevantly provide that:

I will assume, without deciding, that s 30B of the 2009 Act is in the nature of a defence and not a matter that the Plaintiffs need address in order to establish a seriously arguable case, where the Nine Defendants did not contend to the contrary. The parties also did not place any weight on s 31 of the 2009 Act dealing with disclosure of interests, s 32 dealing with dishonest use of information or s 33 dealing with dishonest use of position. That is perhaps understandable where the Plaintiffs’ proposed claim is primarily put as a claim for breach of fiduciary and not statutory duty.

Section 435A of the Corporations Act in turn states the object of Pt 5.3A (as here applied to AHEPA NSW as an incorporated association by s 54 of the 2009 Act) as follows:

In Brash Holdings Ltd (admin apptd) v Katile Pty Ltd [1996] 1 VR 24; (1994) 13 ACSR 504 at 510 (“Brash Holdings”), the Court described Pt 5.3A as providing:

The purpose of Pt 5.3A has also been expressed, by Cohen J in Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 at 145, as to “provide a more expeditious and less expensive way of assisting those creditors and members than under the greater formality of a winding up or of the entry into a scheme of arrangement” and the procedure under that Pt 5.3A is intended to be capable of swift implementation and to be as uncomplicated and inexpensive as possible. In Blacktown City Council v Macarthur Telecommunications Pty Ltd (2003) 47 ACSR 391; [2003] NSWSC 883 at [19], Barrett J also observed that:

Section 436A of the Corporations Act in turn provides for the company (or, as applied by s 54 of the 2009 Act, AHEPA NSW) to appoint an administrator, and it is a prerequisite to that appointment that the board has resolved to the effect that it holds the opinion that the company is insolvent and that administrators of the company should be appointed. Members of the board will inevitably have a personal interest in making such an appointment, not least because such an appointment is typically made, and Pt 5.3A of the Act contemplates that it will be made, in order to avoid personal liability of a director for insolvent trading.

In closing submissions, Mr Friedgut refers to Cadwallader v Bajco [2001] NSWSC 1193 at [233], where Austin J held that a resolution to appoint an administrator was a misuse of power and a breach of duty where directors sought to retain office and ensure that a company continued with proceedings against the majority shareholders, and that breach fell within the fifth exception to the rule in Foss v Harbottle. I pause here to note, however, that any proposition that the Nine Defendants appointed voluntary administrators to AHEPA NSW in order to preserve their control of AHEPA NSW has the obvious difficulty that the VA Appointment would not preserve that control, but divest it to the voluntary administrator. I refer below to the real possibility, which Mr Friedgut recognised in closing submissions and I also recognise, that the Nine Defendants preferred to have control of AHEPA NSW pass from themselves to the voluntary administrators, rather than potentially pass to members of the Plaintiffs’ faction.

Mr Friedgut also refers, and I have had regard to, other case law relevant to the validity of a resolution to appoint a voluntary administrator. He submits that:

Mr Corsaro also refers, to the case law relating to the validity of an appointment of a voluntary administrator as follows:

In St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd (2004) 50 ACSR 443; [2004] NSWSC 851, Barrett J recognised that a director may breach his or her general law and statutory duties by appointing an administrator for a collateral purpose, but also there observed (at [16]) that:

In Downey v Crawford (2004) 51 ACSR 182; [2004] FCA 1264 (“Downey v Crawford”) at [189] and [196], Weinberg J observed that:

In Mt Nathan Landowners Pty Ltd (in liq) v Morris [2006] QSC 225 at [38], the Court in turn identified the issues in a claim for breach of duty arising from the appointment of a voluntary administrator as “whether the directors genuinely believed on reasonable grounds on [the date of the VA Appointment] that the plaintiff was insolvent or likely to be so in the future (Downey v Crawford at [189]) and whether a substantive purpose in the appointment of the fifth defendant was an improper purpose (Kazar v Duus (1998) 88 FCR 218 (“Kazar”) at 233)”. That approach has also been cited in cases dealing with the validity of the appointment of an administrator, including Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 (“Lime Gourmet”) and Re ACN 607 358 887 (formerly known as Carzapp) Pty Ltd [2019] NSWSC 1561. In Re Windows on World Steel Windows Pty Ltd (In Admins) [2020] VSC 880 at [24]ff, the Court referred to Downey v Crawford and Kazar as authority that the director(s)’ opinion must be “bona fide and genuinely formed”; that evidence of the actual state of the financial affairs of a company at the time of the appointment of a voluntary administrator may ground inferences as to the validity of the opinion of a director expressed in such a resolution; and approved paragraph [196] of Downey v Crawford, as extracted above.

Mr Corsaro in turn submits that, if one of the Nine Defendants formed a genuine belief that AHEPA NSW was insolvent or was likely to become insolvent, his or her obligations to act in the best interests of AHEPA NSW would have required that he or she comply with the provisions of Pt 5.3A. He also cites my decisions in Sliteris v Ljubic [2014] NSWSC 1632 and Lime Gourmet as cases where a breach of duty was not established by the appointment of a voluntary administrator where the circumstances gave rise to a genuine issue as to the company’s insolvency or likely insolvency. Mr Corsaro also submits that the appointment of an administrator on the basis of a genuine belief that AHEPA NSW was insolvent or likely to become insolvent could not be in breach of fiduciary duty even if the appointment resulted in some collateral personal interest, and he refers to CellOs Software Ltd v Huber [2018] FCA 2069, where Beach J observed at [784] that:

Mr Friedgut in turn refers to my observations in Re Bean and Sprout Pty Ltd (admin apptd) [2018] NSWSC 351 at [47], where I cited my earlier decision in Re Warwick Keneally as administrator of Australian Blue Mountain International Cultural and Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 at [96], as follows:

Mr Friedgut submits that:

I recognise that the case law as to which Counsel made submissions, and to which I have referred, is directed to the appointment of a voluntary administrator to a company, and explicitly or implicitly has regard to a director’s general law and statutory duties to act in the company’s best interests and for a proper purpose. I assume, without deciding, that s 30A of the 2009 Act and the general law duties of committee members, to which I referred above, would support a similar result in respect of committee members of an incorporated association, although I again note that the best interests and proper purposes duties are likely not fiduciary under Australian law. I do not take these matters further where the parties did not address them.

It seems to me that the allegations in proposed SOC [16] that the Nine Defendants owed duties to act in good faith, in the best interests of AHEPA NSW and to exercise their powers for a proper purpose in respect of the VA Appointment are seriously arguable, so far as those duties overlap with the matters noted in the case law I have addressed above, although those duties are not properly characterised as fiduciary duties.

The factual basis of these claims comprises the claim, identified in proposed SOC [36], that AHEPA NSW was not insolvent at the date of the VA Appointment. Mr Friedgut submits that it “defies credulity” that the Nine Defendants had any genuine belief on 8 September 2020, the date of the VA Appointment, that AHEPA NSW was insolvent or would likely become insolvent, and he refers to the absence of previous business records as to that matter. I do not accept that submission where, as the voluntary administrators recognised in their report to creditors to which I referred above, the insolvency or likely insolvency of AHEPA NSW only arose from the Court of Appeal’s decision in Lianos CA 1, which indicated that AHEPA NSW would lose its previous right to recover the costs of the proceedings at first instance from the plaintiffs in those proceedings, and also exposed AHEPA NSW to liability for the plaintiffs’ costs at first instance and on appeal. It is not surprising that no risk of insolvency is documented prior to that event, because it would not exist prior to that event. The question whether AHEPA NSW was insolvent, or likely to be insolvent, from that point is properly assessed by reference to its cashflow position and objective reality, although the understanding of the Nine Defendants and the members of the Plaintiffs’ faction and the extent of references to solvency in contemporary documents are also relevant matters.

Mr Friedgut also points to the fact that the Defendants only rely on Mr Fandakis’ evidence in respect of the VA Appointment and points to the absence of evidence from several of the Nine Defendants. I proceed on the basis that the evidence of the rest of the Nine Defendants would not assist AHEPA NSW, although that proposition must be applied pragmatically, where it would have been highly undesirable to extend the length of this hearing further by calling numerous additional witnesses to address the same matters as Mr Fandakis. I proceed on the basis that the absence of evidence from those other Nine Defendants would also allow the Court to more readily draw inferences that are available from the evidence led by the Plaintiffs, but it would not substitute for an absence of evidence in the Plaintiffs’ case. Little turns on these matters here, where a significant part of this application turns on questions of law rather than questions of fact, and, as I noted above, the position as to the insolvency or likely insolvency of AHEPA NSW is properly assessed (to the extent necessary to determine this application) by reference to objective reality, although the understanding of the Nine Defendants and the members of the Plaintiffs’ faction is also relevant. I have regard to Mr Friedgut’s emphasis, in closing submissions, on Mr Fandakis’ evidence that he could not recall whether alternatives to the VA Appointment (which I address below) had been discussed at the 8 September meeting and that he did not recall other aspects of the discussion (T192-197), but I do not treat a lack of recollection to that matter as evidence that such a discussion did not occur.

I am not persuaded that the Plaintiffs have shown a seriously arguable case for the proposition that AHEPA NSW was not insolvent or likely to become insolvent, where AHEPA NSW’s substantial excess of assets over liabilities would not avoid insolvency on a cash flow basis where it could not then meet the existing debt owed to its former solicitor on any reasonable estimate of its amount, or the other outstanding debts to which I have referred above; it could not avoid insolvency, by reason of any mere hope or expectation that it could implement either a timely sale of its properties or any long term borrowing, where both would require approval by special resolution in a general meeting and there was a continuing and substantial dispute as to who would be entitled to vote at such a meeting; and it could also not avoid insolvency by reason of any mere hope that they might be able in future to reach an agreement with the Plaintiffs’ faction that would allow payment of the solicitor’s costs or deferral of their contingent claim to costs in respect of Lianos 2019 and Lianos CA 1.

The factual basis of this claim also involves the alleged failure to investigate AHEPA NSW’s financial position and the alternatives identified in proposed SOC [38] and [40]. Mr Friedgut submits that:

I am also not persuaded that there is a serious question to be tried as to a failure to investigate AHEPA NSW’s financial position, where it was plain enough that it had substantial assets which could not be readily realised to pay the immediate claims against it. I am also not persuaded that there was a seriously arguable case that there were any available alternatives that would have addressed, in the short term, AHEPA NSW’s insolvency or the fact that it was likely to become insolvent shortly after the date of the VA Appointment. The prospect of negotiations with AHEPA NSW’s former solicitors or the Plaintiffs’ faction would have been speculative, at best; I have pointed above to the difficulties in obtaining a special resolution to approve AHEPA NSW taking out a loan or sale oof of the properties, where the identity of members entitled to vote was a key issue in dispute between the two factions of AHEPA NSW, and there is no suggestion that any of the properties could be sold for market value in a time frame that would avoid insolvency; and a loan would also require approval by a special resolution of members.

The factual basis of this claim also includes the allegation of knowledge of improper conduct, and any implied allegation of the fact of that improper conduct, in proposed SOC [45]. I accept that the chronology of events and Mr Fandakis’ cross-examination could support a finding that the Nine Defendants recognised the risk that the Plaintiffs’ faction would gain control of the management committee or of the membership of AHEPA NSW at the time of making the VA Appointment and preferred that AHEPA NSW be controlled by an independent insolvency practitioner rather than by the Plaintiffs’ faction.

However, in order to establish a seriously arguable case for breach of the good faith, best interests and proper purposes duties, the Plaintiffs must show it is seriously arguable that the improper purpose for which they contend was the substantial purpose for which the power to make the VA Appointment was exercised. I have referred to the relevant case law above. Where the Plaintiffs have not established a seriously arguable case that AHEPA NSW was neither insolvent nor likely to become insolvent, it seems to me doubtful that they can establish either a seriously arguable case that the improper purpose to which they point, rather than the fact of AHEPA NSW’s insolvency or likely insolvency and the consequential risk of liability for insolvent trading, was the substantial reason for the VA Appointment, or that the VA Appointment would not have occurred in order to avoid the risk of liability for insolvent trading, irrespective of any collateral purpose of avoiding the Plaintiffs’ faction taking control of AHEPA NSW’s management committee or its membership. I do not need to reach a stronger finding than that to reach a conclusion as to whether the fraud on the minority or interests of justice exception is satisfied in respect of this claim.

The second aspect of this claim (proposed SOC [16(d)-(e)]) invokes the no conflict and no profit rules. It is again necessary to assess this claim with regard to the statutory and general law context of an incorporated association and voluntary administration, which I have addressed above. As I noted above, the Plaintiffs then plead (proposed SOC [43]) the allegation that the Nine Defendants acted in conflict of interest and duty when effecting the VA Appointment and acted negligently when effecting that appointment.

The no conflict and no profit rules are of course well-recognised incidents of a fiduciary position. In Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37, Payne JA (with whom Gleeson and Leeming JJA agreed) summarised (at [105]) the no conflict and no profit rule as follows:

As Mr Corsaro points out, the Court must determine whether there is a real or sensible possibility of conflict in the particular case: Boardman v Phipps [1967] 2 AC 46 (“Boardman v Phipps”) at 124; Bell Group Ltd (in liquidation) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; [2008] WASC 239 at [4512]. Mr Corsaro also submits, by reference to Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 (“Howard”), that the scope of the fiduciary duty owed by the Nine Defendants to AHEPA NSW had to accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it was consistent with and conformed to the scope and limits of that relationship, and that any fiduciary relationship between the Nine Defendants and AHEPA NSW was one which had to be moulded according to the nature of the relationship and the facts of the case.

A duty to avoid a conflict of interest only arises in that part of a relationship between a fiduciary and his or her beneficiary that is fiduciary in character: Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 (“Birtchnell”) at 408 (Dixon J); New Zealand Netherlands Society ‘Oranje’ Inc v Kuys [1973] 1 WLR 1126 at 1130 (Lord Wilberforce). In Birtchnell, Dixon J noted (at 408) that the subject matter over which the fiduciary obligations extend is determined “by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.” In Boardman v Phipps at 127, Lord Upjohn also observed that, if a fiduciary relationship was found to have been established,

In Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63; [2011] FCAFC 166 at [206], Jacobson J similarly observed (Rares and Besanko JJ agreeing) that:

In Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, Finn, Stone and Perram JJ , in a passage cited by Gageler J in Howard at [110], observed (at [179]) that:

In Howard, French CJ and Keane J also observed (at [34]) that:

In Gunasegaram v Blue Visions Management Pty Ltd (2018) 129 ACSR 265; [2018] NSWCA 179 at [152], Gleeson JA noted that:

It seems to me that the Plaintiffs’ claim for breach of the rule against conflict of interest pleaded in proposed SOC [43] does not rise to the level of a seriously arguable case. I have referred above to the case law which has recognised that the decision of a director, or by extension a committee member of an association, whether to form the opinion specified in s 436A of the Corporations Act and resolve to appoint an administrator is to be assessed by reference to the basis for the appointment. I have also referred above to the case law concerning the need to assess the scope of a fiduciary duty, and it seems to me that any fiduciary duty which a director of the company or committee member of a voluntary association owes to the company or association, in considering the appointment of a voluntary administrator, will necessarily be attenuated by the purposes of the voluntary administration regime and the fact that directors of a company or committee members of an incorporated association will likely have personal interests in forming the opinion which s 436A of the Corporations Act contemplates they will form as a prerequisite to the company or association appointing a voluntary administrator.

In many or all cases, directors of a company will be shareholders in or creditors of the company with an unavoidable economic interest in that decision, or members of a committee of an association will be members of or creditors of the association with at least a personal and possibly also an economic interest in its affairs. In virtually all cases, a director or committee member will have a personal interest in that decision arising from the risk of his or her liability for insolvent trading or breach of directors’ duties if a voluntary administrator is not appointed, when a company or association is insolvent or likely to be insolvent, and the appointment of a voluntary administrator is a well-recognised means of avoiding that liability. If the Plaintiffs’ contention that the existence of a personal interest of a director or committee member requires that he or she not form the opinion set out in s 436A of the Corporations Act and appoint an administrator were correct, it would be impossible for a company or association to appoint voluntary administrators in many or most cases and that result would significantly undermine the effectiveness of Pt 5.3A of the Corporations Act. That unfortunate result is avoided by recognising that any such fiduciary duty must be narrowed to reflect the statutory regime.

It seems to me that the duty alleged in proposed SOC [17(g)(ii)-(iv) and (vi)] could not be established, since Australian law does not recognise positive fiduciary duties, as I noted above, and also does not recognise an affirmative duty of disclosure applying to directors or company officers as a separate fiduciary duty or an incident of the no conflict rule and a director’s non-disclosure of information relevant to the company is not a separate breach of duty, although the fact of disclosure may, of course, still be relevant to informed consent to or ratification of conduct that would otherwise be a breach of fiduciary duty: Fitzwood Pty Ltd v Unique Gold Pty Ltd (in liq) (2001) 188 ALR 566; [2001] FCA 1628 at [32]–[33]; Dresna Pty Ltd v Linknarf Management Services Pty Ltd (in liq) (2006) 156 FCR 474; [2006] FCAFC 193 at [130]–[132]; P & V Industries Pty Ltd v Ponto [2007] VSC 64 at [24]–[30]; Collard v Western Australia (No 4) [2013] WASC 455 at [1096], [1211]–[1214]. I recognise that English law has taken a somewhat different approach: Item Software (UK) Ltd v Fassihi [2004] EWCA (Civ) 1244 at [40]-[44]; Hanco ATM Systems Ltd v Cashbox ATM Systems Ltd [2007] EWHC 1599 (Ch) at [65]; GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch) at [192]–[195]; McTear v Engelhard [2014] EWHC 1056 (Ch) at [10]–[91]. The duty alleged in proposed SOC [17(g)(v)] also seems to me to be not seriously arguable, so far as it seeks to prevent AHEPA NSW exercising the statutory power to appoint a voluntary administrator that is conferred on it by s 54 of the 2009 Act and s 436A of the Corporations Act, where directors form the requisite opinions.

As I noted above, the Plaintiffs also plead (proposed SOC [44]) a claim that the Ninth Defendants acted negligently when effecting the VA Appointment, although the basis of any duty of care is not identified. It seems to me that the Plaintiffs also have not shown a seriously arguable proposition that the Nine Defendants acted without due care, or negligently, as pleaded in proposed SOC [44] when effecting the VA Appointment. In order to determine whether AHEPA NSW was insolvent or likely to become insolvent, there is no seriously arguable case that more was required than to answer the question whether AHEPA NSW could pay its debts as and when they fell due, adopting the same straightforward analysis that was adopted by the solicitors who were then acting for Ms Alexandrou and are now acting for the Plaintiffs in their letter dated 3 December 2019, to which I referred in the chronology, and then by Emmett AJA in AHEPA 2020. Even if a duty of care existed, it also does not seem to me that there is a seriously arguable case that reasonable care required further inquiries or the exploration of questionable alternatives that could not have promptly displaced the matters that gave rise to the then insolvency or likely insolvency of AHEPA NSW.

I should note, for completeness, that there are also real difficulties with the manner in which the Plaintiffs propose to establish causation of loss on the part of AHEPA NSW. I have referred to the pleadings in proposed SOC [48] above. It seems to me that it is doubtful that the Plaintiffs could establish a seriously arguable case as to these propositions, where the evidence to which I have referred above and the history of AHEPA NSW gives little reason to think that there was room for a negotiated outcome with the Plaintiffs’ faction, or that a special resolution would have been approved in general meeting for sale of the Rockdale Properties or for the Surry Hills Property to be mortgaged, where there have been continuous disputes as to who would be entitled to vote at a special meeting. It is notable that, at the relevant time, the Plaintiffs and other members of the Plaintiffs’ faction made no offer of a negotiated outcome and the earlier claim for costs in respect of earlier proceedings had resulted in a winding up application brought by Ms Alexandrou rather than a negotiated outcome. The Plaintiffs claim for loss in proposed SOC [49] depends on the existence of a seriously arguable case in respect of the pleaded breaches which I have noted above.

I have referred to the scope of the relevant exceptions to Foss v Harbottle at general law above. In oral submissions, Mr Corsaro submits that the matters on which the Plaintiffs rely do not establish a fraud on the power, for the purposes of the fourth exception in the rule in Foss v Harbottle. I will assume, without deciding, that a use of the power to appoint a voluntary administration, for an improper purpose and other than for the purpose for which that power was conferred, may constitute a fraud on the power in the relevant sense, and fall within the fourth exception of that rule so far as it was not capable of ratification by the majority of AHEPA NSW’s members. However, I am not persuaded that the Plaintiffs’ claim in respect of the VA Appointment falls within the scope of the fourth exception to the rule. I have held above that it is doubtful that the matters to which they refer rise to a seriously arguable claim that the Nine Defendants had a predominant purpose other than to address the insolvency or likely insolvency of AHEPA NSW and I am not persuaded that they raise a seriously arguable claim that the Nine Defendants personally profited from the VA Appointment or any matter that would have prevented ratification in general meeting by a majority of AHEPA NSW’s members. I would also not exercise a judicial discretion to make the declaration sought on that basis, given the issues as to Ms Diakovasili’s lack of understanding of the proceedings which I have noted above and the funding arrangements which I address below.

I am also not satisfied that this claim falls within the fifth exception to Foss v Harbottle, namely that it is in the interests of justice that the claim be permitted. First, as I have noted above, it is doubtful that the Plaintiffs have shown a seriously arguable case of breach of the best interest or proper purposes duties, and they have not shown a seriously arguable claim for breach of the rule against conflict of interest or negligence for the reasons noted above. As I noted above, the wider conspiracy or fraud case on which the Plaintiffs opened is not pleaded in the proposed SOC and AHEPA NSW has not had a fair opportunity to respond to it in this application.

Second, and importantly, the First Plaintiff, Ms Diakovasili, demonstrated little or no understanding of her own affidavit evidence in support of this application or of the case that she seeks to bring or of the relief that might be available in that case and would therefore have no real ability to control the conduct of that case. She plainly also does not understand the financial risk to which she is exposed by the proposed conduct of the proceedings. Those who are funding this application and the proposed proceedings and exercising a degree of control or influence over their conduct provide no real explanation of why they have caused them to be brought in the name of an elderly non-English speaking pensioner who, like AHEPA NSW and the proposed Defendants, would be exposed to the risks associated with the conduct of the proposed proceedings. I will address a further uncertainty as to the existence of, and terms of, any funding and indemnity arrangements in respect of the proposed proceedings below.

Third, I recognise that the Second Plaintiff, Mr Antonakos, has a better understanding of the case that is to be brought although not of the risk to him of the funding arrangement. That does not assist the Plaintiffs where the relief sought is a declaration directed to proposed proceedings to be brought by Ms Diakovasili and Mr Antonakos, not only by Mr Antonakos. It seems to me that the Court should, in an application of this kind, consider the claim which the Plaintiffs seek to bring, and not deal with that claim in a way that would turn into a substantively different claim brought by Mr Antonakos alone, with the result that he would bear the sole risk of the proceedings, subject to any unsecured indemnity given by Marine Parade in respect of the proposed proceedings, if such an indemnity exists.

Fourth, so far as Mr Alexandrou is funding and likely exercising a degree of control over the claim where he is a party to the solicitors’ retainer, it seems to me that his delay and previous conduct tends against the relief sought, where he had a legal representative present at the application to validate the VA Appointment and did not then oppose the validation of the DOCA; he and his associates then put a proposal for the competing CS DOCA, allowing the voluntary administration to go forward in the expectation that they could obtain control of AHEPA NSW under the CS DOCA; did not challenge the resolutions passed at the second creditors’ meeting or the execution into the RPS DOCA; but then promoted and supported these proceedings, only after the RPS DOCA had been implemented and AHEPA NSW’s solvency likely restored by it.

I should add that, even if I had reached the view that the relief sought could have been granted limited to a claim for breach of duty in respect of the VA Appointment, as distinct from the claims against the Four Defendants and RPS relating to the alleged Post Appointment Breaches, I would not have granted that relief in respect of the proposed SOC where it is not so limited. As I have noted above, it seems to me that the Court should, in an application of this kind, consider the claim which Plaintiffs seek to bring and not seek to reformulate that claim in a way that would turn into a substantively different claim.

The second aspect of the Plaintiffs’ proposed case, pleaded in paragraphs 50-67 of the proposed SOC, is directed to a claim that continuing fiduciary duties owed by the Nine Defendants were breached when four of them, Messrs Kallimanis, Premetis, Fandakis and Papanagiotou (“Four Defendants”) were involved with RPS in the RPS DOCA which allegedly had the result that RPS acquired the Rockdale Properties at undervalue. I proceed on the basis that this claim is only proposed to be made against the Four Defendants and RPS, where that is broadly consistent with the proposed SOC and Mr Friedgut opened the Plaintiffs’ case on that basis.

In opening written submissions, Mr Friedgut summarises this claim as follows:

Both these formulations leave unclear how the Four Defendants are alleged to have “caused” the voluntary administrators to sell the Rockdale Properties at an undervalue, where both RPS and CS put competing DOCAs to the voluntary administrators, the voluntary administrators put both DOCAs before the second meeting of creditors, and the majority of creditors at the second meeting of creditors then approved AHEPA NSW’s entry into the RPS DOCA in preference to the CS DOCA.

In opening submissions, Mr Friedgut identifies the relief claimed in respect of this claim, which is not pleaded in the proposed SOC, as follows:

Turning to the proposed pleading of this claim, the Plaintiffs repeat (proposed SOC [50]) their claims that the committee members owed fiduciary duties to AHEPA NSW and as to the content of those fiduciary duties and plead (proposed SOC [51]) that those fiduciary duties survived AHEPA NSW’s entry into voluntary administration, although the position of committee members other than the Four Defendants would not be relevant to this claim. I have noted above that several of the duties on which the Plaintiffs rely are not properly characterised as fiduciary duties. I accept that it is seriously arguable that the alleged fiduciary duties owed by committee members (relevantly, the Four Defendants) survived AHEPA NSW’s entry into voluntary administration, where they remained in office as committee members.

It is not necessary to address the decision in Hunt v Michie [2020] EWHC 54 (Ch), on which Mr Friedgut relied, to reach that conclusion, and that decision is of limited assistance where the statutory regime for directors’ duties and the insolvency regime in the United Kingdom are (contrary to Mr Freidgut’s submission) different from the Australian statutory regime in significant respects. As Mr Friedgut noted in closing submissions, in Advanced Fuels Technology Pty Ltd v Blythe [2018] VSC 286 at [326], in a different factual setting, Macaulay J also recognised the possibility that a director’s duty to avoid conflicts of interests could continue after his or her resignation (I interpolate, particularly if that resignation was prompted by a wish to exploit an opportunity in breach of his or her duty), but observed that:

The proposition that committee members’ fiduciary duties survived the VA Appointment is, however, only the start of the inquiry as to the scope of those duties after the VA Appointment, where committee members (again, relevantly, the Four Defendants) were no longer able to exercise their powers and duties by reason of the VA Appointment. I note that s 30A of the 2009 Act, to which I referred above, is consistent with a focus on the scope of a committee member’s duties, where the duty it imposes is directed to carrying out the committee member’s functions for the benefit, so far as practicable, of the association.

Section 437A of the Corporations Act (as applied by s 54 of the 2009 Act to AHEPA NSW) relevantly provides that:

That section assumes that the voluntary administrator can exercise those powers to the exclusion of company directors (or, here, committee members of AHEPA NSW). I referred above to Brash Holdings, where the Court described (at 28) Pt 5.3A of the Corporations Act as providing:

That position is made express, in the case of a company, by s 198G of the Corporations Act which provides that, when a voluntary administrator is appointed to a company, an officer of the company must not perform or exercise a function or power of that office without, inter alia, the written approval of the voluntary administrator or the Court, or where the officer is permitted to do so by the Corporations Act. Although that section does not refer to an incorporated association that is placed in voluntary administration, there seems to me to be no arguable case that the powers of the officers of a voluntary association are not impliedly suspended by that appointment, since it is inconceivable that both a voluntary administrator and officers of the association are entitled to exercise control of it at the same time and in circumstances that they may well have opposed views as to how the voluntary administration or the affairs of the association should be conducted.

Section 437D of the Corporations Act in turn provides that:

Section 439A of the Corporations Act in turn provides for the matters to be decided by creditors at a second meeting of creditors in a voluntary administration, which may include that the company execute a deed of company arrangement, and Pt 5.3A Div 10 deals with the execution and effect of a deed of company arrangement. Importantly, creditors and not a company’s directors (or, here, committee members of AHEPA NSW) decide whether the company (or AHEPA NSW) should enter into a deed of company arrangement.

As I have noted above, a duty to avoid conflicts of interest only arises in that part of a relationship between a fiduciary and his or her beneficiary that is fiduciary in character. It is commonplace in a voluntary administration that a director of a company will propose a deed of company arrangement, which may propose the acquisition of the company’s business or its assets at a price that may be less than fair value but reasonable in the circumstances, for example because no alternative purchasers have an interest in those assets. The proposed deed of company arrangement will be put by a voluntary administrator to creditors of the company for approval at the second meeting of creditors. It is inconceivable that the rule against conflict of interest and duty applies in that situation to prevent such a proposal, on the basis that the director’s personal interest in acquiring the company’s business or assets on more or less favourable terms will inevitably conflict with any duty owed to the company or association to maximise the purchase price for the business or assets, just as a vendor’s and a purchaser’s interests will inevitably be in conflict. The utility of the voluntary administration regime would be significantly undermined if directors or officers of a company or association, who would ordinarily be well-placed to put a deed of company arrangement, are prevented from doing so. I note, for completeness, that a director or officer would likely not be able to avoid that result, if it would otherwise arise, by resignation prior to putting a DOCA proposal: Addstead Pty Ltd (in liq) v Liddan Pty Ltd (1997) 70 SASR 21; 25 ACSR 175.

It seems to me that, in consequence of these matters, the premise of the Plaintiffs’ claim for Post Appointment Breaches, that the Nine Defendants (or, relevantly, the Four Defendants) owed a fiduciary duty which could be breached by putting forward a proposed DOCA for creditors’ approval, is not seriously arguable, either generally in respect of companies or here in respect of AHEPA NSW. That result follows because, first, as Mr Corsaro submits, a director of a company (or committee member of AHEPA NSW) is not in a position of real and sensible conflict of interest in putting a proposal for a deed of company arrangement on more or less favourable terms, where the assessment of that proposal and the decision whether the company (or AHEPA NSW) executes that deed of company arrangement will not be made by the director (or committee member) but respectively by the voluntary administrator and creditors at the second meeting of creditors.

The same result follows, second and alternatively, because the scope of a continuing fiduciary duty owed by a director of the company (or here a committee member in respect of AHEPA NSW) is narrowed when a voluntary administrator is appointed and takes control of the company (or, here, AHEPA NSW) to the exclusion of that officer or committee member, and does not extend to steps which he or she may take to put such a proposal, in a similar way that the fiduciary duty owed by a joint venturer in Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 did not extend to steps taken in assigning its interest in the joint venture. There is no seriously arguable claim that such a director (or, relevantly, the Four Defendants) can breach a fiduciary duty or the rule against conflict of interest by a putting a proposed DOCA on more or less favourable terms for consideration by the voluntary administrator and then by creditors at the second meeting of creditors. These matters also explain a matter that Mr Friedgut did not address, namely why no corresponding breach of duty arose so far as other committee members associated with the Plaintiffs’ faction were associated with putting the competing CS DOCA.

The Plaintiffs also bring a case against RPS in respect of the alleged Post Appointment Breaches. They plead (proposed SOC [52]) that RPS is the “alter ego” of one or more of the Nine Defendants. The particulars of that proposition are directed to only four of the Nine Defendants, namely that Mr Kallimanis and his family own 63 shares in RPS, comprising 52.5% of the share capital; Mr Papanagiotou and his family owned at least 10 shares comprising 8.3% of the share capital; Mr Premetis and a “business associate” owned at least 15 shares comprising 12.5% of the share capital of RPS; the Plaintiffs do not identify the persons who own the other 26.7% of the share capital of RPS; and they also particularise that Mr Fandakis acted as RPS’s real estate agent in respect of the transaction, although it is not apparent how that would advance an allegation that RPS is the alter ego of the Nine Defendants generally or the Four Defendants in particular. The Plaintiffs then plead (proposed SOC [53]) that, as a result of being an alter ego of the Four Defendants, RPS had full knowledge of the facts pleaded in respect of the alleged breach of fiduciary duty by them (or possibly the Nine Defendants) in appointing the voluntary administrator and had “transmitted fiduciary obligations” of the same character alleged against the Four Defendants (or possibly the Nine Defendants generally).

In his opening submissions, Mr Friedgut describes this claim as follows:

I note, for completeness, that Mr Friedgut submits in closing submissions that there is no evidence from witnesses called by AHEPA NSW as to whether other members of the management committee have any direct or indirect interest in RPS, and he submits that an “adverse inference” should be drawn from the absence of that evidence. I do not take that approach, first, because the Plaintiffs do not allege that other members of the management committee have any direct or indirect interest in RPS, and there was no reason for AHEPA NSW or those committee members to deny an allegation that is not made and, second, because the absence of evidence does not generally support an adverse inference, particularly as to a matter which is not alleged. The claim against RPS is not seriously arguable where the alleged breach of fiduciary duties by the Four Defendants, on which it relies, is not seriously arguable for the reasons noted above.

The Plaintiffs also plead (proposed SOC [54]) several matters relevant to the alleged discharge of fiduciary duties owed by the Four Defendants after the VA Appointment, including repeating the allegation of conflict of interest and that the Four Defendants or RPS “stood to gain personally” and they seek to establish that a valuation obtained by RPS or Mr Fandakis in respect of the Rockdale Properties was at undervalue. I return to that matter below. The Plaintiffs also plead (SOC [56]) that the “purported creditors” voted in favour of the resolution at the second meeting of creditors and, implicitly, seek to raise a collateral attack on the validity or propriety of that resolution, although no application was brought to set it aside after it was passed and no application to set aside the DOCA was brought.

I bear in mind that Mr Friedgut, in closing submissions, also criticises the fact that RPS or interests associated with it acquired third party debt which was voted in favour of the RPS DOCA at the second creditors’ meeting. As I noted above, Mr Alexandrou’s children similarly acquired third party debt which was voted in favour of the CS DOCA at the second creditors’ meeting. Nothing turns on these matters, where it is open to a creditor or interested party to acquire another creditor’s debt and to vote it at the second creditors’ meeting, although the Court would have been able to take these matters into account, if Mr Alexandrou or any other interested person had brought an application to set aside the result of the second creditors’ meeting or the entry into the RPS DOCA at the time it occurred.

The Plaintiffs then plead (proposed SOC [59]-[60]) that RPS purchased the Rockdale properties at what it knew to be a substantial undervalue and that the Four Defendants and RPS knew that it was not in AHEPA NSW’s interests to purchase the Rockdale properties “off market at significantly below market value”.

Mr Friedgut draws attention to the matters on which the Plaintiffs will rely to contend that the Rockdale Properties were valued at $6 million at the time they were acquired by RPS, including references to that value in AHEPA NSW’s business records prior to the date of the VA Appointment, by a 2019 valuation and references to that figure in AHEPA NSW’s balance sheet as at 30 June 2020. The Plaintiffs also place substantial weight on a call option dated 12 November 2014 which provided for the potential sale of the Rockdale Properties for a total consideration of $6.001 million (Ex J1, 377). Although an option fee was paid, that option was not exercised at that price or at all and the transaction did not complete. It seems to me that that option provides little support for that proposition. In Mount Gilead Pty Ltd v Macarthur-Stanham (as executor of Estate of late Lee Macarthur-Onslow) [2023] NSWCA 37 at [108]ff, Bell CJ referred to authority rejecting the use of offers as evidence of the value of land and noted that the use of uncompleted transactions will generally give rise to speculation (although he also recognised, and White JA there noted, that the significance of an offer, an option, or an uncompleted contract for the sale of land may depend upon the circumstances). Both Bell CJ and White JA there upheld my conclusion at first instance in that case that the evidence, there including an uncompleted option agreement, did not establish a real prospect that an expression of interest campaign or similar public market process would have led to a better result than the entry into the relevant transaction. I recognise that the Plaintiffs also propose to rely on expert valuation evidence in that regard.

Mr Corsaro responds that the Plaintiffs do not articulate a claim for relief against RPS; that Mr Fandakis’ only interest in the acquisition of the Rockdale Properties was to act as RPS’s agent in respect of the transaction; and that there is nothing to suggest that he stood to gain any benefit from RPS purchasing the Rockdale Properties or had a conflict of interest. He also submits, importantly, that AHEPA NSW was then being managed by the voluntary administrators and not the Nine Defendants or other committee members of AHEPA NSW; that the voluntary administrators recommended that creditors vote for the RPS DOCA; and that AHEPA NSW’s creditors, rather than the Nine Defendants as committee members, made the decision to execute the RPS DOCA and thereby to sell the Rockdale Properties to RPS. He submits that, on that basis, there is no arguable claim for a conflict of interest or unauthorised profit made by the Nine Defendants in respect of RPS’s acquisition of the Rockdale Properties and he also relies on the valuation obtained by RPS from Opteon to contend that transaction took place at market value.

Mr Friedgut also advances criticisms of the methodology of Lando’s second valuation and also advances various criticisms of the Opteon valuation, to which I have referred above, although Mr Corsaro responds that his suggestion that the valuers did not have regard to the zoning of the property or any development potential are wrong, on the face of the valuation. He also points out that the valuation obtained by the voluntary administrators from Property Logic was in draft at the date of the second meeting of creditors and advances criticisms of the methodology adopted in that valuation. It is not necessary to determine the correctness of these valuations in order to determine the application. Mr Friedgut also referred to the retrospective valuation of the Rockdale Properties showing a value at $6.1 million as at 16 December 2020 (Ex J1, 1872ff) on which the Plaintiffs would rely at a hearing.

In closing submissions, Mr Corsaro points out that three valuations obtained at the time of the sale of the Rockdale Properties valued them in the range of $4.4-$4.9 million, including one obtained by the voluntary administrators, and points to the fact that those valuations all referred to the impact of the then COVID pandemic on property prices. Mr Corsaro also points out that each of those valuations considered comparable sales and recognised the “development potential” of the Rockdale Properties. Mr Corsaro also advances several criticisms of the retrospective valuation on which the Plaintiffs would rely at the proposed hearing, which he points out reflects a “kerbside” view of the property in April 2022, was issued a year later in April 2023, and seeks to value the property as at December 2020. Mr Corsaro also points to a potential difficulty with the sales evidence relied on in that report, so far as it relied largely on sales prior to the COVID pandemic, only two sales occurred in the period between September and December 2020 and the valuer also relied on two later sales.

It is not necessary to decide whether the Plaintiffs could establish the higher valuation of the Rockdale Properties for which they contend, which I accept is a matter that would properly be left to final hearing if the proceedings were properly to proceed. That question does not arise where the breach of duty on which the Plaintiffs would rely to establish this claim is not seriously arguable for the reasons noted above.

The gravamen of the Plaintiffs’ claim in respect of the Post Appointment Breaches is that the Four Defendants and RPS proceeded with and completed the purchase of the Rockdale Properties by RPS in breach of fiduciary duty, and they plead loss suffered by AHEPA NSW as a result of that matter, calculated by reference to the market value of the Rockdale Properties, alleged to be at least $6 million, in comparison with the $4.4 million received under the RPS DOCA. I am not persuaded that this claim is seriously arguable, where it is not seriously arguable that the Four Defendants had a real and sensible possibility of conflict of interest, where their powers as committee members of AHEPA NSW had been displaced during the voluntary administration and the assessment of the RPS DOCA and competing CS DOCA proposals would be and were undertaken not by them but by the voluntary administrators and the decision whether AHEPA NSW should execute either of those proposals would be and was made not by them but by creditors. It also does not seem to me to be seriously arguable that the scope of the Four Defendants’ continuing fiduciary duty extended to steps taken in respect of the RPS DOCA or competing CS DOCA proposals for the same reason.

I have referred to the scope of the relevant exceptions to Foss v Harbottle at general law above. I am not persuaded that the Plaintiffs’ claim in respect of the Post Appointment Breaches falls within the scope of the fourth exception to the rule in Foss v Harbottle, since the legal basis of the claim is not seriously arguable and the matters raised do not constitute a fraud on the minority in the relevant sense. Even if the fourth exception did apply, I would not exercise a judicial discretion to make the declaration sought, given the issues as to Ms Diakovasili’s lack of understanding of the proceedings and the funding arrangements to which I return below.

I am also not persuaded that the claim falls within the fifth exception, and it is not in the interest of justice to permit the claim for the same reasons, and also for the reasons noted above, including Ms Diakovasili’s lack of understanding of the relief that might be available in the proceedings and her lack of any real ability to control the conduct of that case; the lack of explanation of why those who stand behind the case have caused it to be brought in the name of an elderly non-English speaking pensioner who, like AHEPA NSW and the proposed Defendants, would be exposed to the risks associated with conduct of the proceedings; and the fact that Mr Antonakos’ better understanding of the issues in the proceedings does not assist the Plaintiffs where they seek to have the proceedings brought by both Plaintiffs and not only Mr Antonakos.

The Plaintiffs and AHEPA NSW also rightly recognised the significance of funding and indemnity arrangements for the proposed proceedings, whether they were to be brought in AHEPA NSW’s name or by the Plaintiffs personally for AHEPA NSW’s benefit.

Mr Friedgut emphasised, in his opening written submissions, the Plaintiffs’:

Mr Friedgut then submitted, in closing submissions, that:

Mr Friedgut also placed substantial emphasis on the funding and indemnity arrangements in oral submissions. For example:

Mr Corsaro also referred to case law, in the context of statutory derivative proceedings, emphasising the significance of funding and indemnity for the relevant company and submitted that:

As I noted above, the evidence given by each of the Plaintiffs was that, understandably, they do not in fact wish to put their only substantial assets, their homes, at risk and they relied on funding and an indemnity provided by Marine Parade or Mr and Ms Alexandrou in respect of the proposed proceedings. I have also observed above that those funding and indemnity agreements or arrangements are not in evidence, where the costs agreement to which I referred above does not contain them.

I requested further submissions from the parties as to possible findings as to these matters, after the hearing concluded and prior to judgment, as follows:

In supplementary submissions, Mr Friedgut and Ms Meares accept that the four propositions noted above are correct. They submit, and I recognise, that the indemnity in the costs agreement extends to any wider scope of work requested by the Plaintiffs under the costs agreement, and could be extended to the proposed proceedings or a new costs agreement could be executed in the proposed proceedings. However, the first difficulty with that proposition is that an indemnity in those terms has not, so far as the evidence goes, been extended to the proposed proceedings. The second difficulty is that an indemnity in that form would protect the Plaintiffs’ solicitors, rather than the Plaintiffs or AHEPA NSW in respect of the costs of the proposed proceedings, which I have noted above are likely to be substantial. The third, and possibly most important, is that an indemnity in that form would be entirely inconsistent with Ms Diakovasili’s and Mr Antonakos’ evidence as to the basis on which they wish to bring the proceedings, without putting their homes at risk, where it does nothing to protect them against that risk.

I also drew attention to and sought submissions as to a possible inference that any other document containing an indemnity would not have assisted the Plaintiffs in establishing that a wider indemnity had been given in favour of them or AHEPA NSW. Mr Friedgut and Ms Meares submit such an inference is not available, where AHEPA NSW rather than the Plaintiffs tendered the costs letter and the issues raised above were not contested at trial. I do not accept that proposition in its wider form, where the Plaintiffs deployed their willingness to assume the liability for costs of the proposed proceedings in submissions in support of the application, albeit Ms Diakovasili’s and Mr Antonakos’ evidence was that they did not wish to bear that liability themselves, and were relying on the suggested indemnity from others. I accept that I first raised the question whether the indemnity in the costs letter, if it was the indemnity on which Ms Diakovasili and Mr Antonakos were relying, was adequate. That question is plainly relevant to the way in which the Plaintiffs have put their case. In the event, it is not necessary to draw an inference of the kind noted above, where there is simply no evidence that an indemnity now exists of the kind referred to in the Plaintiffs’ submissions.

Mr Friedgut and Ms Meares also refer to the Defendants’ submission that the Plaintiffs should only be permitted to bring the proposed proceedings on terms that indemnity is provided by each of the Plaintiffs and Marine Parade in respect of AHEPA NSW’s legal costs, although that issue may present differently where, in a general law derivative action, the proceedings would be brought in the Plaintiffs’ names, by contrast with a statutory derivative action where it would be brought in AHEPA NSW’s name. They also submit that:

They also refer to Mr Friedgut’s oral closing submissions (T244,T245) that:

The Plaintiffs also refer to case law, in the context of the statutory derivative action, where the Court has been prepared to grant leave to bring a derivative action conditional on the applicant indemnifying the relevant company for any liability which it may incur in pursuing the action.

I do not consider that the Court can or should seek to fashion an indemnity condition on which the declarations sought by the Plaintiffs could be granted, where the issues which arise here is quite different from that which ordinarily arises in a statutory derivative action. The differences include the fact that, first, in a derivative action brought at general law, Ms Diakovasili and Mr Antonakos would likely be the named Plaintiffs and would be exposed to an order for costs against them and in favour of the Defendants if the proposed proceedings failed. Second, and understandably, the evidence of both Ms Diakovasili and Mr Antonakos is clear that they do not wish to bear the exposure for costs in the proceedings and seek to rely on an indemnity provided by Marine Parade and Mr and Ms Antonakos, which does not arise from the costs agreement that I noted above and is not in evidence, if it exists.

In assessing the interests of justice, I cannot ignore the fact that the commencement of the proposed proceedings would expose Ms Diakovasili and Mr Antonakos to a liability for costs that they make clear they do not wish to bear, and could not meet without loss of their homes, and there is no evidence before the Court of the indemnity that they believe exists to protect them from that risk. I have not neglected the fact that Ms Diakovasili and Mr Antonakos may already be exposed to corresponding risks in respect of the conduct of this application, but that is a matter that is outside the Court’s control and not reason to extend those risks to the future conduct of the proposed proceedings. Second, and importantly, once I have found (as I do) that there is no evidence of adequate arrangements to protect their interests in respect of the costs of the proposed proceedings, I should not go further to seek to impose such arrangements as between the members of the Plaintiffs’ faction inter se, the majority of whom are not party to the proceedings. That would be an entirely different exercise from that which the Court undertakes, in a statutory derivative action, in imposing a condition as to the basis on which an applicant who is party to proceedings can bring proceedings in a company’s name.

Third, to the extent that an indemnity should be ordered in favour of AHEPA NSW, so far as it may be exposed to a third party costs order or at least the costs of production of documents on compulsory process in the proceedings or, I do not consider that I should require Ms Diakovasili and Mr Antonakos to give it, where that would expose them to a risk of costs they do not wish to take. Fourth, I do not consider that I should seek to extract such an indemnity from third parties such as Marine Parade or Mr and Ms Alexandrou, whether by order (if I could make such an order against non-parties to the proceedings) or by the imposition of a condition. That is also a different exercise from that which the Court undertakes in a statutory derivative action, in respect of the parties to the proceedings and not third parties. It would also not be appropriate to take that course where I would have to determine the terms of such an indemnity and how to address the risk of non-performance for myself, without assistance from the parties, and where Marine Parade or Mr and Ms Alexandrou have had the opportunity to formulate such an indemnity but have not put it before the Court. These matters undermine the Plaintiffs’ contention that the proposed proceedings are in the interests of justice.

Where the existence and terms of any funding and indemnity arrangements relating to the proposed proceedings are not established, it is not necessary to address any further question whether Marine Parade’s provision of litigation funding to Ms Diakovasili and Mr Antonakos in respect of the proposed proceedings, if it has agreed to do so, would amount to carrying on an unlicensed financial services business for the purposes of s 911A of the Corporations Act, by reason of s 764A(1)(m) of the Corporations Act and the definition of “litigation funding scheme” in reg 7.1.04N of the Corporations Regulations; or whether the proposed funding arrangement, in the particular circumstances, may have the characteristics of champerty that are now assumed within the concept of abuse of process: see Gladstone Ports Corporation Ltd v Murphy Operator Pty Ltd (2020) 6 QR 497; [2020] QCA 250.

For these reasons, I will not make the orders sought by the Plaintiffs. My preliminary view is that this is a case, like that considered by Brereton J in Re SCW Pty Ltd [2013] NSWSC 302, dealing with a direction to a liquidator, where the Court should not only decline to make the declarations sought by the Plaintiffs, but should make a declaration to the opposite effect. I direct the parties to bring in orders that give effect to this judgment, including as to costs, within 14 days and, in the event of any disagreement between them, their respective short minutes of order and short submissions as to the differences between them.