Federal Court of Australia

Atalanta Investments Pty Ltd v Kalgoorlie Projects Pty Ltd [2025] FCA 607

ORDERS

THE COURT ORDERS THAT:

1.    On or before 20 June 2025, the respondent do file and serve written submissions of no more than four pages specifying the orders it seeks to give effect to these reasons, including any orders as to costs, and the basis for seeking those orders.

2.    On or before 27 June 2025, the applicant do file and serve written submissions of no more than four pages specifying the orders it seeks to give effect to these reasons, including any orders as to costs, and the basis for seeking those orders.

3.    Subject to further order, the terms of the orders to be made on the application be determined on the papers.

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

REASONS FOR JUDGMENT

COLVIN J:

1    Ordinarily, it is up to the directors of a company to decide whether the company should bring legal proceedings. At general law there was a limited right to bring proceedings, known as a derivative action, on behalf of a company. By s 236(3) of the Corporations Act 2001 (Cth) that general law right has been abolished. Instead, there are now statutory provisions governing who may bring proceedings on behalf of a company and the circumstances in which they may do so. A member of a company may bring proceedings on behalf of (and in the name of) the company if the person is acting with leave granted under s 237.

2    Atalanta Investments Pty Ltd seeks leave pursuant to s 237 to bring proceedings on behalf of Kalgoorlie Projects Pty Ltd. Atalanta holds half the shares in Kalgoorlie Projects. The other shareholder in Kalgoorlie Projects is Windsor Knight Pty Ltd. Leave is sought by Atalanta to bring proceedings in the name of Kalgoorlie Projects against Windsor Knight Pty Ltd. The proceedings are proposed to be pursued in the Supreme Court of Western Australia.

3    Mr Bruce Brown is a director and shareholder of Atalanta. Mr Gregory Pearce is the sole director and shareholder of Windsor Knight. The two directors of Kalgoorlie Projects are Mr Brown and Mr Pearce. There has been a falling out between them which appears to have arisen from commercial dealings between them outside the affairs of Kalgoorlie Projects.

4    Kalgoorlie Projects owns and operates a shopping centre in Kalgoorlie, a regional town in Western Australia. The company was incorporated for that purpose. The shopping centre commenced operating in 2005.

5    Windsor Knight has provided services to Kalgoorlie Projects. It has provided monthly property management reports for Kalgoorlie Projects, which have included the income and expenses of the shopping centre. It has also been responsible for maintaining the financial records of Kalgoorlie Projects and attending to the maintenance of the shopping centre. Those arrangements were put in place with the knowledge and involvement of Mr Brown. On the evidence, the arrangements are informal in the sense that there is no written document recording the terms of any agreement as to the provision of those services, but they are longstanding.

6    Invoices for the services provided by Windsor Knight to Kalgoorlie Projects have been issued under two broad descriptions, namely administrative services and property management services. It is common ground for present purposes that the fees for property management services have been charged for the provision of services that include collecting rent and outgoings from tenants, conducting rent reviews, negotiating new leases or lease extensions, undertaking inspections of leased premises and advertising vacant tenancies for lease.

7    Atalanta now alleges that the receipt of payments under the arrangements for the provision of services by Windsor Knight to Kalgoorlie Projects contravenes s 60(1) or s 60(2) of the Real Estate and Business Agents Act 1978 (WA) (REBA Act). Section 60(1) provides that: 'An agent is not entitled to receive any commission, reward, or other valuable consideration in respect of his services in that capacity unless … he is licensed … [and] has a valid appointment to act in that capacity which is in writing signed by the person for whom the services are or are to be rendered…' (emphasis added). Section 60(2) provides that an appointment to act as agent is not valid unless it is in a document that meets certain requirements. By operation of s 60(4), amounts received in contravention of s 60(1) may be recovered as a civil debt.

8    The term 'agent' is defined to mean 'a person who is a real estate agent or a business agent [or both]'. The term 'real estate agent' means a person whose business either alone or as part of or in connection with any other business is to act as agent for consideration 'in respect of a real estate transaction as defined by this section'. The term real estate transaction is extensively defined. Relevantly for present purposes it includes leasing and letting of real estate and the collection of rents or other payments for use or occupation of land.

9    Atalanta alleges that at least part of the business of Windsor Knight is (and has been) to act for consideration in respect of leasing and letting of shops in the centre owned by Kalgoorlie Projects and in collecting rents from those tenants and undertaking certain other responsibilities such as conducting rent reviews. Therefore, so it claims, Windsor Knight is an agent for the purposes of the application of s 60(1). It says that all, or at least some, of the amounts received by Windsor Kight for services provided to Kalgoorlie Projects have been received 'in that capacity' (namely as real estate agent).

10    Issues arise between Atalanta and Windsor Knight as to whether s 60(1) applies to the arrangements between Windsor Knight and Kalgoorlie Projects, and if so whether all of the amounts received by Windsor Knight under those arrangements were received in contravention of s 60(1) which would permit recovery of those amounts as a civil debt under s 60(4). In particular, there appear to be issues as to whether the services were provided by Windsor Knight on a reimbursement of cost basis rather than as part of a profit-making business activity and whether, in substance, Windsor Knight was undertaking the relevant activities to protect and enhance the ownership interest of the two shareholders (Windsor Knight and Atalanta). Each of those matters is said to mean that Windsor Knight was not receiving fees for acting as some form of agent for Kalgoorlie Projects. If Windsor Knight was acting as agent there is a further issue as to whether there should be some allocation as between amounts charged for services of a kind that did not come within the statutory definition of a 'real estate transaction'.

11    The amount that Atalanta says Kalgoorlie Projects is entitled to recover under s 60(4) is almost $700,000, being the total amount of fees (including GST) that Kalgoorlie Projects had paid to Windsor Knight over more than nine years, noting that the charges are ongoing. Windsor Knight points to the fact that a considerable part of those charges, being more than $200,000 (including GST) have been charged for administrative services.

12    In those circumstances, Atalanta seeks leave pursuant to s 237 of the Corporations Act to bring proceedings on behalf of and in the name of Kalgoorlie Projects against Windsor Knight seeking (a) to recover fees in the period commencing nine years prior to the application for leave; and (b) an extension of time under the Limitation Act 2005 (WA) to allow the claim to include the first three years of that period.

Interlocutory orders

13    On 6 February 2025, interlocutory orders were made by consent that gave Atalanta leave to file proceedings in the Supreme Court. Those orders were made on terms that Atalanta must not take any further step in those proceedings without leave of the Court. In those circumstances, what is now sought is leave to prosecute those Supreme Court proceedings.

The relevant terms of s 237 of the Corporations Act

14    Section 237(2) provides:

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

(a)    it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(b)    the applicant is acting in good faith; and

(c)    it is in the best interests of the company that the applicant be granted leave; and

(d)    if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and

(e)    either:

(i)    at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii)    it is appropriate to grant leave even though subparagraph (i) is not satisfied.

(emphasis added)

15    There was no issue between the parties concerning the satisfaction of (a), (d) and (e). The focus of the opposition by Windsor Knight to the grant of leave was upon the 'best interests of the company' requirement and the 'acting in good faith' requirement.

16    By the operation of s 237(3) there is a rebuttable presumption that granting leave is not in the best interests of the company where the proceedings are against a third party and the directors of the company have made a considered decision in the due discharge of their duties not to bring the proceedings. The provision reflects a general precept that the management of the affairs of a company in the best interests of the company as a whole is a matter for the directors and it is for the directors to make the business judgments required for the conduct of the activities of the company. The difficulty in the present case is that the directors are Mr Brown and Mr Pearce and they are deadlocked on the issue whether it is in the best interests of Kalgoorlie Projects to bring the proposed proceedings.

17    The Court also has broad powers to make orders and give directions that it considers appropriate in relation to an application for leave: s 241.

Relevant authorities

18    The following propositions are established by the authorities when it comes to considering an application for leave under s 237:

(1)    application of the statutory provision involves a binary choice as to whether or not to grant leave, not the making of a discretionary decision as to whether to grant leave;

(2)    if the Court is satisfied that the five statutory criteria are met then leave must be given, there is no residuary discretion;

(3)    if the Court is satisfied that one of the criteria is not made out then leave must be refused;

(4)    the onus is upon the applicant for leave;

(5)    as to the best interests requirement, it is the best interests of the company 'in the sense of its separate and independent welfare';

(6)    the good faith requirement applies 'both to the application for leave and to the desire to bring the underlying action';

(7)    'generally, proceedings are brought in good faith if they are genuinely brought to vindicate a right that the claimant honestly believes he or she has';

(8)    whether an application for leave was made for the purpose for which the right was granted, or for some other purpose, is a matter that can be inferred from the circumstances of the case;

(9)    whether the requirement of good faith is satisfied is to be objectively determined;

(10)    personal animosity does not necessarily manifest in a lack of good faith;

(11)    leave is not to be given lightly; and

(12)    as a means of limiting the risk of prejudice to the company, leave is often granted on the condition that the applicant for leave indemnify the company for its costs of the proceeding and any adverse costs order against the company arising out of the proceeding.

As to these matters, see Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52 at [85]-[88] (Tobias JA, Beazley and Bell JJ agreeing); Huang v Wang [2016] NSWCA 164 at [57] (Bathurst CJ, McColl JA and Barrett AJA agreeing); Gillespie v Gillespie [2025] NSWCA 24 at [26]-[32] (Gleeson, Mitchelmore and Ball JJA); MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31 at [65]-[67] (North, McKerracher and Jagot JJ); Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583 at [24] (Palmer J); De Tocqueville, in the matter of Pacific Current Group Limited v Pacific Current Group Limited [2020] FCA 172 at [51]-[60] (Moshinsky J); Suh v Cho [2013] VSC 491 at [26], [34]-[35] (Derham AsJ); and Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480 at [29] (Davies J).

19    As to whether it is relevant to consider the prospects of success as part of evaluating whether the proposed proceedings are in the best interests of the company, in Huang v Wang, Bathurst CJ said at [60]:

A question of some difficulty is whether, having concluded that there is a serious question to be tried, the court can again consider the question in determining whether it is in the best interests of the company to bring the proceedings. In Re Gladstone, Ball J at [58] indicated it was necessary to consider the prospects of success. It must be remembered that an application under the section does not involve a consideration of the underlying merits of the proposed litigation, except to the extent it is necessary to determine if there is a serious question to be tried. Further, in cases where a court has doubts as to the prospects of success, a court can make an order conditional on the applicant undertaking to indemnify the company from any liability for costs which it may incur in pursuing the action.

(emphasis added)

20    On the authorities, the test to be applied in considering whether there is a serious question to be tried is the same test as is to be applied on an application for an interlocutory injunction: Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235 at [56] (Ball J); and Swansson at [25]. Therefore, it is a reasonably low threshold.

21    Further, as to the merits of the proposed proceedings, it has been said that 'a Court should not permit an application to seek leave to commence a derivative action to be a trial in itself': MG Corrosion Consultants at [59]; see also Resource Equities Limited v Western Ventures Pty Ltd [2004] WASCA 242 at [15] (McLure J, Simmonds J agreeing).

22    As to the significance of the separate requirement in s 237(2)(d) for there to be a serious question to be tried, Derrington J observed in CIP Group Pty Ltd v So [2022] FCA 1490 at [34]:

Further, the issue of prospects of success of any action is tempered by the criteria in s 237(2)(d) that the Court is to consider whether a serious question to be tried has been raised. It would render that requirement redundant if, in establishing what is in the best interests of the company, the applicant was required to establish the prospect of a higher level of success.

23    However, in Blakeney v Blakeney [2016] WASCA 76 at [57] (Buss and Murphy JJA and Beech J) it was said:

It has been said that generally it is reasonable to expect that the pursuit of an action by or on behalf of a company against an officer for recovery of compensation for damage done to the company by the officer's breach of duty is in the best interests of the company. That will ordinarily be so at least as long as there are reasonable prospects of success, appropriate arrangements have been made in relation to costs and it is expected that a judgment can be successfully executed in whole or in substantial part.

(emphasis added, footnote omitted)

24    Possibly the differences between these statements simply reflect the contextual nature of the evaluative task to be undertaken by the Court in considering whether to grant leave under s 237. Where the proposed claim, if successful, might recover a modest amount then it may be relevant to an evaluation as to whether pursuit of the claim is in the best interests of the company for the Court to consider its prospects. On such an approach, failure to demonstrate that there is an arguable case will mean leave must be refused, but the prospects of success may still be relevant to the consideration of the best interests criterion. Any such evaluation should recognise that the consideration of the leave application is not the occasion to conduct a trial of the merits.

25    For example, it may be in the best interests of a company whose only asset is disputed intellectual property to pursue a claim to that property even though the claim is only arguable. On the other hand, it may not be in the best interests of a company to pursue a modest claim that will likely require the commitment of significant time and cost even if the claim has reasonable prospects of success.

26    However, as matters stand, there appears to be a difference in approach between the two Court of Appeal decisions of Huang v Wang and Blakeney v Blakeney when it comes to considering prospects of success as part of evaluating whether the grant of leave to bring proceedings in the name of the company would be in the best interests of the company.

27    On the other hand, prospects of success consistently have been found to be relevant to evaluating whether the applicant for leave is acting in good faith. In Swansson, Palmer J expressed the good faith requirement in terms that brought to account prospects of success. His Honour said at [36]-[37]:

… in my opinion, there are at least two interrelated factors to which the Courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.

These two factors will, in most but not all, cases entirely overlap: if the Court is not satisfied that the applicant actually holds the requisite belief, that fact alone would be sufficient to lead to the conclusion that the application must be made for a collateral purpose, so as to be an abuse of process. The applicant may, however, believe that the company has a good cause of action with a reasonable prospect of success but nevertheless may be intent on bringing the derivative action, not to prosecute it to a conclusion, but to use it as a means for obtaining some advantage for which the action is not designed or for some collateral advantage beyond what the law offers …

28    The above approach was approved in Coeur de Lion Investments Pty Ltd v Kelly [2013] QCA 160; [2014] 1 Qd R 296 at [47] (Muir JA, Fraser JA and Jackson J agreeing). In Bzezinski v Shaw [2022] VSCA 173, it was found that the two factors identified by Palmer J in Swansson were 'features of the good faith inquiry in this context that may be expected to routinely present themselves for consideration': at [65] (Kyrou, McLeish and Walker JJA).

29    In Re Lotus Property Fund No 8 Pty Ltd (atf Lotus Property Fund No 8) [2020] NSWSC 1349 at [75]-[76], Stevenson J expressed the good faith requirements as raising questions as to whether the plaintiff:

(1)    honestly believes that the company has a good cause of action with reasonable prospects of success;

(2)    honestly believes that it is in the best interests of the company to bring proceedings based upon the cause of action; and

(3)    is seeking to bring the proceedings for a collateral purpose or to obtain some advantage for which the action is not designed.

The operation of s 60 of the REBA Act

30    As has been explained, s 60(4) of the REBA Act allows for recovery of amounts received in contravention of s 60(1). There is no issue that Windsor Knight is not licensed as a real estate agent and has no written agreement to provide services to Kalgoorlie Projects. Therefore, by operation of s 60(1), Windsor Knight was not entitled to receive valuable consideration in respect of services in the capacity of a real estate agent (being a person whose business either alone or as part of or in connection with any other business, is to act as agent for consideration in respect of a real estate transaction).

31    Arguably at least, it is only consideration in respect of services in the conduct of a business or the part of a business to act as agent for consideration in respect of a real estate transaction that was within the scope of the prohibition expressed in s 60(1). Further, activities that are not conducted for profit may not be a business or part of a business.

Mr Brown's explanation as to why the proposed proceedings are in the best interests of Kalgoorlie Projects

32    In his first affidavit in support of Atalanta's application, Mr Brown deposed to his belief that Windsor Knight is not and has never been a licensed real estate agent, does not hold a valid written appointment to act for Kalgoorlie Projects and that such fees as Windsor Knight has received are recoverable as a debt under s 60(4) of the REBA Act. He produced correspondence passing between lawyers for Atalanta and lawyers acting for Windsor Knight. The correspondence expressed the claims being made at a high level of generality. The response from lawyers acting for Windsor Knight was to the effect that Windsor Knight did not carry on business as a real estate agent and was not licensed to do so. It was said that it manages property of which it is an owner or part owner.

33    Mr Brown also deposed that he honestly believed that Windsor Knight is liable to repay the fees paid by Kalgoorlie Projects for management and administration fees as a debt under s 60(4) of the REBA Act. He approached the matter on the basis that there would be a benefit to Kalgoorlie Projects if it succeeded in recovering those fees. As to the costs of the proceedings, Mr Brown deposed:

Atalanta is willing to provide an undertaking to the Court to pay and indemnify Kalgoorlie Projects in respect of:

(a)    its costs, on a solicitor/client basis, of bringing and continuing the Proposed Derivative Proceedings; and

(b)    any adverse costs order made against Kalgoorlie Projects in the Proposed Derivative Proceedings,

except to the extent as this Court may in future otherwise order or direct, including any order that Kalgoorlie Projects repay to Atalanta the monies it has paid, or any part of them.

34    Mr Brown deposed to his belief that Windsor Knight could meet any judgment.

35    Mr Brown provided no evidence of any legal advice as to prospects associated with the claims that he made. In particular he did not explain the basis on which it was claimed that the fees charged by Windsor Knight came within the statutory language.

36    In his second affidavit, Mr Brown deposed that he was also willing to provide an undertaking that, if the 'Proposed Derivative Proceedings' were unsuccessful, Atalanta would not seek a contribution or indemnity from Kalgoorlie Projects for the costs of the proceedings or any adverse order. Left unaddressed by the proposed costs undertakings was any indication as to what would occur if the proceedings were successful. Assuming, in that event, that party and party costs were recovered from Windsor Knight, Atalanta could pursue recovery from Kalgoorlie Projects of the shortfall in costs so as to be fully indemnified. Therefore, on the proffered undertakings, success in the proceedings could result in liability on the part of Kalgoorlie Projects for costs that were not recovered under costs orders against Windsor Knight. In substance, those costs would reduce any advantage to be derived by Kalgoorlie Projects from success in the proceedings against Windsor Knight.

37    Further, Mr Brown deposed that Atalanta had the funds to meet the costs the subject of the undertakings to be given. They were said to be held in a bank account referred to by Mr Brown as the CBA Account. As to the funds in that account, he said:

Atalanta is prepared to provide an undertaking to notify Windsor Knight if the balance of the CBA Account falls below $500,000 at any point before the Proposed Derivative Proceedings are finally determined by the Supreme Court of Western Australia and, if they are unsuccessful, any adverse costs order is satisfied.

38    As to the significance of that amount, I accept the submission advanced for Windsor Knight that the undertaking reflects a view that funds of that order would be required to meet legal costs associated with the proposed proceedings against Windsor Knight. That is to say, the figure of $500,000 was identified as one which adequately supported the obligations that might arise pursuant to the undertaking.

39    Mr Brown's third affidavit was responsive to an affidavit of Mr Pearce. The third affidavit referred to two other proceedings that had been commenced by entities owned and controlled by Mr Brown seeking to recover fees from Windsor Knight on the basis that s 60 of the REBA Act applied. It was said that if leave was granted to allow proceedings to be brought in the name of Kalgoorlie Projects then steps would be taken for those Supreme Court proceedings to be heard together with those other two proceedings. Cost efficiencies were said to arise in having the three cases heard and determined together. The amounts claimed in the other two proceedings were said to be of the order of $1,900,000 and $360,000 respectively. Those amounts included both administration fees and management fees.

40    As to prospects of success, Mr Brown deposed:

I believe that good causes of action exist in respect of the claims the subject of the Derivative Action and that they have good (or at least reasonable) prospects of success. The matters referred to by Mr Pearce in his responsive affidavit sworn on 13 March 2025, supposedly in defence, have not changed my belief.

41    Again, there was no reference to any legal advice as to those prospects or the way in which the statutory terms were said to apply. The real issues as to the application of s 60 in the circumstances of the case concerned (a) whether Windsor Knight received valuable consideration from Kalgoorlie Projects in the capacity of a real estate agent; and (b) if so, whether all the charges were of a kind that were caught by the legislation. Mr Brown did not explain the basis for his belief that there was good (or at least reasonable) prospects in succeeding as to those aspects. In those circumstances, the expression of his belief as to the prospects of success was no more than assertion.

42    In written submissions, Atalanta claimed that the nature of the activities carried on by Windsor Knight 'in providing property management service' was said to strongly support the contention that Windsor Knight provided those services, at least, as part of a business to act as an agent for monetary consideration. However, that submission failed to engage with the matters raised by Windsor Knight. It was especially deficient in addressing the extent to which the services provided might be said to be services of the kind referred to in the REBA Act. Put another way, there was no explanation as to the basis upon which all of the fees charged might be recoverable by Kalgoorlie Projects as a debt due by operation of s 60(4) of the REBA Act even if it was assumed that some of those services were in respect of real estate transactions as defined.

43    In oral submissions, it was said that the statutory language 'in respect of his services' (in s 60(1)) and 'in respect of a real estate transaction' (in the definition of real estate agent) was sufficiently broad to capture all of the fees that had been charged by Windsor Knight, or, alternatively, a substantial part of them.

44    It was also submitted orally for Atalanta that the proceedings involved a narrow point of construction although there may need to be an inquiry as to what falls within the scope of the provision. It was said that the issues were such that pursuit of the proceedings would have no adverse effect upon the business of Kalgoorlie Projects.

Breakdown in relationship between Mr Brown and Mr Pearce

45    Mr Brown and Mr Pearce have undertaken many property developments together. By 2003 when they decided to undertake the development of the shopping centre in Kalgoorlie they had undertaken or were undertaking five property developments. Since then they have undertaken other developments.

46    On Mr Pearce's account, tension developed between Mr Brown and Mr Pearce particularly in relation to developments they had undertaken in Port Pirie and Subiaco. Further, since a meeting in July 2023, the business relationship between Mr Brown and Mr Pearce has continued to deteriorate.

Director's meeting of Kalgoorlie Projects

47    In February 2024, lawyers acting for Atalanta and Mr Brown requested Kalgoorlie Projects to advise whether it intended to commence proceedings to recover fees from Windsor Knight under s 60 of the REBA Act. In April 2024, a meeting of directors of Kalgoorlie Projects was convened to consider resolutions to instruct lawyers to seek advice and, if there was a serious question to be tried, to commence those proceedings (or permit Atalanta to bring derivative proceedings against Windsor Knight). Mr Brown voted to support the resolutions and Mr Pearce voted against them.

48    Mr Pearce proposed using a mediator. Mr Pearce supported that resolution which was opposed by Mr Brown.

Is it in the best interests of Kalgoorlie Projects for Atalanta to be granted leave?

49    I infer from the evidence of (a) the past cooperation between Mr Brown and Mr Pearce; (b) the extent of their past dealings; and (c) the long history of charging by Windsor Knight that, for many years, Mr Brown and Mr Pearce, the directors of Kalgoorlie Projects, have conducted the affairs of the company on the basis that the arrangements with Windsor Knight are in the best interests of the company. There is no suggestion that those arrangements have operated to the financial detriment of Kalgoorlie Projects. There is no complaint about the quality of the services provided by Windsor Knight or the way they were provided. There is no claim that Kalgoorlie Projects has been burdened with costs that it would not have incurred if some other arrangement had been made for the provision of the services.

50    Mr Brown disputes Mr Pearce's claim that the two of them met several times a year and would often speak to discuss their jointly held properties at which times they would agree 'the allocation of administration and property management fees'. However, Mr Brown makes no claim that those arrangements were put in place without his agreement.

51    It was the position of Mr Pearce that:

Windsor Knight charged, and still charges, the amounts on the following basis:

(a)    Windsor Knight is reimbursed for the expenses and disbursements it incurs in providing the administration and property management services in respect of the Centre, such that it does not make a profit from providing the services; and

(b)    Windsor Knight's expenses and disbursements in respect of the Centre reflect the allocation of expenses and disbursements to that property as agreed by Mr Brown and myself from time to time.

52    Atalanta provided no submissions as to how the REBA Act provisions would apply if an unlicensed real estate agent was charging on the above basis, particularly as to whether such an agent received 'any commission, reward, or other valuable consideration' for the purposes of s 60(1).

53    Mr Pearce deposed to a personal belief that the pursuit of the proposed proceedings may be damaging to Kalgoorlie Projects and its relationship with the tenants at the shopping centre. Precisely why that may be so in circumstances where the existing arrangements are continuing was not explained. In my view, the proceedings are not of a kind that are likely to distract or divert resources from Kalgoorlie Projects. Its day-to-day affairs are conducted by Windsor Knight. Additional costs associated with the conduct of the proceedings will fall on Windsor Knight. I am not persuaded that there would be any identifiable detriment to Kalgoorlie Projects from the conduct of the proposed litigation against Windsor Knight by Atalanta in the name of Kalgoorlie Projects.

54    Submissions were advanced for Windsor Knight to the effect that its position as to the way in which the REBA Act applied was supported to some degree by the regulator. However, the only evidence as to the approach taken by the regulator was to the effect that in its view no licence was required where an owner was managing its own properties. As has been mentioned, Windsor Knight is a 50% shareholder of Kalgoorlie Projects and, at best, an 'owner' only as to that interest. In my view, the communication from the regulator concerning the position in relation to owners managing their own properties does not assist in reaching a view about the best interests of Kalgoorlie Projects in the present case.

55    Reliance was also placed upon the fact that the regulator has not taken any action against Windsor Knight. However, as has been explained, s 60(4) provides for a statutory debt that can be recovered by civil proceedings. It is evident that the statutory scheme contemplates the provision of the private right of action as a means of enforcement. Further, aside from the above, there is no other evidence one way or the other as to the position taken by the regulator.

56    It was contended for Windsor Knight that if there was success in the proposed proceedings then it would be necessary for Kalgoorlie Projects to retain a managing agent which would be at a higher cost than the current arrangements. I do not accept that the evidence established that such a consequence would flow. Even if it had, that would simply be a consequence of the application of the legal position as adjudicated. The possibility that compliance with the law may come at greater cost to Kalgoorlie Projects is not a matter that I would bring to account in considering whether the proposed proceedings are in the best interests of Kalgoorlie Projects.

57    It was submitted for Windsor Knight, in effect, that the amounts involved were such that it was not in the best interests of Kalgoorlie Projects for leave to be granted. The submission tended to bring three matters together, namely:

(1)    a contention that the amount involved was 'modest on any view', especially when considered in the context of the scale of the undertaking of Kalgoorlie Projects with the shopping centre said to have a market value of some $53 million;

(2)    a contention to the effect that the legal costs to be incurred were likely to be significant and, for reasons that have been explained, there was not a full indemnity on offer from Atalanta in the event that the proposed proceedings were successful (with the consequence that the return to Kalgoorlie Projects in the event of success may be reduced by having to meet the legal costs not recovered from Windsor Knight); and

(3)    the prospects of success were far from certain because the position of Atalanta rests on a contestable construction of the REBA Act.

58    Taken together, these submissions were not to the effect that the proposed claim did not have reasonable prospects of success. A contention of that kind, for reasons that have been given, would have to confront the differing views expressed as to whether an assessment of prospects of success (beyond a determination that there was an arguable basis for the proposed claim) was a matter that could be brought to account in reaching a view as to whether the grant of leave was in the best interests of the company). As to that point, the reasoning in Huang v Wang was to the effect that uncertainties as to whether the proceedings might be successful could be addressed by considering the terms that might be imposed as to an indemnity as to costs.

59    In my view, in substance, the submission advanced on the basis of the combination of the three matters listed above was to the effect that there is a realistic possibility that if the proceedings were brought the overall outcome would not be in the best interests of Kalgoorlie Projects. In effect, the submission was that there were real doubts as to whether the proposed claim would succeed and the extent of the legal costs involved in bringing those proceedings was such that the unrecovered costs could end up accounting for a considerable part of any debt that might be recovered (especially if there was to be some form of allocation of fees as between those in respect of real estate transactions and those in respect of the provision of other services). These matters were also relied upon to support a submission that Atalanta was not acting in good faith.

60    If I was of the view that Atalanta has demonstrated that it was acting in good faith in seeking to bring the proceedings then I would have considered whether leave should be given on the basis of a comprehensive indemnity as to all liability for costs so as to ensure that the bringing of the proceedings was in the best interests of Kalgoorlie Projects. I would also have been required to consider how to approach the divergence in authorities when it comes to whether an assessment of prospects of success is, of itself, relevant to whether the grant of leave is in the best interests of the company.

61    However, it is not necessary to reach any conclusion as to these matters because, for the following reasons, I am not satisfied that Atalanta is acting in good faith.

Is Atalanta acting in good faith?

62    As the submissions for Atalanta correctly acknowledged, there are two inter-related factors that are relevant in determining whether an applicant for leave under s 237 has satisfied the good faith requirement, namely (a) whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success; and (b) whether the applicant is seeking to bring the proceedings for such a collateral purpose as would amount to an abuse of process. As further acknowledged, these are matters that will, in most cases, entirely overlap.

63    As has been explained, the issue of good faith is to be determined objectively and purpose may be inferred. Further, personal animosity is not, of itself, a reason to conclude that there has been a failure to discharge the onus in relation to the good faith requirement.

64    On the evidence, the guiding mind of Atalanta is Mr Brown. The submissions for both parties were presented on that basis.

65    In my opinion, for the following reasons, Atalanta has failed to demonstrate that it is acting in good faith:

(1)    although Mr Brown has deposed to his belief concerning the prospects of success of the proposed proceedings, he puts forward no objective basis for that belief when it comes to the contentious aspects of the basis for the claim;

(2)    Mr Brown refers to no legal advice to support his belief;

(3)    the resolution that was proposed for consideration by the directors of Kalgoorlie Projects was to the effect that proceedings be brought against Windsor Knight if legal advice is received that there is 'a serious question to be tried' in relation to the proposed claim (that is, irrespective of any assessment of the commercial consequences);

(4)    Atalanta proposes to provide security in the form of the CBA Account for an amount of $500,000 to cover the undertaking as to legal costs from which I infer that there is a recognition on the part of Mr Brown that there is a real prospect that the exposure to legal costs in pursuing the claim will be of that order (even with the efficiencies associated with conducting them jointly with the other two proceedings);

(5)    Windsor Knight has presented matters that it would raise in response to the proposed proceedings which cannot be dismissed as lacking merit and, consequently, there are real risks associated with the proposed proceedings;

(6)    one of those matters is a claim that the services were provided at cost, an aspect which has not been addressed in any way by Atalanta;

(7)    Mr Brown presents no commercial analysis of the likely net financial benefit to Kalgoorlie Projects if the proposed claim was to succeed (instead presenting the claim on the basis that success will mean that there will be recovery of all of the fees charged for the past nine years);

(8)    viewed objectively, there is the prospect that Atalanta may outlay as much as $500,000 against the prospect of possibly recovering an amount of the order of $700,000 (and a real risk that any amount recovered will be much less) with only half of that amount being for the benefit of Atalanta as a 50% shareholder in Kalgoorlie Projects;

(9)    if the proposed proceedings were successful then, on the terms proposed by Mr Brown, in all likelihood, only party and party costs would be recovered from Windsor Knight, with the result that Kalgoorlie Projects would be required to contribute to the legal costs which may be significant compared to the amounts in issue, an outcome that is not addressed by Mr Brown (and, I infer, the possibility of which does not concern him);

(10)    Mr Brown does not depose to the circumstances in which he came to seek advice about the arrangements with Windsor Knight, particularly his purpose in seeking advice; and

(11)    as I have explained, there is no claim that there has been any defect in the services that have been provided by Windsor Knight.

66    A submission was advanced for Windsor Knight that it was relevant to the bona fides of Atalanta that Mr Brown had not accepted the invitation to proceed to mediation when it was raised at the directors' meeting for Kalgoorlie Projects in April 2024. I am persuaded that Mr Brown's refusal to accept that course or to pursue some other avenue by which to resolve the issue (such as by submitting to an expert determination of the legal issues) is a further matter that counts against the bona fides of Atalanta.

67    Viewed objectively, the above matters reveal a lack of concern on the part of Mr Brown as to whether there is a proper basis to conclude that the proposed proceedings have reasonable prospects of success and whether they are likely to produce a commercial outcome of any value to Atalanta as a shareholder in Kalgoorlie Projects. Mr Brown appears to be willing to commit Atalanta to a course that involves incurring liabilities of up to $500,000 in respect of legal costs to recover an amount that will only exceed that amount if the debt that can be recovered includes the administration fees as well as the property management fees charged by Windsor Knight (and the other points raised by Windsor Knight are not accepted) and there is an order for costs in favour of Kalgoorlie Projects. Mr Brown provides no objective basis for any expectation as to that outcome or any indication of concern as to its likelihood. Further, by reason of the terms of the proposed undertaking as to costs, even if the proceedings are successful, Mr Brown's proposal is that Atalanta would be able to require Kalgoorlie Projects to recover legal costs not recovered from Windsor Knight, thereby reducing any benefit to Kalgoorlie Projects (and, thereby, its shareholders).

68    For the above reasons, Atalanta has not demonstrated that it is acting in good faith.

69    It was also suggested that there was a 'free-rider' opportunity for Kalgoorlie Projects to benefit by awaiting the outcome of the other two proceedings commenced by companies associated with Mr Brown against Windsor Knight. However, securing an arrangement by which the result in those proceedings might translate into an agreed resolution of the dispute in relation to the arrangements between Windsor Knight and Kalgoorlie Projects would be difficult due to the uncertainties as to how those proceedings may be resolved (there being no certainty that they would go to trial and produce reasons for decision, nor that those reasons would be applicable to Kalgoorlie Projects).

70    Although there was a dispute between the parties as to whether certain things were said by Mr Brown to Mr Pearce (a matter about which I reach no concluded view for that reason), it is common ground that there has been a falling out between them. As has been mentioned, the existence of animosity is not inconsistent with a bona fide purpose in pursuing a claim. However, it is a matter of context that can be taken into consideration with the other matters I have identified to reach a conclusion as to whether Atalanta is acting in good faith in seeking leave.

71    It was suggested, albeit obliquely, that the timing of the commencement of the application for leave coming after a delay of many months and by originating process commenced on 20 December 2024 also indicated a lack of bona fides. I am not prepared to infer, in the absence of cross-examination, that there was some form of tactical aspect to the timing.

Outcome

72    It follows that because I am not satisfied that Atalanta is acting in good faith in seeking leave to commence the proceedings, the application for leave must be refused. Some submissions were received as to the appropriate order as to costs. It seems to me that the parties will need to consider the appropriate course to be taken in relation to the Supreme Court proceedings that were commenced pursuant to the interlocutory orders made by consent. In those circumstances, I will afford the parties an opportunity to make short written submissions as to the appropriate orders to be made to give effect to these reasons, including as to costs. I will then make orders on the papers.

Associate:

Dated:    12 June 2025