In the recent decision of Lotus Property Fund No 8 Pty Ltd  NSWSC 1349 the Court considered an application by a former director to bring a derivative action on behalf of a company. That is, speaking loosely, the former director wanted to “stand in the shoes” of the company to sue another party, because the company wasn’t going to do so itself.
Around $100 million was paid following the development of a site in Sydney. The company was the trustee of a trust that stood to receive some of those proceeds.
The plaintiff – who was a former director of the company – had the benefit of a “side deed” which would see a related entity of his benefit if the company received a greater share of the sale proceeds. The various relationships between the relevant parties had some complexity such that the Court saw fit to prepare two diagrams to describe them.
Some of the sale proceeds were distributed, or were to be distributed, in a way that concerned the plaintiff.
The plaintiff sought the Court’s leave to bring a claim on behalf of the company that the company should receive a greater share of the sale proceeds. It was clear to all that the company was not going to bring the claim itself.
The Court found the application was brought in good faith, with the plaintiff’s motivation being to seek a proper distribution of funds for the benefit of the company.
The “relatively low” threshold of whether there was a serious question to be tried was met.
The purpose of the plaintiff bringing the proceedings – for the company to take a greater share of sale proceeds, or information that would enable it to do that – was found to be in the company’s best interests. This finding was made despite the uncertainties about the plaintiff’s prospects in any litigation, or the potential defendant’s ability to pay.
The plaintiff was found to have no conflict of interest with the company, and so was granted leave to proceed, notwithstanding the absence of notice.
This case is an illustration of how, even if a company does not want to bring proceedings itself, an interested party can seek the Court’s help to “stand in the shoes” of the company and bring proceedings anyway.
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