New South Wales Supreme Court CITATION : Wily v Cenepro Pty Ltd [2000] NSWSC 347 CURRENT JURISDICTION: Equity Division Corporations List FILE NUMBER(S) : SC 3979/99 HEARING DATE(S) : 17/04/2000 JUDGMENT DATE : 17 April 2000 PARTIES : Andrew Hugh Jenner Wily (P) Cenepro Pty Limited (D) JUDGMENT OF : Young J COUNSEL : F Gleeson (P) C R C Newlinds (D) SOLICITORS : The Walker Law Group (P) Kemp Strang (D) CATCHWORDS : CORPORATIONS [219]- Winding up- Just and equitable ground- Complaint that directors failed to pursue legal action- Such allegations not precluded by ss 236 and 237 of Corporations Law LEGISLATION CITED : Corporations Law, ss 236, 237 Re Co-operative Development Funds of Australia (No 3) (1978) 3 ACLR 437 CASES CITED : Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Foss v Harbottle (1843) 67 ER 189 DECISION : See paras 19-23 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST YOUNG J MONDAY 17 APRIL 2000 3979/99 - ANDREW HUGH JENNER WILY v CENEPRO PTY LIMITED JUDGMENT 1 HIS HONOUR: This is a motion to strike out paragraphs 25 to 36 of the statement of claim filed 13 December 1999. 2 The statement of claim was filed after pleadings were ordered in a suit to wind up the defendant company, Cenepro Pty Ltd (the "Company") on the just and equitable ground. The statement of claim sets out under headings B, C, D and E four distinct groups of allegations as to why it is just and equitable to wind the Company up. 3 Paragraphs 25 through to 36 under heading E deal with what is referred to as the "Lot 7A Gap Road transaction". 4 The pleader pleads that the Company purchased the property known as 7 Gap Road Watsons Bay in 1993, that it subdivided the property, and in December 1996 transferred what is now known as Lot 7A Gap Road to Jennifer Jamieson for a purported consideration of $1,032,000, which Mrs Jamieson did not pay to the Company. Three months later Mrs Jamieson transferred Lot 7A to another person for over double the notional consideration in her transfer. The pleader puts that in the premises, it is just and equitable that the Company be wound up under the Corporations Law. 5 The defence, filed on 17 February 2000, admits most of the allegations that were made under heading E, but pleads that there was a trust set up by an agreement made in January 1993 whereby Mrs Jamieson was to have half the property held on trust for her in consideration of her forbearing certain things and doing certain things. 6 The amended reply, which is still in draft form, asserts, though with respect to the pleader not completely satisfactorily, that the alleged agreement is not admitted, but that, even if it was in place, Mrs Jamieson was in breach of her obligations under it and that the Company was, therefore, entitled to recover from Mrs Jamieson various amounts. There are then particulars given which suggest that the then directors of the Company, William Jamieson (currently a bankrupt whose trustee is the plaintiff) and Nancy Weeks, breached their duties of care and diligence in transferring the property to Mrs Jamieson. This was because it was unnecessary for the Company to do so in view of Mrs Jamieson's breach of the agreement, or, in any event, there was no legitimate advantage to the Company in doing this, or that there was no consideration. It is further put in the particulars that Mrs Jamieson "ought to have acquired, either by observation or inference, knowledge of the said breaches of duty by William Jamieson and Nancy Weeks". 7 Mr Newlinds for the defendant essentially puts that the relevant paragraphs of the statement of claim should be struck out: (a) because the allegations in the reply are not really a reply, they are matters that should have been included in the statement of claim; (b) that insofar as it is alleged that there was no consideration, the allegation should be struck out; and (c) the provision of s 236 of the Corporations Law, as amended at 13 March 2000, means that it is now impermissible for there to be any challenge akin to a derivative action other than an action that is brought in accordance with sections 236 and 237 of the Law. 8 Because of the firm words of s 236(3): "the right of a person at general law to bring, or intervene in, proceedings on behalf of the company is abolished", the Court should no longer take the view that it has taken in many cases brought under s 232 of the law, for instance (see as an example Fexuto Pty Limited v Bosnjak Holdings Pty Limited (1998) 28 ACSR 688) that one can rely on an act which might justify a derivative action as part of an oppression case under s 232, or part of a just and equitable case under s 461 of the Law. 9 The submission essentially is that as s 236 has abolished the Rule in Foss v Harbottle (1843) 67 ER 189, it also abolishes any right on an individual to make allegations before a court in collateral proceedings of the same type as dealt with in ss 236 and 237. Furthermore the test laid down by Sangster J in Re Co-operative Development Funds of Australia (No 3) (1978) 3 ACLR 437, 464 (ie allegations of grievances of sufficient importance sufficiently supported by evidence, and not sufficiently explained or refuted which justify the appointment of a liquidator to pursue them) had been suspended by the more stringent test set out in s 237(3) of the Law. 10 I do not, with great respect, consider that this submission is correct. The point is arguable, but on a striking out application I would not consider that it is a point which should prevent the matter going to trial. My present view is that s 236 does not go that far. The purpose of the section appears to be to abolish the rule in Foss v Harbottle, but there is no indication that the legislature intended to interfere with the now entrenched principle that the matters that are put forward subject to a derivative action are available to be considered under s 232 or s 261. 11 Mr Newlinds, in his usual persuasive way, put forward that section 236(3) is a specific provision and is in very strong words. I appreciate that, but I do not think that it goes far enough. 12 I cannot see why a person seeking to wind up a company on the ground that it is just and equitable cannot rely on allegations that the persons in charge of the company had declined to pursue actions that reasonable members of the board would be expected to pursue, which is the sort of allegation that is made here. 13 There are situations where it is quite true, that the whole of the case must be put in a statement of claim. Further, the pleader of the statement of claim should reasonably anticipate the issues that are going to be raised so that they can all be dealt with in the pleadings as summarily as possible. In many situations, the course of amending the statement of claim must be taken rather than putting on a reply, particularly this is the case in situations where, before the Supreme Court Act 1970, there would be a new assignment. The present case, however, is not one of new assignment and it seems to me that in the circumstances it is legitimate to leave it to the defendant to set up the alleged agreement and then to put the defendant to proof of it. 14 Mr Newlinds properly says that the plaintiff himself had mentioned the existence of the letters constituting the agreement in evidence in interlocutory proceedings. However, as Mr Gleeson for the plaintiff points out, they were not deployed in the pleadings, nor did the plaintiff ever at any stage definitely elect one way or the other as to the efficacy of the letters. 15 Accordingly, I do not consider that in this case the statement of claim needs to be amended. However, I have a little doubt as to whether in paragraphs 25 to 36 there should be some supplementary facts as to why the conclusion in 36 follows from the facts pleaded in 25 to 35. 16 I will thus give leave to amend, but it may be that it is sufficient as it is. 17 I do, however, consider that the draft amended reply ought to be at least polished so that the allegations as to why the alleged agreement is no answer to the plaintiff's claim can be put in a clear and concise manner and can be pleaded to in a rejoinder without embarrassment. Some of the matters have been considered in these reasons and others in argument. Principally, the problems are that what is in the particulars should, if they are going to be relied on, be put into the actual pleadings, that the matter of "executed consideration" should be made clearer as to whether it is alleged that there was no consideration, or past consideration, or some consideration, but which in all circumstances could entitle the other party not to proceed with a transaction or otherwise. 18 So far as the fiduciary obligations that were breached are concerned, these should be distinctly pleaded and not just left as particulars. 19 Accordingly, I decline to strike out the statement of claim. 20 I give leave to file an amended reply no later than 1 May 2000 and I think it is necessary also to give leave to file a rejoinder. 21 I also give leave to amend the statement of claim by 1 May 2000, just to cover what I have already said. 22 Costs should be costs in the cause. 23 The rejoinder can be filed and served by 15 May. I stand the proceedings over to the Corporations Judge on 22 May 2000. oOo Last Modified: 09/25/2000 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.