Al Ghurair v Bustan International Pty Ltd (Receiver and Manager appointed) [2005] VSC 461

What the court decided

The applicants sought leave to commence a proceeding in the names of Bustan International Pty Ltd and Bustan Australia Holdings Pty Ltd, both in receivership [1]. According to an affidavit of the applicants' solicitor sworn on 20 October 2005, each applicant was a director of both companies and a shareholder in Bustan Australia Holdings Pty Ltd, the parent of Bustan International [4]. The proposed defendants were HSBC Bank Australia Ltd, HSBC Bank PLC, Rabo Australia Ltd and Co-Operative Centrale Raffeisen-Boerenleenbank BA, referred to below as the Banks [2].

On the solicitor's account, in November 2001 the Banks demanded payment of moneys allegedly owing and put both companies into receivership [4]. They had not sued either company, but they had caused the company holding their security to sue two guarantors of the companies' debts in the Court [4]. The proceeding against the guarantors was already fixed for trial [17].

The applicants relied on two affidavits sworn by their solicitor [3]. The affidavit of 20 October 2005 largely summarised pleadings and affidavits filed in that proceeding, which alleged speculative and fraudulent trading by senior officers and employees of Bustan International [4]–[8]. Mandie J noted that statements in that material that bank documents suggested or appeared to suggest that the Banks knew of, or were on notice of, misconduct within the companies were not particularised and named no sources [9]–[11], [13]. The solicitor's own statement to similar effect did not say which documents he had read and was, like the other statements, conclusory [12]–[13]. A draft statement of claim with two schedules was exhibited, but there was no evidence of the contents or significance of the bank documents listed in the second schedule [14].

The judge dealt with only two of the matters that section 237 requires an applicant for leave to establish, serious question and good faith, leaving the others undecided [15].

On the first, he was not satisfied on the evidence [16]. The applicants' case rested to a great extent on unsubstantiated allegations, supported only by hearsay, double hearsay or worse [16]. The alleged liability of the Banks was to rest on the second limb of Barnes v Addy (1874) LR 9 Ch App 244, 252 ('Barnes'), and Mandie J found that the issues essential to that liability were not supported by specific evidence but were the subject of allegation, assertion and conclusion [16]. Nothing put before the Court was specific or coherent enough to let it assess whether there was a serious question to be tried [16].

On good faith, Mandie J was again not satisfied [17]. The applicants had sworn no affidavit about their own involvement in the companies, or what they knew, when the alleged trading took place [6], [17]. Neither they nor their solicitor stated a belief that a cause of action existed, and no deponent with direct knowledge of one was produced [17]. The substantial delay since investigations made for the guarantors, which included interviews in late 2001 and early 2002, was not explained [7], [17]. The judge also found ground to suspect that, if leave were granted, the proposed proceeding might be used as a springboard to seek an adjournment of the trial against the guarantors [17].

Mandie J dismissed the application and ordered the applicants to pay the costs of the two companies and of the proposed defendants [18].

Why it matters

Leave was refused on both grounds because the applicants offered second-hand accounts drawn from other litigation rather than evidence the Court could assess [16]–[17]. In my view, an application for leave to sue on behalf of a company should include affidavits from the applicants on their role and their knowledge, a stated belief that the proposed claim is sound and first-hand evidence of the facts it relies on. Unexplained delay and the suspicion of a tactical purpose also weighed against good faith [17]. The outcome turned on the evidence on this one application, and the decision lays down no fixed evidentiary standard. Readers should check the current text of the statutory leave provisions before relying on the decision.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.