FEDERAL COURT OF AUSTRALIA

Gaertner v Dharah Gibinj Aboriginal Medical Service Aboriginal Corporation [2013] FCA 1330

THE COURT ORDERS THAT:

1.    Subject to:

a.    the applicant delivering to the Court and the respondents, on or before 6 February 2014, a draft statement of claim specifying the material facts and matters upon which she relies and sufficiently identifying the legal or equitable rights to be determined at the trial of the proceedings; and

b.    the parties using their best endeavours to co-operate to bring the matter before the Registrar to obtain a resolution of the issues raised in the draft statement of claim;

the Court grants leave to the applicant to bring proceedings on behalf of, and in the name of, the respondent against Bulgarr and the officers of the respondent referred to in para 1 of the originating application filed on 14 November 2013.

THE COURT NOTES THAT:

2.    Leave is granted on terms that the applicant is responsible for any costs ordered against Dharah Gibinj Aboriginal Medical Service Aboriginal Corporation and upon the undertaking to the Court of the applicant not to seek contribution or indemnity from that corporation.

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

REASONS FOR JUDGMENT

Introduction

1    The applicant is a former officer of the respondent which is an indigenous corporation registered under the provisions of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (the Act). She seeks leave in accordance with s 169-1 and s 169-5 of the Act to bring proceedings on behalf of the respondent against another indigenous corporation, Bulgarr Ngaru Medical Aboriginal Corporation (Bulgarr) and a number of officers of the respondent.

2    The Federal Court has jurisdiction to hear this application: see s 586-5(1) of the Act and the definition of Aboriginal and Torres Strait Islander Corporations legislation in s 700-1.

3    The proceedings which the applicant seeks to commence in the name of the respondent arise out of the transfer by the respondent to Bulgarr of what is said to be the whole of the assets of the respondent. The transfer appears to have taken place in September 2010, approximately one month after the applicant secured a judgment against the respondent in the Local Court for damages for wrongful dismissal from her employment as the Finance Officer of the respondent.

4    Sections 169-1 and 169-5 of the Act are in largely identical terms to ss 236 and 237 of the Corporations Act 2001 (Cth) (the Corporations Act). For present purposes there are no relevant distinctions between those provisions.

5    The effect of the provisions of the Corporations Act is that, if the criteria stated in s 237(2) are satisfied, the Court is bound to grant the application: Suh v Cho [2013] VSC 491 at [26] and the authorities cited there. The analogue of that subsection is s 169-5(2) and the same construction ought to be adopted in relation to the exercise of the power to grant leave under the Act.

6    The criteria stated in s 169-5(2) include the requirements that the Court be satisfied that the applicant is acting in good faith and that it is in the best interests of the corporation that the applicant be granted leave.

7    An important issue which arises in this application is whether I can be satisfied that the applicant fulfils those criteria in circumstances in which the proceeding for which the applicant seeks leave to bring is a step in her efforts to vindicate her position as a judgment creditor of the respondent.

8    There was no appearance by the respondent or by Bulgarr or the former officers of the respondent. I was satisfied that they have been served with or notified of the application which I heard in their absence.

The relevant provisions of the Act

9    Sections 169-1 and 169-5 are contained in Div 169 which is entitled “When may a person bring or intervene in proceedings on behalf of an Aboriginal and Torres Strait Islander corporation?”.

10    Section 169-1 provides relevantly:

(1)    A person who is:

  (a)    either:

(i)    a member, former member, or person entitled to be registered as a member of an Aboriginal and Torres Strait Islander corporation or of a related body corporate; or

    (ii)    an officer or former officer of the corporation; or

    (iii)    the Registrar; and

  (b)    acting with leave granted under section 169 5;

may:

(c)    bring proceedings on behalf of an Aboriginal and Torres Strait Islander corporation; or …

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

11    Section 169-5, headed “Applying for and granting leave”, provides relevantly:

Who may apply for leave?

(1)    A person referred to in paragraph 169-1(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

Court to grant the application in certain circumstances

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

(a)    it is probable that the corporation 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 corporation 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 corporation 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.

The facts

12    The factual matters in support of the application are contained in an affidavit of the applicant sworn on 13 November 2013.

13    The applicant was employed by the respondent as Finance Officer from 12 July 2007 until 29 April 2009. She was also the Human Resources and Finance Officer from about 12 January 2009 until about 29 April 2009.

14    On 27 August 2010 the applicant obtained judgment against the respondent in the Local Court for $51,900 for wrongful dismissal. The respondent was ordered to pay the applicant’s costs including indemnity costs from 27 April 2010 to the date of judgment.

15    It appears that the respondent refused to pay the judgment debt but the applicant secured partial satisfaction of the amount payable through enforcement measures. The applicant says that the balance due, including interest, is now in excess of $80,000.

16    On 13 January 2011 the solicitors who were then acting for the respondent wrote to the Sheriff of New South Wales at Lismore. The letter was as follows:

We act for the above Corporation. You should note the Corporation ceased trading on 30th of September 2010.

Any assets of the Corporation were transferred to Bulgarr Ngaru Medical Aboriginal Corporation. No liabilities were accepted by the new Corporation other than staff entitlements.

The Corporation under its Deed was never the owner of the assets; ownership of all funds and assets always remains with the funding authority. The Dharah Gibinj Aboriginal Medical Service was de-funded on 30th June 2010.

The Corporation has no funds or assets upon which to levy.

17    Other correspondence was in evidence on this application referring to the circumstances in which the transfer of assets took place. Some of the other evidence, albeit hearsay, indicates that Bulgarr also assumed liability for the debts of the respondent, but the position is less than entirely clear.

18    In November 2012, the applicant’s solicitor undertook a search of the respondent on the database of the Office of the Registrar of Indigenous Corporations. The search revealed that the respondent was deregistered on 4 June 2012.

19    However, a balance sheet of the respondent for the year ended 30 June 2010 shows that it had net assets of nearly $552,000.

20    A letter from the Office of the Registrar dated 17 December 2012 states that deregistration of the respondent was effected because the Registrar was informed that the assets and liabilities of the respondent had been transferred to Bulgarr prior to deregistration.

21    The applicant’s solicitor, Mr Hill, then wrote to Bulgarr outlining his client’s claim against the respondent and requesting information about the transfer of assets.

22    On 9 January 2013 the solicitors for Bulgarr replied to Mr Hill’s letter denying that there had been a transfer of assets. The solicitors stated that Bulgarr merely took over the functions of the respondent, namely, the provision of medical services to indigenous persons in the Casino area using assets held by the respondent on trust for the Commonwealth.

23    On 28 May 2013 the applicant received notification that the respondent had been reinstated as a registered corporation under the provisions of the Act. The relevant provision is s 546-40(5) which provides inter alia that:

(5) If an Aboriginal and Torres Strait Islander corporation is reinstated:

(a)    the corporation is taken to have continued in existence as if it had not been deregistered; and

(b)    a person who was a director of the corporation immediately before deregistration becomes a director again as from the time when the Registrar or the Court reinstates the corporation; and

(c)    any property of the corporation that is still vested in the Registrar revests in the corporation … .

24    On 3 October 2013 Mr Hill wrote to the respondent at its registered office giving notice of the applicant’s intention to seek leave to commence proceedings in the name of the respondent, and setting out the reasons for the application. A copy of the notice was also sent to the home addresses of the respondent’s directors.

Division 169 and its analogue in the Corporations Act

25    The analogue of Div 169 of the Act is Part 2F.1A of the Corporations Act. The legislative purpose of Part 2F.1A was explained by Palmer J in Swansson v Pratt [2002] NSWSC 583. His Honour observed at [19]-[20] that this part was introduced into the Corporations Law, now the Corporations Act, by the Corporate Law Economic Reform Program Act 1999 (Cth). Thus, whatever entitlement a party had prior to these amendments to bring a derivative action in the name of the company under the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 has now been superseded by the provisions of Part 2F.1A.

26    Palmer J went on to say at [23] that, under the Corporations Act, standing to bring a derivative action is no longer confined to shareholders. Standing is conferred on shareholders and former shareholders as well as upon officers and former officers. He observed that the inclusion of such persons raises difficult questions as to the content of the requirement that the applicant must be acting in good faith.

27    Leave to bring a derivative action should not be given lightly. An application for leave is not interlocutory in character; the relief is final and the applicant bears the onus of satisfying the Court on the balance of probabilities that the requirements stated in s 237(2) of the Corporations Act (and s 169-5(2) of the Act) have been satisfied: Swansson at [24], [26].

Section 169-5(2)(a) – Probability that the corporation will not bring proceedings

28    Where there is no clear-cut refusal to take proceedings after a properly particularised request made by an applicant, the applicant bears the onus of establishing that in all the relevant circumstances, actual or probable refusal is to be inferred: Swansson at [29]. Nothing more than a probability is required: Vinciguerra v MG Corrosion Consultants Pty Ltd (2010) 79 ACSR 293 at [17] (Gilmour J).

29    Here, the circumstances include the evidence that the respondent’s directors appear to have taken action to denude the respondent of its assets approximately one month after the applicant obtained judgment.

30    Moreover, the respondent was deregistered and was only reregistered as a result of action taken by the applicant. No reply has been received to the letter of 3 October 2013 from the applicant’s solicitor.

31    In those circumstances I would infer that it is probable that the respondent will not itself bring the proposed proceedings.

Section 169-5(2)(b) – Good faith

32    There are two interrelated factors to which the Court should have regard in determining whether the good faith requirement is satisfied. The first is whether the applicant honestly believes that a good cause of action exists with reasonable prospects of success. The second is whether the applicant is seeking to bring the derivative suit for a collateral purpose which would amount to an abuse of process: Swansson at [36]-[37]; Vinciguerra at [54]; see also Pottie v Dunkley (2011) 82 ACSR 561 at [41] ff (Ward J).

33    Palmer J observed in Swansson at [40] that where, for example, a former shareholder happens to be a creditor who has standing to bring an application, it may be that:

… the applicant is not acting in good faith because he or she is, in reality, seeking to vindicate his or her interest as a creditor and not whatever interest he or she may have as a former shareholder.

34    His Honour went on to say at [42] that:

If a wrong appears to have been done to a company and those in control refuse to take proceedings to redress it, the Court should permit a derivative action to be instituted only by those within the categories allowed by s 236(1) who would suffer a real and substantive injury if the action were not permitted. The injury must be necessarily dependent upon or connected with the applicant’s status as a current or former shareholder or director and the remedy afforded by the derivative action must be reasonably capable of redressing the injury.

35    In Vinciguerra at [67] Gilmour J referred to the observations of Tobias J in Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 at [82]-[83] that:

… where an applicant is in reality seeking to further his or her own personal interests, other than as a current or former shareholder of the company, rather than the interests of the company as a whole the onus of establishing good faith would not be discharged.

See also Pottie v Dunkley at [49].

36    These observations appear to have their foundation in the relationship between the statutory derivative action and the exceptions to the rule in Foss v Harbottle. They emphasise the need for the applicant to be seeking to vindicate a wrong done to the company and for the applicant to have a legitimate interest in the vindication of that wrong, for example by restoring value to a shareholder’s shares in a company.

37    It is unnecessary to determine whether this rationale is equally applicable to a corporation registered under the Act. Such corporations do not have shareholders. The Act is intended to align modern corporate governance standards and corporations law with the provisions of the Corporations Act. But it contains a special statute of incorporation for Aboriginal and Torres Strait Islander peoples that takes account of the special risks and requirements of the indigenous corporate sector: see Revised Explanatory Memorandum, Corporations Amendment (Aboriginal and Torres Strait Islander Corporations) Bill 2006 (Cth) at para 1.2.

38    Here, it seems to me that I can be satisfied that, applying the objective test stated in the authorities, there is a sufficient connection between the status of the applicant and the wrong alleged to have been done to the respondent corporation.

39    This is because the wrong that is alleged to have been done to the corporation is that the transfer of assets to Bulgarr appears to have denuded the respondent of all of its assets and left it insolvent (at least if the liabilities were not assumed by Bulgarr).

40    It is well established that a corporation which is insolvent or near insolvent may owe a duty to creditors. The creditors are to be seen as having an interest in the company. The duty has been described as one of imperfect obligation to creditors but it is one which creditors cannot enforce save to the extent that the corporation acts on its own motion or through a liquidator: Walker v Wimborne (1976) 137 CLR 1 at 7; Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 444 (Gummow J); see also Charlton v Baber (2004) 47 ACSR 31 at [53] (Barrett J).

41    It seems to me that the applicant has a sufficient interest as a former officer in ensuring that the affairs of the respondent corporation were managed consistently with the duties owed to creditors, including the applicant.

42    I am satisfied that the applicant seeks to bring the proceeding in good faith. It is a proceeding which seeks to enforce the duty of good faith stated in s 265-5 of the Act. That provision has its analogue in s 181(1) of the Corporations Act. Directors and officers are required to exercise their powers and discharge their duties in good faith and in the best interests of the corporation and for a proper purpose.

Section 169-5(2)(c) – Best interests of the corporation

43    Section 169-5(2)(c) requires the Court to be satisfied that the proposed derivative action is in the best interests of the corporation. The standard is a high one. It is not sufficient to establish that it may be in the corporation’s best interests: Vinciguerra at [111].

44    Whether the requirement is satisfied can only be determined by taking into account all of the relevant circumstances including the character of the corporation: Swansson at [56]-[60]; Vinciguerra at [112].

45    Where, as here, the respondent corporation appears at least prima facie to have been rendered insolvent, the best interests of the corporation are to be regarded as the interests of the general body of creditors. The following observations of Barrett J in Charlton v Baber at [53] appear to be applicable, albeit that the corporation is not in liquidation:

Success will see an enhancement of the assets available to be applied by the liquidators towards creditors’ claims. That, of its very nature, promotes creditors’ interests and, in the circumstances of this particular company, must be regarded as in “the best interests of the company”.

Section 169-5(2)(d) – Serious question to be tried

46    Section 169-5(2)(d) requires the Court to be satisfied that there is a serious question to be tried. The threshold is a relatively low one, analogous to that which must be surmounted to support the grant of an interlocutory injunction: Swansson at [25].

47    An applicant must identify the legal or equitable rights to be determined at the trial in respect of which final relief is to be sought. The application must be supported by evidence. A mere indication of the evidence without actual evidence is insufficient: Vinciguerra at [140], [141].

48    I am satisfied that there is evidence which demonstrates that the assets of the respondent were transferred to Bulgarr without consideration. This can be seen in the balance sheet referred to at [19] above as well as the statement in the letter to the Sheriff that any assets were transferred as well as in the reasons apparently given to the Registrar for deregistering the respondent corporation.

49    If the assets were transferred on 30 September 2010 as stated in the letter to the Sheriff, without any assumption of liabilities, almost immediately after the applicant obtained a judgment in the Local Court, this would point strongly toward the suggestion that the transfer was made for the purpose of defeating the judgment obtained by the applicant.

50    The only difficulty which seems to me to arise is that the present formulation of the claim to be determined at trial has not been identified in a draft statement of claim.

51    Moreover, the legal or equitable rights to be determined are not clearly identified in the application which seeks leave to bring proceedings on behalf of the respondent “in relation to the transfer of assets” to Bulgarr.

52    It seems to me that this difficulty can be addressed by imposing as a condition of the grant of leave that the applicant bring in a draft statement of claim in respect of what leave is to be granted.

53    A question which bears upon the issue of best interests is the possible prejudice to the company of an adverse costs order if the claims made on behalf of the company are unsuccessful. Here the appropriate course is to follow the observation of Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 at [51]. His Honour there said that where the assertion of a claim is a manifestation of aspects of an overall dispute between the parties, it will often be appropriate to grant leave on terms that the applicant is responsible for costs ordered against the company, and undertakes not to seek contribution or indemnity from the company.

Section 169-5(2)(e) – Notice

54    Section 169-5(2)(e)(i) requires that at least 14 days’ notice be given to the corporation of the intention to apply for leave and of the reasons for applying.

55    I am satisfied that notice has been given in accordance with this sub-section in the letter from Mr Hill dated 3 October 2013.

Conditional Orders

56    This is a matter which appears to raise serious regulatory concerns as to the action taken by the directors of the respondent. If the action is to proceed it will be an expensive one for all parties.

57    The Registrar has extensive regulatory powers under the Act. The essential questions which arise could be considered by the Registrar far more quickly, cheaply and efficiently than by the parties engaging in expensive litigation.

58    It seems to me therefore to be appropriate to direct that as a condition of the grant of leave to bring the proceedings, the parties should co-operate to bring this matter before the Registrar of Indigenous Corporations with a view to having the Registrar determine an appropriate regulatory outcome.

59    The Court has power under the Federal Court of Australia Act 1976 (Cth) to order that the parties to a proceeding to mediate the dispute. The condition which I referred to above is analogous to an exercise of that power.

Orders

60    Subject to:

    the applicant delivering to the Court and the respondents on or before 6 February 2014 a draft statement of claim specifying the material facts and matters upon which she relies and sufficiently identifying the legal or equitable rights to be determined at the trial of the proceedings; and

    the parties using their best endeavours to co-operate to bring the matter before the Registrar to obtain a resolution of the issues raised in the draft statement of claim;

the Court grants leave to the applicant to bring proceedings on behalf of, and in the name of, the respondent against Bulgarr and the officers of the respondent referred to in paragraph 1 of the originating application filed on 14 November 2013.

61    The Court notes that leave is granted on terms that the applicant is responsible for any costs ordered against Dharah Gibinj Aboriginal Medical Service Aboriginal Corporation and upon the undertaking to the Court of the applicant not to seek contribution or indemnity from that corporation.

Associate:

Dated:    11 December 2013