Supreme Court New South Wales Medium Neutral Citation: Hughes v Robba [2021] NSWSC 1414 Hearing dates: 2 November 2021 Date of orders: 2 November 2021 Decision date: 02 November 2021 Jurisdiction: Equity Before: Parker J Decision: See [80] Catchwords: CORPORATIONS – application for leave to bring proceedings on behalf of company – Corporations Act, s 237 – equitable proprietary claim against trustees in bankruptcy – company willing to pursue claim but impecunious – applicant proposing to conduct claim in person – serious question to be tried – good faith – best interests of company – conditions that applicant provide security and proceedings be conducted by a qualified person Legislation Cited: Bankruptcy Act 1966 (Cth), s 27 Corporations Act 2001 (Cth), s 237 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021, r 9.04 Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), ss 4, 6 Uniform Civil Procedure Rules 2005 (NSW), r 42.21 Cases Cited: Akierman Holdings Pty Ltd v Akerman (No 3) [2021] NSWSC 869 Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1082 Hewett v Court (1983) 149 CLR 639 Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Ruddenklau v Charlesworth (1925) NZLR 161 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174 Category: Principal judgment Parties: Owen Maldwyn Hughes (Plaintiff) James Robba (First Defendant) Morgan Lane (Second Defendant) OM Hughes Pty Limited (Third Defendant) Representation: Appearances: O M Hughes (in person) (Plaintiff) A Crossland (Counsel) (First and Second Defendants) Solicitors: Attwood Marshall Lawyers (First and Second Defendants) File Number(s): 2021/134537 Publication restriction: Nil Judgment – EX TEMPORE Revised from transcript and annotated; issued 10 November 2021 1. This is an application for leave to bring proceedings on behalf of, and in the name of, a company. The application is made under s 237 of the Corporations Act 2001 (Cth) ("CA"). 2. The plaintiff, Owen Maldon Hughes, seeks an order authorising him to bring proceedings in the name of O M Hughes Pty Limited, to which I will refer as "the Company". It is the third defendant. The proceedings would be brought against the first and second defendants, who are the trustees of Mr Hughes' bankrupt estate. I will refer to them as "the Trustees". Background and procedural history 1. The proposed proceedings concern a commercial property in Bangalow, a village inland from Byron Bay on the far North Coast of New South Wales. The property was previously registered in Mr Hughes' name. Upon his bankruptcy it passed to his trustee (to whom the first and second defendants are successors). It has now been sold. Mr Hughes did not seek to restrain the sale but does wish to mount a claim to the proceeds, or to part of the proceeds. 2. The property was part of a strata title building (a former bank) in the main street of Bangalow. It consisted of the ground floor of the building, and was designated as Lot 1. It was subject to a mortgage in favour of ING Bank. 3. The Company is the trustee of a self-managed superannuation fund for the benefit of Mr Hughes. Mr Hughes is the sole shareholder, and was also, until his bankruptcy, the sole director, of the Company. At all relevant times the Company was under his control. 4. Mr Hughes is a former solicitor. He was admitted to practice in 1986. He first worked as an employed solicitor, and later as a principal, of a firm known as Beesley & Hughes Lawyers. The firm's office was located at the Bangalow property. 5. The property appears originally to have belonged to Mr Hughes and his ex-wife. Following their divorce, orders were made by the Family Court for a property settlement between them under which Mr Hughes was to receive the property. The orders were made on 14 April 2014 and required Mrs Hughes to transfer her share of the property to Mr Hughes within three months of the date of the order. 6. Mr Hughes planned to turn the property into two separate shopfronts. His practice would continue to operate out of one, and the other would be rented out. Mr Hughes had a proposed plan of subdivision drawn up. Under that plan, the office shopfront to be retained by the practice would be Lot 4 and the other shopfront would be Lot 3. 7. Mr Hughes also apparently decided that Lot 4 was, subject to the existing mortgage in favour of ING, to be made an asset of his superannuation fund. He drew up a contract to reflect this. He used a standard form contract for the sale of land with some special conditions. The vendor was Mr Hughes. The purchaser purported to be Mr Hughes as trustee for his superannuation fund. The subject matter of the contract was Lot 4 in the proposed plan of subdivision. 8. Special conditions provided for the payment of the deposit and any other payments made by the purchaser to be released to the vendor (Mr Hughes). It also provided for completion to take place within six years of the date of the contract. The contract was dated 1 July 2014. 9. In providing for the purchaser to be Mr Hughes as trustee of the superannuation fund, the contract was an error. Mr Hughes was not in fact the trustee. And it was not legally possible for Mr Hughes to contract to sell the property to himself. According to Mr Hughes, the fact that the contract was drawn in this way resulted from some form of misunderstanding on his part, exacerbated by the pressure of work. 10. Renovation work for conversion of the property into two shopfronts, or some of it, was completed in June 2014, before the date of the contract. But the property was not transferred into Mr Hughes' name by his former wife until 14 July. The plan of subdivision was never consented to by the local council and was never registered. Thus, Lot 4 as referred to in the contract never came into existence. 11. According to Mr Hughes, the Company paid a deposit of approximately $52,000 in June 2014, before the date of the contract. Later payments totalling approximately $181,000 were made in July and August 2017. The total paid was thus about $233,000, which was slightly less than the consideration specified in the contract ($236,000). The contract, however, was never formally completed. 12. Mr Hughes told me that some moneys out of the deposit were paid to the contractors who had done the renovations in June 2014. Mr Hughes said that the 2017 moneys were spent by him on his practice or on works which he was undertaking on another property. 13. At some point which is not clear in the evidence, a sexual harassment claim was brought against Mr Hughes by a solicitor formerly employed in his practice, Ms Catherine Hill. In May 2019 judgment was given against Mr Hughes in Ms Hill's favour in the Federal Circuit Court in the sum of $170,000 (representing $120,000 in general damages and $50,000 in aggravated damages), together with costs. Mr Hughes appealed against the judgment. The appeal was heard in November 2019 but was dismissed in July last year. 14. Meanwhile, on 30 June 2019 Mr Hughes closed down his practice. In August he drew up a document styled "Notice of rescission of the contract". The document was never signed, but according to Mr Hughes, he intended it to be effective for the purpose of the purported contract of 1 July 2014. Mr Hughes explained to me that, as a result of changes in the real estate market, it was no longer practicable to have two shopfronts. Instead, he leased the whole of the lot to a new tenant. 15. Mr Hughes became bankrupt in December last year. According to the report to creditors of Mr Hughes' bankrupt estate, which was prepared in April of this year, the creditors are: 1. the Australian Taxation Office, as to $120,000; 2. Ms Hill, as to $283,000 (presumably the judgment, together with the costs of both the trial and the appeal); and 3. Telstra, as to $1,000. 1. The Bangalow property was sold for $1 million. After paying out ING and the costs of sale, there was $518,000 left. That figure has been further reduced by the costs of administration, including the costs of these proceedings. 2. When Mr Hughes, who is acting for himself, began the proceedings, he appears to have intended them as a vehicle for him to pursue, on the Company's behalf, a claim directly against the Trustees. Mr Hughes was named as plaintiff and the Trustees as the first and second defendants. 3. An application was made on behalf of the Trustees to have the proceedings summarily dismissed, or alternatively to have the statement of claim struck out, on the ground that the claim was untenable or at least was not properly articulated in the statement of claim. That application was allocated to me for hearing. 4. It became apparent that, before it would be possible to consider the merits of the claim, Mr Hughes would need to obtain leave to pursue it in the name of the Company. The Company was therefore joined as an additional party and the proceedings were reconstituted as an application under CA, s 237. Although served, the Company has played no part in the proceedings. Without any objection from Mr Hughes, the Trustees have appeared as contradictors to the application. 5. As a result of this process, the claim which Mr Hughes seeks to advance on behalf of the Company has been somewhat clarified. It is a claim that the Company had, at the time the Trustees were appointed, an equitable interest in the Bangalow property. The equitable interest allegedly arises from the Company's status as the purchaser who has paid the purchase price, or part of the purchase price, under a contract for the purchase of real property. The interest claimed is in the nature of an equitable lien, securing the amounts of the purchase price which have been paid. Application for leave Jurisdiction 1. One of the issues debated at an earlier stage of the proceedings was a jurisdictional one. 2. The substance of the Company's proposed claim is a claim by a person asserting that property vested in trustees in bankruptcy is the subject of a proprietary interest. It is now common ground that pursuant to s 27 of the Bankruptcy Act 1966 (Cth) such a claim is subject to the exclusive jurisdiction of federal courts of bankruptcy and would ordinarily be brought in the Federal Circuit and Family Court (Division 2) (to which I will refer for convenience as the "Federal Circuit Court"). [1] But despite this exclusive jurisdiction provision, this Court has cross-vested jurisdiction: see Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), s 4(1). 3. But that is a jurisdiction over what is termed by the Cross-vesting Act a "special federal matter" and the jurisdiction may only be exercised by this Court in special circumstances; otherwise such proceedings, if instituted in this Court, would have to be transferred: see Cross-vesting Act, ss 6(1)(b) and (3). 4. In Akierman Holdings Pty Ltd v Akerman (No 3) [2021] NSWSC 869 at [151] I observed that there is nothing in CA, s 237 which requires that the court which grants leave must also be the forum for the proceedings which are the subject of the grant. The parties were content for me to approach this application on the basis that, if it succeeded, this Court would grant leave to Mr Hughes to bring proceedings in the Federal Circuit Court. Mr Hughes has prepared a draft application to that Court on the basis that, if leave were granted, that application would then be filed. 5. The requirements which must be satisfied for the grant of leave are set out in s 237(2): (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied. Serious question 1. It is convenient to deal first with the requirement of a serious question to be tried (s 237(2)(d)). The proposed claim by the Company has two elements. First, it must be established that the Company has a contractual right of repayment of the moneys advanced. Second, it must be shown that the right of repayment is not merely unsecured but is supported by an equitable lien. 2. Counsel for the defendants pointed to three reasons why it was said there was no contractual obligation at all. I will deal with each in turn. 3. Counsel's first contention was that the contract was a sham and was never intended to have any contractual effect. Counsel observed that no stamp duty was paid on the contract; it contained no immediate obligation to make any payments and, when payment was made, the moneys were immediately to be released to Mr Hughes; and when the payments were made, they were applied by Mr Hughes for his own purposes. 4. Counsel submitted that the contract was simply a fig leaf to cover what was in substance a distribution by Mr Hughes of his superannuation moneys to himself. Counsel noted that such a distribution would be unlawful because Mr Hughes' preservation age had not been reached, but submitted that this only strengthened the conclusion that the transaction was a sham. I was asked to infer that the contract had been brought into existence to provide an apparent justification, when the fund was audited, for the payments made out of the fund to Mr Hughes. 5. Plainly this is an argument of substance. But Mr Hughes strenuously denied that the arrangement was a sham. The resolution of the issue, being a factual question, cannot be determined in any final way at this hearing. 6. Counsel next referred to the point that I have already made about the impossibility of Mr Hughes contracting with himself. Counsel submitted that the purported contract was simply a nullity which gave rise to no legal rights whatever. 7. Mr Hughes acknowledged the difficulty but said there were two answers to it. One was a document described as a "deed of variation" which was drawn up by Mr Hughes in October 2019. The document purported to vary the contract by making the Company the purchaser. But counsel for the Trustees submitted that it was ineffective for that purpose. In particular, counsel pointed out that if there had never been a valid contract in the first place, then variation was impossible. Counsel also observed that the document post-dated the purported rescission. 8. Mr Hughes' other answer was to rely upon rectification. He contended that the inclusion of himself as the trustee rather than the Company in the original contract was the sort of mistake which would attract the Court's jurisdiction to rectify instruments. Counsel for the Trustees did not accept this. Counsel submitted that, on the face of it, Mr Hughes had simply lacked sufficient legal knowledge to draw up the contract in the right way with the right parties. If this could be classified as an error at all, it was not the sort of error which would attract the equity of rectification. 9. Again, I consider there is force in counsel's arguments. But again, it seems to me that the ultimate question is factual. The difficulty for Mr Hughes, however, is that he has not really articulated in his evidence just how he puts his case on these points. I will return to this below. 10. The third point made by counsel for the Trustees concerned the absence of stamp duty. In light of the conclusions that I have reached on other points, I do not propose to address this issue in the present judgment. 11. I turn now to whether any entitlement to repayment is proprietary in nature. Clause 19 of the standard conditions in the contract provided: 19 Rescission of contract 19.1 If this contract expressly gives a party a right to rescind, the party can exercise the right - 19.1.1 only by serving a notice before completion; and 19.1.2 in spite of any making of a claim or requisition, any attempt to satisfy a claim or requisitions, any arbitration, litigation, mediation or negotiation or any giving or taking of possession. 19.2 Normally, if a party exercises a right to rescind expressly given by this contract or any legislation - 19.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded; 19.2.2 a party can claim for a reasonable adjustment if the purchaser has been in possession; 19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and 19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses. 1. The purported notice of rescission is an amateurish document. As I have indicated, it is not even signed. It does not purport to rely upon any breach on the part of either party. It is not clear, having regard to the terms of the purported contract, whether either party was in fact in breach in August 2019. 2. I suggested to Mr Hughes, and he accepted, that his case was that there had been a consent rescission; that is, an agreement by the parties to terminate the contract. It may be that cl 19 does not, strictly speaking, apply to such a rescission or termination. This is however of little significance. An obligation to refund the purchase moneys paid would be a natural implication in any such agreed rescission. Furthermore, unless the contract was a sham intended to cover a distribution (and the payments are therefore to be characterised as gifts), there would be a right of restitution in any event. 3. None of this, however, means that the Company would necessarily, assuming the contract to be valid, have had an equitable lien over the property to secure its right to repayment. Certainly there is no such provision in cl 19 and there is nothing in the circumstances which suggests that any such right would arise by implication. Indeed, Mr Hughes did not suggest that he even considered the matter consciously at the time. His argument before me essentially relied on general considerations of fairness. 4. No doubt Mr Hughes feels strongly that the money in his superannuation fund was set aside for his retirement and it is wrong that it should have lost its status as an asset protected from his creditors in bankruptcy by being converted into an unsecured right to recover from his bankrupt estate. But that is not a sufficient basis for equitable intervention. There must be something inequitable about the refusal of the Trustees to acknowledge that the company has a proprietary interest in the property. 5. Mr Hughes relied on what he contended was a general principle established by the High Court in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457. Mr Hughes quoted in particular the following statement from Starke J about the effect of termination of a contract (at 470, citations omitted): [A]part from any special stipulations of the contract, I apprehend that a purchaser who is not himself in default is discharged from further performance of the contract and is entitled to recover any money paid or property transferred by him thereunder; he is entitled to take proceedings in equity to assert his right and secure restitution, or to sue at law. 1. Mr Hughes also relied on a passage which Dixon J quoted (at 475-476) from a judgment of Sir John Salmond (Ruddenklau v Charlesworth [1925] NZLR 161 at 164, citations omitted): As a general rule, on the failure or refusal of a purchaser to complete an executory contract for the purchase of land the vendor is not entitled to sue for the purchase money as a debt. He is entitled merely to sue for specific performance or for damages for the loss of his bargain. It is only when the contract has been completed by the execution and acceptance of a conveyance that unpaid purchase money may become a debt and can be recovered accordingly. ... The sale of land is in this respect similar to the sale of goods. In the case of goods sold and delivered, and of goods bargained and sold, the property in each case having passed to the buyer, the seller's remedy is to sue for the price. But if under any executory contract the buyer wrongfully refuses to accept the goods the seller's only remedy is an action for damages. 1. In my view, these statements of principle, while authoritative as to the nature of the parties' rights upon termination of a contract, do not establish that a purchaser who has paid necessarily has an equitable lien upon termination of the contract. The reference by Starke J to equitable intervention is, in my view, a reference only to restitution by way of order of repayment of a sum of money. His Honour said nothing, and the authorities to which his Honour referred said nothing, about any superadded equitable proprietary interest. The passage quoted by Dixon J is even more clearly concerned with a right to a money judgment. 2. Counsel for the Trustees submitted that a right to an equitable lien could only arise if the Company had had a specifically enforceable right to payment. In this regard, counsel relied on the statement in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332-333 [53] that the right to a lien is coextensive with a right to specific performance. 3. Counsel submitted that for various reasons the Company had no entitlement at any relevant time to specific performance. In particular, counsel referred to the facts that, at the time the contract was made, Mr Hughes was not even the registered proprietor of the property and that the subdivision contemplated by the contract never took place. More broadly, after the rescission in October 2019, there could be no right to specific performance because the contract had been terminated and the Company was no longer seeking to have it carried into effect. 4. The paragraph from the judgment in Tanwar to which counsel referred was concerned with a different problem from that with which I am concerned in this judgment. In Tanwar, the contract had been terminated because of the failure of the purchaser to pay in time. The High Court, at [53], was addressing an argument that the purchaser had an equitable interest which provided a basis for equity to grant relief against forfeiture. The observations made by the Court were directed to demonstrating the circularity of that reasoning when the supposed "interest" was an interest deriving from the terms of the contract itself. 5. The observations in [53] are therefore not directly applicable here. And at [52], the High Court acknowledged, by reference to the earlier decision in Hewett v Court (1983) 149 CLR 639, that a lien can be recognised in cases where specific performance is not possible, for instance because of an inability to convey the title or an equitable defence such as hardship: see, in particular, Hewett at 650 per Gibbs CJ and 664 per Deane J. 6. Nevertheless, the judgment in Hewett, and the propositions in Tanwar at [52] which are derived from that judgment, are limited to the recognition of a lien in a case where the plaintiff seeks to have the contract carried into effect. The present case is different in that, as I have already noted, the Company after October 2019 was not seeking to have the contract enforced. Rather, on Mr Hughes' argument, the Company had an entitlement to restitution of the moneys paid as a result of the contract having been undone. 7. It became clear in the course of argument that Mr Hughes had not anticipated the arguments by counsel and had not adequately prepared himself to meet them. I hasten to add that this was not counsel's fault. The arguments were clearly signalled in written submissions filed in advance of the hearing. But when I taxed Mr Hughes with some of the difficulties in his case, his eventual response was to say that he would need to undertake further research. He expressed a confidence that, with the COVID-19 restrictions lifting, he would be able to go to a library and find support for the case which he wishes to mount on the Company's behalf. 8. I do not consider this an adequate response. On an application under s 237, there must be actual evidence which establishes to the satisfaction of the Court that each of the relevant requirements has been satisfied. The onus is on the plaintiff. 9. That means, in my view, that the plaintiff must present evidence and argument sufficient to establish, among other things, that there is a serious question to be tried. The test is not a demanding one but it is not satisfied by assertions, no matter how confident, that a proper legal and factual basis for the claim will be forthcoming in due course. Good faith 1. Next, I consider the requirement of good faith (s 237(2)(b)). Mr Hughes presented his argument on this requirement on the basis that all he needed to establish was a substantial financial interest in a successful outcome. If the Company succeeds in the proceedings, that will not make any appreciable difference to the value of the shareholders' funds, but it will be for Mr Hughes' personal benefit as the beneficiary under the superannuation fund. I am prepared to assume, for the purposes of this argument, that that is a sufficient financial interest. 2. But the language of subsection (2)(b) does not refer to financial interests. It is a requirement of "good faith". The authorities have treated this as a requirement of belief in at least the possibility of success in the proceedings. This requirement also has an objective element in that a subjective belief that a company has reasonable prospects of success which is not based on reasonable grounds would not satisfy the requirement of "good faith". [2] 3. Mr Hughes asserted that he genuinely believed that the Company had reasonable prospects of success in the proposed claim. In fact, he went further, asserting that the claim was a "lay-down misère" in the Company's favour. But it is clear that this is not a belief which is based on any advice from any practising lawyer. 4. Mr Hughes asserted that he had extensive experience in litigation and that his belief about the likely success of the Company's claim was drawn from that experience. But I must say, without disrespect to Mr Hughes, that his attempts to formulate the claim and to defend it against the attacks made by counsel for the Trustees left me with little confidence that he has any real understanding of the applicable principles, and no confidence in his objectivity. 5. Moreover, it seems clear that Mr Hughes has strong personal feelings about the claim by Ms Hill which appears to have precipitated his bankruptcy. This is despite the fact that in dismissing the appeal from the Federal Circuit Court judgment in favour of Ms Hill, Perram J, who gave the leading judgment in the Full Court of the Federal Court, said at [17]: In my opinion, the trial judge was correct to condemn the Appellant's conduct of the trial as, in effect, a continuation of his harassment of the Respondent. This appeal is devoid of merit and I would infer was pursued for the same purpose. Some of the submissions were, in my opinion, insulting. It should not have been brought and, in my opinion, should be emphatically dismissed. 1. Mr Hughes has not presented any material before me to cast any doubt on this scathing assessment, yet in his affidavit evidence, he stated: I say that it may be that I was not successful in Hill v Hughes was because I did not particularise the numerous lies made by Ms Hill and my Counsel chose not to cross examine her as to those lies as well as the fact that I did not have a copy of all her texts. It was on the basis of the judgment in those proceedings that I was made bankrupt. 1. If the only obvious incentive for bringing this case was the personal financial interest of Mr Hughes as beneficiary, it might be easy to infer that his belief in the success of the claim is genuine. But there are other factors. 2. First, it is clear that Mr Hughes has no money himself to conduct the proceedings. There is no obvious downside from his point of view if they are unsuccessful, even if he is made liable for the costs, since he will be unable to pay. Furthermore, there is his attitude towards Ms Hill and her claim to which I have referred. An alternative explanation for these proceedings is that Mr Hughes obstinately refuses to accept the success of Ms Hill's claim against him and is determined to do anything he can to thwart her recovery of the damages which she has been awarded. 3. As I have mentioned, it is for Mr Hughes as the plaintiff to establish affirmatively that he is acting in good faith. Given these other circumstances which I have mentioned, I do not think he has established on the probabilities that the claim is made because he has a genuine belief in its success. Certainly I do not think that the objective element of the test is satisfied. Mr Hughes has demonstrated, in the evidence before me, no reasonable basis for any belief that the claim has any real prospect of success. Other requirements 1. It is convenient to deal with the other three requirements together. The first is that it is probable that the Company will not itself bring the proceedings (s 237(2)(a)). 2. In support of his application, Mr Hughes read an affidavit from Mr Michael Smithies. Mr Smithies is a friend of Mr Hughes who, since Mr Hughes was disqualified by bankruptcy in December last year from acting as a director of the Company, has acted as a director and has controlled its affairs. Mr Smithies says that the Company has no, or virtually no, assets and has no financial capacity to bring the proceedings. 3. Usually a s 237 application will be made, and subsection (2)(a) will be satisfied, because those who are in control of the Company choose not to bring the proceedings. That is not the case here; it is clear that if the Company had the resources to bring the claim it would do so. Nevertheless as a matter of language subsection (2)(a) is satisfied. 4. Also, s 237(2)(e) should be treated as satisfied. It is plain that even if formal notice had been given, the Company would not have commenced proceedings. Interests of the Company 1. The remaining issue is s 237(2)(c), namely whether it is in the best interests of the Company that Mr Hughes be granted the leave which he seeks. I have already indicated that I am not satisfied that the proposed claim has any reasonable prospect of success. But there is a further problem. 2. It is clear from the evidence that the motivation for this application is to put Mr Hughes in a position to bring the application when the Company has no financial means of doing so. Mr Hughes evidently assumes that he will be able to act for the Company as some sort of authorised representative (at least unless, having obtained leave, Mr Hughes is then able to persuade solicitors to act on a no win, no fee basis). When I asked Mr Hughes about funding the disbursements, he indicated that he would be able to borrow from friends. Mr Hughes says that he himself has no funds and is living on welfare. 3. In these circumstances, counsel for the Trustees submitted that to allow Mr Hughes to bring the proceedings would create an engine of injustice against the Trustees (who would not be able to recover their costs if they successfully defended the proceedings) and was not in the interests of the Company (which would be unable to pay costs if it lost and would be liquidated). 4. Counsel submitted that leave to proceed should be refused on this ground alone. But if the Court were minded to grant leave, then conditions should be imposed to mitigate the prejudice. The conditions sought by counsel were: 1. Mr Hughes undertakes to indemnify the Company against any adverse costs order; 2. Mr Hughes provides security for that indemnity in the sum of $75,000 (or such other figure as the Court sees fit); and 3. Mr Hughes submits to an order that he pay the costs thrown away by reason of the reconstitution of the proceedings, on an indemnity basis, and do so before the proceedings can be instituted. 1. There was no contention about condition (1). The contentious conditions were (2) and (3). I should say, however, that the $75,000 figure is based on an uncontested estimate from the solicitors for the Trustees that the costs of the proceedings if instituted would be $100,000, from which they assume $75,000 would be recovered on taxation. No precise figure was provided for the costs thrown away but, according to an affidavit sworn in September, the Trustees' costs to that point had been $33,000, so they are no doubt substantial. 2. Mr Hughes contended that it would be wrong in principle to impose conditions (2) and (3) when they would stultify the bringing of proceedings. He argued that stultification of the proceedings would prevent the vindication of his rights as a beneficiary of the trust to ensure that his protected superannuation benefits are not swallowed up in the bankruptcy. In support of his argument, Mr Hughes submitted that the request for imposition of conditions was effectively a requirement for security for costs. He submitted, by reference to rr 42.21(1A) and (1B) of the Uniform Civil Procedure Rules 2005 (NSW), that security could not be ordered if the result would be to stultify the proceedings and therefore the condition could not be imposed. 3. I think these submissions are ill-founded. The rule that poverty is no bar to a litigant applies to individuals litigating in that capacity. But where individuals choose to conduct their affairs through a corporate vehicle, other interests and considerations arise. 4. The Court is required under s 237 to consider the interests of the Company. The Court must consider the Company's interests as a legal and financial entity separate from those who may stand to benefit indirectly from the proposed litigation. Those interests will clearly be prejudiced if the proceedings are unsuccessful and Mr Hughes is unable to meet his obligations under the indemnity. [3] 5. It is true that in an application for security for costs, stultification is said to be a powerful reason for exercising the discretion against making an order for security. But that is not an absolute rule: see Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [92]. It may be, at least in commercial cases, that with the development of the litigation funding market, this consideration will decline in importance. Be that as it may, I do not think that there is a relevant analogy with an order for security for costs. [4] 6. Furthermore, as I have already noted, Mr Hughes seems to have assumed that he would be conducting the proceedings on the Company's behalf. But, as with this Court, the Federal Circuit Court has a rule which requires companies to be represented by qualified persons unless leave is obtained: Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021, r 9.04. 7. When this was pointed out to Mr Hughes, he seemed to treat it as if it was a formality. In my view, it is not. The requirement that companies conduct litigation through a solicitor plays an important part in protecting the court and opposing parties from the irresponsible conduct of proceedings. I can see nothing in the circumstances of this case which would justify dispensing with that requirement. Indeed, the observations that I have already made about the weakness of the claim and Mr Hughes' lack of objectivity lead me to think that this is the very sort of case where the requirement should be insisted upon. 8. Therefore even if the other requirements under s 237 were satisfied, I would only grant leave on the additional condition that the resulting litigation be conducted by a qualified person. If, as appears to be common ground, Mr Hughes is unable to pay for an independent solicitor to conduct the proceedings on the Company's behalf, and is unable to point to anyone who will undertake the litigation on a conditional basis, then it is not, in my view, in the Company's interests for the proceedings to be brought. 9. For these reasons, the requirements for the grant of leave identified in s 237 have not been satisfied. If there is any residual discretion to grant leave, then I do not think it should be exercised in Mr Hughes' favour. The application should be dismissed. (Parties addressed on costs) Orders 1. The orders of the Court are: 1. Order that the proceedings be dismissed. 2. Order that the plaintiff pay the costs of the first and second defendants of the proceedings against them including the costs of all interlocutory steps not already disposed of. ********** Endnotes 1. See Truthful Endeavour Pty Ltd v Condon (2015) 233 FCR 174 at 183-192 [32]-[61]. 2. See Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 at [33]. 3. See Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1082 at [34]-[37]. 4. Such an order is made in the interests of the defendant. The justification for requiring Mr Hughes to provide security for his obligations under the indemnity (condition (2)) serves the interests of the Company; see also Broadway at [33]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 November 2021