In Kaloriziko Pty Ltd ATF Ryde Combined Unit Trust v Calibre Construction Group Pty Ltd [2025] NSWCA 225 the Court of Appeal allowed a director to bring a proceeding in the name of the company – even when the other director did not agree. The case is useful when considering how to make a company bring a claim, even when some of the directors disagree. The relevant provisions can be used by non‑directors, for example by shareholders (who can use the mechanism to sue directors of the company).
Key Takeaways
- Under sections 236 and 237 of the Corporations Act 2001 (Cth) (Act), members or officers may apply to the court to bring an action on behalf of their company (a so‑called ‘derivative action’).
- The application to start a claim in the name of a company may be granted even without the support of other directors.
- When deciding whether to grant the application, the court will consider the following:
- Can the company bring an action itself (as opposed to the applicant bringing the action on behalf of the company)?
- Is the application made in good faith?
- Is the application in the best interests of the company?
Case Background
In 2017, Calibre Construction Group Pty Ltd (Calibre), the builder, and Kaloriziko Pty Ltd (Kaloriziko), the developer, entered a contract to construct a mixed‑use residential and commercial development in Ryde. The contract required a retention sum to be held on trust for the benefit of the builder pending completion of the work.
Subsequently, Kaloriziko did not pay the retention to Calibre at the specified time. In the Supreme Court of New South Wales (Supreme Court), Calibre sued Kaloriziko and its directors, Mr Tran and Mr Chanine, for unpaid amounts including the retention, as well as sums said to be due for variations and the balance of the contract. The developer accepted it held the retention sum on trust pending determination, and the builder pursued knowing breach of trust claims against individuals. During the Supreme Court proceedings, Calibre’s claim against Mr Tran was resolved through a deed of settlement, leaving Kaloriziko and Mr Chanine as the remaining defendants. The Supreme Court made an order against Kaloriziko for over $2 million for the unpaid amounts owed to Calibre.
The Court of Appeal Decision
Mr Chanine applied to the Court of Appeal, seeking leave to bring a derivative action on behalf of Kaloriziko which would then allow Kaloriziko to appeal the decision. Most relevantly, an appeal was sought because, if successful, it would relieve Kaloriziko of liability for more than $2 million under the previous decision.
Sections 236 and 237 of the Act provide that, with leave of the court, a member (for example, a shareholder) or an officer may intervene or bring an action on behalf of the company. Under the Act, a person must give a company at least 14 days’ notice before applying for leave to act on its behalf. However, the court can omit this requirement if granting leave is still appropriate given the circumstances.
Even though Mr Chanine did not give Kaloriziko 14 days’ notice, Adamson JA was satisfied that it was appropriate to grant leave under s 237(2)(e)(ii).
Adamson JA reviewed the necessary requirements to consider when determining whether to grant leave to appeal:
- Could the company bring an action itself without board approval? This was impossible because Kaloriziko’s constitution required unanimous director support to engage in litigation. As Mr Tran had already resolved his side of the dispute through a deed of settlement, he did not have any interest in bringing the appeal.
- Was the applicant acting in good faith? Yes, this was evidenced by outlining arguable grounds of appeal – first, whether variations could be challenged notwithstanding they had been approved at the time. The second ground concerned whether the deed of settlement between the builder, Mr Tran and Ninth Campsie Pty Ltd would, on principles of coordinate liability, extinguish any liability of the developer.
- Was it in the best interests of the company? Yes, it was in the best interests of Kaloriziko, because if successful, the company’s liability would be reduced from over $2 million to nil.
Outcome
Leave to appeal was granted on the condition that Mr Chanine would indemnify Kaloriziko for costs incurred by the company in the appeal.
Further Information
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