Jaworski v Chartered Accountants Australia and New Zealand [2024] NSWSC 1052

Supreme Court New South Wales

Medium Neutral Citation: Jaworski v Chartered Accountants Australia and New Zealand [2024] NSWSC 1052 Hearing dates: 19 August 2024 Date of orders: 19 August 2024 Decision date: 19 August 2024 Jurisdiction: Equity - Corporations List Before: Black J Decision: The proceedings be stayed and ancillary orders. Catchwords: EQUITY – General law – Derivative action at general law – Where the Plaintiff seeks indemnity from the Defendant for the costs of a derivative action that he seeks to bring in the Defendant's name – whether the Plaintiff's application should be determined on an ex parte basis or served on the Defendant Legislation Cited: - Corporations Act 2001 (Cth) Cases Cited: - Oates v Consolidated Capital Services Pty Ltd (2009) 72 ACSR 506; [2009] NSWCA 183 - Virgtel Ltd v Zabusky [2006] QSC 066 - Wallersteiner v Moir (No 2) [1975] 1 QB 373 - Wood v Links Golf Tasmania [2010] FCA 570 Category: Principal judgment Parties: Gerard Jaworski (Plaintiff) Chartered Accountants Australia and New Zealand (Defendant) Representation: Gerald Jaworski (Plaintiff - self-represented) The Defendant has not yet been served File Number(s): 2024/238672

Judgment – ex tempore (Revised 19 August 2024)

Nature of the application and case law 1. By Summons filed on 28 June 2024, the Plaintiff, Mr Jaworski, seeks relief described as: "Grant of leave for derivative action per Request in attached Affidavit: Jaworski Chartered Accountants, Australia and New Zealand." 1. The relief which is sought is framed as the grant of leave to bring a derivative action, which Mr Jaworski contends would be granted in accordance with the general law, in circumstances that the Defendant, Chartered Accountants Australia and New Zealand ("CAANZ") is not a company registered under the Corporations Act 2001 (Cth) ("Act"). However, Mr Jaworski rightly pointed out that the leave which he sought was not required to commence the proceedings but, on the case law, went to the question whether he would be entitled to retain legal representation at the cost of CAANZ. 2. It is convenient first to address the authorities on which Mr Jaworski relied, although he first addressed them in detail after I gave leave to reopen to do so. I have revised this judgment to reflect his further submissions in this regard. Mr Jaworski relies on the Court of Appeal's decision in Wallersteiner v Moir (No 2) [1975] 1 QB 373 ("Wallersteiner") which is a well-known earlier decision in respect of the derivative action at general law, prior to the introduction of the present statutory derivative action regime for corporations under the Act. Mr Jaworski fairly drew attention to the observation of Lord Denning MR (at 391-392) in that case that a minority shareholder, as an agent acting on behalf of the company, was "entitled" to be indemnified by the company against all costs and expenses reasonably incurred by him in the course of the agency. That proposition, of course, depends upon the existence of an agency, arising where a minority shareholder is properly pursuing proceedings on the company's behalf. The Master of the Rolls there identified (at 392) a possible procedure to address the question of an indemnity for costs in favour of such a minority shareholder, namely that the minority shareholder, soon after issuing the proceedings, should apply for the sanction of the Court in somewhat the same way as a trustee does, by applying ex parte for directions supported by an opinion of Counsel as to whether there is a reasonable case or not. The Master of the Rolls noted that: "The master may then, if he thinks fit, straight away approve the continuance of the proceedings until close of pleadings, or until after discovery or until trial (rather as a Legal Aid committee does). The master need not, however, decide it ex parte. He can, if he thinks fit, require notice to be given to one or two of the other minority shareholders - as representative of the rest - so as to see if there is any reasonable objection." The Master of the Rolls also there noted that a preliminary application should be simple and inexpensive and should not be allowed to escalate into a "minor trial". 1. There are two difficulties with Mr Jaworski's reliance on this approach here. The first is that Mr Jaworski has not taken the course which Lord Denning MR contemplated, namely that the application brought ex parte should be supported by an opinion of Counsel. I recognise that Mr Jaworski indicates he has not done so because he cannot afford the costs of legal representation; but that has the significant consequence that the Court is deprived of the independent view of the merits of the proceedings which an independent opinion of Counsel would provide. The second difficulty is that, while Lord Denning MR suggested that proposed approach, he made clear that the master was not bound to decide the application ex parte but might do so if he or she thought fit. His Lordship also there contemplated that notice could be given to other minority shareholders; it seems to me that, by parity of reasoning, so too it could be given to the company which is the subject of the application, in whose name the proceedings are sought to be brought, and that view was taken by the majority in Wallersteiner. 2. Mr Jaworski also drew attention to the observations of Buckley LJ (at 404) where his Lordship also considered that a minority shareholder could apply for directions as to whether he should proceed in such an action and to what stage without further directions, and also contemplated that such an application could be made ex parte. However, his Lordship then went on to add: "In a relatively simple case the Court may feel able to deal with the matter without joinder of any other party. When the summons comes before the Court, directions should be given as to whether the company or another minority shareholder or the defendants or any of them or anyone else should be made respondents and whether any respondent should be appointed to act in a representative capacity for the purposes of the summons." [emphasis added] His Lordship went on to make further observations as to the possible approach and Scarman LJ (at 407) agreed with the procedure proposed by Buckley LJ. 1. These observations do not assist Mr Jaworski's contention that this application should continue on an ex parte basis to a determination. First, the majority in Wallersteiner confined that possibility to a "relatively simple case", and the 200 pages of Mr Jaworski's affidavit and 500 pages of exhibits to which he has referred are not consistent with this being a "relatively simple case". Second, the majority of the Court of Appeal there expressly approved the possibility that the company could be joined as a respondent to such an application rather than it being determined on an ex parte basis. 2. Mr Jaworski also referred to Oates v Consolidated Capital Services Pty Ltd (2009) 72 ACSR 506; [2009] NSWCA 183 ("Oates"). He referred, first, to the proposition, which I accept, that "leave" is not required to commence derivative proceedings, at general law, before their commencement. Instead, as Campbell JA noted (at [87]), an application, which Mr Jaworski here describes in his Summons as a "leave" application, is a mechanism available to a minority shareholder which is concerned about his or her potential future liability for costs and which seeks to obtain indemnity from the company in respect of such costs. I proceed on the basis that, as Mr Jaworski points out, his reference to "leave" in his Summons is directed to that matter. Campbell JA also there referred to the observations in Wallersteiner to which Mr Jaworski refers and to which I have referred above. I have noted above that that case contemplates, in the majority judgment of Buckley LJ and Scarman LJ, that notice may properly be given to the affected company in respect of an application of this kind, after the first ex parte mention of the matter. 3. Mr Jaworski also refers to the decision of the Supreme Court of Queensland in Virgtel Ltd v Zabusky [2006] QSC 066 at [67], where the Court treated the application as seeking a "preliminary adjudication of the competence of the proceeding" and (at [75]) noted the difficulty in that case of convening a meeting of the relevant company, or a meeting of its board of directors, noting that an application of this kind could allow "not insubstantial claims" to be "ventilated effectively". Two things should be noted about those observations. The first is that the matter was not conducted on an ex parte basis. To the contrary, the judgment records the fact that both the applicants and the first to fifth respondents were represented. Second, the observations as to the desirability of a derivative action, where a company could not readily authorise the commencement of the proceedings, do not have the consequence that the company should not be given notice of the application and an opportunity to be heard as to whether the proposed proceedings should be conducted at its cost. 4. Mr Jaworski also refers to the observations of Finkelstein J in Wood v Links Golf Tasmania [2010] FCA 570 at [9], which was a statutory derivative action, where his Honour ordered that the company indemnify the plaintiff for its costs. That, however, was an application of the statutory requirements for leave to bring a derivative action in respect of a company under the Act and, second, is a rare (and possibly the only) case in which such an order has been made, amidst a multitude of cases in which, to the contrary, a shareholder has been required to indemnify the company for the costs to which it will be exposed by the proceedings in order to obtain such leave. 5. For these reasons, while Mr Jaworski's account of the cases has been helpful, it does not support the conclusion for which he contends, that this is a simple case that it would be inappropriate to give CAANZ an opportunity to be heard as to whether Mr Jaworski should be permitted to pursue a claim at CAANZ's cost, whether to an intermediate point or in its entirety. It is important, in that respect, that Mr Jaworski does not provide the Court with the assistance of any Counsel's opinion, as contemplated by Wallersteiner, as to the prospects of the claim that he seeks to bring on CAANZ's behalf and at its cost. Absent such an opinion, the Court's assessment of that matter would be better informed if CAANZ is allowed an opportunity to be heard and make submissions in that regard.