New South Wales Supreme Court CITATION : New Idafe Incorporated v Barnard & Ors [2007] NSWSC 1107 HEARING DATE(S) : 21 September 2007 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 21 September 2007 DECISION : Proceedings reconstituted by joinder of additional plaintiffs and removal of Association as plaintiff and its joinder as a defendant. Matter referred for mediation. CATCHWORDS : PROCEDURE – Parties – dispute as to control of incorporated Association – Association should be passive defendant, not active plaintiff – ALTERNATIVE DISPUTE RESOLUTION – mediation – order for referral (CTH) Corporations Act 2001 ss 236, 237 LEGISLATION CITED : (NSW) Civil Procedure Act 2005 s 26 (NSW) Uniform Civil Procedure Rules 2005 rr 6.24, 6.29 Danish Mercantile Co Limited v Beaumont [1951] Ch 680 CASES CITED : Dimento v Dimento [2007] NSWSC 420 Massey v Wales [2003] NSWCA 212 Morrow v chinadotcom Corp [2001] NSWSC 209 New Idafe Incorporated (plaintiff) Patricia Barnard (first defendant) PARTIES : Vicki Campbell (second defendant) Dianne Davis (third defendant) Donna Murdoch (fourth defendant) Diana Lyons (fifth defendant) FILE NUMBER(S) : SC 3306/07 COUNSEL : Mr W Washington w Mr F D Coyne (plaintiff) Mr D C Clarke (sol) (third & fifth defendants) SOLICITORS : Ms L J Hansen (sol) (plaintiff) Youth & Enterprise Legal Centre (third & fifth defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST BRERETON J Friday, 21 September 2007 3306/07 New Idafe Incorporated v Patricia Barnard & Ors JUDGMENT (ex tempore) 1 HIS HONOUR: By a further amended summons filed on 26 July 2007 New Idafe Incorporated, an incorporated association, as plaintiff claims orders that Ms Barnard and four other named defendants ("the Barnard faction") be restrained from purporting to act as directors of New Idafe or to do anything "negatively affecting" New Idafe, and declarations that Mr Hank Kasteel and another four named persons ("the Kasteel faction") are the duly elected governance board of New Idafe. New Idafe also claims an inquiry as to the damages it says it has suffered as a consequence of the actions of the Barnard faction in purporting to act on its behalf. When the proceedings were commenced on 22 June 2007, an injunction was granted ex parte by Palmer J upon New Idafe's undertaking as to damages, and that injunction was continued with an immaterial amendment when the matter returned before the Court on 27 June 2007. On 19 July 2007, the orders were further continued, "upon the named persons giving the undertaking to the Court as to damages", the named persons being the five members of the Kasteel faction. By a cross-claim filed on 3 August 2007, Ms Barnard and her colleagues claimed, against New Idafe as first cross-defendant and the Kasteel faction as second to sixth cross-defendants, orders including a declaration that the Kasteel faction had no authority to manage and direct New Idafe and had not been validly appointed as officers of New Idafe. 2 The foregoing short summary of the proceedings sufficiently reveals that this is a dispute as to the control of New Idafe, a non-profit organisation which provides disability services to persons with disabilities, in the Port Macquarie region on the New South Wales North Coast. 3 The Kasteel faction, who the summons asserts constitute New Idafe's Board of Governance, are apparently associated with another entity, Newtrain Inc. The solicitor on the record for New Idafe as plaintiff is one Leonie Hansen, originally of The Law Company Limited Tamworth, but now of Newtrain Inc. At least until today, Ms Hansen has held a restricted corporate and non-legal entity practising certificate naming Newtrain Inc as the non-legal corporate entity by which she is employed. However, she has given evidence that she has today sought from the Law Society an unrestricted practising certificate. 4 By Motion filed on 3 August 2007, the Barnard faction (the defendants) claim an order staying the proceedings, an order restraining Ms Hansen from continuing to act for New Idafe or acting for the Kasteel faction, an order restraining Newtrain from purporting to act for New Idafe or the Kasteel faction, and an order, pursuant to (NSW) Civil Procedure Act 2005, s 26, for referral of the proceedings to mediation. 5 The application for a stay of the proceedings is founded on the principle, restated by the Court of Appeal in Massey v Wales [2003] NSWCA 212, approving Danish Mercantile Co Limited v Beaumont [1951] Ch 680, that where proceedings are commenced in the name of the plaintiff without proper authority, the action is not properly constituted but is a nullity and can be stayed at any time, provided that the aggrieved defendant does not unduly delay the application to do so. 6 In this case, the Barnard faction contend that the proceedings have been commenced in the name of New Idafe without its proper authority. This follows, they say, from the circumstance that they, and not the Kasteel faction, constitute the duly elected board of management of New Idafe. 7 It is undesirable to resolve this question, which is really the ultimate question in the proceedings, on an interlocutory application of this type. It is far preferable that the issue run and be determined at a proper and full hearing where it can be determined conclusively. However, it is clear that there is a real dispute as to control of New Idafe and as to whether it is the Barnard faction or the Kasteel faction that constitute the duly elected Board of Governance. 8 The real dispute is between those two competing factions as to who constitutes the Board of New Idafe. While it is true that New Idafe itself has brought a claim for damages, the outcome of that claim must depend on the outcome of the dispute as to control. In circumstance where the substantive issue is who is entitled to constitute the Board of Directors, there is force in the submission that the Association should be a neutral party, and that the competing factions should be the active parties. This is akin to the principles applicable to derivative or oppression suits in respect of corporations, where the company, though it is recognised to have some interest, is usually a passive defendant, and the litigation is contested between the minority and the majority. 9 These proceedings would more appropriately be constituted with the Kasteel faction as the plaintiffs, the Barnard faction as the active defendants, and New Idafe be removed as a plaintiff and joined as a defendant, in which capacity it would probably be a passive party. I note that Mr Washington, who appears on behalf of the Kasteel faction as cross-defendants, has indicated their consent to being joined as plaintiffs. In that setting, I think there is no difficulty – and Mr Clarke, for the defendants, confirms that no point would be taken about it – in the Kasteel faction as plaintiffs prosecuting a claim for damages for the benefit of the corporation (as often happens in an oppression suit or a derivative action). To the extent necessary, leave to do so can be granted under (CTH) Corporations Act 2001, ss 236 and 237. 10 Accordingly, I order, pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 6.24, that Henk Kasteel, Kevin Cantwell, Warren Nagle, Glen Matheson, and Michael Finucane be joined as plaintiffs. I order, pursuant to r 6.29, that New Idafe Incorporated be removed as plaintiff. I order, pursuant to r 6.24, that New Idafe be joined as sixth defendant. 11 The application for an order restraining Ms Hansen and Newtrain Inc from acting for New Idafe was based on several grounds. One was linked with the application for a stay, it being said that her retainer was not duly authorised by New Idafe. A second was that her practising certificate was not such as to entitle her to act on behalf of New Idafe. The third was that there was such a conflict between the interests of her employer, Newtrain, and those of New Idafe as to make it undesirable that she act in the proceedings since she would not be able independently and impartially to advise New Idafe. 12 The effect of the orders I have just made reconstituting the proceedings is that Ms Hansen will be at liberty to act for the Kasteel faction as plaintiffs and as second to sixth cross-defendants. New Idafe will presumably be unrepresented; it is, of course, practically impossible that a solicitor could act for the new plaintiffs and at the same time for New Idafe as one of the defendants, and I take it that, in those circumstances, it will not be necessary for me to make any order restraining Ms Hansen from acting or purporting to act further for New Idafe. That position having now been confirmed by Mr Washington, it seems to me that any difficulty with Ms Hansen's position is resolved by the orders I have already made. 13 So far as Newtrain is concerned, although the name of Newtrain Inc appears on some of the documentation as Ms Hansen's address or employer, I do not understand Newtrain to play any real role in the proceedings. Ms Hansen, not Newtrain, is the solicitor on the record. 14 The final aspect of the application is whether there should be an order for mediation. Civil Procedure Act, s 26, authorises the Court to make an order referring proceedings for mediation, even where the parties or either of them oppose that course. As I have indicated in Dimento v Dimento [2007] NSWSC 420, the Court must nonetheless take into account and may in appropriate circumstances regard as determinative, a considered preference by a party to continue the proceedings, rather than incur the additional expense of a mandatory mediation (cf Morrow v chinadotcom Corp [2001] NSWSC 209). 15 The position has now been reached that the evidence is practically complete, so that what I referred to in Dimento v Dimento as the necessary level playing field for a mediation is now established. The constitution of New Idafe contains provisions which bind the parties to endeavour to mediate their disputes; that, of course, does not bind the Court, but it is a factor which favours compelling a mediation. 16 Against mediation, Mr Washington submits that there is not likely to be a substantial factual dispute, and the real issue for determination will be the legal characterisation of relatively undisputed facts. I agree that, at least at this stage, that appears likely to be the course that the proceedings will take. However, one of the risks for the parties of that course is that it normally results in one party being entirely successful and the other party being entirely unsuccessful, and removes the scope for a compromise solution. 17 It is significant that these are proceedings concerning the affairs of a non-profit organisation and it is highly desirable, if possible, that the parties reach some accommodation concerning its affairs rather than that the Court impose a solution. I am unpersuaded that mediation would be a waste of time; even where parties are in entrenched positions, mediation often narrows the gap between them, and I am far from persuaded in this case, despite what has been described as the precipitous action taken by the defendants, that it is impossible that they, who now seek mediation, would adopt a more conciliatory position. Accordingly, I think an attempt at mediation is worthwhile, and I propose to make an order under s 26 for mediation. 18 The plaintiff has suggested that mediation be at the cost of New Idafe. I am unpersuaded that that is any more appropriate than that New Idafe should be funding one or other of the parties in the proceedings. In those circumstances, it seems to me, the options are to allow the parties to agree on a mediator, or to refer the matter to a Registrar for mediation by the Registrar. I will hear from the parties as to what course they prefer in that respect. [Counsel addressed] 19 I order, pursuant to Civil Procedure Act, s 26, that the proceedings be referred for mediation by a mediator and that if the parties cannot agree on a mediator within seven days, the joint protocol described in Practice Note SC Gen 6 apply and the mediator will be the person appointed under the joint protocol. I fix the matter before me on 14 November on the basis that it will take no longer than three days. I order that costs of the Motion be costs in the proceedings. ********** 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.