Reabel (in substitution for Henry) v Sandlewood Aboriginal Projects Limited

This decision sits within the derivative action provisions of the Corporations Act 2001 (Cth). Three sections matter immediately.

Section 237 is the gateway provision. It is the section under which leave had earlier been granted for the applicants to bring proceedings on behalf of Western Downs Group Limited. Section 238 deals with substitution, including where a person who had leave can no longer continue and another eligible person seeks to step in. Section 240 is the supervision provision for ending the case. It says that proceedings brought with leave must not be discontinued, compromised or settled without the leave of the Court.

That structure explains the 2026 judgment. The Court was not conducting a final trial on the underlying allegations against the remaining respondent. Instead, it had to decide two procedural but important questions. First, could Veronica Reabel be substituted for the deceased first applicant under s 238? Second, should the Court grant leave under s 240 for the last remaining claim to be settled and discontinued?

The commercial story began with an Indigenous Land Use Agreement made on 10 December 2012. Arrow Energy Pty Ltd agreed to pay compensation of $5,750,000 to eleven family groups who may have native title in the Western Downs area of South-East Queensland. The money was to be distributed through a corporate entity trustee in accordance with Schedule 4 of the agreement.

That entity became Western Downs Group Limited, a company limited by guarantee established as a charitable trust. Its role was to receive the compensation money and distribute it equally among the eleven groups. Arrow paid the full amount into Western Downs’ bank account on 10 January 2014. The Court recorded that each group’s share was $522,727.27.

The dispute arose because, according to the judgment, only eight groups had substantially been paid. Three groups had not received any funds: the Emon Group, the Kambuwal Group and the Western Wakka Wakka Group. Representatives of those groups became the applicants in litigation brought on behalf of Western Downs after leave was granted under s 237.

The proceeding had already been running for years. Earlier judgments had produced outcomes against former directors and another respondent. Rares J had entered judgment on breach of fiduciary duty claims against Russell Doctor and Jason Jarro, entered judgment on part of the claims against Kerry-Anne Lacey, and approved a settlement with Sandlewood Aboriginal Projects Limited. Sandlewood then paid $550,000 into Court.

By 2026, only one claim remained unresolved: the claim against Lucy Davis. The applicants alleged that Ms Davis had received around $690,000 of the ILUA money. They sought equitable compensation, alleging either knowing receipt of funds paid in breach of trust or knowing assistance in a dishonest and fraudulent design. Those are serious allegations, but this judgment did not decide whether they were made out.

Instead, after mediation before two Registrars on 18 and 19 December 2025, the applicants and Ms Davis negotiated a deed of settlement and release. In broad terms, the deed provided for discontinuance of the proceeding against Ms Davis, each side bearing its own costs, and releases and indemnities connected with the allegations in the proceeding. Before the matter could be finalised, however, the first applicant, Beatrice Maud Henry, died on 11 February 2026. Her niece, Veronica Reabel, then sought substitution so the proceeding could be brought to an end properly.

The Court had two immediate questions before it.

The first was substitution under s 238. Section 238(1) permits a member, former member or person entitled to be registered as a member of the company to apply to be substituted for a person to whom leave has been granted. Under s 238(2), the Court may make the order if satisfied that the proposed substitute is acting in good faith and that substitution is appropriate in all the circumstances. So the Court needed to be satisfied not only about Ms Reabel’s connection to Western Downs, but also about her good faith and the practical appropriateness of the change.

The second was settlement approval under s 240. Because the proceeding had been brought with leave, it could not be discontinued or settled without the Court’s approval. The judgment refers to earlier authority explaining that s 240 is intended to let the Court guard against collusion and oversee whether the proposed resolution is in the best interests of the company. The Court also referred to authority indicating that the company’s interests are central, and that relevant considerations include prospects of success, likely costs, likely recovery if the action succeeds, and likely consequences if it does not.

That meant the Court was not simply asking whether the parties wanted to settle. It had to assess the actual state of the litigation and whether settlement was a sensible outcome for Western Downs. The Court also had to deal with practical issues around who could represent Western Downs and who needed to execute the deed, although those issues were ultimately resolved without a final ruling on the contested points.

The key distinction is this: the judgment is mainly about court control over substitution and settlement in a company proceeding, not a final merits ruling on the underlying allegations.

The Court granted both applications.

On substitution, Rangiah J was satisfied that Veronica Reabel was a descendant of one of the Emon ancestors identified in Schedule 1 to Western Downs’ constitution and was entitled to be registered as a member of Western Downs. The Court was also satisfied that she had been appointed by members of the Emon group to replace Ms Henry at a meeting held on 14 December 2025 at Rockhampton, that she was acting in good faith, and that substitution was appropriate in all the circumstances. The Court therefore ordered that she be substituted for Ms Henry as the first applicant. To avoid confusion with earlier judgments, the Court ordered that the first applicant be styled as Veronica Reabel in substitution for Beatrice Maud Henry.

On settlement, the Court granted leave under s 240. It accepted that the claim against Ms Davis raised complex issues of fact and law. The Court pointed to the procedural history as strong evidence of that complexity. The statement of claim had reached at least its sixth iteration. The applicants had not yet provided their trial evidence despite Ms Davis having been joined in 2018. The matter had been listed for trial in early 2023, adjourned to mid-2023 and eventually vacated. Orders had required filing of the applicants’ trial material later in 2023, but the case still had not reached trial.

The Court also identified four unresolved interlocutory applications: the applicants’ application for leave to file and serve a fifth further amended statement of claim, the applicants’ application for discovery, Ms Davis’ application for security for costs, and Ms Davis’ application for costs arising from an earlier discontinuance by some but not all applicant parties. In addition, the current pleading still required substantial amendment to comply with pleading rules and properly expose the facts and inferences relied on. The Court noted that the applicants were at real risk of an adverse costs order for costs thrown away by those amendments.

Commercial realities also mattered. The Court noted evidence that Ms Davis had limited means to satisfy any judgment. It also noted that the applicants’ legal representation had been funded by Queensland South Native Title Services, but that funding had ceased and there was no apparent alternative source of funding. In that context, any trial would involve substantial cost and risk.

Taking all of that together, the Court was satisfied that the proposed settlement was in the best interests of all parties, including Western Downs. The Court was also satisfied there was no collusion. It noted that the relevant parties had separate legal representation and had agreed to the settlement terms.

The orders then set out the practical steps required to finalise the settlement. The parties were given leave to settle in the terms of the deed, subject to a modified execution clause. The first, second and fourth applicants, the fifth respondent and the seventh applicant by its current directors were required to execute the deed by 4.30 pm on 23 April 2026. Once an affidavit annexing the executed deed was filed, the applicants were given leave under the Federal Court Rules to file a notice of discontinuance. The Court also ordered that the applicants would not be liable to pay the costs of the other parties in relation to the discontinued claim. Finally, the Court directed the applicants to file and serve an application for orders about distribution of money held in Court by 5 May 2026, and excused the fifth respondent from attendance at any hearing about that issue.

This judgment is a good example of how procedure and document management can drive the outcome of a case. The Court did not say the underlying claim lacked seriousness. Instead, it focused on the practical state of the proceeding.

First, the pleadings were a major issue. The Court referred to repeated amendments and accepted that the current pleading still required substantial further amendment. For business readers, that matters because a claim can become expensive and vulnerable if the pleadings do not clearly set out the facts, inferences and causes of action relied on.

Second, delay mattered. Ms Davis had been joined in 2018, but by 2026 the applicants still had not provided their trial evidence. The trial had been listed, adjourned and then vacated. Delay increases cost, weakens momentum and can change the commercial value of continuing.

Third, unresolved side disputes mattered. The Court listed four interlocutory applications still on foot. Those applications were not just technical distractions. They represented more time, more cost and more uncertainty before the case could even get to a final hearing.

Fourth, recoverability mattered. The Court expressly noted evidence that Ms Davis had limited means to satisfy any judgment. Even a strong claim can become commercially unattractive if a successful judgment is unlikely to be recovered in practice.

Fifth, funding mattered. The applicants’ legal funding had ceased and no alternative source was apparent. That is a concrete reminder that litigation strategy cannot be separated from funding strategy.

Finally, authority and execution issues mattered. There were disputes about who was entitled to represent Western Downs, whether the release and indemnity terms were acceptable, and whether the applicants could execute the deed on behalf of Western Downs without board approval. The Court did not need to rule on those issues because they were worked around by agreement, including execution by the current directors. But the fact those issues arose at all shows how unclear authority can complicate settlement at the last stage.

For businesses, not-for-profits and companies limited by guarantee, this case is best read as a governance and litigation management decision. It shows what can happen when a company is used to receive and distribute money under a structured arrangement and disputes later arise about where the money went.

If your organisation holds funds for distribution under a contract, constitution, trust-like arrangement or stakeholder framework, treat the payment process as a formal governance system. Keep a clear record of who is entitled to payment, what approvals were given, when payments were made, and the legal basis for each transfer. If a dispute later turns into litigation, those records may shape both the merits and the ability to settle sensibly.

If a claim is being pursued on behalf of the company, separate two questions early. The first is the merits question: does the company appear to have a viable claim? The second is the management question: is the claim properly pleaded, supported by evidence, funded, and worth pursuing in light of likely recovery and costs risk? This judgment shows that the second question can become decisive.

Businesses should also pay close attention to authority. Know who can instruct lawyers, who can speak for the company, and who must sign settlement documents. If there is a board, make sure board authority is clear and minuted. If the proceeding is being run by members or representatives with court leave, remember that the Court remains involved in how the case ends.

Finally, if the original representative can no longer continue, substitution may be available, but it is not automatic. The replacement person must fit the statutory criteria and the Court must be satisfied about good faith and appropriateness. That means succession planning and internal clarity about representation can matter even in litigation.

If your organisation is already in a dispute involving company-held funds, there are several practical steps suggested by this decision. Review whether the claim is being brought personally or on behalf of the company. If it is on behalf of the company and leave was required to start it, check early whether court approval will also be needed for any settlement or discontinuance. Review the pleadings before costs escalate. Confirm who is funding the case and what happens if that funding ends. Assess whether a successful judgment is likely to be recoverable. And before signing any settlement, confirm who has authority to bind the company and whether current directors need to execute the document.

The orders in this case also show the mechanics the Court may require. Here, settlement approval was not the final step by itself. The Court required execution of the deed by specified parties, filing of an affidavit annexing the executed deed, and only then allowed a notice of discontinuance to be filed. It also dealt expressly with costs and set a timetable for a further application about money held in Court. In other words, settlement approval in a derivative proceeding can involve a sequence of formal steps, not just a handshake and a withdrawal.

The Court made the relevant orders on 26 March 2026 and published reasons on 25 May 2026. The judgment records a long procedural history dating back to the ILUA in 2012, payment of compensation funds in 2014, leave to bring proceedings on behalf of Western Downs in 2018, earlier judgments and settlement steps between 2019 and 2021, and mediation in December 2025 that produced the proposed deed of settlement.

The judgment also makes clear that one issue remained after approval of the settlement with Ms Davis: how money already paid into Court should be distributed. The Court directed the applicants to bring an application about that issue. So while the claim against Ms Davis was allowed to be settled and discontinued, the broader administration of money held in Court still required further orders.