FEDERAL COURT OF AUSTRALIA

Ananda Marga Pracaraka Samgha Ltd v Tomar (No 3) [2012] FCA 184

THE COURT ORDERS THAT:

1.    The relief sought by the amended application dated 21 February 2012 be refused.

2.    The second and third plaintiffs pay the defendants’ costs of the application.

3.    The proceeding be listed for mention at 10.15am on 9 March 2012.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    By an amended interlocutory application dated 21 February 2012, the second and third plaintiffs, Devendhran Vadiveloo Pillay and Prabanjamurthi Pillai, seek the following relief:

(1)    That the first plaintiff pay the reasonable legal costs and disbursements incurred, or to be incurred, by the second plaintiff, the third plaintiff, the first defendant and the second defendant in this proceeding.

(2)    If there is any dispute as to the amount of those reasonable legal costs and disbursements, the costs and disbursements of the second plaintiff, the third plaintiff, the first defendant and the second defendant in this proceeding are to be taxed on a party-party basis and the first plaintiff is to pay those taxed costs and disbursements.

(3)    In the alternative to orders 1 and 2, that pursuant to section 237 of the Corporations Act 2001 (Cth) (“the Act”) the second and third plaintiffs be granted leave nunc pro tunc to bring proceeding VID 208 of 2010 on behalf of the first plaintiff.

(4)    In the alternative to order 1, that pursuant to s 242 of the Act, the first plaintiff pay the reasonable legal costs and disbursements incurred, or to be incurred, by the second plaintiff, the third plaintiff, the first defendant and the second defendant in this proceeding,

(5)    In relation to the undertakings given to the court on 31 March 2010, the second and third plaintiffs are released from the undertakings in paragraphs A (ii), (iii) and (iv) so far as is necessary to ensure compliance with this order.

2    The second and third plaintiffs seek that the corporate first plaintiff (“the company”), the membership and directorate of which is the subject of a dispute between the individual plaintiffs and defendants, fund from its corporate resources the costs of all parties in the present litigation, which has arisen from the dispute.

3    The proceeding was commenced in March 2010. The application was made shortly prior to the scheduled commencement of trial. A trial estimated at six weeks duration was, by order made on 3 November 2011, fixed to commence on 12 March 2012, but at the hearing on 2 March 2012 was re-fixed to commence on 19 March 2012.

4    The application was supported by:

(1)    The affidavit of David Shaw affirmed on 13 February 2012.

(2)    The affidavit of Arati Nayak sworn on 10 February 2012.

(3)    The affidavit of Devendhran Vadiveloo Pillay sworn on 10 February 2012.

(4)    The affidavit of Prabanjamurthi Pillai sworn on 13 February 2012.

(5)    The affidavit of David Shaw affirmed on 1 March 2012.

(6)    Written submissions dated 21 February 2012.

5    The application was opposed and the following were filed in opposition:

(1)    The affidavit of Murray Baird sworn 23 February 2012.

(2)    Written submissions dated 24 February 2012.

background

6    I refer to my reasons for judgment of 3 June 2010 (Ananda Marga Pracaraka Samgha Ltd v Tomar [2010] FCA 565) and 3 December 2010 (Ananda Marga Pracaraka Samgha Ltd v Tomar (No 2) [2010] FCA 1342) (“the December 2010 reasons”), in which the detailed history and background of the matter are set out.

7    The proceeding was commenced by the plaintiffs in March 2010.

8    As appears from the affidavits and other materials filed in the proceeding, the legal firm Holding Redlich was initially retained in March 2010 by Devendhran Vadiveloo Pillay, the second plaintiff, in order to provide advice about the validity of a notice for a general meeting of the company on 20 March 2010, at which it was resolved that Mr D Pillay and another director, the third plaintiff, Prabanjamurthi Pillai, (who, together with Ms Nayak and the first and second defendants, Mr Tomar and Ms Alister, comprised the board) should be removed as directors.

9    Following that disputed meeting, on 26 March 2010, a further meeting of directors, attended by Messrs Pillai and Pillay, resolved that the board authorise its solicitors to institute legal proceedings to challenge the validity of the notice, the conduct of the meeting on 20 March 2010 and the membership of a number of persons who participated in it, on the basis that they had not been validly admitted to membership.

10    Holding Redlich received a total of $25,000 from the company, which remains in its trust account.

11    The defendants alleged that the second and third plaintiffs and a number of their supporters were not members of the company, as they were not in good standing with the relevant Ananda Marga religious authority as allegedly required on a proper construction of the constitution.

12    While the plaintiffs and defendants agree that Mr Tomar and Ms Alister are members of the company, the identity of all other members of the company is a matter of dispute.

13    At the interlocutory hearing on 31 March 2010, when the defendants objected to the inclusion of the company as a plaintiff and to the expenditure of company funds to support the litigation, the second and third plaintiffs undertook not to deal with the company’s funds other than in the ordinary course of business, and their counsel informed the court that company funds had not been and would not be applied to the payment of Holding Redlich’s fees (as I noted at [14] of the December 2010 reasons).

14    As Mr Shaw of Holding Redlich deposed, Holding Redlich did not initially require full payment for its services from the second and third plaintiffs and did not press for payment from the company. When the litigation became more complex, however, Holding Redlich required and received a contribution of $100,000 from the second and third plaintiffs towards the legal fees.

15    Holding Redlich has billed the second and third plaintiffs in a total sum of $438,087.17 for fees and disbursements to date, and Mr Shaw estimates the fees and disbursements of the second and third plaintiffs alone, for a six week trial, at a further $550,000, to which (under the orders sought) the costs of the first and second defendants would have to be added.

16    The second plaintiff, Mr D Pillay, who asserts that he has been a director of the company since 2003 (albeit his status as a director and member is disputed by the defendants), has, since 1988, been an Ananda Marga monk, whose accommodation and food is provided for by the order. He receives no income or remuneration from the company, has no property and has no means of paying the legal fees associated with the action.

17    Mr D Pillay deposed that the company has $10 million in assets, apparently comprising cash of $1.2 million and properties with a book value of about $2 million, which he believes is realistically closer to $9 million. (It was unclear whether the company’s assets are closer to $3 million by book value if Mr D Pillay’s higher estimate of the properties is discounted).

18    Mr D Pillay deposed that he commenced the proceeding in order to protect the company and its assets, believing that course to be in the company’s best interests and in accordance with the constitution.

19    Mr D Pillay deposed that as he does not have the resources to fund the litigation unless the company bears the costs, he may have to conduct the second and third plaintiffs’ case in person, although he is not legally trained.

20    Mr D Pillay deposed that at a meeting in 2010, about 17 of the 24 Australian Ananda Marga monks and a nun supported the position adopted by the second and third plaintiffs in the litigation, and in the most recent meeting, 21 monks and nuns expressed support.

21    The third plaintiff, Prabanjamurthi Pillai, asserts that he has been a director of the company since 7 May 2001, although his status is disputed by the defendants. Mr P Pillai is employed, but has few net assets, with a total value of about $200,000 mainly related to his King Lake home.

22    He has worked voluntarily for the company and cannot pay the legal fees associated with the litigation. He deposed that he commenced litigation in good faith.

23    Ms Arati Nayak, who also asserts that she is a director of the company (albeit the defendants dispute her status), while not a plaintiff, supports the present application. She deposed that a majority of Australian Ananda Marga monks and nuns who attended a meeting in April 2010 supported the position adopted by the second and third plaintiffs.

The pleadings

24    By an amended application and statement of claim dated 11 June 2010, the plaintiffs seek declarations that the first and second plaintiffs were not validly removed from office on 20 March 2010, that the appointment of Messrs Tomar and Pfeiffer as president and directors and Mr Tiwari as company secretary was invalid, that certain nominated persons (who are defendants) are not members of the company, and that certain nominated persons (including the second and third plaintiffs) are the only valid members.

25    The plaintiffs also sought a taking of accounts or an order that the defendants repay any money they had unlawfully appropriated.

26    The plaintiffs alleged, inter alia, that some of the third to eleventh defendants who voted on the resolutions were not members, that 28 days notice of the resolution to remove a director as required by s 225 and 249 of the Companies Code 1986 (NSW) was not provided, that valid members or their proxies were unlawfully excluded from the 20 March meeting, and that the second plaintiff, who was entitled to preside as president, was prevented from doing so.

27    By an amended defence and cross-claim dated 2 August 2010, the defendants alleged that the second and third plaintiffs, their supporter, Ms Nayak, and other persons, including Colm Largey and Karl Robins, were not entitled and/or ceased to be members, because the company holds its assets on trust for the charitable object of propagating the Ananda Marga ideals and religion via its doctrinal organisation and structures, which includes a central governing body (AMPS Central) and a general secretary, whose commands followers must obey.

28    The defendants alleged that the second and third plaintiffs and their supporters disobeyed “posting orders” of the general secretary and their religious titles were cancelled, so that, on a proper construction of the company’s Memorandum and Articles, they cannot remain members.

29    The amended defence and cross-claim challenged the inclusion of the company as a plaintiff and the propriety of its funding the litigation of the second and third plaintiffs’ case. It pleaded that in causing the present proceeding to be commenced in the name of the company as first plaintiff, and (at a purported meeting on 23 March 2010) to give instructions and incur liability to Holding Redlich for legal costs, the second and third plaintiffs acted in conflict of interest and breach of fiduciary duty, as it was in their interests to avoid personal liability for the legal costs which they would not or could not meet in seeking to vindicate their status as directors and/or members of the company.

30    The defendants pleaded that it was in the company’s interests not to have legal liability for the costs of the proceeding and to have the dispute between the second and third plaintiffs and the defendants resolved between themselves without becoming a party, or alternatively, an active party, or alternatively, other than a submitting defendant, and without itself engaging in conduct which would render it liable to pay costs.

31    The defendants alleged that if the court found that the second and third plaintiffs were not directors or members, then they had no authority to commence the proceeding in the company’s name, and if the company were liable, the second and third plaintiffs would obtain the personal benefit of avoiding legal costs, had a material personal benefit in the decision within the meaning of s 195 of the Corporations Act 2001 (Cth) (“the Act”), and received a financial benefit from the liability of the company within the meaning of s 208 of the Act.

32    Alternatively, the defendants pleaded that the control of the company by the second and third plaintiffs was contrary to the company’s charitable object, and, in that event, the company should be wound up and its assets administered cy-pres, or by a scheme to be determined by the court.

33    The relief sought in the defence and cross-claim included declarations that the resolution that the company commence the proceeding was void, and orders restraining the company from making payment to Holding Redlich and causing it to repay any amount paid.

34    By the reply and defence to cross-claim dated 1 September 2010, the plaintiffs conceded that they had voted in favour of the resolution to issue the proceeding in the company’s name, but denied the allegations of conflict of interest and impropriety concerning the company’s funding of the litigation.

35    The defendants reiterated their allegations in relation to the company as a plaintiff and its funding of the litigation in the further amended cross-claim dated 4 November 2011, which the plaintiffs again denied in their defence to further amended cross-claim dated 13 December 2011. The plaintiffs also alleged, inter alia, that they and other nominated persons were duly admitted to membership in compliance with the requirements of the constitution or were entitled to relief from any irregularities.

Discussion

36    Although the plaintiffs formally denied the allegations of conflict in their pleadings, as stated in the December 2010 reasons at [10]:

It was common ground that the company has substantial assets and an annual income approaching $1 million. It conducts a substantial business enterprise, including a number of schools. It is in receipt of government grants and has considerable outgoings, including the payment of teachers’ salaries, workers compensation, public liability insurance and mortgage payments.

37    In the December 2010 reasons, I discussed the authorities on the propriety of joining the corporation as a plaintiff and applying its funds to the litigation of membership disputes. I concluded at [112]:

It is well established that in the context of oppression proceedings and derivative actions primarily involving a dispute between members inter se, the company’s funds should not be applied in the litigation save to the extent necessary to protect its own valid interests. The outcome of the litigation could, however, ultimately entitle particular members to an indemnity from the company for their costs.

38    In the December 2010 reasons, I discussed Power v Ekstein (2010) 77 ACSR 302 and stated at [131] and [132]:

131    Austin J in Power v Ekstein, recognised that a company has a legitimate interest in responding to the validity of its decision making. Therefore, I am not persuaded that the company has no interest at all in the present proceedings or that it was wrongly included as a co plaintiff at the outset.

132    Nevertheless, as the parties recognise, the membership dispute is the kernel of the proceeding, and the second and third plaintiffs have correctly acknowledged that, essentially, the company should neither play an active role nor fund the carriage of the second and third plaintiffs’ case. In my view, it is of little moment whether, in that context, the company is an inactive defendant or an inactive plaintiff.

39    The position as at December 2010 was thus (as allegations of breach of duty and misconduct by the second defendant and other persons had arisen) that “[s]hould subsequent developments require the company to assume an active role in the litigation, it will be necessary to consider whether it should be represented separately from the second and third plaintiffs” (at [135]).

40    No further allegations of misconduct (which was peripheral to the main issues in dispute) were made, and at no stage thereafter did any party maintain that the company had an independent interest which required its active involvement and separate representation.

41    Although the second and third plaintiffs now apply for the company to pay the costs of all parties, the defendants opposed that course. They submitted that the corporate funds should not be expended because the second and third plaintiffs were impecunious, as the litigation was essentially a members’ dispute and did not involve relief or vindication for the company qua company.

42    The second and third plaintiffs submitted that resolution of the dispute over the company’s constitution and a comprehensive declaration of its membership would benefit the entire company beyond the interests of the individual parties, and, absent the costs order, only one side of the dispute would be adequately represented at trial, which could lead to injustice.

Whether indemnity

43    In support of their application, the second and third plaintiffs submitted that the company’s implied obligation to indemnify them as directors for the liabilities and expenses incurred in obeying the company’s directions, in the execution of their authority or otherwise in the reasonable performance of their duties, is enlivened, because they brought and conducted the proceedings to ensure that the company’s affairs and assets were controlled by valid directors and members in accordance with the constitution.

44    As any indemnity depends, inter alia, on the second and third plaintiffs’ success in the very questions at issue in this proceeding, their entitlement to an indemnity from the company cannot be established at this stage.

Whether leave pursuant to s 237 of the Act

45    The second and third plaintiffs alternatively seek leave nunc pro tunc to bring the proceedings on behalf of the company pursuant to s 237 of the Act, and consequently, that the costs order be made, pursuant to s 242 of the Act. They submitted, in that context, that they had standing to apply under s 236 of the Act, and as the conditions of s 237(2) were satisfied, the court must grant the application.

46    Section 236 of the Act provides:

(1)    A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:

(a)    the person is:

(i)    a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or

(ii)    an officer of former officer of the company; and

(b)    the person is acting with leave granted under section 237.

(2)    Proceedings brought on behalf of a company must be brought in the company’s name.

47    Section 237 relevantly provides:

(1)    A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

(2)    The Court must grant the application if it is satisfied that:

(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.

48    Section 242 provides:

The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section:

(a)    the person who applied for or was granted leave;

(b)    the company;

(c)    any other party to the proceedings or application.

An order under this section may require indemnification for costs.

Whether probable inaction or responsibility by the company

49    The proceedings the subject of an application under s 237(1) are the proceedings referred to in s 236(1) “on behalf of a company” or “to which the company is a party”, the applicant’s intervention in which is “for the purpose of taking responsibility” on the company’s behalf. Thus, ss 236(1) and 237(1) contemplate a derivative proceeding in which the company has a cause of action and/or a level of independent participation. As Finkelstein J observed in Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 (“Wood”) at [4]:

It is clear that leave to bring a so-called derivative action requires a substantial showing: Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 at 318. This follows from the evident purpose of the criteria, which are aimed at “preventing potentially vexatious or unmeritorious actions that would be detrimental to the company on whose behalf the action was taken”: Explanatory Memorandum to the Corporate Law Economic Reform Program Bill (1998) p 21 at [6.32], the passage which introduced Pt 2F.1 A.

50    The essential issues in dispute in this matter are not rights of action belonging solely to or vesting in the company, which must be vindicated or defended by a member intervening in or commencing a derivative proceeding pursuant to s 237 of the Act.

51    The second and third plaintiffs submitted that the company would not take responsibility for the proceedings because the interlocutory orders and the undertakings given by the second and third plaintiffs prevented that course.

52    The undertakings were, however, given in recognition that, as discussed above, the second and third plaintiffs’ case should not, in the context of the members’ dispute, be funded by the company, which has at no stage been separately represented.

53    While the proceeding concerns the requirements for valid membership, which may ultimately determine the question of control, alleged irregularities and breach of the constitution or legislation in relation to meetings, voting and resolutions to remove directors, have been held to constitute personal rights vesting in the members. (See, eg, the right to vote at general meetings (Pender v Lushington (1877) 6 Ch D 70 at 81); the right to have the election or appointment of a director conducted or made in accordance with the company’s constitution (Link Agricultural Pty Ltd v Shanahan (1998) 28 ACSR 498 at 505); the right to a sufficient notice of meeting (Devereaux Holdings Pty Ltd v Parry Corp Ltd (1985) 9 ACLR 837); and the right to complain of the wrongful rejection of proxies (Scullion v Family Planning Association of Queensland (1985) 10 ACLR 249)).

54    In the present case, the company is not prevented from commencing, conducting or taking responsibility for the proceeding because alleged wrongdoers control the board.

55    Under the interim regime, the board comprises five persons who were apparently recognised as directors prior to 20 March 2010. The first and second plaintiffs are supported by Ms Nayak and the board could properly resolve to commence or take steps in litigation on the company’s behalf in an appropriate case. The second and third plaintiffs are prohibited by their undertaking from the expenditure of corporate resources only if such action would not be in the ordinary course of business. Had the company suffered a wrong or required a right to be vindicated, the current undertakings and injunctive regime would not preclude the board from causing the company to commence or defend proceedings and paying the associated legal costs from its resources.

Whether applicant acting in good faith

56    The second and third plaintiffs depose that they commenced the proceeding in good faith as required by s 237(2)(b) on the basis they depose. There is no evidence that their claims are other than bona fide or that they, or indeed any of the defendants, have a pecuniary interest in the outcome.

Whether leave is in best interests of the company

57    I am not, however, persuaded that it is, pursuant to s 237(2)(c), in the best interests of the company that the second and third plaintiffs be granted leave, nunc pro tunc, pursuant to s 237.

58    In determining whether it is in the best interests of the company that the applicant be granted leave under s 237(1) to bring a derivative action or to intervene on the company’s behalf, a number of factors are typically considered, including the nature of the company in question, the effect of leave on its business and operations, whether the redress can be achieved by other means and whether the defendants can meet any judgment in the company’s favour.

59    In the present case, the company is a public company limited by guarantee, established and conducted for charitable and religious purposes. It is not a trading company in which the members have shareholdings and an expectation of dividends from the profits of its operations. The material filed in the proceeding indicates that the company has, over the years, received voluntary labour and contributions from an indefinite number of participants (not limited to the individual parties to this proceeding), together with government grants to support and fund its activities.

60    Nevertheless, the costs of all parties to the litigation, for which the second and third plaintiffs seek to render the company liable, are already very substantial, will significantly increase during trial and are of uncertain quantum. The costs of the second and third plaintiffs alone up to the conclusion of the trial are estimated at close to $1 million, to which the defendants’ costs (presumably of at least a like amount) must be added. No ceiling or qualification as to reasonableness limits the costs order sought. The company’s total assets (in Mr D Pillay’s estimate unsupported by financial statements) are valued at about $10 million. The $1.2 million in estimated cash would be insufficient to discharge the probable estimated costs order. Although Mr D Pillay’s evidence was unclear, it would appear that according to the formal valuation, the total value of the company’s assets is closer to $3 million. The costs order would absorb at least two thirds of that sum. In either case, the quantum of the proposed costs order, which is uncapped, would constitute a very significant proportion of the company’s total assets.

61    No party has deposed to the probable impact on the company and its operations of the proposed costs order, but it may be inferred that the significant reduction in its assets would be extremely deleterious.

62    The outcome of the litigation is necessarily unknown prior to trial, and one or both camps may ultimately be found to have advanced erroneous positions or otherwise engaged in conduct which would justify their liability to pay the other parties’ costs, or it may be appropriate that some parties bear their own costs.

63    Should the company fund or contribute to funding the litigation in whole or part at this stage, if it is ultimately found that the second and third plaintiffs should bear some or all of the costs, they are without funds, and could not satisfy a costs order; similarly, there is no evidence that any of the individual defendants could satisfy any costs order which may be made against them. Thus, the recall or variation of any costs order against the company, although possible, would produce no certain benefit.

64    Further, as Foster J recognised in Sellar v Lastotav Pty Ltd [2008] FCA 1766 at [30], courts, in the context of oppression, have recognised the difficulty of determining, on an interlocutory basis, whether (and to what extent) costs are a legitimate corporate responsibility, and accordingly may be reluctant to make costs orders at an interlocutory stage.

65    While the judgment in the present proceeding may resolve the competing claims in relation to valid membership and control, it will not preserve or recover any corporate assets. The resolution of a dispute between members concerning the construction of the constitution and hence, rival claims to control, may ultimately benefit the company, and justify its contribution to the costs of litigation. The effect of judgment in the present case on the company and its continued operations is, however, uncertain at this stage. A number of different outcomes are possible. The defendants seek an alternative remedy of winding up and transfer of the company’s assets. As foreshadowed in a previous hearing, a referral of the matter to ASIC may prove appropriate.

66    No detailed submissions were made in relation to whether, and if so what, cause of action might vest in the company in relation to the matters alleged in the proceeding. It is clear, however, that the plaintiffs’ substantive causes of action do not vest exclusively in the company as a proper plaintiff. The claims and cross-claims have been instituted and conducted for a lengthy period without the necessity for leave. While the fact that an applicant also has a personal claim based on the same or substantially common factual substratum as the company’s right of action would not necessarily preclude leave to bring a derivative action, it is relevant if, as in this case, there are alternative avenues for redress.

67    A further factor militating against the grant of leave under s 237(1) is that leave is sought in respect of the entire proceeding, including the defence and cross-claim, in the conduct of which the second and third plaintiffs would have an unsurmountable conflict of interest.

Whether serious question to be tried and notice to company

68    While I am satisfied that there is a serious question to be tried, s 237(2)(e) of the Act requires the company to receive at least 14 days written notice of an intention to apply for leave under s 237(1) (unless the court dispenses with that requirement) to give it an opportunity to respond. In the present case, the company is not separately represented and a very substantial order for costs is sought against it, yet the court does not have the benefit of any impartial submissions or assessment by a party independent of the members in dispute, of the proposed costs order.

Conclusion on application for leave

69    A number of conditions in s 237(2) (most importantly, s 237(2)(c)) were not satisfied. The application for leave pursuant to s 237 was not necessary to commence or maintain the second and third plaintiffs’ case, but was principally directed at the power to make a costs order under s 242. The impediment which has now arisen to the second and third plaintiffs’ continued prosecution of their claims is their impecuniosity. In my view, however, reliance on s 242 was unnecessary, given the other bases of the power to order costs.

Whether costs should be awarded on another basis

70    Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides:

Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

71    Section 1335(2) of the Act provides:

The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.

72    While the above provisions confer, independently of s 242, a broad power and discretion to order costs, in my opinion, for the reasons stated above in relation to the second and third plaintiffs’ s 237 argument, an order that the company pay the individual plaintiffs and defendants’ costs of the proceeding should not, at this stage, be made.

73    The second and third plaintiffs did not identify any case in which an order comparable to that sought in this case was made. While they relied particularly on Finkelstein J’s decision in Wood, the facts of Wood were very different from those of the present case.

74    In Wood, the applicants, who were former officers of the company, had been granted leave to commence an action in its name against a director and his company, for alleged misappropriation of the company’s opportunity in breach of duty. The proceeding was thus in relation to an alleged wrong for which the company was the proper plaintiff and, if successful, would result in the recovery of corporate assets.

75    The applicants in Wood had already been granted leave pursuant to s 237 of the Act and Finkelstein J, in such circumstances, ordered the company to meet the fair and reasonable costs of running the derivative action. His Honour noted that the discretion in s 242 was unconfined and doubted (contrary to Barrett J’s views in Roach v Winnote Pty Ltd (2006) 57 ACSR 138 and Sub Rosa Holdings Pty Ltd v Salsa Sudada Production Pty Ltd [2006] NSWSC 916) that there was a general approach requiring persons granted leave to bring a derivative action to bear, in the first instance, in whole or in part, the company’s costs of the proceeding (at [7]-[9]).

76    In my opinion, given its significant differences from the present case, Wood does not support the costs order sought by the second and third plaintiffs.

Conclusion

77    While the prospect that the second and third plaintiffs may not be legally represented at trial is regrettable, in my opinion, the relief sought by the amended application dated 21 February 2012 should be refused.

Associate:

Dated:    5 March 2012