Noah’s Ark Veterinary Services Pty Ltd v Hudson [2023] FCA 1094

Coffee and a Case Note

“You stole the Co’s koala client base! That’s not good faith.”
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P, one of 3 equal shareholders in a Co operating a vet surgery, sought to bring a derivative action on the Co’s behalf.
The other 2 shareholders were the Co’s Dirs. D1 was a vet, and P’s former spouse. D2 was an E’ee of the vet clinic.
The Co offered traditional vet services as well as “rehabilitation” services; chiropractic and acupuncture: [6]
In 2019 P and D1’s marriage deteriorated. In 2021, P sought family law property orders. In 2022 the marriage was dissolved: [7]
As part of the family law litigation, all parties contemplated P selling their shares to D1 and D2: [8], [9]
In 2021, P’s was dismissed by the Co for alleged serious misconduct. No payment was made for annual leave (the Co saying it had all been used) or in lieu of notice (due to the alleged serious misconduct): [12] - [14]
One of the Co’s leading clients was a local koala hospital. P sought to siphon off this koala work (to the detriment of the Co) while still a Dir of the Co. (P was indeed later employed by the koala hospital, with the Co losing that work): [16] - [34]
D1 and D2 incorporated a new company and diverted the Co’s “rehabilitation” services away to it: [48] - [59]
The Court found it was likely the family law proceedings would lead to orders that P sell his shares in the Co to D1 and D2: [63]
P threatened bringing a derivative suit regarding the new “rehabilitation” company being a breach of the Ds’ directors duties if his claimed employment entitlements were not paid. They remained unpaid. The proceedings were brought. The Court accepted the derivative suit was brought by P to apply pressure to seek his unpaid claimed employment entitlements: [73] - [76]
The Court (with respect, quickly) concluded leave to bring the derivative suit should not be granted: [77]
The Court accepted the Co would not bring the claim, that there was a serious question as to whether the Ds breached their duties, and that notice had been given: [78]
The Court found the derivative suit would not be in the best interests fo the Co and was not brought in good faith: [79]
The Court found the derivative suit unnecessary and “pointless” as the issues relation to the Co’s value and the new “rehabilitation” business were to be litigated in the family law proceedings: [84], [86]
A “parallel” between family law proceedings and a derivative suit will not always stand in the way of the latter succeeding: [84]
Regarding best interests, granting leave would distract D1 and D2 from continuing to build the Co: [87]
Regarding good faith, P did not come in good faith because the claim was pointless and unnecessary, and because it was brought to secure employment entitlements - an abuse of process: [88]
Leave was not granted.

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