QLD Keystone Pty Limited [2024] NSWSC 1678

Coffee and a Case Note

“You can’t run that claim. You’ll expose the Co to a cross-claim!”

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P sought, among other things, s236 leave to sue D on the Co’s behalf for $110k: [2], [3]

P held 70% of the shares in the Co, and an entity related to D held 10%. The Co was no longer active: [4], [10], [25]

The issue was: D caused $110K to be transferred from the Co to one of D’s entities and P said there was no authorisation for the transfer: [4]

D argued the transfer was authorised by way of WeChat message: [4]

The parties led “voluminous” evidence which, with respect, was of only middling assistance to the Court: [6] - [12]

The heart of the dispute concerned the meaning of the WeChat exchange (which was translated to English). D proposed that an invoice be issued to their entity so that a VAT (which we infer was a reference to GST) of $10K could be recouped. P responded with an “okay” emoji: [13]

D argued this was authorisation for the $110K transfer to D’s entity - that sum being $100K plus the 10% “VAT” that would apply to it: [14]

The Court was then left to consider the s237(2) statutory criteria in relation to granting leave to bring derivative suits.

Re s237(2)(a): noting a board deadlock, the Court found the Co was not likely to bring the proceedings: [18]

Re s237(2)(b): D raised a likely quantum meruit cross-claim that would be raised if the claim was pressed [22] saying the claim was not brought in good faith. The Court assumed, without finding, P came in good faith with a genuine belief the WeChat exchange did not authorise the payment: [23]

Re 237(2)(c): P failed to convince the Court it was in the Co’s best interests for leave to be granted: [34]

The Court considered the likelihood that D would bring a cross-claim in quantum merit for the work D’s entity had actually done to benefit the Co: [28]

D said exposing the Co to that cross-claim could not be in the Co’s best interests.The Court considered the Co contemplating proceedings would rationally contemplate the pros and cons of running the claim, including the risk of the cross-claim: [29]

If the cross-claim exceeded the claim, then a rational company would not commence: [30]

P did not undertake this economic benefit analysis, nor did they provide the Court with enough evidence to allow the Court to do so: [31], [32]

The Court found that the $250K indemnity P offered to provide did not assist where the above analysis had not been undertaken, and where there appeared a real possibility that litigating the claim and cross-claim might expose the Co to costs orders exceeding that amount: [33]

Re ss237(2)(d) and (e): both serious question and notice criteria were uncontroversial: [35], [36]

The Court was not persuaded that it was (rather than *might be*) in the Co’s best interests that leave be granted: [37]Leave was not granted. The application failed.

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