Federal Court of Australia

Grayson Family Ltd Partnership LLLP v Lynch [2026] FCA 1667

ORDERS

THE COURT ORDERS THAT:

1.    The Amended Originating Application (including the claim for interlocutory relief) dated 1 June 2026 be dismissed.

2.    In relation to the question of costs:

(a)    the respondents file and serve any affidavits and written submissions by 23 November 2026;

(b)    the applicants file and serve any affidavits and written submissions by 7 December 2026; and

(c)    the respondents file and serve any affidavits and written submissions in reply by 14 December 2026; and

(d)    the question be decided on the papers.

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

REASONS FOR JUDGMENT

JACKMAN J:

Introduction

1    By an Originating Process filed on 29 May 2026, the applicants seek leave pursuant to s 237(1) of the Corporations Act 2001 (Cth) (Act) to bring proceedings on behalf of the fourth respondent, Citigold Corporation Limited (Citigold) for insider trading in contravention of s 1043A of the Act and breaches of directors’ statutory and fiduciary duties against the first respondent, Mr Mark Lynch, and for insider trading against the second respondent, PAL Group Pty Ltd (PAL). The proposed claims concern a placement of 150,000,000 shares in Citigold made to PAL on or about 2 June 2020 at a price of $0.005 each. Mr Mark Lynch is Citigold’s executive director, and the sole director and secretary of PAL is Mr Peter Lynch, who is the brother of Mr Mark Lynch.

Do the applicants have standing?

2    The applicants are Grayson Family Partnership LLLP and Mr Alan Grayson in his capacity as trustee for the Alan Grayson Defined Plan. Up until the luncheon adjournment on the day of the hearing, the applicants’ position was that they are not registered as shareholders of Citigold. Rather, they said that they are indirectly the beneficial owners of shares held by the fifth respondent, Citicorp Nominees Pty Ltd (Citicorp Nominees). It is common ground that a US broker, Charles Schwab, stands between Citicorp Nominees and the applicants, but the nature of the legal relationships between Citicorp Nominees and Charles Schwab, and between Charles Schwab and the applicants, has not been established. The applicants submit that Citicorp Nominees holds the shares as bare trustee for Charles Schwab, which holds the shares as bare trustee for the applicants. I will assume, without deciding, that that is the case.

3    Section 237(1) of the Act provides that:

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

4    Section 236(1) provides as follows:

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

(a)    the person is:

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

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

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

5    The concept of membership of a company is dealt with by s 231, which provides as follows:

A person is a member of a company if they:

(a)    are a member of the company on its registration; or

(b)    agree to become a member of the company after its registration and their name is entered on the register of members; or

(c)    become a member of the company under section 167 (membership arising from conversion of a company from one limited by guarantee to one limited by shares).

Those requirements mean what they say: see Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104 at 117 (Stephen, Mason, Murphy, Aickin and Brennan JJ); Bodikian v Sproule [2009] NSWSC 599; (2009) 72 ACSR 598 at [22] (Austin J).

6    Until the luncheon adjournment on the day of the hearing, the applicants accepted that they do not satisfy any of the alternatives in s 231. Citicorp Nominees is a member within the meaning of s 231(b), but it is not making the application. It filed a submitting notice as the fifth respondent on 25 September 2026, submitting to any order the Court may make in the proceeding, save as to any new pleading or third-party claim, and expressing a desire to be heard on the question of costs.

7    Until the luncheon adjournment on the day of the hearing, the applicants relied on the aspect of s 236(1)(a)(i) which confers standing on a person who “is” a “person entitled to be registered as a member”.

8    The applicants submitted that there is no judicial authority on the meaning of that term as used in s 236 but relied on the basic policy objective of derivative proceedings as expressed in [6.30] of the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth) (Explanatory Memorandum), namely “to provide an effective remedy for investors and to overcome the difficulties in Foss v Harbottle”. While the word “investors” has a potentially wide meaning, it does not displace the specific statutory language of s 236(1)(a)(i). In fact, the Explanatory Memorandum itself at [6.25] referred with specificity to those who can apply for leave as stipulated by s 236(1)(a), noting that an application for leave may be made by “members of the company (including those with a present entitlement to be registered)”. In my view, both the statutory language and the Explanatory Memorandum at [6.25] make it clear that it is not sufficient for the purposes of standing to establish that the applicant has an economic interest in the shareholding in question and is thus an “investor” in a broad sense.

9    The applicants rely on the rule in Saunders v Vautier (1841) 49 ER 282, in that they submit that as the beneficiaries of the bare trust under which Citicorp Nominees holds the Citigold shares, they can terminate the trust and require a transfer to them of the shares. There are at least two fundamental flaws in that submission.

10    First, on their own case, the applicants are not the beneficiaries of the bare trust of which Citicorp Nominees is the trustee. Rather, Charles Schwab is the beneficiary of that bare trust. Perhaps the applicants can require Charles Schwab to terminate the bare trust which the applicants say exists between Citicorp Nominees and Charles Schwab, and then require a transfer of shares by Charles Schwab to them, but that entitlement has not been established. For all I know, there may be impediments under US securities law to such a course.

11    Second, even assuming that Charles Schwab and the applicants are legally able to take those steps, the simple fact is that they have not done so. Nor have they even established a willingness to do so. Section 236(1)(a) uses the verb “is” in the present tense; that is, the applicant for leave must at present be a person falling within at least one of the categories referred to, relevantly a “person entitled to be registered” as a member. The applicants might in the future become entitled to be registered as members, but they have not yet taken the steps which would confer on them that entitlement. The need for the entitlement to be registered to be a “present entitlement” is reflected in the express language of the Explanatory Memorandum at [6.25], to which I have already referred.

12    The Explanatory Memorandum does not give any indication as to why the concept of entitlement to be registered as a member was included in s 236(1)(a). A possible rationale may be that the legislature wished to protect the position of a purchaser of shares in the interval between satisfying all the steps necessary to become registered and the completion of the clerical task of entry in the register. Another possible explanation is that the concept was designed to deal conclusively with the problem which had arisen several years earlier in Sipad Holding ddpo v Popovic (1995) 61 FCR 205 at 217D, where Lehane J held (apparently as a novel point) that it was not necessary that a person’s name must be entered in the register with absolute completeness and correctness and without any superfluous additions, in order that it may be said that that person is one whose name is entered in the company’s register of members. However, it is not necessary to pursue the question of the rationale for that provision, as the statutory language is in itself authoritative.

13    The applicants also submit that they are entitled to be registered as members by bringing a derivative claim as beneficiaries where the trustee has failed to take steps. Once again, the applicants are not the beneficiaries of the bare trust of which Citicorp Nominees is the trustee, on their own case. Further, there is no evidence that the applicants have called on the trustee to take any steps or that the circumstances would justify a conclusion that the trustee has failed to take steps. Moreover, it is difficult to see how a derivative claim would entitle the applicants to be registered as members, and if the applicants do themselves have a present entitlement to be registered then they would not need a derivative claim in order to enforce it.

14    Accordingly, as matters stood immediately before the luncheon adjournment, the applicants had not established standing to make the application.

15    Over the luncheon adjournment, the solicitor for the applicants, Mr Gallego, prepared an affidavit seeking to prove, for the first time, that the first applicant became a registered member of Citigold on about 18 June 2026. The relevant portion of that affidavit dated 4 November 2026 was as follows:

10.    Mr Grayson informs me, and I believe, that the First Applicant purchased an offmarket allotment of 8,500,000 shares in Citigold Corporation Limited which were acknowledged by a statement dated 18 June 2026. In that regard I refer to three photographs of correspondence received by Mr Grayson, dated 18 June 2026 which are annexed to this affidavit and marked “D”.

11.    Mr Grayson further informs me, and I believe, that the First Applicant has previously made a similar purchase of shares, in respect of which he has not been able to locate documents at short notice.

16    Mr Gerard, who appeared for the first, second and fourth respondents, objected to the new affidavit of Mr Gallego on the grounds of its lateness (the applicants’ affidavits having been due on 21 August 2026) and the unfair prejudice which would be occasioned to his clients. The prejudice arises in the following way. On 25 May 2026, Allens, on behalf of Citigold, wrote to Mr Grayson’s solicitors alleging that Mr Grayson had used the member register of Citigold (which had been provided to him on 21 May 2026 at his request) for improper purposes contrary to s 177(1) and (1AA) of the Act by making unsolicited offers to shareholders in Citigold, and enclosed copies of emails from Mr Grayson to two such shareholders on 23 May 2026. The letter pointed out that breaches of s 177(1) and (1AA) are strict liability offences. Mr Gerard submitted that, if the new evidence had been filed and served in a timely manner, his clients would have wanted to explore how the off-market purchase of 8,500,000 shares had occurred and, whether it came about through an improper use of the register in contravention of the Act. Mr Gerard drew attention to the principle that the inquiry under s 237(2)(c) of the Act is not confined to whether it is in the best interests of the company that the particular proceedings should be brought on behalf of the company, but integral to the inquiry is the question whether it is in the best interests of the company that the proceedings should be brought on behalf of the company by the particular person who seeks leave: Transmetro Corporation Ltd v Kol Tov Pty Ltd [2009] NSWSC 350; (2009) 71 ACSR 582 at [15] (Barrett J). I accepted Mr Gerard’s explanation of what his clients would have sought to do if the new evidence had been provided earlier. Although Citigold was aware of the two earlier attempts by Mr Grayson to acquire shares from other shareholders after he had received the member register, the fact that the applicants now sought to rely on a completed purchase in apparently similar circumstances, and to do so as the basis of a new claim as to standing to bring the present application, would have put that matter in a much sharper focus, and warranted the further investigations which would have been undertaken.

17    I suggested to the parties that one way of dealing with the problem would be for me to proceed on an assumption in favour of Mr Gerard’s clients that the register had been used for an improper purpose in making the off-market purchase of Citigold shares on or about 18 June 2026, which would be no more than an assumption and would not be a finding. On that basis, the prejudice to Mr Gerard’s clients would be cured for present purposes and the applicants would be able to establish by way of Mr Gallego’s new affidavit that the first applicant had standing as a member of Citigold to bring the present application. The applicants took up my suggestion of a short adjournment to take instructions from Mr Grayson, and the applicants then rejected my proposal, referring to the public standing of Mr Grayson. From the point of view of the applicants’ forensic interests, that was an unfortunate position to take, particularly as my proposal involved no more than making an assumption, rather than a finding, of impropriety, so as to cure the prejudice arising from the lateness of the evidence and thereby to enable the first applicant to establish its standing. However, it is no part of my role to advise parties as to what is in their own forensic interests, or how to balance their forensic interests with other concerns that they might have. The upshot of the stance taken by the applicants is that the prejudice to Mr Gerard’s clients required the rejection of [10] and [11] of Mr Gallego’s affidavit of 4 November 2026. I note that neither of the two sets of parties sought, or even suggested, an adjournment of the hearing to a later date as a means of dealing with the prejudice to Mr Gerard’s clients.

18    Accordingly, there is no evidence of the first applicant being a member of Citigold within the meaning of s 231(b) of the Act. As I have explained above, the applicants are not presently entitled to be registered as members of Citigold. Accordingly, the applicants lack standing to seek leave under s 237. For that reason alone, the proceedings must be dismissed.

19    While it is not necessary for me to deal with the parties’ submissions as to whether the criteria for the grant of leave in s 237(2) of the Act are satisfied, I will deal with the issue arising under s 237(2)(d) as to whether there is a serious question to be tried.

Has a serious question to be tried been established by the applicants?

20    Citigold is a mining development and exploration company operating in Charters Towers in Queensland and holds mining leases over three distinct areas in Charters Towers, known as “Central”, “Stockholm” and “Imperial” (the Mine). Mining activities at the Mine ceased in 2015, and since then efforts have been made to obtain funding to restart mining operations.

21    On 30 April 2020, Citigold released a quarterly report concerning the period ending 31 March 2020, containing the following statements:

Major project funding discussions actively continued with interested strategic partners to expand Citigold’s production-ready Charters Towers Gold Project (Gold Project).

…

Our aim is to be a 300,000 plus ounces per annum ultra-low-cost gold producer in five years using state of the art technologies and efficiencies, all with the aim of returning substantial profits to shareholders in harmony with the local environment.

…

Designs and strategies for the Central Mine refined during the quarter, with a focus on an “optimal” mine design methodology, for the geometry and rock conditions of our particular gold deposit.

22    On 29 July 2020, Citigold released a quarterly report for the period ending 30 June 2020, which stated under the heading “Highlights”:

Active discussions for major project funding advanced and funding is expected to be in place by the end of the calendar year.

In relation to the “Central Mine”, the 29 July 2020 quarterly report stated:

The Company and its independent mining engineering consultant, Prospector Enterprises, reviewed over the last two quarters the mining design, engineering plans and other mining data for Central which is being optimised substantially because of technologies available today which were not available 5 years back.

…

In consultation with project managers and design engineers, an innovative mining system has been put together that takes an efficient “keyhole surgery” approach to our mining and thereby doing what needs to be done for the geometry of our ore system that in itself is somewhat [sic] unique. Make small holes, and just extract the valuable ore.

During the Quarter, the Company adopted the use of two small declines, commencing circa 1,300 metres down the current single decline. The “twins” require smaller blasts, excavate less rock than single standard decline and less rock to move. One decline will be used for downcast air and the other used for upcast, thereby creating good ventilation at all times and two egresses. The declines will allow flexibility for material and personnel movements in and out of the underground.

…

Under the old mine plan the constraint of having to first open up the “King Shaft”, referenced and imaged in previous announcements, has been removed thereby shortening the lead time to gold production. The decline(s) path is essentially the same. Preliminary costings indicate the twin decline are within existing budget.

23    On 29 July 2020, Citigold’s share price opened at $0.005, and closed that day (after the release of the quarterly report) at $0.012 per share, and closed the following day at $0.02 per share. As indicated above, PAL acquired 150 million shares on 2 June 2020 at $0.005 per share. Accordingly, the applicants submit that by the close of trade on 30 July 2020, that shareholding had increased in value from $750,000 to $3,000,000, and the loss caused to Citigold was the difference of $2,250,000.

24    At the heart of the applicants’ case is the contention that by 2 June 2020, Mr Mark Lynch knew the positive news about funding and the new mining technology (as disclosed in the quarterly report dated 29 July 2020), and that Mr Mark Lynch informed his brother, Mr Peter Lynch, of that information before PAL applied for the 150 million shares which were the subject of the 2 June 2020 transaction.

25    The applicants submit that their contention is supported by the following circumstances:

(a)    the relationship between Mr Mark Lynch and Mr Peter Lynch, in that they are brothers and, as at 2 June 2020, PAL (of which Mr Peter Lynch was the sole director and shareholder) had a significant interest in Citigold as a lender and a shareholder (PAL holding 83 million Citigold shares);

(b)    the timing overlap, in that the quarterly report released on 29 July 2020 provided an update of Citigold’s activities for the three month period from 1 April 2020 to 30 June 2020, and the share issue occurred on 2 June 2020;

(c)    the significance of the information, as reflected in the sharp increase in the share price of Citigold on 29 and 30 July 2020, against the backdrop of a long dormant mine;

(d)    the unusual nature of the capital raise, in that the applicants contend that the commercial rationale for the issue of 180 million shares (150 million of which were issued to PAL) at this particular time has not been explained, and the applicants submit that it was open to Citigold to undertake a broader capital raise or rights issue; they also draw attention to the fact that the share issue drew the attention of the ASX’s compliance team;

(e)    PAL’s motivation, in that before the share issue of 2 June 2020, PAL was owed $1 million from Citigold secured by an interest in Citigold’s mining tenements, Citigold had no operating revenue and its only asset, being the Mine, was not operational, and its share price had been at around half a cent for the previous year; in those circumstances, PAL was not willing to increase its facility to Citigold but was willing to exchange $750,000 of its secured debt for equity in Citigold, from which the applicants submit it can be inferred that PAL was of the view that the Citigold shares had good prospects of increasing in value; and

(f)    Mr Mark Lynch and Mr Peter Lynch were communicating at the relevant time in relation to the share issue, unlike an on-market acquisition or disposal of shares which does not require communication between a company and a shareholder.

26    On 27 January 2021, Citigold responded to questions posed by ASX concerning the share issue on 2 June 2020. In relation to ASX’s request for an explanation as to the commercial justification for the share issue, Citigold referred (inter alia) to the following matters under the heading “CTO [Citigold] needed working capital”:

(a)    Citigold’s Charters Towers Gold Project was currently in care and maintenance and not producing gold, and therefore did not have any operational revenue and was dependent on funding from its shareholders;

(b)    Citigold needed to raise funding for ongoing activities which traditionally were raised internally from shareholders through Security Purchase Plans (SPPs) and share placements;

(c)    Citigold had a long and successful history of raising working capital through SPPs and share placements, but there can only be one SPP each 12 months and that option was not available to Citigold in the period leading up to 30 June 2020;

(d)    with the 30 June 2020 end of financial year approaching, Citigold needed to raise funds and/or increase available funding before preparing its 30 June 2020 financial statements, and for auditing purposes;

(e)    as at May 2020, Citigold had $9,700 in cash and an available loan facility of $243,000;

(f)    the COVID-19 pandemic had complicated capital raising throughout the 2020 year;

(g)    the holding costs of the Mine were very substantial and ongoing, with the maintaining of that large and valuable asset being a key priority of Citigold for the benefit of shareholders as a whole; I note that that matter is further substantiated by evidence from Citigold’s solicitor, Mr Brown, who gives evidence on information and belief that Citigold’s annual holding and regulatory costs include mining lease rents, council rates on the mining leases, exploration permits for minerals and mineral development licences, rent, environmental authority fees and exploration fees, and in each year between 2020 and 2025 Citigold’s annual holding and regulatory costs ranged between approximately $2 million and $3 million (affidavit of 21.10.26 at [34]);

(h)    Citigold already had an existing loan arrangement with PAL on normal arms-length commercial terms and Citigold required additional funds; the loan agreement had commenced with PAL on 7 December 2018 at $500,000 unsecured, and increased at Citigold’s request on 18 September 2019 to $700,000 unsecured, and again increased at Citigold’s request on 20 December 2019 to $1,000,000 secured;

(i)    in view of Citigold’s need to raise additional funds at the end of May 2020, PAL was approached to further increase the loan facility and advised that it was not able to increase the loan above the current $1,000,000, but was prepared to receive shares, to reduce the outstanding loan balance, with the overall loan facility to stay in place, which would increase Citigold’s available funding;

(j)    Citigold decided to do a share placement to raise up to $900,000 at the then market price of $0.005; PAL would take up shares to the value of $750,000 and several other shareholders who had previously expressed interest also took up shares to the value of $150,000 for a total of $900,000; and

(k)    Citigold’s “equity” is effectively the only “currency” available to it.

27    There is no direct evidence that the alleged inside information actually existed as at 2 June 2020. The quarterly report released on 29 July 2020 covers the period ending 30 June 2020, but there is no indication within that report that the funding prospects and technological advances to which it refers were known by 2 June 2020, as distinct from having emerged in the period from 3 to 30 June 2020. Further, in my view, the matters relied upon by the applicants do not provide a sufficient basis for an inference that that information did actually exist as at 2 June 2020. In addition, the applicants’ case requires them to establish not only that the insider information existed, but also that it was conveyed by Mr Mark Lynch to Mr Peter Lynch by 2 June 2020. There is no direct evidence of that, and the matters relied upon by the applicants do not provide a sufficient basis for an inference to that effect. In particular, Citigold provided a cogent explanation for the share placements made on 2 June 2020 in its letter to ASX of 27 January 2021. While the information (if it had been known by Mr Mark Lynch) was undoubtedly material to the price of Citigold’s shares, that would ordinarily provide a reason for an experienced director of a public company not to share it with a potential acquirer of the company’s shares. The fact that PAL insisted on equity rather than debt (and the share issue being in reduction of its debt) strikes me as unremarkable given Citigold’s evident cashflow difficulties at the time.

28    Accordingly, in my view the applicants have not discharged their onus of establishing a serious question to be tried, even acknowledging the relatively low threshold which that criterion requires. Even if I had been satisfied that the applicants had standing (for example, by way of admission of the new evidence as to the first applicant being a member of Citigold), I would have dismissed the application in any event on the basis that a serious question to be tried had not been established.

Conclusion

29    Accordingly, the application for leave to bring derivative proceedings should be dismissed. The applicants accept that the consequence is that the Amended Originating Application dated 1 June 2026 should be dismissed as a whole.

30    The parties have expressed a preference to address the question of costs after receiving these reasons. Accordingly, I have set a timetable for the filing and service of written submissions and affidavits on the question of costs, which I will decide on the papers. It is conceivable that the first, second and fourth respondents will seek a special order as to costs, for example by way of a lump sum order or an order for indemnity costs (possibly in view of an offer of compromise), or both. In the event that a lump sum order as to costs is sought, the affidavits and written submissions should deal with the quantification of such an order, so as to avoid the need to refer the matter to a Registrar.

Associate:

Dated:    6 November 2026

SCHEDULE OF PARTIES