Federal Court of Australia

London City Equities Ltd v Excelsior Capital Ltd [2025] FCA 285

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff have leave to file an amended originating process and an amended concise statement substantially in the form of annexures CR1 and CR2 to the affidavit of Caitlin Ryan sworn 25 February 2025.

2.    The plaintiff pay the costs of the first defendant thrown away by reason of the amendments.

3.    The parties recorded as second to fifth defendants in the amended originating process be joined to the proceeding as the second to fifth defendants respectively.

4.    With regard to the costs of the plaintiff’s interlocutory application for leave to amend filed 26 February 2025, the first defendant’s costs of the application be costs in the cause and the plaintiff pay its own costs of the application.

5.    By 28 March 2025, the plaintiff file and serve on the first defendant the amended originating process and amended concise statement referred to in order 1 in a “clean” version, ie not distinguishing the amendments by way of tracked changes in the usual way, and serve on the first defendant a copy of the amended processes in a “tracked” version, ie distinguishing the amendments in the usual way.

6.    The plaintiff serve the amended originating process and amended concise statement as filed and a copy of these orders on the second to fifth defendants forthwith.

7.    By 4 April 2025, the first defendant serve any request for further particulars of the amended concise statement from the plaintiff.

8.    By 11 April 2025, the plaintiff serve its response to the first defendant’s request for further particulars.

9.    By 24 April 2025, the first defendant file and serve its amended concise response and the second to fifth defendants file and serve their concise responses to the amended concise statement.

10.    By noon on 1 May 2025, the plaintiff file and serve any concise statement in reply.

11.    The proceeding be listed for case management on 2 May 2025 with a view to listing the final hearing and programming the steps to be taken for it to be ready for final hearing.

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

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from transcript)

STEWART J:

Introduction

1    The plaintiff, London City Equities Ltd, seeks leave to file an amended originating process and an amended concise statement which would have the effect of amending the currently pleaded claims against the defendant, and joining four further defendants and pleading claims against them. The defendant, Excelsior Capital Ltd, opposes leave being granted.

2    Both the plaintiff and the defendant are listed on the Australian Securities Exchange (ASX). When the proceeding was commenced, the plaintiff owned approximately 7.95% of the shares in the defendant. It has subsequently increased its shareholding to approximately 8.9%.

Applicable principles

3    It is common ground that the plaintiff requires leave to make the amendments. The making of an application for such leave is provided for in r 16.53 of the Federal Court Rules 2011 (Cth) (FCR).

4    The onus is on the party seeking leave to amend to persuade the court that such leave should be given: Dye v Commonwealth Securities Ltd (No 2) [2010] FCAFC 118 at [17] per Marshall, Rares and Flick JJ. An application for leave to amend should not be approached on the basis that a party is entitled to raise an arguable claim, subject to the payment of costs thrown away: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 at [111]. Limits will be placed upon the ability of parties to effect changes to their pleadings, particularly if litigation is advanced and they have had a sufficient opportunity to identify the issues they seek to agitate: Aon at [112]. Other factors identified in Aon at [5], [30], [71], [93]-[95], [98], [102], [103] and [112]-[114] include:

(1)    prejudice to another party that cannot be adequately compensated by an award of costs, which would include the inevitable prejudice of unnecessary delay where that exists;

(2)    inefficiencies in the use of the court as a publicly funded resource arising from the vacation or adjournment of trials and the effects of delay on other litigants;

(3)    the explanation for any delay in applying for leave to amend;

(4)    the need to maintain public confidence in the judicial system, which has a potential to be lost where a court is seen to accede to applications made without adequate explanation or justification;

(5)    the objective of doing justice between the parties and to other litigants;

(6)    the objective that the pleadings identify the “real” issues between the parties;

(7)    the overriding purpose of the civil practice and procedure provisions in s 37M of the Federal Court of Australia Act 1976 (Cth), namely to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible; and

(8)    the nature and the importance of the amendments to the party that is seeking them.

5    The defendant refers to Tamaya Resources Ltd v Deloitte Touche Tohmatsu [2016] FCAFC 2; 332 ALR 199 as authority for the need for the party seeking leave to amend to explain the importance of the amendments, and the reasons for the delay. However, those matters are covered by the considerations extracted above from Aon and do not assume any greater importance for having been identified in Tamaya. Tamaya also refers to considering whether the proposed amendments are “frivolous or unimportant” or “substantive”: at [85] per Gilmour, Perram and Beach JJ.

6    It is common ground that the proposed four new defendants can be joined as defendants by court order under r 9.05 of the FCR. No issue arises with regard to the proposed joinder that are separate from the defendant’s opposition to leave to amend being granted. Rightly, the proposed pleadings have not been served on the proposed new defendants and they have not sought to be heard on the application.

The proceeding to date

7    The proceeding was commenced on 26 April 2024. The substantive relief sought in the originating process is that the defendant be wound up either on just and equitable grounds pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) or because its affairs are being conducted in a manner which is contrary to the interests of its members as a whole or oppressive or unfairly prejudicial to the plaintiff and other members of the defendant pursuant to s 233(1)(a) and/or ss 461(1)(e), (f) and/or (g) of the Corporations Act.

8    The plaintiff’s concise statement, which accompanied its originating process, relevantly sets out the basis for that relief. In essence, the plaintiff pleads that Ms Leanne Catelan has been the sole executive director of the defendant, and, through entities owned and controlled by her, the majority shareholder of the defendant at all material times.

9    It is alleged that Ms Catelan has used her controlling interests in the defendant to pass a resolution of members to change its principal business (from being the supply of electrical components, which it conducted through its wholly owned subsidiary, CMI Operations Pty Ltd) to an “Investment Entity” as described on the ASX. It then sold CMI and invested or retained the proceeds of sale without paying a dividend to members.

10    It is pleaded that the recorded net tangible assets of the defendant per share significantly exceeds the price at which the defendant’s shares are quoted on the ASX and that there is additional substantial value in franking credits held by the defendant. In essence, it is averred that the conduct of Ms Catelan, as controlling shareholder, has prevented and is preventing the plaintiff and other members from realising the true value of their shareholding.

11    Finally for present purposes, it is pleaded that the conduct of the defendant’s affairs to the prejudice of its members means that it is just and equitable that the defendant be wound up or that it is appropriate that the defendant be wound up pursuant to the statutory provisions already mentioned.

12    The defendant filed a concise response on 31 May 2024 in which it disputes that there is a basis for the relief sought by the plaintiff. In its concise response, the defendant disputes that there is a basis for the relief sought by the plaintiff. It also denies that the plaintiff is suffering harm from its continued shareholding in the defendant and pleads that the plaintiff has at all times been able to sell its shares in the defendant on the ASX but has instead increased its shareholding since the relisting of the defendant as an Investment Entity and since the commencement of the proceeding.

13    On 20 June 2024, the then docket judge ordered that the plaintiff serve its evidence by 1 August 2024, the defendant serve its evidence by 29 August 2024 and the plaintiff serve any evidence in reply by 12 September 2024. The plaintiff served an affidavit of Peter Murray on 14 August 2024 and an affidavit of Warwick Sauer on 26 August 2024. Both those affidavits were late and no expert evidence was served.

14    At a case management hearing on 19 September 2024, the plaintiff indicated that it wished to serve expert evidence. Pushing out the original timetable by about eight weeks, I ordered that the plaintiff serve its expert evidence by 17 October 2024 and that the defendant serve its lay evidence by 31 October 2024. I also listed the proceeding for case management on 15 November 2024 with a recorded intention to list the matter for trial and program the remaining matters to be attended to including any expert evidence from the defendant and any discovery.

15    The plaintiff failed to serve its expert evidence on time. At the case management hearing on 15 November 2024, I ordered that the plaintiff serve its expert evidence by that day to regularise the service that had recently occurred and I extended the time for the defendant to serve its lay evidence to 20 December 2024 and its expert evidence to 28 February 2025 – that meant that the evidence would be complete six months after what had originally been ordered. I listed the next case management hearing for 14 February 2025, again with a view to listing the matter for trial. I note in passing that the plaintiff does not seem to have filed its expert evidence although it did apparently serve it.

16    On 19 November 2024, the plaintiff filed a notice of change of solicitor. The new solicitor did not receive the file from the previous solicitor until 28 November 2024.

17    On 12 February 2025, I made orders by consent in chambers vacating the case management hearing on 14 February 2025, and providing for a program for the plaintiff to serve its proposed amended originating process and proposed amended concise statement.

18    It is explained that between the plaintiff changing its solicitor shortly after the previous case management hearing on 15 November 2024, the new solicitor and new counsel took a fresh look at the proceeding and decided that changes should be made to the pleadings, including that new relief requiring the joinder of additional parties should be sought. Those are the changes that are reflected in the proposed amended pleadings which were served on the defendant in the middle of February 2025. Most of the time between the new solicitor going on record and service of the amended pleadings is explained by the customary long end-of-year break.

The proposed amendments

19    The proposal is to join the following defendants:

(1)    As the second defendant, Ms Catelan;

(2)    As the third defendant, Danny Herceg – although it is not pleaded on what basis Mr Herceg is sought to be joined, he is a director and the chairman of the defendant;

(3)    As the fourth defendant, Catelan Securities Pty Ltd which is pleaded to be an associated entity of Ms Catelan; and

(4)    As the fifth defendant, Leanne Catelan Superannuation Fund Pty Ltd which is also pleaded to be an associated entity of Ms Catelan.

20    The principal amendments to the relief that the plaintiff are seeks the addition of the following prayers in the originating process:

(1)    Alternatively to the winding up of the defendant, an order pursuant to s 233(1)(d) of the Corporations Act requiring the proposed second, fourth and fifth defendants (ie Ms Catelan and her associated companies) to purchase the shares of the plaintiff “at a price reflecting the underlying net tangible assets of the company as at the completion of the sale of CMI … plus franking credits held by the company”;

(2)    Alternatively, an order pursuant to s 233(1)(c) that the defendant “pay a fully franked (to the extent possible) dividend for ordinary shareholders representing the entirety of the net proceeds from the sale of CMI”;

(3)    Alternatively, an order pursuant to ss 233(1)(c) or (j) requiring Ms Catelan and Mr Herceg to “put and vote in favour of a directors’ resolution to declare a fully franked dividend (to the extent possible) representing the entirety of the net proceeds from the sale of CMI”; and

(4)    Alternatively, an order pursuant to ss 233(1)(d) or (j) that the proposed fourth and fifth defendants (ie Ms Catelan’s associated companies but not her) purchase the shares of the plaintiff “at a rate of 2.9% of the total share capital per 6-month period at a price reflecting the underlying net tangible assets of the company as at the completion of the sale of CMI … plus franking credits held by the company, until such time as the plaintiff’s shareholdings as at the date of the order have all been acquired.”

21    The principal proposed amendments to the concise statement expand the facts which it is said justify a finding of oppression under s 232 and which are then said to justify the various formulations of the relief that is sought under s 232 as an alternative to winding up under s 461(1).

22    First, it is averred that in 2016 the defendant received advice from Ernst & Young that if it were to create an investment portfolio upon any sale of CMI, it would utilise accrued tax losses to offset tax paid on the sale proceeds. That advice was not referred to in the prospectus in support of the resolution at the extraordinary general meeting on 23 December 2016 to change the defendant’s business, nor was its existence disclosed to shareholders at any other time.

23    Secondly, it is averred that companies controlled by Ms Catelan purchased a substantial parcel of shares in the defendant immediately after the announcement of a proposed sale of CMI when relevant price-sensitive information was not generally available to shareholders.

24    Thirdly, it is averred that the report presented to shareholders, which opined that the sale of the defendant’s CMI electrical component business was fair and reasonable, made no reference the defendant’s franking credits for approximately $32 million and that the defendant was not entitled to the “earn out component” of the sale.

25    Fourthly, it is averred that various requests from shareholders were either not responded to or dismissed by the defendant.

26    Fifthly, it is averred that a winding up on just and equitable grounds may be appropriate where there has been a failure of the substratum of a company.

27    Sixthly, it is averred that it is just and equitable to protect the defendant’s members from further losses and commercial disadvantage arising from several matters relating to the management of the defendant and its reported net tangible assets and franking credits compared to its share price.

28    Seventhly, it is averred that Ms Catelan’s majority control of the defendant has resulted in the company operating “akin to a private company”, and in those circumstances, an order for the buyer to the plaintiff’s shares should be made at net tangible asset value or that the defendant be ordered to declare a dividend to distribute the proceeds of the sale of the electrical component business.

Consideration

29    I turn now to consider what I consider to be the principal factors relevant to the determination of the application for leave.

30    First, there is a question of delay. Approximately 10 months have passed since the proceeding was commenced. However, the granting of leave will not delay the case for 10 months, nor will it waste the 10 months that have passed. Most of that time, as I have explained, was taken up with the plaintiff’s evidence, which was delayed from time to time. It is significant that no hearing date has yet been set, which means that the granting of leave will not require the vacation of any listed hearing. Of course, an amended concise response by the defendant will be required in response to the amended concise statement. That will cause some delay.

31    Although there has been previous delay by the plaintiff, the delay caused by the amendments, it seems to me, is modest.

32    As emphasised by the defendant, and as required by the authorities referred to, it is important to consider what explanation there is for the delay. In this case, as explained, there is an explanation by the plaintiff’s new solicitor as to what occurred between the new solicitor going on record and service of the proposed amended pleadings. It is explained that the reason for the amendments is that the new solicitor and new counsel took the view that the amendments are required in order to properly set out the plaintiff’s case. I am satisfied as to that explanation for the delay, such as it was, between the new solicitor coming on record and the amendments being propounded.

33    The defendant in submissions placed some emphasis on there being no explanation of why the amendments were not brought forward by the previous solicitors for the plaintiff, particularly having regard to the affidavit filed at the end of August last year which is said to cover matters far broader than the issues raised by the present pleadings. It is submitted that the inference should be drawn that the solicitors at that time, by including that extra or broader matter or matters, must have appreciated that amendments were either necessary or desirable and that they took a decision not to seek to effect such amendments.

34    I am not satisfied that that is the more probable inference. There are other available explanations as to why that affidavit included matters that might be considered broader than what is justified by the present pleadings. In particular, it may be that those solicitors simply took the view that the broader matters were part of the relevant context. It seems to me that that is what is more likely to have occurred. It is hardly surprising that neither the plaintiff nor its former solicitor have gone on affidavit to explain how it came to pass that the broader matter was included and amendments were not sought to be made, not only because of the obvious restrictions imposed by a desire not to waive legal professional privilege but also because the plaintiff was not given advance notice of the inference that the defendant contends for.

35    In short, given the nature of the delay, I am satisfied as to the explanation. In particular, I am satisfied that the delay in bringing the amendments forward was not occasioned by any deliberate forensic choice to gain some advantage.

36    Secondly, I consider the nature of the amendments themselves. I am satisfied that they are substantial and serious. They raise and identify what seem to me to be the real issues in dispute or at least the real issues which the plaintiff at this stage identifies as supporting its case against the defendant. Just what is in dispute in relation to those issues will become more apparent once an amended concise response is filed. It seems to me that the amendments will serve to better do justice between the parties.

37    The additional facts that are pleaded are pleaded in support of the alternative forms of relief, including against the proposed new defendants. They will enable all related relief against the defendant and the proposed new defendants to be dealt with in the same proceeding, which is highly advantageous. It would not be advisable or in the interests of the administration of justice for the relief sought against the new defendants to be pursued in a separate proceeding.

38    There are some legitimate questions raised by the defendant, it seems to me, about whether some of the relief that is sought is justified, even assuming the pleaded facts to be proved. But in view of the wide relief available under s 233 of the Corporations Act, it cannot be said with any confidence that that relief in the form in which it is sought to be pleaded is hopeless. Whether the relief is justified and should be granted, or whether it should perhaps be granted in some amended form, are matters that are best dealt with at the trial. I am also satisfied that the second and third defendants, being two of the three directors of the company, are necessary parties to the relief which mentions them, so they should be joined to the proceeding.

39    The concise statement is sufficiently detailed and confined for it to be an appropriate basis for the articulation of the plaintiff’s case. In response to some of the questions and queries raised by the defendant about the proposed concise statement, the plaintiff offered to provide further particulars. Although the Court as a general proposition resists the requesting of and the provision of further particulars for the purpose of pleading, in view of the plaintiff’s offer, I will provide for further particulars to be sought and given.

40    Thirdly, I consider the question of prejudice. As I have indicated, there has been some delay caused by the amendments, and some further delay will be caused, and delay is of itself prejudice. However, I consider it to be modest. Joinder of the other defendants and the broadening of the claims will cause some prejudice to the defendant, but that, too, is modest. No other material prejudice to the defendant by the granting of leave is established.

41    Fourthly, there is the question of third-party interests. Because no hearing date has yet been set, as I have explained, none requires to be vacated. The granting of leave will not result in wasted resources of the Court and hence prejudice or unfairness to other litigants in the Court who may have been kept out of a hearing date or who may be made to wait longer for a hearing date. For those reasons, the consideration of third-party interests, which loomed so large in Aon, plays little role in my consideration in the present case.

42    For those reasons, I will grant leave for the plaintiff to file a proposed amended originating process and amended concise statement substantially in the form provided in the hearing.

43    Finally, on the question of costs, the plaintiff accepts that it should pay the defendant’s costs thrown away by the amendments.

44    So far as the costs of the application for leave to amend are concerned, the plaintiff submits that those should be costs in the cause, whereas the defendant submits that the plaintiff should pay its (ie the defendant’s) costs. The latter is on the basis that the plaintiff seeking leave to amend has sought the indulgence of the court. The defendant says that in those circumstances, it is normal for the party seeking leave to pay the costs. The defendant refers to Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2009] NSWSC 805; 73 ACSR 252 at [43] per Brereton J where it is said that on an application for leave to amend which succeeds, one starts from the position that the successful applicant for leave to amend pays the unsuccessful respondent’s costs, the amendment being an indulgence granted by the court, the costs associated with which could have been avoided had the applicant got the pleading right or complete in the first place. His Honour of course recognised that there are circumstances in which the “starting position” might be departed from. Ultimately, the Court retains a broad discretion on costs to do justice between the parties.

45    Because, as explained, the amendments will cause delay and some limited further prejudice to the defendant and because the plaintiff is responsible for earlier delays in the proceeding, I do not consider that the defendant should have to pay any of the plaintiff’s costs of the application, even if the plaintiff is ultimately successful at trial. In my view, the appropriate order insofar as the plaintiff’s costs are concerned is that it should pay its own costs.

46    Also, if the plaintiff is successful at trial, it should not have to pay the defendant’s costs of the application for leave. But if the defendant is successful at trial, it should have the costs of the interlocutory application, which, in that sense, would have been shown to be unfounded. The defendant’s costs of the interlocutory application should, therefore, be costs in the cause.

47    I will make orders accordingly.

Associate:

Dated:    28 March 2025