Federal Court of Australia

CleanFin Pty Ltd v Forest Carbon Methodology Pty Ltd (No 2) [2025] FCA 163

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 237 and 241 of the Corporations Act 2001 (Cth), the plaintiff be granted leave to bring proceedings on behalf of, and in the name of, the defendant against:

(a)    Bundaleer Nominees Pty Limited (ACN 154 320 126);

(b)    Shirley Tyndall (in her capacity as trustee of the Tyndall Family Superannuation Fund); and

(c)    Mirriyindi Super Pty Ltd (ACN 673 322 015),

in order to make the claims in the form, or substantially in the form, of the claims in the further amended statement of claim, being annexure ANT-2 to the affidavit of Andrew Nathan Tarnowskyj made on 10 February 2025, subject to the exceptions identified in order 3 of the orders made on 28 February 2025 in action SAD 87 of 2022.

2.    Noble Investments Pty Ltd (in its capacity as trustee of the Noble Investments and Consulting Services Trust) and Timothy Owen Lebbon be released from the undertaking to the Court recorded in paragraph 3(a) of the schedule to the orders made on 3 May 2022, that Forest Carbon Methodology Pty Ltd be named as an insured in any “after the event” insurance acquired by the plaintiff, on the condition that Noble Investments Pty Ltd (in its capacity as trustee of the Noble Investments and Consulting Services Trust) and Timothy Owen Lebbon undertake that if any “after the event” insurance is acquired by the plaintiff, the defendant’s liability for any adverse costs in action SAD 87 of 2022 will be insured by the policy.

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

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 9.05 of the Federal Court Rules 2011 (Cth), Bundaleer Nominees Pty Ltd (ACN 154 320 126), Shirley Tyndall in her capacity as trustee of the Tyndall Family Superannuation Fund and Mirriyindi Super Pty Ltd (ACN 673 322 015) be joined as the fifth defendant, sixth defendant and seventh defendant, respectively.

2.    Pursuant to r 8.21(1) of the Federal Court Rules 2011 (Cth), the plaintiff be granted leave to file and serve a further amended originating process.

3.    Pursuant to r 16.53(1) of the Federal Court Rules 2011 (Cth), the plaintiff be granted leave to file a further amended statement of claim, in the form of annexure ANT-38 to the affidavit of Andrew Nathan Tarnowskyj made on 3 February 2025, by 6 March 2025, except that:

(a)    the leave granted does not extend to the inclusion of proposed paragraph 71 of the further amended statement of claim; and

(b)    the further amended statement of claim is to include additional particulars of the pleas in:

(i)    paragraphs 4B.3 and/or 66 and 67 (as to the basis on which Bundaleer Nominees Pty Ltd is said to be the corporate alter ego of James Phillip Schultz and the basis on which Bundaleer Nominees Pty Ltd is otherwise to be attributed with the knowledge of Mr Schultz); and

(ii)    paragraphs 68-70 (as to the basis on which it is contended that Mr Tyndall and Shirley Tyndall (in their capacity as trustees for the Tyndall Family Superannuation Fund) and Mirriyindi Super Pty Ltd are liable to account in equity for profits made by Terra Carbon Pty Ltd and received as dividends by the Tyndall Family Superannuation Fund).

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

ORDERS

THE COURT ORDERS THAT:

1.    The first to fourth defendants make further and better discovery in relation to the orders of Registrar Parkyn made on 18 March 2024 by performing the key word and custodian searches set out in schedule A to the affidavit of Andrew Nathan Tarnowskyj made on 29 November 2024, reviewing the resulting documents and making discovery of relevant documents.

2.    Pursuant to r 20.13 of the Federal Court Rules 2011 (Cth) and orders 2 and 3 of the orders made on 27 May 2024, the first to fourth defendants make discovery of the categories of documents in annexure A to the plaintiff’s written submissions filed on 3 February 2025, except that the description of the documents to be discovered in relation to category 5 be limited to records created or maintained at a senior management or board level.

3.    Pursuant to r 20.13 of the Federal Court Rules 2011 (Cth) and orders 2 and 3 of the orders made on 27 May 2024, the first and second defendants make discovery of the categories of documents in schedule C to the affidavit of Andrew Nathan Tarnowskyj made on 29 November 2024.

4.    By 21 March 2025, and subject to orders 5 and 6 below, the plaintiff provide security for the first, second, third and fourth defendants’ costs of the proceedings in the amounts and form of the plaintiff’s proposal dated 10 December 2024 as deposed to at pages 18-19 of annexure ANT-37 to the affidavit of Andrew Nathan Tarnowskyj made on 24 December 2024 and as explained in paragraphs 24-27 of that affidavit.

5.    The $400,000 that has been paid into court by the plaintiff as security for the first and second defendant’s costs of the proceedings to date remain paid into court.

6.    The $250,000 that has been paid into court by the plaintiff as security for the third defendant’s costs of the proceedings to date remain paid into court.

7.    If the plaintiff fails to comply with order 4, the proceedings be stayed until security is provided.

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

REASONS FOR JUDGMENT

MCDONALD J:

Introduction

1    The proceedings in action SAD 87 of 2022 are brought on behalf of the plaintiff, Forest Carbon Methodology (FCM), by CleanFin Pty Ltd (CleanFin). In action SAD 11 of 2022, CleanFin sought and obtained leave to bring action SAD 87 of 2022 in the name of FCM.

2    FCM was the corporate trustee of the Forest Carbon Methodology Unit Trust. FCM alleges that FCM’s former directors, James Schultz and Lewis Tyndall, breached their fiduciary duties to FCM by diverting a business opportunity that was available to FCM to the third defendant, Terra Carbon Pty Ltd (Terra Carbon), and the fourth defendant, Geo Carbon Services Pty Ltd (Geo Carbon). FCM alleges that Mr Schultz and Mr Tyndall failed to act in what they honestly believed to be the best interests of FCM, placed themselves in a position of conflict between their personal interests and the interests of FCM, and obtained an unauthorised profit in consequence of their positions as directors of FCM. FCM seeks an account of profits against Mr Schultz and Mr Tyndall (or, now, the executor of his deceased estate), and against Terra Carbon and Geo Carbon on the basis that they are or were the corporate alter egos of Mr Schultz and Mr Tyndall or, alternatively, were knowing recipients of profits derived from their breaches of fiduciary duties.

3    This judgment deals with the following interlocutory applications that have been made in the proceedings:

(a)    an interlocutory process filed in action SAD 11 of 2022 by CleanFin for leave to bring proceedings in the name of, and on behalf of, FCM against Bundaleer Nominees Pty Ltd (Bundaleer), Shirley Tyndall (as trustee of the Tyndall Family Superannuation Fund (Tyndall Fund)) and Mirriyindi Super Pty Ltd (Mirriyindi);

(b)    an interlocutory application filed in action SAD 87 of 2022 by FCM seeking:

(i)    leave to join Bundaleer, Ms Tyndall (as trustee of the Tyndall Fund) and Mirriyindi as the fifth, sixth and seventh defendants, respectively;

(ii)    leave to file and serve a further amended originating process and further amended statement of claim; and

(iii)    additional or further and better discovery; and

(c)    interlocutory applications filed by each of the existing defendants in action SAD 87 of 2022, for further orders in relation to security for costs.

4    For the reasons that follow:

(a)    on 28 February 2025, I made orders in action SAD 11 of 2022 granting leave to CleanFin to bring proceedings in the name of, and on behalf of, FCM against Bundaleer, Ms Tyndall (as trustee of the Tyndall Fund) and Mirriyindi; and

(b)    in action SAD 87 of 2022:

(i)    on 28 February 2025, I made orders joining Bundaleer, Ms Tyndall (as trustee of the Tyndall Fund) and Mirriyindi as the fifth, sixth and seventh defendants in action SAD 87 of 2022, and granting leave to FCM to further amend its amended statement of claim in various respects sought by it (and declining to grant leave for one proposed amendment), with a requirement that certain further particulars be incorporated in the further amended statement of claim;

(ii)    orders will be made requiring the defendants to provide discovery, and further and better discovery, of certain categories of documents; and

(iii)    orders will be made requiring FCM to provide further security for costs by way of an “after the event” (ATE) insurance policy, without an order being made for the release to FCM of funds previously paid into court.

Procedural background

5    The trial in action SAD 87 of 2022 is currently listed for hearing to commence on 2 June 2025.

6    The proceedings in action SAD 87 of 2022 were commenced in May 2022 against the first defendant, Mr Schultz, the (then) second defendant, Mr Tyndall, and the third defendant, Terra Carbon.

7    Each of Mr Schultz, Mr Tyndall and Terra Carbon applied for orders that FCM provide security for costs. On 11 August 2023, O’Sullivan J delivered a judgment requiring FCM to provide security in the form of either an irrevocable bank guarantee or payment into court as a lump sum: Forest Carbon Methodology Pty Ltd v Schultz [2023] FCA 943 (First Security Judgment). The total amount of the security was fixed at $400,000 ($250,000 in respect of Mr Schultz and Mr Tyndall, and $150,000 in respect of Terra Carbon), with the intention that it should apply to and cover the defendants’ costs up to and including the preparation of affidavit evidence. The defendants were given liberty to apply for further security for costs in respect of further steps in the proceedings.

8    On 23 November 2023, Mr Tyndall died. On 31 January 2024, the executor of his estate, Ms Tyndall, was substituted as the second defendant (Mr Tyndall’s Estate).

9    On 21 December 2023, O’Sullivan J made orders requiring FCM to provide additional security for the costs of Mr Schultz and Mr Tyndall’s Estate up to and including the mediation in the sum of $150,000, and security for the costs of Terra Carbon up to and including the mediation in the sum of $100,000.

10    On 27 March 2024, Dawna Wright of FTI Consulting (Referee) was appointed as a referee to quantify the account of profits sought by FCM. The Referee’s report was initially expected to be provided by 28 June 2024. However, there have been delays in the process by which the Referee sought and obtained information necessary for the production of her report, and, as at the hearing of the present interlocutory applications on 13 February 2025, it had not yet been provided to the parties.

11    On 17 May 2024, orders were made joining Geo Carbon as the fourth defendant and permitting FCM to amend its originating process and statement of claim. The current amended originating process and amended statement of claim were filed on 20 May 2024, in accordance with the orders made on 17 May 2024 and the judgment of O’Sullivan J in CleanFin Pty Ltd v Forest Carbon Methodology Pty Ltd [2024] FCA 489 (First Joinder Judgment).

FCM’s application to amend the statement of claim and join three further defendants

Introduction

12    FCM seeks leave to further amend its amended statement of claim in action SAD 87 of 2022.

13    The proposed amendments, insofar as they are opposed, fall into three broad categories. The first category comprises proposed amendments which would join Bundaleer, Ms Tyndall (as trustee of the Tyndall Fund) and Mirriyindi as additional defendants, and plead claims against them. The second category comprises proposed amendments which FCM characterises as “bringing forward” into the statement of claim matters that FCM had already pleaded in its reply. The third category comprises proposed amendments which FCM characterises as, in substance, inserting into the statement of claim particulars that had previously been provided to the defendants by way of correspondence.

14    On 28 February 2025, I made orders in action SAD 87 of 2022 to the effect of those set out at the beginning of this judgment.

15    I advised the parties that I would publish reasons for those orders at a later date. I made the orders in advance of publishing reasons having regard to the fact that the trial date is three months away and the effect of the orders was to permit FCM to further amend its statement of claim and to join three new defendants. I made those orders for the reasons that follow.

Principles applicable to the amendment of pleadings

16    On an application for leave to amend, the party seeking leave has the onus of persuading the Court that leave should be granted: Dye v Commonwealth Securities Ltd (No 2) [2010] FCAFC 118 at [17]. The principles applicable to the amendment of pleadings were recently set out by Wigney J in the following terms in KTC v David [2022] FCAFC 60 (at [110]-[111]):

The Court’s power to grant leave to amend is broad and has the remedial objective of ensuring that any defect in the pleadings is cured and that the real questions in the controversy are properly agitated: Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 at [20] (Gilmour and Foster JJ); Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [14]. The power must be exercised in a “way that best promotes the Court’s overarching purpose to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible”: Caason at [19] and the cases cited therein; s 37M(3) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The object of the Court is “not to punish parties for mistakes made in the conduct of their case, but to correct errors with the result that a decision can be made on the real matters in controversy”: Clough & Rogers v Frog (1974) 4 ALR 615 at 618, quoting Cropper v Smith (1884) 26 Ch D 700 at 710; Caason at [20].

Leave to amend should generally be granted unless the proposed amendment is futile, including, for example, because the issue sought to be raised by the amendment has no reasonable prospects of success, or would be liable to be struck out as not raising a reasonable cause of action, or where the amendment would cause substantial prejudice or injustice to the opposing party in a way that cannot be compensated by the award of costs: Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66; [2009] FCA 320 at [21]-[22]; Medich v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8]; Caason at [21].

17    The Court should, of course, have regard to the overarching purpose of the civil practice and procedure provisions found in s 37M of the Federal Court of Australia Act 1976 (Cth), namely the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Considerations relevant to the exercise of the discretion to grant leave were identified by the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27, and were conveniently summarised by Derrington J in General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd (No 3) [2024] FCA 492 (General Trade Industries) as follows (at [35]):

(a)     the nature and importance of the amendment to the party applying for it: Aon at 214 [102];

(b)     the extent of the delay and the costs associated with the amendment: Aon at 214 [102];

(c)     the prejudice that might be assumed to follow from the amendment, and that which is shown: Aon at 182 [5] and 214 [100], [102];

(d)     the explanation for any delay in applying for leave to amend: Aon at 215 [102]-[103] and 216 [108];

(e)     the parties’ choices to date in the litigation and the consequences of those choices: Aon at 217 [112];

(f)     the detriment to other litigants in the Court: Aon at 211 [93], 212 [95] and 217-218 [114]; and

(g)     the potential loss of public confidence in the legal system which can arise where a court is seen to accede to applications made without adequate explanation or justification: Aon at 182 [5], 189 [24] and 192 [30].

18    As Derrington J went on to observe, “the weight to be accorded to each consideration in any particular case, either individually or in combination with others, and the outcome of the balancing process may vary according to the particular facts and circumstances of the case at hand”: General Trade Industries at [36], citing Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261; [2010] FCAFC 101 at 275-6 [51].

Joinder of Bundaleer, Ms Tyndall and Mirriyindi, and amendments relating to them

19    In action SAD 87 of 2022, FCM seeks orders for (among other things) an account of profits resulting from alleged breaches of fiduciary duties by Mr Schultz and Mr Tyndall. The profits for which FCM seeks an account include profits reflected in dividends received by or for the benefit of Mr Schultz and Mr Tyndall as a result of businesses carried on by Terra Carbon and Geo Carbon. Insofar as dividends were paid to Mr Schultz and Mr Tyndall, they are already parties and an account of profits is sought against them.

20    Material disclosed by the defendants in the course of the Referee process indicates that, between 2014 and 2020, more than $10.5 million was paid in fully franked dividends by Terra Carbon and its holding company, Terra Carbon Holdings Pty Ltd. Dividend statements provided to the Referee on 13 September 2024 indicate that substantial dividends were received by Bundaleer (a company wholly owned by Mr Schultz and his wife) and by Mr Tyndall’s superannuation fund, the Tyndall Fund.

21    FCM’s interlocutory application as filed sought the joinder of Bundaleer and Ms Tyndall (as trustee of the Tyndall Fund). On 28 January 2025, solicitors acting for Mr Schultz and Mr Tyndall’s Estate informed solicitors for FCM that they had recently learned that Ms Tyndall was no longer the trustee of the Tyndall Fund and Mirriyindi had replaced her as trustee. Ms Tyndall is the sole director and shareholder of Mirriyindi. Consequently, FCM now seeks to file a further amended statement of claim that provides for the joinder of Bundaleer, Ms Tyndall (in her capacity as trustee of the Tyndall Fund) and Mirriyindi.

22    The proposed further amendments to the statement of claim would amend and add to the current amended statement of claim, mainly by:

(a)    identifying the proposed new defendants (proposed new [4B], [4C] and [4D]);

(b)    pleading some facts concerning the incorporation of Bundaleer and its directorship (proposed new [45AA], [45AB] and [45AC]);

(c)    adding a plea (and schedule) identifying substantial dividends paid to Mr Tyndall, Ms Tyndall and Bundaleer (proposed new [55N] and schedule 5); and

(d)    adding a new plea to the effect that each of Bundaleer, Ms Tyndall (in her capacity as trustee of the Tyndall Fund) and Mirriyindi should be required to account for profits (proposed new [66]-[71]).

23    The proposed new paragraphs [66]-[71] are as follows:

Liability of Bundaleer, Tyndall, Shirley Tyndall and Mirriyindi

66.    As corporate alter ego of Schultz, Bundaleer is liable in equity to account for the profits made by Terra Carbon and Geo Carbon and paid to it as dividends by Terra Carbon and Terra Carbon Holdings as a consequence of the breaches of fiduciary duty by Schultz pleaded in paragraphs 58 to 59 above.

67.    In the alternative to paragraph 66, Bundaleer is to be attributed with the knowledge of Schultz, and is therefore liable as a knowing recipient to account in equity for profits made by Terra Carbon and Geo Carbon and paid to it as dividends by Terra Carbon and Terra Carbon Holdings as a consequence of the breaches of fiduciary duty by Schultz pleaded in paragraphs 58 to 59 above.

68.     Tyndall and Shirley Tyndall are liable to account in equity for profits made by Terra Carbon and Geo Carbon and paid to them (in their capacity as trustees for the Tyndall Fund) as dividends by Terra Carbon and Terra Carbon Holdings as a consequence of the breaches of fiduciary duty by Tyndall pleaded in paragraphs 60 to 62 above.

69.     The liability of Tyndall and [Shirley] Tyndall to account pursuant to paragraph 68 above gives rise to a constructive trust over the assets of the Tyndall Fund enforceable against the current trustee, Mirriyindi.

70.     Further or in the alternative, Tyndall and [Shirley] Tyndall (in their capacity as former trustee of the Tyndall Fund) have a right of indemnity against the assets of that fund currently held by Mirriyindi in respect of liabilities incurred as trustee, including in respect of the liability to account pursuant to paragraph 68 above.

71.    Further or in the alternative, the knowledge of Tyndall as to his breaches of fiduciary duty is to be attributed to Mirriyindi and Mirriyindi is therefore liable as a knowing recipient to account in equity for profits made by Terra Carbon and Geo Carbon and paid to it as dividends by Terra Carbon and Terra Carbon Holdings as a consequence of the breaches of fiduciary duty by Tyndall pleaded in paragraphs 60 to 62 above.

24    Mr Schultz and Mr Tyndall’s Estate oppose the grant of leave to join the three proposed additional defendants. Terra Carbon and Geo Carbon do not take a position except to oppose the grant of leave if the effect of granting leave would be to vacate the existing trial date.

25    FCM submits that the application to make these amendments should not be regarded as late or unexplained. The proposed amendments were circulated by FCM on 14 November 2024. The application to amend the statement of claim was made promptly thereafter. While some time elapsed before the Court was able to hear and determine the application, that is not the fault of FCM and so the fact that the listed trial date is now three months away should not be given undue weight. I accept these submissions.

26    The trial is not a long way off, but nor is it imminent. FCM’s explanation for the relatively late amendment of the statement of claim and joinder of three additional defendants is that, in the course of the Referee process, evidence has come to light which has caused FCM to appreciate that significant dividends were paid to Bundaleer and to the Tyndall Fund. Information previously available to FCM through the Referee process (from material produced on 3 July 2024) was to the effect that substantial dividends had been paid to Mr Schultz and Mr Tyndall and a dividend of $1 had been paid to the Tyndall Fund. Later, on 13 September 2024, detailed dividend statements were produced which indicated that, in fact, substantial dividends had been received by the Tyndall Fund and by Bundaleer. I do not regard the delay between this information being disclosed and the application to amend the statement of claim as lengthy or as counting against the grant of leave to amend. I accept that the application to amend so as to plead a case against the proposed new defendants is adequately explained.

27    For Mr Schultz and Mr Tyndall’s Estate, it is submitted that the proposed amendments are futile because they would seek orders requiring the proposed new defendants to account for profits received by Terra Carbon and Geo Carbon. It is submitted that the amendments are not necessary because there is no circumstance in which FCM’s claim against the proposed new defendants could succeed, if its claim against Terra Carbon and Geo Carbon were to fail. However, FCM will be in a better position if orders are made requiring the proposed new defendants, as well as Terra Carbon and Geo Carbon, to account for those profits. FCM’s position, based on evidence now provided to the Referee, is that more than $10.5 million has been paid in dividends to Bundaleer and the Tyndall Fund. FCM’s case is that those were profits deriving from the use of the opportunity and that they were knowingly received by Bundaleer and by Ms Tyndall as trustee of the Tyndall Fund. If FCM can plead a reasonable cause of action against the new defendants, I do not consider that I should require them, as a precondition to joining the new defendants, to demonstrate that the existing defendants are likely to have insufficient funds to make a full account of profits to FCM. That is particularly so where the information that led to FCM’s application for leave to amend has been in the possession of the defendants and was inconsistent with information previously disclosed by them.

28    In relation to the liability of Bundaleer to account for profits, FCM relies on Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (Grimaldi) at 357 [243] for the proposition, as paraphrased by FCM, that, “if an entity is, in fact, in legal form a creature company of an individual who is a wrongdoing fiduciary, the remedy of account is simply available as against that entity, relevantly, without more”. I accept FCM’s submission that this is an arguable reading of [243] of Grimaldi and it provides a sufficient basis to conclude that the amendment for which leave is sought is not “obviously futile” in the relevant sense. A question may arise as to what is meant by a fiduciary “using” a corporate vehicle “to secure the profits of … their breach of fiduciary duty”. It is not necessary for me to determine, at this stage, the ultimate merits of the proposed new claim, or to decide whether FCM’s submission is correct or whether, as Mr Schultz and Mr Tyndall’s Estate submit, it is necessary for FCM to establish that the company that is said to be the “alter ego” was itself used as a vehicle to earn profit, as opposed to being used as a means by which profit made by another entity controlled by a fiduciary who was in breach of duty was distributed to the benefit of that fiduciary.

29    FCM also relies, in the alternative, on the first limb of Barnes v Addy (1874) LR 9 Ch App 244, contending that Bundaleer was a knowing recipient on the basis that all of the knowledge of Mr Schultz is to be attributed to Bundaleer, and that Mr Schultz had knowledge of the actions he took or approved. The basis for the attribution of knowledge is that to be pleaded in the proposed new [4B.3], namely that Bundaleer “is and was at all material times the corporate alter ego of Schultz”. Assuming I have understood that correctly as the basis for the plea, I do not consider that it is necessary that for the particular content of knowledge of Bundaleer to be particularised. This aspect of FCM’s case will depend on the characterisation of the relationship between Mr Schultz and Bundaleer.

30    Mr Schultz and Mr Tyndall’s Estate submit that the proposed further amended statement of claim alleges that Mr Tyndall and Ms Tyndall are liable to account for profits made by Terra Carbon and Geo Carbon and paid to them as dividends by Terra Carbon and its holding company, Terra Carbon Holdings Pty Ltd, as a consequence of breaches of fiduciary duty by Mr Tyndall, but fails to articulate a basis for that alleged liability. In particular, it is submitted that the proposed further amended statement of claim does not contain any allegation that could sound in liability of Ms Tyndall in her capacity as trustee of the Tyndall Fund. The basis for the proposition that Ms Tyndall (as trustee of the Tyndall Fund) is liable to account was explained by FCM in the following terms:

[I]t is a submission … that Mr Tyndall and Mrs Tyndall, as trustees for the super fund, are liable to account as a consequence of Mr Tyndall’s breach of fiduciary duty … Mrs Tyndall, as a joint trustee with the wrongdoing trustee that has received a payment in breach of fiduciary duty, becomes liable to account.

31    In allowing the further amended statement of claim to be filed, I do not decide the ultimate merit of these competing arguments.

32    As FCM acknowledged, it has “used a relatively short-form articulation” in the proposed new [68]-[70]. FCM submits that, if further articulation is required, that can be done promptly. In my view it is appropriate to require FCM to plead more clearly the basis for the liability of Ms Tyndall as a joint trustee of the Tyndall Fund, and the basis for the liability of Ms Tyndall, and Mirriyindi, as trustees of the Tyndall Fund, to account. If the defendants are ultimately correct and the liability of Ms Tyndall and Mirriyindi to account for profits obtained by Mr Tyndall as trustee of the Tyndall Fund is not upheld at trial, that may be reflected in costs orders.

33    The proposed new [71] (which is expressed to be “further or in the alternative” to [69] and [70]) stands in a different position. I do not understand the basis on which FCM contends that the knowledge of Mr Tyndall is to be attributed to Mirriyindi. Mirriyindi was incorporated on 30 November 2023. Mr Tyndall died on 22 November 2023. Ms Tyndall is the sole director of Mirriyindi and has held that position since its incorporation. FCM does not plead that Ms Tyndall was herself a knowing recipient of profits obtained by Mr Tyndall, or that she is to be attributed with the knowledge of Mr Tyndall. It is not apparent to me on what basis it is said that Mr Tyndall’s knowledge is to be attributed to Mirriyindi. In the circumstances, I will not grant leave to amend the amended statement of claim by inserting the proposed new [71].

34    The joinder of the proposed additional defendants will give rise to additional steps in the proceedings; most obviously the filing of defences by them. However, I accept FCM’s submission that this is not likely to occasion much prejudice to the existing defendants, given that Ms Tyndall is already a party to the proceedings in a different capacity, and that the other two proposed defendants are entities that are controlled by persons who are already parties. It appears unlikely that the proposed new defendants would need to be separately represented.

35    Mr Schultz and Mr Tyndall’s Estate submit that to allow these amendments to be made would put the trial date “at risk”. FCM submits that that risk is slight. I accept that it cannot be said that there is no risk that allowing the amendments may not lead to a chain of events that ultimately might result in the trial being unable to proceed, but I do not consider that permitting these proposed amendments is likely to result in the trial needing to be delayed. That risk is to be tolerated in circumstances where the late joinder of additional defendants has arisen due to new information coming to the attention of FCM in the course of the Referee process. While I give this consideration some weight, I consider that the preferable course is to permit the joinder of the three additional proposed defendants and to allow the relevant proposed amendments to the amended statement of claim.

36    Finally, Mr Schultz and Mr Tyndall’s Estate also contend that the proposed paragraphs relating to the liability of the proposed new defendants are inadequately pleaded or particularised.

37    I will not disallow the proposed amendments on this basis, for the following reasons. First, the “alter ego” pleas are in essentially the same form as existing pleas in the amended statement of claim to which no objection has been taken by the defendants. It is reasonable for FCM to have pleaded equivalent facts in the same way, and they should not be frustrated in their attempt to further amend their amended statement of claim by an objection of this kind raised for the first time in this context. Insofar as it is submitted for Mr Schultz and Mr Tyndall’s Estate that the proposed new paragraphs are different because the amendments introduce a new party not served with the application to amend (Bundaleer) and its response to the proposed new pleading is not known, I would not give this much weight given that Bundaleer is apparently controlled by Mr Schultz, who is an existing party.

38    Secondly, any prejudice arising from a lack of particularity in the proposed new paragraphs can be addressed by FCM providing particulars of the basis on which it is contended that it should be concluded that Bundaleer is a “corporate alter ego” of Mr Schultz or is otherwise to be attributed with the knowledge of Mr Schultz (proposed new [66]-[67]), the basis on which it is contended that Mr Tyndall and Ms Tyndall (in their capacity as trustees for the Tyndall Fund) are liable to account in equity for profits made by Terra Carbon and received as dividends by the Tyndall Fund (proposed [68]), and the basis on which Mirriyindi is said to be liable to account (proposed [69]-[70]). It is appropriate that those particulars be included in the further amended statement of claim.

39    Although ideally the content of those additional particulars would be settled in advance of leave being granted to further amend the amended statement of claim, it is desirable that the amendment be made as soon as possible, given the further steps that need to follow before the trial. The order that I have made in respect of the first category of amendments is similar to that made by O’Sullivan J on 17 May 2024.

Amendments bringing forward to the statement of claim matters pleaded in the reply

40    The amendments in the second category seek to add a new [47A], and to make amendments to [58] and [59] of the amended statement of claim.

41    The amended statement of claim at [40]-[41] pleads that two entities or businesses that are not parties to the proceedings, Greencollar and Redd Forests Pty Ltd, jointly made a submission to the Domestic Offsets Integrity Committee (DOIC) for endorsement of a methodology titled “CFI Methodology for Native Forest Protection Projects” – defined in the amended statement of claim as “the Submission”. At [47] of the amended statement of claim, it is pleaded that:

Between August 2011 and June 2013, the Submission was the subject of correspondence and refinement between Greencollar and subsequently Terra Carbon and Geo Carbon on the one hand, and the Department of Climate Change and Energy Efficiency … and the DOIC on the other.

42    The particulars to [47] identify various “versions” of the Submission that are said to have been submitted to the DOIC. Generally speaking, each of these “versions” had a title that identified it as a “Methodology” or “Draft Methodology”.

43    The amended defence of Mr Schultz, at [47], pleads in response to [47] of the amended statement of claim as follows:

In answer to paragraph 47 of the Amended Statement of Claim, the First Defendant:

a.     says that the DOIC rejected the Submission by a letter dated 31 October 2011;

b.     says that between 18 November 2011 and 4 April 2012, Redd submitted to DOIC a new submission (Revised Submission);

c.     says that Geo Carbon Services Pty Ltd (Geo Carbon) had input into the Revised Submission, but had not consented to it being submitted to DOIC;

d.     says the Revised Submission was rejected by DOIC by a letter dated 29 June 2012;

e.     otherwise, denies the allegations;

f.     says further that:

i.     Geo Carbon prepared and submitted a new submission for an avoided deforestation methodology (the AD Submission) on 10 May 2013; and

ii.     the methodology that was the subject of the AD Submission was, in both form and substance, entirely different from the IFMM.

Particulars

An improved forest management methodology calculates the carbon abatements derived from improving the management of timber forests used for logging. An avoided deforestation method calculates the carbon abatements from the avoidance of clearing of native forest for conversion into agricultural land.

44    The defence thus distinguished between the original “Submission”, a “Revised Submission” and the “AD Submission”, whereas the amended statement of claim had referred to the submission being the subject of correspondence and refinement. The plaintiff in its amended reply at [14] pleads in response to [47] of the amended defence.

45    The proposed new [47A], which FCM seeks leave to insert immediately after [47] of the amended statement of claim, is as follows:

47A.    The methodologies referred to at paragraphs 47.2, 47.4 and 47.8 were subsequent iterations of the Submission. Each subsequent iteration of the Submission was:

47A.1     stated to be based upon the IFMM;

47A.2     made without the consent or approval of FCM;

47A.3     made without the knowledge or consent of Clarkson or Lebbon;

47A.4     falsely warranted to the Federal Government by Greencollar, Redd Forests and/or Geo Carbon as based on intellectual property rights owned or licensed by Greencollar, Redd Forests and/or Geo Carbon;

47A.5     the further exploitation of a business opportunity that was available to FCM as owner of the copyright in the IFMM;

47A.6     caused or alternately approved by Schultz; and

47A.7     derived from the IFMM in the sense that each iteration of the Submission was adapted from the IFMM as particularised further in the replies to the first to fourth defendants’ defences.

46    The proposed new [47A] is similar to parts of [14] of the reply although it does not completely replicate it. I note that the proposed new [47A.7] effectively incorporates the pleas in the replies insofar as they particularise the derivation or adaptation of the “iterations” of the Submission.

47    The proposed amendments to [58] and [59] would include cross-references to the proposed new [47A] and would change existing references to “the Submission” or “the Submissions” to “the Submission (and subsequent iterations thereof)”, so as to incorporate reference to the “subsequent iterations” that are now sought to be pleaded in the proposed new [47A].

48    If FCM is not permitted to make these amendments to the amended statement of claim, there is likely to be dispute at trial as to the scope of FCM’s case and whether it should be permitted to rely upon the “subsequent iterations” of the Submission, or subsequent submissions that are said to have been derived from (or revised versions of) the original Submission, as establishing its cause of action. Insofar as it is submitted by Mr Schultz and Mr Tyndall’s Estate that each communication of a different “iteration” of the Submission amounts to a distinct cause of action, I do not consider that FCM should be prevented from relying on each iteration in that way. As I understand the position of FCM, it is that each of what it calls the “iterations” of the Submission was provided to the Federal Government by or with the approval of Mr Schultz, although it may not always be clear (from the documents themselves) through which corporate entity they were provided. Allowing the amendments to be made is likely, in my view, to make clearer the case that the defendants are required to meet and will facilitate the more efficient resolution of the matter at trial, even though it may result in additional costs being incurred by the defendants if they elect to prepare and file additional evidence to respond to the amended claim.

49    The evidence adduced at trial will include evidence that is relevant to the facts pleaded in the proposed additional paragraphs, and, if the amendments are not made, the defendants’ position will presumably be that FCM should not be permitted to rely on the facts pleaded in the proposed new paragraphs of the statement of claim as a basis for establishing its cause of action. In my view it would be consistent with the just resolution of the proceedings to allow FCM to rely on the proposed additional paragraphs not only in reply but in establishing its cause of action. Put another way, it would be less consistent with the just resolution of proceedings, and in my view somewhat artificial, if matters pleaded only in reply were established at trial, but could not be relied upon by FCM as establishing its cause of action, simply because the pleading appeared in its reply to the defence and not in the statement of claim.

50    FCM’s case is, and has been, that what it has called the “subsequent iterations” of the submissions were derived from the use of information obtained by Mr Schultz and Mr Tyndall in their role as directors of FCM. Given that the matters that FCM now seeks to plead in its further amended statement of claim have previously been at least substantially articulated by it in its reply, the defendants will not be substantially prejudiced by reason of being taken by surprise. I do not consider they will be prejudiced in a manner that should prevent leave being granted to FCM to further amend its amended statement of claim.

51    Given that the defendants may have made forensic decisions in respect of the evidence to be filed by them to date, they should be given the opportunity to file further evidence if they wish to do so in light of the further amended statement of claim, and I accept that there will be some cost to them if they elect to file further evidence. I do not expect that to be a prejudice that cannot be compensated or accommodated within the time available before trial.

52    Insofar as the defendants contend that the allegations in [47A] amount to an allegation of fraud and, as such, should be better particularised, FCM’s submission is that the falsity of the alleged warranty to the Federal Government as to the ownership of the intellectual property rights arises from the fact that the Improved Forest Management Methodology (IFMM) is pleaded to have been the intellectual property of FCM, and the fact that the warranty was given is apparent from the terms of each of the “iterations” of the Submission, so that the basis on which that plea is made should be apparent and should not come as a surprise to the defendants. FCM nevertheless submits that it is prepared to provide particulars if that is necessary to “join the dots”. It seems to me that that will assist in ensuring that FCM’s case is as clear as possible, and to assist in identifying the manner in which each of the representations to which reference is made in [47A] is said to have involved the giving of the alleged false warranty.

53    For these reasons, I granted leave to FCM to make the amendments that it described as “bringing forward” matters pleaded in the reply. As with the first category of amendments, The terms of my orders accommodate the incorporation of particulars of the proposed new [47A].

Amendments to include “particulars” earlier provided in correspondence

54    The third category of amendments are amendments by which FCM seeks to incorporate into the further amended statement of claim particulars that had previously been provided in response to requests made by the defendants. The amendments would insert into the amended statement of claim particulars to the existing [39], additional particulars to [55B.3.8], and one additional particular in relation to [55F.1B]. There is no objection to the incorporation of the further particulars in respect of [39].

55    In relation to the further particulars to be added to [55B.3.8] and [55F.1B], FCM submits that:

These amendments ought not be contentious given that all that is sought to be done is bring into one consolidated document particulars previously provided in correspondence without objection, in response to requests for further particulars. It has been a general practice of parties in the course of these proceedings that further particulars have been provided by all parties in correspondence rather than by way of formal amendment …

56    However, the amendments are contentious. Mr Schultz and Mr Tyndall’s Estate submit that the “particulars” previously provided are not truly particulars but are material facts. The line between material facts and particulars is one that is not always clear, but there is some force in this submission. Nevertheless, for the reasons that follow, I consider that FCM should be given leave to make the amendments in the third category.

57    It is necessary to appreciate the history of the part of the amended statement of claim to which this issue relates. In the First Joinder Judgment, O’Sullivan J determined to allow FCM to amend its statement of claim to include the proposed new [55A]-[55M], which now appear in the amended statement of claim. His Honour accepted that those amendments were important to FCM: First Joinder Judgment at [30]. Terra Carbon had then submitted that those amendments should not be permitted on the basis that they were insufficiently particularised. Justice O’Sullivan stated in the First Joinder Judgment (at [47]-[48]):

Terra Carbon submits it is not pleaded how it is that Terra Carbon and Geo Carbon were able to exploit a number of methodology determinations in consequence of the breach of fiduciary duty. It submits that the pleading is silent on material facts in circumstances where there are grave allegations made.

FCM submits that the matters about which complaint is made are the best that can be given pending further discovery and refer to the observations of Doyle J in Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd & Ors [2020] SASC 161 at [26]-[27] that courts routinely permit parties to plead cases with full particulars not provided until after discovery and that the appropriateness of that course in a given case depends upon the circumstances of the case and is a matter of fact and degree.

58    Justice O’Sullivan then said that he accepted FCM’s submission, but considered that there was, nevertheless, some force in Terra Carbon’s submission. His Honour concluded that he would not allow the proposed new [55B.3] and [55F] to be included in the amended statement of claim without FCM providing particulars, and that FCM should be permitted that opportunity prior to filing the amended statement of claim. That opportunity was later taken up by FCM and certain particulars were provided. Justice O’Sullivan’s acceptance of FCM’s submission suggests that he did not expect that the new paragraphs would be capable of being fully particularised before discovery was completed.

59    On 15 May 2024, the solicitors for Terra Carbon and Geo Carbon requested clarification and further particularisation of the allegations at [55B.3] and [55F]. On 17 May 2024, O’Sullivan J made orders consequent upon the First Joinder Judgment. On 20 May 2024, FCM filed its further amended originating process and amended statement of claim in accordance with those orders, incorporating some further particulars of the pleas at [55B.3] and [55F]. On 27 May 2024, O’Sullivan J made orders for further discovery as a result of the amendments. On 29 May 2024, FCM’s solicitors responded to the request for particulars by Terra Carbon and Geo Carbon to the effect that further particulars would be provided after discovery.

60    On 17 June 2024, Terra Carbon and Geo Carbon filed defences that pleaded that the allegations in [55B.3] and [55F] of the amended statement of claim were inadequately particularised and embarrassing. (Mr Schultz and Mr Tyndall’s Estate pleaded to those paragraphs of the statement of claim.) Following delivery of some further discovery to FCM and the delivery of FCM’s expert evidence, on 30 August 2024, FCM provided further particulars of [55B.3] and [55F] by correspondence. After that, there was no further correspondence from Terra Carbon and Geo Carbon that raised any objection to the particulars provided. The particulars provided on 30 August 2024 are the particulars that FCM now seeks to incorporate by its proposed further amendments.

61    I accept FCM’s submission that Terra Carbon and Geo Carbon have had notice of those particulars since the correspondence of 30 August 2024 and that, given the position now taken by them, there would be uncertainty at trial as to FCM’s case and the evidence it could adduce if the amendments are not permitted. Whether they are truly particulars or material facts, I consider that FCM should be permitted to include the proposed new “particulars” in its further amended statement of claim. That is consistent with the view already taken by O’Sullivan J that leave to amend should be permitted, to include [55A]-[55M] of the amended statement of claim, on the basis that further particularity would be provided subsequently: First Joinder Judgment at [48]-[53]. Even if the proposed new amendments are rightly regarded as pleading material facts rather than particulars, they do amount to better particularisation of the amendments for which O’Sullivan J gave leave. Not to allow these amendments would be to perpetuate uncertainty as to the scope of FCM’s case and, potentially, to effectively prevent FCM from being able to advance the case which O’Sullivan J previously found was important to FCM and which he considered FCM should be permitted to advance.

62    There is a kind of “Catch-22” here, which was recognised in the reasons of O’Sullivan J. FCM has provided some particularity but is not able to provide further particulars without receiving discovery. FCM has pleaded its case as far as it can, and more complete discovery has not been made to date on the basis that the defendants do not accept that adequate particulars have been provided.

63    I accept that (as discussed further below) the amendments will result in the defendants making further discovery. Indeed, that is largely the point of FCM’s application for leave to amend to include the particulars in the further amended statement of claim. FCM has indicated the scope of the discovery it seeks in relation to the subject matter of the amendments and that is addressed below.

64    I accept that the defendants may wish to, and will be entitled to, plead to the new “particulars”. FCM accepts that, having characterised the new paragraphs as particulars, the defendants are not obliged to plead to them. But in any case, there is still time within which responsive pleadings can be filed.

65    The defendants submit that the particulars will require the filing of further lay or expert evidence. I have carefully read the evidence of Mr Bonnell in relation to the nature and extent of the evidence which Mr Schultz and Mr Tyndall’s Estate would wish to file in relation to the issues raised by the proposed new paragraphs of the further amended statement of claim. I accept that his present expectation is that Mr Schultz and Mr Tyndall’s Estate would wish to file further evidence in support of their contentions, and that that evidence will be complicated and extensive. I accept that there is a risk that these steps may put the trial date in jeopardy. It is difficult for me to assess how likely that is. I accept that it is a real risk but it is far from clear that the effect will be that the trial will be unable to proceed.

66    FCM has indicated that it will not itself seek to file further evidence in relation to this issue. I also accept FCM’s submission that the particulars which FCM now seeks to include in the statement of claim were provided (on 30 August 2024) before the filing of the lay evidence by Mr Schultz and Mr Tyndall’s Estate on 11 September 2024 and the filing of expert evidence by Terra Carbon and Geo Carbon on 4 October 2024. The defendants had not indicated their objections to the particulars before filing their evidence and did not seek an extension of the time within which to file their evidence in the light of the particulars. In the absence of any articulated objection, FCM was entitled to expect that its case would be taken to include the particulars provided by it in correspondence. While I accept that the steps the defendants foreshadow taking if these amendments are allowed will give rise to costs, I accept FCM’s submission that that is not a sufficient reason to prevent FCM from particularising its case.

67    In any case, the defendants will be permitted to file any further lay and (if necessary) expert evidence on which they seek to rely as a result of these amendments. The evidence can be prepared in parallel with the making of further discovery.

68    I am not satisfied that allowing the amendments to be made will impact on the Referee process.

Cleanfin’s Application for leave to commence proceedings on behalf of FCM against the three additional defendants

69    On 28 February 2025, I made orders in action SAD 11 of 2022 to the effect of those set out at the beginning of this judgment. These are my reasons for making those orders.

70    Because action SAD 87 of 2022 is a derivative action brought by CleanFin in the name of FCM pursuant to leave granted under s 237 of the Corporations Act 2001 (Cth), CleanFin requires leave to bring proceedings against the three proposed additional defendants. Section 241 of the Corporations Act provides that the Court may make any orders it considers appropriate in relation to a proceeding commenced with leave under s 237. The Court may amend a previous grant of leave without re-considering whether the requirements of s 237 are met: see Lees v Connective Services Pty Ltd (2019) 346 FLR 323; [2019] VSCA 143 at 343-4 [101]-[102].

71    I have, in any event, also considered the requirements of s 237 and I am satisfied that those requirements are met. The reasons why the Court originally regarded it as appropriate that CleanFin be permitted to bring the derivative action also make it appropriate to grant leave to CleanFin to bring the action against the proposed additional defendants. Given that I have determined that it is otherwise appropriate to grant leave to join them as defendants in action SAD 87 of 2022, the leave sought by CleanFin in action SAD 11 of 2022 should also be granted.

72    The draft ATE insurance policy that has been the subject of negotiation and agreement between the parties does not name FCM as an insured, because the defendants considered that that would impose obligations on FCM to which it had not consented. The proposed ATE insurance does cover liability for any adverse costs orders incurred by FCM, even though it is not named as an insured under the policy. The orders made on 3 May 2022 in action SAD 11 of 2022, granting CleanFin leave to bring the derivative action in the name of, and on behalf of, FCM, were made on the basis of an undertaking given by Noble Investments Pty Ltd (in its capacity as trustee of the Noble Investments and Consulting Services Trust) and Timothy Owen Lebbon that FCM would be named as an insured in any ATE insurance policy acquired by CleanFin. I am satisfied that it is appropriate to release them from that undertaking on the basis that they undertake instead that, if any ATE insurance is acquired by the CleanFin, FCM’s liability for any adverse costs in action SAD 87 of 2022 will be insured by the policy.

FCM’s application for further discovery

Introduction

73    On 18 March 2024, a registrar of the Court ordered that the defendants make discovery of particular categories of documents in accordance with a “Redfern schedule”. On 27 May 2024, orders were made requiring the parties to confer on any further categories of discovery in relation to issues arising from any amended pleadings. By its interlocutory application filed on 29 November 2024, FCM seeks orders for the first to fourth defendants to make further and better discovery of two categories of documents which they were required discover pursuant to the registrar’s orders made on 18 March 2024.

74    FCM contends that the defendants’ discovery to date has been inadequate, having regard to the particular electronic searches that were undertaken to identify the documents, and has set out the particulars of further searches which they contend the defendants should be required to perform. These appear in schedule A to the affidavit of Andrew Nathan Tarnowskyj made on 29 November 2024. This is the first category of discovery orders sought.

75    Secondly, FCM seeks orders for further discovery by the defendants of documents falling within eight additional categories, which arise from the amended statement of claim. These categories of documents are identified in schedule B to Mr Tarnowskyj’s affidavit of 29 November 2024.

76    Finally, FCM seeks discovery by Mr Schultz and Mr Tyndall’s Estate of a further category of documents identified in schedule C to Mr Tarnowskyj’s affidavit of 29 November 2024.

Further and better discovery of documents the subject of orders made on 18 March 2024

77    FCM seeks further discovery of two categories of documents in its application for further and better discovery pursuant to the orders of 18 March 2024. FCM contends that the discovery made to date is inadequate on the basis that the electronic searches conducted are unduly narrow.

78    The first category of documents sought (category 10) is described as comprising documents created from 1 May 2013 comprising any material used for promotion or marketing, media statements or other communications with existing or potential clients or investors that refer to (a) Mr Schultz, Terra Carbon or Greencollar as being the author of the Determination; (b) Mr Schultz, Terra Carbon or Greencollar as having expertise regarding the Determination; and/or (c) the relationship between the Determination and generation of Australian Carbon Credit Units (ACCUs). Discovery of these documents is sought only from Terra Carbon and Geo Carbon.

79    The second category (category 14B) concerns “documents recording the origination, development, preparation and submission of the Submissions or the Further Submissions”. Discovery of these documents is sought from all defendants.

80    Discovery in relation to both categories was first provided in April 2024. FCM sought and was provided with information about the searches that had been conducted. After the exchange of further correspondence, the defendants have declined to conduct further searches.

81    In relation to the first category of documents (category 10), I accept FCM’s submission that it is reasonable to infer that other employees of Terra Carbon and Geo Carbon were involved in communications with existing or potential clients and/or investors, and that not all communications in this category will necessarily have been captured by searches of Mr Schultz’s and Mr Tyndall’s email addresses. The searches conducted to date, insofar as they involve email mailboxes, have been limited to the work email accounts of Mr Schultz and Mr Tyndall. (I understand that, in addition to those two mailboxes, databases were also searched.) The evidence adduced by Terra Carbon and Geo Carbon suggests that the order sought by FCM would require that at least 30 further email accounts be electronically searched. The searches can be conducted so as to exclude from the pool of documents to be considered those which are duplicates of the documents that have already been discovered. I consider that the conduct of the further proposed searches is necessary to ensure compliance with the orders made on 18 March 2024 and I do not think the conduct of the further searches would be oppressive. The extent of the labour involved can generally be expected to be proportionate to the number of relevant documents that might be expected to be identified by the further searches.

82    In relation to the second category of documents (category 14B), FCM’s complaint relates to the search terms used. I accept FCM’s submissions that the search terms used by the defendants to date have largely (though not solely) consisted of the names of certain persons and entities involved in preparing or receiving the submissions and have not been directed to keywords that would identify documents that do not use those entities’ names and which relate to the development and preparation of the submissions themselves. The proposed search terms are designed to capture documents of the latter kind. The evidence adduced by Terra Carbon and Geo Carbon is to the effect that the proposed keyword searches have been conducted and would result in the identification of around 4,000 documents for review. While this will involve a considerable amount of work, this category of documents is central to FCM’s case.

83    For these reasons, I will order that the defendants make further and better discovery by conducting searches in the terms appearing in schedule A to the affidavit of Mr Tarnowskyj made on 29 November 2024. To the extent that it is possible to exclude from the search results duplicates of documents already identified by previous searches and reviewed for relevance, it is not intended that the defendants should be required to review those documents again.

Discovery of eight categories of documents pursuant to orders made on 27 May 2024

84    In relation to the further discovery sought from the defendants arising from the amended statement of claim (the subject of orders made by O’Sullivan J on 27 May 2024), FCM initially sought discovery of ten categories of documents, as set out in schedule B to the affidavit of Mr Tarnowskyj dated 29 November 2024. The application for discovery is not pressed in relation to two of those categories (identified as categories 7 and 8), leaving eight proposed categories to be considered.

85    The first two categories consist of documents (limited by date ranges) referring to the reasons behind or purpose of the incorporation of Geo Carbon and concerning the appointment or resignation of Geo Carbon’s directors, and the associated transfer of shares held by previous directors to another company. For Terra Carbon and Geo Carbon it is submitted that the searches already conducted in making earlier discovery included references to Geo Carbon, so that relevant documents would have been captured by those searches. While that is true, I accept FCM’s submission that that earlier discovery was not directed to the “alter ego” plea relating to Geo Carbon – so that, while documents relevant to that issue were likely captured by the search terms used previously, some of those documents may not have been assessed, at that time, as relevant to any issue then arising on the pleadings. I accept that these categories of documents are directly relevant issues that arise on the pleadings and should be the subject of discovery. I accept that there will be time and cost associated with this, but do not regard it as oppressive. Any documents that have already been discovered can be excluded from the review.

86    Next, FCM seeks discovery of documents created, sent or received between 18 November 2011 and 5 February 2013 comprising agendas or minutes of board meetings for Geo Carbon (including drafts) and any resolutions or communications made by directors of Geo Carbon regarding those meetings (identified as category 3). These documents are relevant to FCM’s allegation that Geo Carbon was the alter ego of Mr Schultz and Mr Tyndall. The documents sought will tend to evidence control or influence of Mr Schultz and Mr Tyndall. The precise effect of the evidence as to the number of documents that might be expected to be identified in this category is not entirely clear, but the description of the category is such that the documents should be relatively few in number, and relatively easy to identify and discover (if they have not already been discovered). I consider that discovery should be made of this category of documents.

87    Next, FCM seeks discovery in relation to all communications between Terra Carbon and parties who entered into project development agreements with Terra Carbon in respect of which the Determination was used to generate ACCUs, prior to those parties entering into the agreements (identified as category 4). Documents in this category are said to be relevant to FCM’s allegation, in [39] of the amended statement of claim, that “the opportunity to submit a proposed methodology for approval was a valuable commercial opportunity”. I accept that some of the communications sought may be relevant to that issue. The plea in [39] does not relate to any conduct alleged to have been engaged in by Terra Carbon, but its conduct is naturally likely to demonstrate whether there was a commercial value arising from being identified as the proponent of the Determination. Making this discovery would require a review of the email accounts of up to ten employees (retrieved from archive). The evidence of Emma Lee-Ann Isles, one of the solicitors for Terra Carbon and Geo Carbon, indicates that few documents are likely to be discovered because most communications were not in writing. However, even if the number of documents ultimately discovered is relatively few, I accept that discovery of this category of documents (depending on their content) will tend to evidence whether there was commercial benefit in Terra Carbon being the proponent of the Determination. I will order that discovery be made in relation to this category.

88    The next two categories of discovery sought by FCM (identified as categories 5 and 6) are “any procedures, manuals, standard operating procedures or similar documents, recording systems or procedures for assessing, scoping, initiating and conducting projects” using the methodology determinations referred to in paragraphs [55B] and [55F] of the amended statement of claim, and “documents recording Terra Carbon and/or Geo Carbon’s practice of creating a shortfall between the quantity of ACCUs to be delivered under carbon abatement contracts … and the amount of ACCUs expected to be generated from … projects utilising the Determination”. Both categories are said to be relevant to FCM’s allegation that, as a result of the commercial exploitation of the Determination, the defendants were able to exploit other methodology determinations. I accept that they appear to be directly relevant to that issue and I accept FCM’s submission that material produced to the Referee indicates that documents of the kinds sought are likely to exist. These seem to me to be broadly described categories. However, FCM submits that “we do not want every musing of a junior level person about marketing materials”; rather what is sought is “reporting of some nature … that goes to senior management or the board”. On the basis that these two categories of documents are understood as limited to that material, I consider that discovery of them should be made. I think it is appropriate to incorporate that limit in the terms of the orders that are made in relation to both these categories. FCM has already proposed a limit in relation to category 6 and I will likewise limit the discovery to be made in relation to category five to “records created or maintained at a senior management or Board level”.

89    Next, FCM seeks discovery of internal reporting on marketing efforts in connection with projects utilising the methodology determinations pleaded at [55B.3] and [55F] of the amended statement of claim (identified as category 9). These documents are said to be relevant to the causal connection (pleaded by FCM) between the exploitation of the first Determination and the exploitation of the later methodology determinations pleaded at [55B.2], [55B.3] and [55F] of the further amended statement of claim. It appears to me that the defendants’ opposition to the discovery of these documents on the basis of relevance is based on an unduly technical reading of [55B.2] of the amended statement of claim. That paragraph pleads that Mr Schultz, Mr Tyndall, Terra Carbon and Geo Carbon “were able to market the business of Terra Carbon and Geo Carbon as having expertise generally in relation to the commercial exploitation of methodology determinations …”. I would read this as extending to an allegation that the business was in fact marketed in that way. FCM has limited this category to documents at senior management or board level and has made it clear that it does not seek a search of the emails of the marketing team. Limited in that way, the category is targeted and I do not think the discovery sought is oppressive.

90    Next, FCM seeks discovery of communications with parties who entered into project development agreements with Terra Carbon in respect of which the methodology determinations pleaded at [55B.3] and [55F] of the amended statement of claim were used to generate ACCUs, prior to those parties entering into the agreements (identified as category 10). This is, in effect, an extension of the discovery sought by category 4 but in respect of the additional methodology determinations pleaded at [55B.3] and [55F] of the amended statement of claim. For the same reasons identified in relation to category 4, I accept that communications between Terra Carbon and parties entering into project developments are likely to be probative of whether Terra Carbon marketed itself as having the expertise pleaded by FCM, and discovery of this category of documents should be made.

Discovery of further documents relevant to the defence of Terra Carbon and Geo Carbon

91    Finally, FCM also seeks discovery, from Mr Schultz and Mr Tyndall’s Estate, of further documents identified in schedule C to the affidavit of Mr Tarnowskyj’s affidavit dated 29 November 2024. That category is described as follows:

In relation to the schedule to the letter of Henry William Lawyers dated 25 October 2024, documents created, received or sent that concern, refer to, or record or constitute a communication about:

•    the “workshopping” and “initial opportunities” referred to in paragraph 1;

•    the “tax concessions” referred to in paragraph 2;

•    the “research[]” referred to in paragraph 3;

•    the “identif[ication]” and “assess[ment]” referred to in paragraph 4;

•    the “drafting” referred to in paragraph 5;

•    the “investigati[on]” referred to in paragraph 6;

•    the “call[s]”, “meeting[s]” and “pitch” referred to in paragraph 8;

•    the “lobbying” referred to in paragraph 11;

•    the “feasibility work” referred to in paragraph 13;

•    the “present[ations]” referred to in paragraph 15;

•    the “marketing activities” referred to in paragraph 18;

•    the “consider[ation]” referred to in paragraph 21.

92    The letter of 25 October 2024 to which reference is made is a letter of the solicitors for Mr Schultz and Mr Tyndall’s Estate, by which particulars were provided of the basis on which Mr Schultz and Mr Tyndall’s Estate claim to be entitled to an equitable allowance in the event that they are otherwise liable to make an account of profits. FCM submits that Mr Schultz and Mr Tyndall’s Estate bear the onus of showing that they should not account for the full value of any advantage obtained in breach of fiduciary duty by proving their entitlement to an allowance for costs incurred, and labour and skill employed.

93    The particulars sought, and the categories of documents now sought by way of discovery, relate to affidavit evidence filed to date, which consists of fairly general assertions by individuals as to their personal exertions, unsupported by documentary evidence. No discovery has so far been made in relation to this issue.

94    I accept FCM’s submission that these are matters otherwise within the knowledge of the defendants’ witnesses and that, without discovery, FCM will be limited in its capacity to test the evidence that Mr Schultz and Mr Tyndall’s Estate propose to adduce on this part of their case. FCM conceded that the task of making discovery may be substantial, but pointed out that this is the consequence of the way the Mr Schultz and Mr Tyndall’s Estate have advanced their own case. I accept that submission. Discovery should be made by Mr Schultz and Mr Tyndall’s Estate in relation to this issue.

Defendants’ applications relating to security for costs

95    The defendants have filed interlocutory applications seeking orders relating to the provision of further security for costs by FCM. To date, FCM has paid $650,000 into court as security for the costs of the first, second and third defendants, comprising:

(a)    $400,000 for the costs of Mr Schultz and Mr Tyndall (and subsequently Mr Tyndall’s Estate); and

(b)    $250,000 for the costs of Terra Carbon.

96    No security for the costs of Geo Carbon has been provided to date. It will be recalled that Geo Carbon was joined as the fourth defendant in May 2024 (after the two previous orders requiring the provision of security for costs had already been made).

97    The question of further security has been the subject of an exchange of correspondence between the parties. As a result, the issues remaining between the parties in relation to the provision of further security for costs are relatively narrow.

98    In correspondence dated 10 December 2024, FCM proposed to provide further security for the costs of the defendants by way of an ATE insurance policy with an anti-avoidance endorsement (AAE), with that security to be provided in stages. Following correspondence between the parties, including in relation to the defendants’ estimates of expected recoverable future costs of the litigation, FCM proposes to provide $1.6 million by way of security for the costs of Mr Schultz and Mr Tyndall’s Estate, and to provide $3.2 million by way of security for the costs of Terra Carbon and Geo Carbon. The effect of the proposed arrangements is described by FCM in its submissions as follows:

The effect of the arrangements to be put in place is that any liability of the plaintiff to pay adverse costs will be insured for up to $5 million as soon as the policy is issued. An AAE, which makes the ATE insurance policy non-voidable, irrespective of any exclusions, and provides the defendants, as “Third-Party Policyholders”, with an unconditional and directly enforceable indemnity for their costs to the value of $3 million (being $1 million to the first and second defendants and $2 million to the third and fourth defendants), will also be issued upon the inception of the policy. The value of the AAE [will] increase to $4.8 million (being $1.6 million to the first and second defendants and $3.2 million to the third and fourth defendants) in two further tranches of $900,000 leading up to trial.

99    FCM proposes that the security to be provided by the ATE insurance ought to be coupled with orders releasing to FCM the funds it had previously paid into court, save for $50,000 in respect of Mr Schultz and Mr Tyndall’s Estate (ie, a release of $350,000) and $140,000 in respect of Terra Carbon (ie, a release of $110,000).

100    The defendants are prepared to accept FCM’s proposal for the provision of further security by way of ATE insurance, but contend that FCM should not have released to it any of the funds it has already paid into court. The remaining issue to be resolved, then, is whether some of the funds already paid into court should be released to FCM, and if so, what amount should be released to FCM. Although the parties approached the argument in this way, the practical effect of resolving this issue one way or another will be to determine the total quantum of the security to be provided.

101    As I understand it, the ATE insurance policy that has been negotiated (which is presently in draft form) requires that FCM ensure that the “Limit of indemnity” is “not materially less” than costs estimates provided by the defendants. This was a requirement insisted upon by the insurer. FCM generally has not disputed the estimates of costs provided by defendants prior to the negotiation of the ATE insurance policy. It points out that it has taken that position in order to avoid unnecessary dispute, and not because it accepts that the estimates are correct. Nevertheless, the defendants’ estimates are the only evidence of their likely costs.

102    In correspondence dated 12 August 2024, at a stage when the ATE insurance policy was being negotiated, the solicitors for Mr Schultz and Mr Tyndall’s Estate stated that their cost estimate through to the end of the trial was $1.62 million. FCM submits that the $1.6 million of cover in respect of the costs of Mr Schultz and Mr Tyndall’s Estate was sought and obtained on the basis that their estimated costs were $1.62 million and that the ATE insurance policy (as well as $50,000 of the funds already paid into court) would sufficiently cover those estimated costs.

103    For the following reasons, I will not order that any part of the funds that have already been paid into court as security for costs be returned to FCM.

104    First, I accept the defendants’ submissions that it has not been shown that there is any change of circumstances that makes it appropriate to alter the orders previously made by O’Sullivan J. I cannot see that the situation is materially different from that which Perram J considered in Bonham as trustee for the Aucham Super Fund v Iluka Resources Ltd [2019] FCA 1693. Justice Perram said (at [12]-[13]):

… I accept that when the issue of security for costs arose the Applicant was very much without the wherewithal to suggest an alternative form of security and as August 2019 approached the weakness of his position only deteriorated further. However, that was the situation in which the Applicant found himself which was not the Respondent’s fault. Consequently, his decision to agree to put up security in cash was not vitiated by concepts such as duress or unconscionable behaviour on the part of the Respondent. It was a considered decision made in difficult circumstances which were not of the Respondent’s making.

The question then is whether I should relieve the Applicant of the consequences of his decision by permitting a revocation of the order to which he formerly consented. I do not regard the fact that the Applicant’s circumstances have improved (in the sense that he now has the Funder in his corner) as constituting a sufficient change in circumstances to warrant a revisiting of the interlocutory consent order which has been made. Whilst there is always jurisdiction to recall an interlocutory order, generally some sufficient change of circumstances needs to be shown before that course can be taken: Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47 per McLelland J. If there was some suggestion that the consent order had involved some wrongful conduct on the part of the Respondent then the matter might be different. But here all that has happened is that the Respondent has vigorously pursued its entitlement to security for costs and the Applicant, to avoid the loss of the entire suit, has paid the security into Court. The bargain made by the Applicant, in light of my conclusions on issue (a), was not perhaps the best bargain viewed in the rear vision mirror. However, the jurisdiction to revisit interlocutory orders is not enlivened just because one party comes to the view that the bargain it reached was not a good one.

105    In the present case, the only change in circumstances that FCM has identified is that it has now negotiated the terms of the ATE insurance policy. I was not taken to any evidence as to whether the provision of ATE insurance had been explored, or why security in that form had not been proposed, when the issue of security for costs first arose and was argued and decided. Apart from the fact that FCM itself (or CleanFin on its behalf) has now taken the step of obtaining the ATE insurance has now been obtained by FCM, it is not clear that there has been any relevant change of circumstances.

106    I note that, prior to O’Sullivan J making the first order for security for costs, FCM had proposed an alternative form of security: see First Security Judgment at [58]-[71]. Justice O’Sullivan rejected that proposal and made orders requiring that security be provided by way of an irrevocable bank guarantee or payment of funds into court: First Security Judgment at [71]. It would potentially have been open to FCM at that time to seek to arrange for the provision of security by way of insurance of the kind now proposed, but it did not do so. I also note that the grant of leave to CleanFin to bring the derivative action on behalf of FCM was granted on the giving of an undertaking that appeared to contemplate the possibility of obtaining of ATE insurance.

107    FCM submits that “[a] change in financial circumstances, including by the availability of external funding for adverse costs, may be a relevant change in circumstances”, referring to Austcorp Project No 20 Pty Ltd v Trust Co (PTAL) Ltd [2015] FCA 850 (Austcorp) at [11]-[13] and Bakers Investment Group (Aust) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 154 (Bakers) at [17], [19]. In Austcorp, the relevant change in circumstances was the “loss” of a litigation funder. In Bakers, new access to financial support from a litigation funder meant that the financial position of the plaintiff had materially changed; the litigation funder stood to gain from the litigation, and that was regarded as reinforcing the conclusion that security for costs should be ordered. In this case, it is not established that there has been any relevant external circumstance that has changed; only that FCM has now negotiated the ATE insurance policy.

108    I do not consider that I should vary the orders previously made in relation to the security for costs that has already been provided by FCM. The litigation has proceeded to this point on the basis that security for the costs incurred up to the mediation was to be provided, in accordance with O’Sullivan J’s orders, by way of payment into court or bank guarantees.

109    Secondly, the orders now to be made in relation to security are intended to cover all the costs up to and including the listed trial of the matter, which is three months away. Absent some extraordinary development, this will be the last order made in relation to security for costs. For reasons explained above, I have granted FCM’s application for leave to further amend its amended statement of claim and to join three additional defendants. It is difficult for me to make any realistic assessment of the likely quantum of additional costs to which those amendments will give rise, but I accept that the making of the amendments will occasion additional costs for the existing defendants that are not insignificant. I note that Terra Carbon and Geo Carbon have estimated that the additional costs resulting from the amendments may be in the order of $180,000. I do not think it is necessary to make a prediction or finding about the precise amount of additional costs, but I accept that preparation of the foreshadowed further evidence, and compliance with the further discovery orders which I have indicated I will make, will result in the defendants incurring substantial additional costs. In my view, the total amount of security as a result of the ATE insurance policy and the funds already paid into court is, on a broad-brush view, an appropriate amount of security overall.

110    Thirdly, it is difficult for me to assess FCM’s submission that an extraordinary amount of security has been provided “for a case of this kind”. While FCM does not necessarily accept that the defendants’ costs estimates are accurate, it has also made no direct challenge to them. Although the estimated costs are certainly significant, there is concrete evidence of significant costs already having been incurred and I do not regard the estimates provided in relation to the future conduct of the litigation as improbable.

111    Fourthly, although FCM has submitted that it is intended to use the release of funds previously paid into court in order to fund the payment of premiums for the proposed ATE insurance policy, it is not suggested that its capacity to pay those premiums is dependent on its ability to access the funds paid into court.

112    Fifthly, I accept the defendants’ submission that payment of funds into court is the best form of security, although I do not give this much weight because there is nothing to suggest that there is any particular concern regarding risk associated with the provision of security by way of the proposed ATE insurance policy. Indeed, the defendants (albeit, as they say, “with a view to narrowing the issues in dispute”) have accepted that the proposed ATE insurance is an adequate form of security.

113    In deciding whether to release the funds already paid into court, I have not given weight to the revised estimate given by Mr Bonnell as to the future costs that are likely to be incurred by Mr Schultz and Mr Tyndall’s Estate. While I do not doubt that his evidence represents his genuine estimate of the future costs, I accept the force of FCM’s submission that the ATE insurance was negotiated on the basis of the estimate of $1.62 million which was previously provided by Mr Schultz and Mr Tyndall’s Estate, and no explanation has been provided as to the difference between that earlier estimate and Mr Bonnell’s revised, higher estimate. I do not think it would be fair to give great weight to this revised estimate for the purpose of increasing the total quantum of security, when FCM had proceeded to negotiate the ATE insurance policy on the basis of the earlier estimate.

114    Nevertheless, for the combination of the reasons given above, I am not satisfied that it is desirable that the sums previously paid into court be released.

115    The parties are otherwise in agreement as to the form of security for costs that should be given. It is appropriate to make orders that FCM provide security for costs by reference to the arrangements for ATE insurance described in the affidavit of Mr Tarnowskyj made on 24 December 2024.

Associate:

Dated:    6 March 2025

SCHEDULE OF PARTIES