Coeur de Lion Investments Pty Ltd v Kelly & Ors [2013] QCA 160 [2014] 1 Qd R 296

SUPREME COURT OF QUEENSLAND CITATION: Coeur de Lion Investments Pty Ltd v Kelly & Ors [2013] QCA 160 PARTIES: COEUR DE LION INVESTMENTS PTY LIMITED ACN 006 334 872 (appellant) v PATRICK JOHN KELLY (first respondent) MARTIN HUGH EDWARDS (second respondent) BRUCE MURDOCH WALLIS (third respondent) THE PRESIDENT’S CLUB LIMITED ACN 010 593 263 (fourth respondent) FILE NO/S: Appeal No 12260 of 2012 SC No 3296 of 2012 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 21 June 2013 DELIVERED AT: Brisbane HEARING DATE: 20 May 2013 JUDGES: Muir and Fraser JJA and Jackson J Separate reasons for judgment of each member of the Court, each concurring as to the order made ORDER: The appeal be dismissed with costs. CATCHWORDS: CORPORATIONS – MEMBERSHIP, RIGHTS AND REMEDIES – MEMBERS‘ REMEDIES AND INTERNAL DISPUTES – PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER – STATUTORY DERIVATIVE ACTION – where the first, second and third respondents are directors of the fourth respondent, an unlisted public company – where the board passed a resolution to pay consultancy fees to the directors – where the appellant shareholder applied, pursuant to s 237(1) of the Corporations Act 2001 (Cth) (the Act), for leave to bring proceedings in the name of the fourth respondent against the first, second and third respondents to recover consultancy fees paid to the -- 1 of 24 -- 2 directors without member approval – where the primary judge refused the application on the basis that the appellant had not established that it was acting in good faith or that it was in the best interests of the fourth respondent to grant leave – where the appellant contends that the delay in challenging the consultancy payments is explained by the change in control of the appellant and not indicative of a lack of good faith – where the appellant contends that the respondents‘ defences under s 208 and s 1318 of the Act should be tested at trial – where the appellant contends that the fourth respondent will be indemnified for the costs of the action – whether the primary judge erred in finding that the appellant was not acting in good faith – whether it is in the best interests of the company that leave be granted Corporations Act 2001 (Cth), s 207, s 208, s 210, s 211, s 236, s 237, s 601ED, s 1318(1), s 1324 Carpenter v Pioneer Park Pty Ltd (In Liq) (2004) 211 ALR 457; [2004] NSWSC 1007, cited Cassegrain v Gerard Cassegrain & Co Pty Ltd (2008) 68 ACSR 132; [2008] NSWSC 976, cited Chahwan v Europhic Pty Ltd t/as Clay & Michel (2008) 227 FLR 43; [2008] NSWCA 52, cited Charlton v Baber (2003) 47 ACSR 31; [2003] NSWSC 745, cited Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732; [2005] NSWSC 442, cited FWV Stanke Holdings Pty Ltd v O’Meara; Von Stanke v O’Meara [2007] SASC 413, cited Goozee v Graphic World Group Holdings Pty Ltd (2002) 170 FLR 451; [2002] NSWSC 640, cited Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483; [1968] HCA 37, considered Hindle v John Cotton Ltd (1919) 56 Sc LR 625, considered Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821; [1974] UKPC 3, considered Macralink Pty Ltd v Saris [2011] VSC 665, cited Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, cited MG Corrosion Consultants Pty Ltd v Vinciguerra (2011) 82 ACSR 367; [2011] FCAFC 31, cited Mills v Mills (1938) 60 CLR 150; [1938] HCA 4, considered Ngurli Ltd v McCann (1953) 90 CLR 425; [1953] HCA 39, considered Pottie v Dunkley & Ors (2011) 82 ACSR 561; [2011] NSWSC 166, cited Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364, related Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583, considered -- 2 of 24 -- 3 COUNSEL: G A Thompson QC, with M R Hodge, for the appellant L F Kelly QC, with D Turner, for the first, second and third respondents R True (sol) for the fourth respondent SOLICITORS: Hopgood Ganim for the appellant Minter Ellison for the first, second and third respondents King & Wood Mallesons for the fourth respondent [1] MUIR JA: Introduction The appellant, Coeur De Lion Investments Pty Limited, appeals against an order of a judge of the trial division of the Supreme Court on 22 November 2012 dismissing its application, filed on 18 May 2012, pursuant to s 237(1) of the Corporations Act 2001 (Cth) (the Act) for leave to bring a proceeding in the name of The President‘s Club Limited (the Club), against the first, second and third respondents. They are three of the four directors of the Club. The relevant factual background [2] The Club leases 144 accommodation units (villas) in the Palmer Coolum Resort, formerly known as the Hyatt Regency Coolum, from the appellant. The villas form the basis of a timeshare scheme operated by the Club. Its structure was described by the primary judge in her reasons as follows:1 ―The timeshare scheme was created by dividing the title to each villa into quarter shares. The constitution of the [Club] links 13 specifically numbered shares to each villa quarter share and the company shares confer on the holder the right to occupy the respective villa for 13 specific weeks in a calendar year. The purchaser of a villa quarter share was allotted the relevant company shares on settlement of the purchase. Each purchaser then executed a referral agreement that relinquished the purchaser‘s right to occupy for the specific weeks, placed their entitlement in a letting pool managed by Coolum Resort Pty Limited (now known as Palmer Coolum Resort Pty Ltd) (the resort administrator), received the right to share equally in letting pool revenue, and received a right to occupy a villa for the number of nights in their entitlement at any time throughout the year at concessional rates, subject to certain conditions. There are about 325 members of the [Club] (including the [appellant]). Since 1991 the [appellant] has held about 41% of the shares in the [Club] and been the largest shareholder. The letting pools at the resort are conducted by the resort administrator under the resort administration agreement dated 17 January 2001 to which the [appellant], the resort administrator and the [Club] are parties. Under the resort administration agreement, the [Club] must pay to the resort administrator its contribution of shared costs calculated under the agreement.‖ [3] The appellant was the developer of the resort. In 2003, entities associated with Lend Lease Development Pty Ltd (Lend Lease) assumed control of the appellant. 1 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [3]–[4]. -- 3 of 24 -- 4 Lend Lease sold its shares in the ultimate holding company of the appellant to interests associated with Mr Clive Palmer in about July 2011. [4] The principal activity of the Club, as described in its audited financial report for the 18 months ended 30 June 2004, was ―the provision of property administration services on behalf of its members‖.2 The report stated:3 ―In prior periods the Company charges (sic) its members for all the expenses including a contribution for refurbishment (but net of any interest or other revenue earned) incurred by the Company and the Company does not make a profit or loss. The Company simply acts as a conduit for passing on expenses incurred by the Company to its members. The Company also acts as a conduit for passing on of letting pool income payable by the Resort Administrator to members of the Company. Such income, however, never becomes the income of the Company. In the current period, a majority of the interest was set aside for use in future refurbishment and resulted in a profit for the Company for the eighteen months ended 30 June 2004.‖ [5] Similar descriptions were contained in later reports. [6] The 2004 and subsequent financial reports described the Club‘s principal source of income as reimbursements received from members for costs paid by the Club on their behalf to Coolum Resort Pty Limited (the Resort Administrator) and its main outgoings as distributions of letting pool income to members received on behalf of members from the resort administrator. [7] The Club‘s structure fell within the definition of ―managed investment scheme‖ in Chapter 5C of the Corporations Law which came into effect on 29 June 1998.4 The Club‘s directors took the view that ―the structure of the Club and the Resort could not successfully be converted to a managed investment scheme‖ which would comply with the requirements of the legislation. Accordingly, the board sought an exemption from the Australian Securities and Investments Commission (ASIC). After months of negotiations, an exemption, effective until 30 June 2004, was granted on 30 March 2001. Further protracted negotiations and work on the part of the directors including additional board meetings, instructing lawyers, travel to and from Canberra for meetings and political lobbying culminated in the granting on 31 January 2005 of an exemption by ASIC from the requirements s 601ED of the Act on specified conditions, including the condition that: ―… 90% of the votes that may be cast on a resolution by members of the Club are held by members that are not, and are not associated in relation to the [timeshare] Scheme with, any operator, manager, promoter or developer in relation to the Scheme, other than where held by members solely in their capacity as an associate of the Club …‖ 2 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [5]. 3 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [5]. 4 Managed Investments Act 1998 (Cth). -- 4 of 24 -- 5 [8] The Club had no employees at relevant times, except for an employee who worked at the resort for about six months in about 2005–2006 when there was a dispute and a perceived conflict of interest between the appellant, then controlled by Lend Lease, and the Club concerning the appellant‘s proposed redevelopment and expansion of the resort. [9] The Club‘s directors, from time to time, were involved in work which required a degree of expertise and involved a substantial commitment of time beyond participation in board meetings. The work related, in particular, to the securing of exemptions from the managed investment scheme provisions of the Act, the management of the refurbishment of villas on behalf of the members and disputes between the Club and the appellant and the Resort Administrator. It was therefore proposed that directors who were required to dedicate time to the business of the Club outside of board meetings should be compensated for their additional work. That proposal led to a resolution of directors of 12 February 2001 that: ―… the Board ratify payment to the Chairman and other Directors at the rate of $200 per hour for time spent on club business outside Board meetings.‖ [10] Mr Hamilton, a director of the appellant, attended the directors meeting of 12 February 2001. Another representative of the appellant, Mr Ohata, was also present at the meeting. The resolution was passed unanimously. [11] Mr Kelly, the first respondent, is a registered valuer, a member of the Royal Institution of Chartered Surveyors and a director of Burgess Rawson (Qld) Pty Ltd, a company specialising in property sales, valuation, management and office leasing. The first respondent, directly and indirectly, holds some 60 per cent of the shares in Burgess Rawson. He became a director of the Club on 26 May 1995 and chairman of directors on 9 November 1998. The first respondent swore to having done a substantial amount of work for the Club, including work in relation to legal disputes with the appellant, the managed investment scheme exemption, refurbishment of units and acting as a point of contact for owners. He swore that, in many ways, he had ―essentially acted as a general manager of the Club‖. He further swore that his work for the Club, outside of attendances at board meetings, had been charged at the rate of $200 per hour since 2001. His personal assistant and other administrative staff at Burgess Rawson had carried out work for the benefit of the Club and Burgess Rawson‘s resources, such as stationery and telecommunications services, had been used for the benefit of the Club. Some of the work carried out by the first respondent for the Club was invoiced through Burgess Rawson. [12] The first respondent swore to his practice of recording Club related activity on a daily basis in a notebook kept by him. He said that, attached to the invoices presented by him to the Club, at least from March 2006, were activity statements compiled from his daily notes. He had no records of the statements presented prior to March 2006 as they were destroyed in the January 2011 floods. [13] The second respondent, Mr Edwards, is a property management and marketing specialist. He became a director of the Club on 16 June 2003. After his appointment as director, he noticed that board members did a considerable amount of work for the Club and were ―far more involved in the day to day running of the [Club‘s business] than a normal body corporate committee member‖. He became -- 5 of 24 -- 6 involved in the management of the refurbishment of the villas and spent a substantial amount of time meeting with members and other directors and overseeing projects at the resort. He rendered accounts to the Club through the chairman ―for specific tasks only‖ and did not charge for a substantial amount of other time spent by him on Club matters. [14] He swore that he was aware that the consultancy fees paid to directors were disclosed in the financial reports tabled at each annual general meeting attended by representatives of the appellant and that the reports were adopted at each meeting. He swore that, had he been informed of a dispute as to whether the fees were authorised, he would not have done all of the work that he did. [15] The third respondent, Mr Wallis, a chartered accountant, has been chairman of finance and remuneration of RBS Morgans Ltd since 2004. Prior to 2004, he was director of operations and a shareholder of ABN AMRO Morgans Ltd, responsible for accounts, funds and settlements, amongst other things. He swore an affidavit to the following effect. He became a director of the Club on 20 October 2004. It then became apparent to him that the first respondent was ―constantly in contact with owners, essentially acting as an owners‘ executive, (sic) and [was] very often required to manage legal, financial and refurbishment issues‖. He explained how the dispute between the appellant and the Club concerning the proposed redevelopment of the resort in 2005–2006 involved the directors in much time consuming work. [16] In connection with the dispute, the board obtained legal and town planning advice. There were Supreme Court proceedings and many settlement attempts which culminated in the signing of a settlement deed in August 2007. During this period, the third respondent was also involved in monitoring the refurbishment of the golf villas. He was aware that the consultancy fees charged by the directors were disclosed in financial reports tabled at annual general meetings attended by one or more representatives of the appellant. He had no recollection of any objection to the fees and believed that they were duly authorised. The invoices rendered by him for his consultancy fees included a description of the activity on which he was engaged and the number of hours spent on each activity. He did not charge for time spent at board meetings or generally for ―other Club related work such as dealing with correspondence‖. [17] The accounts of the Club were audited at relevant times and the financial reports disclosed directors‘ fees and other directors‘ remuneration. The note in the Financial Reports for the 18 months ended 30 June 2004, the six months ended 31 December 2004 and the six months ended 30 June 2005, after disclosing the nature and extent of consultancy fees, was as follows: ―The above transactions were within normal owner or shareholder relationships on terms and conditions no more favourable than those available, or which might reasonably be expected to be available, on similar transactions at arms length dealings with villa owners.‖ [18] By letter dated 15 September 2011, the appellant gave notice to the Club that it intended to revoke the ASIC deed and that, pursuant to cl 4.2 of the deed, the revocation would take effect 180 days after receipt of the notice by ASIC and the Club. The consequences of such revocation would include the necessity for the -- 6 of 24 -- 7 Club to comply with the requirements of the Act in relation to managed investment schemes. According to the sworn evidence of the first respondent, that would involve the Club in substantial additional cost. [19] By letter dated 10 November 2011 to the appellant, the Club sought information from the appellant ―as to its intention and purpose behind the termination of the deed‖. It pointed to the adverse impact of the termination on the Club and its members. There was no response to the letter. [20] On 13 February 2012, solicitors for the appellant wrote to the Club making the following assertions. The appellant‘s review of the audited financial statements of the Club showed the payment to directors of the Club of specified consultancy fees. The financial records of the Club showed that the consultancy fees had not been approved in general meeting and that the remuneration ―was required to be authorised by the shareholders at properly convened general meetings of the Club‖. The Club had a prima facie case against the directors in receipt of such consultancy fees for breach of duty. The letter further stated: ―Our client gives notice pursuant to Section 237(2)(e) of the Corporations Act 2001 that unless the Club confirms within 14 days of the date of this notice that it will bring proceedings against the directors referred to above, our client intends to make an application pursuant to Section 237(1) of the Corporations Act 2001 for leave to bring proceedings on behalf of the Club.‖ [21] The consultancy fees in question are as follows: 2004 2005 2006 2007 2008 2009 2010 2011 P Kelly $65,700 $29,000 $31,000 $60,000 $54,000 $45,000 $29,200 $32,000 M Edwards $18,880 $7,200 $20,000 $9,400 $12,200 $7,800 $5,600 $1,270 B Wallis $800 $3,000 $4,700 $1,200 TOTAL $84,580 $36,200 $51,800 $72,400 $70,900 $54,000 $34,800 $33,270 [22] Before receipt of that letter, the first respondent was not aware of the existence of any dispute concerning the consultancy fees. On 14 February 2012, the Club received a letter from the appellant‘s solicitors enclosing the originating application in these proceedings together with an affidavit of Mr Welch in support of the application sworn on 13 February 2012. [23] The solicitors for the appellant wrote to the Club on 29 February 2012 requesting that the directors of the Club call and hold a general meeting. An extraordinary general meeting of the Club was held on 14 March 2012. All the resolutions put to the meeting at the behest of the appellant were defeated. [24] The 180 day notice period under the ASIC deed expired on 17 March 2012. The Club‘s solicitors wrote to the Resort Administrator on 4 April 2012 making a number of complaints about the operation of the resort‘s business including allegations that members were told that the Resort Administration Agreement (RAA) had been ―annulled‖ or ―terminated‖. From about that time, the appellant and the Resort Administrator refused to comply with the RAA. [25] In a circular letter dated 11 April 2012 to members of the Club, the appellant and the Resort Administrator stated that the ASIC deed had been revoked, the Club‘s board had not ―implemented an alternative solution‖ and the Resort Administrator -- 7 of 24 -- 8 could not ―carry on a non-complying timeshare scheme on behalf of the Club‖. The letter further stated that the appellant would recommence its legal action against the respondent directors to claim back consultants‘ fees paid to the first, second and third respondents.5 The letter proposed the ―alternative solution‖ of dismantling the timeshare scheme and notified that the parent company of the appellant and the Resort Administrator intended to ―make an offer to all members of the Club to purchase their real property interest in their villa and their corresponding ordinary shares in the Club‖. The letter also notified members of the appellant‘s intention to call an extraordinary general meeting of shareholders of the Club to consider resolutions to:  replace the current directors of the Club with persons allied to the interests of Mr Palmer;  investigate and, if appropriate, implement a restructure or a winding up of the timeshare scheme and the Club; and  cease wasting the Club‘s money on irrelevant legal advice. [26] On 12 April 2012, Queensland North Australia Pty Ltd issued a bidders statement notifying its intention to offer to acquire all shares in the Club and the related interests in villas not already owned by the appellant. There was litigation concerning the offer. On 28 August 2012, Mr Schoch, director and general manager of the Resort Administrator, wrote to the members of the Club stating inter alia: ―Our company has been trying to send you an offer to buy your interest in your villa and the shares. Your directors have taken legal action to stop you receiving an offer. For more than 20 years the [Club] has paid for power and water the [Club] has consumed. They now refuse to pay for this. I think that is wrong. As a result power and water has (sic) been disconnected.‖ The primary judge’s reasons [27] The primary judge discussed the payment of the consultancy fees; the resolution of 12 February 2001; the work done by each of the first, second and third respondents; and the way in which each respondent claimed for that work. It was found that the dispute over the redevelopment of the resort:6 ―…required significant input from the first, second and third respondents in instructing lawyers and negotiating the settlement. Meetings were held with members in Melbourne, Sydney, Adelaide and Brisbane.‖ [28] With respect to the refurbishment of the villas which commenced in 2005, it was found that the Club‘s board took control of the refurbishment and that this ―resulted in the second respondent project managing the refurbishment with significant input 5 An action seeking an injunction and damages pursuant to s 1324 of the Corporations Act 2001 (Cth) against the first, second and third respondents was commenced on 4 February 2012 and discontinued on 13 March 2012. 6 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [32]. -- 8 of 24 -- 9 from the first and third respondents‖.7 It was noted that a further refurbishment of other villas for $5 million took place in 2010–2011. The first respondent‘s evidence of the work done by him in that regard, which was recorded in his 2008 activity statements, was implicitly accepted. It was also found, either expressly or implicitly, that extensive work was done by or through the second and third respondents in respect of that refurbishment.8 [29] The primary judge found that there was a serious question to be tried as to whether the Club had failed to comply with s 208(1) of the Act in respect of the payment of the consultancy fees or as to whether such fees were paid in breach of the duties of the first, second and third respondent. The primary judge, however, was not satisfied that the appellant was acting in good faith or that it was in the best interests of the Club that the appellant be granted leave to bring proceedings in the Club‘s name as required by s 237(2) of the Act. The primary judge‘s reasons for not being satisfied of the appellant‘s good faith were essentially as follows:9 ―The aspect that causes difficulty on the issue of the good faith of the [appellant] is the failure of the [appellant] to address why it took no step from the annual general meeting in 2004 onwards to challenge the directors on compliance with s 208(1) of the Act and/or the propriety of the first, second and third respondents claiming consultancy fees, in addition to the directors‘ fees approved at the annual general meetings, and to request particulars of the method of charging for the services provided. This failure is particularly acute when the [appellant] has otherwise gained benefits as a member from the services of the first, second and third respondents in obtaining and maintaining the ASIC exemption which enabled the [Club] to continue to operate its timeshare scheme and the [appellant‘s] own conduct over the proposed redevelopment of the resort in 2005 that was opposed by the [Club] generated much additional work for the first, second and third respondents. As all members were, the [appellant] was informed on an annual basis of the quantum of the consultancy fees paid to the first, second and third respondents and their director related entities. The failure of the [appellant] to address its own inaction in these circumstances for the purpose of the application is directly relevant to its proposal that action should now be taken on behalf of the [Club] in respect of those consultancy fees that were paid each year since 2002. The [appellant] therefore has not shown that it is acting in good faith in seeking to bring the proposed proceeding against the first, second and third respondents at this point in time.‖ [30] The primary judge concluded, in effect, that she was not satisfied that it was in the best interests of the Club to give leave for the following considerations:  The proposed statement of claim in the contemplated proceedings did not challenge that the consultancy fees were paid for services rendered by the first, 7 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [33]. 8 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [35]–[36]. 9 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [51]. -- 9 of 24 -- 10 second and third respondents, of which the appellant had knowledge and, arguably, derived some benefit.  It was, at the least, seriously arguable that claims in respect of a substantial part of the fees were statute barred.  The first, second and third respondents had arguable claims to be relieved from any liability to repay the consultancy fees under s 1318(1) of the Act.  The respondents‘ claimed the existence of a substantive defence under s 211 of the Act. [31] These considerations had been ignored by the appellant which had made no attempt ―to show that the likely recoverable amount from the proposed proceeding made it in the best interests of the [Club] to bring‖10 the action. The appellant’s argument [32] The only basis for finding that the appellant had not shown that it was acting in good faith was that the appellant did not address why it took no steps from 2004 onwards to challenge the consultancy payments. The timing of the application, however, was explained by the change in control of the appellant. As the primary judge found, after the change in control, the appellant‘s solicitors inspected the books and records of the Club on 6 February 2012 and ascertained that consulting fees had been paid and that there were no records of their payment having been approved by shareholders. [33] The absence of an explanation as to why those who formerly controlled the appellant did not investigate or pursue the contraventions is not probative of lack of good faith on the part of the appellant. [34] In the context of s 237 of the Act, the expression ―good faith‖ is used as a criterion requiring a particular state of mind or knowledge. The appellant, a corporation, has no state of mind independent of that of its current controllers. Any past complicity by the appellant in the matters complained of, having regard to the change in ownership and controlling mind, is not a legitimate basis for inferring the absence of good faith. The appellant is a substantial shareholder of the Club and seeks to recover funds for the Club‘s benefit. [35] The primary judge found against the appellant on the ―best interests of the company‖11 question because of the perceived failure of the appellant to address the possible application of either s 211 or s 1318(1) of the Act as a defence available to the respondent directors. [36] As the primary judge noted,12 there is a presumption that the bringing of a derivative action would be in the best interests of the company if the success would increase the assets of the company.13 The primary judge found that there was a prima facie contravention of s 208 of the Act. The amount of the impugned 10 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [62]. 11 Section 237(2)(c) of the Act. 12 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [59]. 13 MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31 at [28], [60]. -- 10 of 24 -- 11 payments was not in dispute. At the trial, the onus would be on the directors to establish one or both of their defences. Having found that there was a serious question to be tried, there was no sufficient basis to conclude that such exceptions or defences might succeed. It was appropriate for them to be tested at trial. The primary judge‘s approach in this regard is not consistent with authority.14 The Court will not normally enter into the merits of the proposed derivative action to any great degree, the applicant bearing the same relatively low standard as applies to an application for an interlocutory injunction.15 [37] The fact that the Club stood to be indemnified in respect of its costs in the proceeding was a powerful consideration supporting a finding that the proceeding was in its best interests.16 There was little prejudice to the Club in running the litigation and that should have been taken into account. [38] Cross-examination of the first respondent did challenge the basis upon which the consultancy fees were charged and the evidence elicited was to the effect that:  a rate of $200 per hour was charged, apparently without consideration as to what might have been an appropriate charge for the work claimed to have been undertaken; and  no proper record of the work claimed to have been undertaken or the hours claimed to have been worked has been made or retained. [39] On the basis of that evidence, the prospect of the directors establishing the exceptions under s 211 or a defence under s 1318(1) was at least questionable. Relevant statutory provisions17 [40] Sections 207, 208, 210, 211 and 1318 of the Act provide: ―207 Purpose The rules in this Chapter are designed to protect the interests of a public company‘s members as a whole, by requiring member approval for giving financial benefits to related parties that could endanger those interests. 208 Need for member approval for financial benefit (1) For a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company: (a) the public company or entity must: (i) obtain the approval of the public company‘s members in the way set out in sections 217 to 227; and 14 Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976 at [115]–[116]. 15 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [19]; Macralink Pty Ltd v Saris [2011] VSC 665 at [18]; FWV Stanke Holdings Pty Ltd v O’Meara; Von Stanke v O’Meara [2007] SASC 413 at [84]–[86]. 16 Pottie v Dunkley & Ors [2011] NSWSC 166 at [59]–[64]. 17 It was common ground that this was the appropriate version of the sections. -- 11 of 24 -- 12 (ii) give the benefit within 15 months after the approval; or (b) the giving of the benefit must fall within an exception set out in sections 210 to 216. Note 1: Section 228 defines related party, section 9 defines entity, section 50AA defines control and section 229 affects the meaning of giving a financial benefit. Note 2: For the criminal liability of a person dishonestly involved in a contravention of this subsection, see subsection 209(3). Section 79 defines involved. (2) If: (a) the giving of the benefit is required by a contract; and (b) the making of the contract was approved in accordance with subparagraph (1)(a)(i) as a financial benefit given to the related party; and (c) the contract was made: (i) within 15 months after that approval; or (ii) before that approval, if the contract was conditional on the approval being obtained; member approval for the giving of the benefit is taken to have been given and the benefit need not be given within the 15 months. … 210 Arm’s length terms Member approval is not needed to give a financial benefit on terms that: (a) would be reasonable in the circumstances if the public company or entity and the related party were dealing at arm‘s length; or (b) are less favourable to the related party than the terms referred to in paragraph (a). 211 Remuneration and reimbursement for officer or employee Benefits that are reasonable remuneration (1) Member approval is not needed to give a financial benefit if: (a) the benefit is remuneration to a related party as an officer or employee of the following: (i) the public company; -- 12 of 24 -- 13 (ii) an entity that the public company controls; (iii) an entity that controls the public company; (iv) an entity that is controlled by an entity that controls the public company; and (b) to give the remuneration would be reasonable given: (i) the circumstances of the public company or entity giving the remuneration; and (ii) the related party‘s circumstances (including the responsibilities involved in the office or employment). Benefits that are payments of expenses incurred (2) Member approval is not needed to give a financial benefit if: (a) the benefit is payment of expenses incurred or to be incurred, or reimbursement for expenses incurred, by a related party in performing duties as an officer or employee of the following: (i) the public company; (ii) an entity that the public company controls; (iii) an entity that controls the public company; (iv) an entity that is controlled by an entity that controls the public company; and (b) to give the benefit would be reasonable in the circumstances of the public company or entity giving the remuneration. (3) For the purposes of this section: (a) a contribution made by a body corporate to a fund for the purpose of making provision for, or obtaining, superannuation benefits for an officer of the body, or for dependants of an officer of the body, is remuneration provided by the body to the officer of the body; and (b) a financial benefit given to a person because of the person ceasing to hold an office or employment as an officer or employee of a body corporate is remuneration paid or provided to the person in a capacity as an officer of the body. … 1318 Power to grant relief (1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach -- 13 of 24 -- 14 of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person‘s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit. (2) Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.‖ [41] Sections 236 and 237 of the Act provide: ―236 Bringing, or intervening in, proceedings on behalf of a company (1) A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if: (a) the person is: (i) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or (ii) an officer or former officer of the company; and (b) the person is acting with leave granted under section 237. (2) Proceedings brought on behalf of a company must be brought in the company‘s name. (3) The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished. Note 1: For the right to inspect company books, see subsections 247A(3) to (6). Note 2: For the requirements to disclose proceedings and leave applications in the annual directors‘ report, see subsections 300(14) and (15). -- 14 of 24 -- 15 Note 3: This section does not prevent a person bringing, or intervening in, proceedings on their own behalf in respect of a personal right. 237 Applying for and granting leave (1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings. (2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.‖ Consideration of the good faith question [42] The appellant‘s argument does not do justice to the primary judge‘s findings. The primary judge noted that the appellant was aware of:  the extensive work done by the director respondents for the benefit of the Club and its members, including the appellant, over a lengthy period;  the fact that the director respondents had been remunerated for their work at a particular rate;  the general basis upon which the director respondents had been remunerated;  the relevant notations in the annual financial reports; and  the obtaining of benefits by the appellant from the services rendered by the director respondents. [43] The primary judge found, implicitly, that the appellant failed to give consideration to the benefits it and the Club had received from the work of the respondent directors and the bearing of its own ―inaction‖18 on the conduct of the respondent directors and the legal rights of the Club against those respondents. 18 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [51]. -- 15 of 24 -- 16 [44] Counsel for the respondents relied on the following statement of principle by Palmer J in Swansson v RA Pratt Properties Pty Ltd:19 ―Further, if an applicant for leave under s 237 seeks by the derivative action to receive a benefit which, in good conscience, he or she should not receive, then the application will not be made in good faith even though the company itself stands to benefit if the derivative action is successful. Such a benefit would include, for example, a double recovery by the applicant for a wrong suffered or recompense for a wrongful act inflicted upon the company in which the applicant was a direct and knowing participant with the proposed defendant in the derivative action. In such a case the law would not permit the applicant to derive a benefit from his or her own wrongdoing.‖ [45] These principles received, at least implicit, approval in Fiduciary Ltd v Morningstar Research Pty Ltd20 and were not disputed by the appellant. [46] Nor did the appellant dispute the validity of the following observations of Palmer J in Swansson:21 ―[35] At this early stage in the development of the law on the statutory derivative action created by Pt 2F.1A it would be unwise to endeavour to state compendiously the considerations to which the courts will have regard in determining whether applicants in all categories defined by s 236(1) are acting in good faith. The law will develop incrementally as different factual circumstances come before the courts. [36] Nevertheless, in my opinion, there are at least two interrelated factors to which the courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process. [37] These two factors will, in most but not all, cases entirely overlap: if the court is not satisfied that the applicant actually holds the requisite belief, that fact alone would be sufficient to lead to the conclusion that the application must be made for a collateral purpose, so as to be an abuse of process. The applicant may, however, believe that the company has a good cause of action with a reasonable prospect of success but 19 (2002) 42 ACSR 313 at [43]. 20 [2005] NSWSC 442 at [31]. 21 (2002) 42 ACSR 313. -- 16 of 24 -- 17 nevertheless may be intent on bringing the derivative action, not to prosecute it to a conclusion, but to use it as a means for obtaining some advantage for which the action is not designed or for some collateral advantage beyond what the law offers. If that is shown, the application and the derivative suit itself would be an abuse of the court‘s process: Williams v Spautz (1992) 174 CLR 509 at 526; 107 ALR 635 at 648. The applicant would fail the requirement of s 237(2)(b).‖ [47] Palmer J‘s statement of principle in paragraphs [35] and [36] of his reasons has been approved in cases including Carpenter v Pioneer Park Pty Ltd (In Liq),22 Fiduciary Ltd v Morningstar Research Pty Ltd,23 Charlton v Baber,24 and Goozee v Graphic World Group Holdings Pty Ltd.25 [48] It was not asserted by Palmer J that the ―two interrelated factors‖26 to which he referred are the only matters to which a court may have regard in determining the existence of good faith.27 The scope of the requirement of ―good faith‖ in s 237(2)(b) is informed by the considerations that, if leave to bring proceedings is granted, the proceedings will be conducted on the company‘s behalf and the court must be satisfied that ―it is in the best interests of the company that the applicant be granted leave‖.28 In seeking to act on behalf of a company in litigation, an applicant under s 237 is, in effect, seeking to stand in the shoes of the directors for the purposes of the litigation. That suggests that an applicant under s 237(2) may not be acting in good faith if acting for a collateral purpose even if the collateral purpose would not amount to an abuse of process. It is plainly not the case that directors who cause a company to institute proceedings for collateral purposes of their own will be in breach of duty only if the proceedings constitute an abuse of process. [49] In Mills v Mills,29 Dixon J observed: ―Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. It is only one application of the general doctrine expressed by Lord Northington in Aleyn v. Belchier: ‗No point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void.‘‖ (citations omitted) [50] In Ngurli Ltd v McCann,30 Williams ACJ, Fullagar and Kitto JJ referred to the above passage from Mills v Mills with approval. Earlier, their Honours had said:31 ―Voting powers conferred on shareholders and powers conferred on directors by the articles of association of companies must be used 22 (2004) 211 ALR 457 at [22]. 23 [2005] NSWSC 442 at [21]. 24 [2003] NSWSC 745 at [40]. 25 (2002) 170 FLR 451 at [56]. 26 (2002) 42 ACSR 313 at [36]. 27 In this regard see also Chahwan v Europhic Pty Ltd t/as Clay & Michel (2008) 227 FLR 43 at [81]– [82]. 28 Section 237(2)(c) of the Act. 29 (1938) 60 CLR 150 at 185. 30 (1953) 90 CLR 425 at 440. 31 Ngurli Ltd v McCann (1953) 90 CLR 425 at 438. -- 17 of 24 -- 18 bona fide for the benefit of the company as a whole. In Greenhalgh v. Arderne Cinemas Ltd., Evershed M.R., in a case relating to a special resolution altering the articles of association, said: ‗In the first place, I think it is now plain that ―bona fide for the benefit of the company as a whole‖ means not two things but one thing. It means that the shareholder must proceed upon what, in his honest opinion, is for the benefit of the company as a whole‘.‖ (citations omitted) [51] That passage is in a paragraph which commences: ―But the powers conferred on shareholders in general meeting and on directors by the articles of association of companies can be exceeded although there is a literal compliance with their terms. These powers must not be used for an ulterior purpose.‖ [52] In Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL,32 in dealing with the validity of a resolution by directors to issue shares in the capital of the company, Barwick CJ, McTiernan and Kitto JJ said: ―An inquiry as to whether additional capital was presently required is often most relevant to the ultimate question upon which the validity or invalidity of the issue depends; but that ultimate question must always be whether in truth the issue was made honestly in the interests of the company: Richard Brady Franks Ltd. v. Price; Mills v. Mills; Ngurli Ltd. v. McCann … But if, in making the allotment, the directors had an actual purpose of thereby creating an advantage for themselves otherwise than as members of the general body of shareholders, as for instance by buttressing their directorships against an apprehended attack from such as Harlowe, (sic) the allotment would plainly be voidable as an abuse of the fiduciary power, unless Burmah had no notice of the facts.‖ (citations omitted) [53] The above passage from Harlowe’s Nominees was referred to with approval in Howard Smith Ltd v Ampol Petroleum Ltd,33 in which their Lordships quoted34 with approval the following passage from Hindle v John Cotton Ltd:35 ―Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason.‖ There is no valid reason to suppose that the range of matters which may be considered in order to determine whether an applicant under s 237(2) has acted in good faith is more circumscribed. 32 (1968) 121 CLR 483 at 493–494. 33 [1974] AC 821 at 836. 34 [1974] AC 821 at 835. 35 (1919) 56 Sc LR 625 at 630–631 per Viscount Finlay. -- 18 of 24 -- 19 [54] There are a number of considerations not yet touched upon which are relevant to the good faith issue. Lend Lease is a substantial corporation experienced in the management of a great variety properties. It could be expected to be astute in the protection of its own interests. There was no evidence of any inquiries having been made by the appellant of any of its former directors or employees as to the value of the work, the benefits derived from it or the complicity of the former directors and employees in the conduct of the director respondents. There appeared to have been no attempt to ascertain the amount that was likely to be recoverable in the proposed action or even whether success in the action was likely to provide a sum sufficient to merit litigating. Moreover, there was no hint in the appellant‘s behaviour of a desire to find a compromise solution, commercial or otherwise. [55] Under s 1318 of the Act, the Court has power, if the director respondents are found to have ―acted honestly‖ and that, ―having regard to all the circumstances of the case … ought fairly to be excused‖, to relieve them ―wholly or partly from liability on such terms as the court thinks fit‖. The appellant did not argue that there was no potential for the application of s 1318. The argument was merely that the respondents‘ defences under that section and under s 211 of the Act should be tested at trial. That argument does nothing to address the matters which are suggestive of an ulterior motive for the appellant‘s conduct. [56] It was argued that the cross-examination of the first respondent, having regard to the fact that many of the claims for payment were for the same figure, cast doubt on whether the first respondent would be able to fully justify his claims. Even if that is the case, the director respondents, as the primary judge found, had, to the knowledge of the appellant, done substantial work for the benefit of the Club over many years in circumstances in which the members, including the appellant, knew that they were being remunerated for their work. [57] One would think it likely that an applicant under s 237, acting in good faith, would turn its mind to the question whether the amount likely to be recovered in the litigation merited the expenditure of time, resources and money which litigation would necessitate. It was not disputed in argument that it was arguable that approximately half of the claims could be statute barred. The total amount claimed in the proposed statement of claim is $437,870. The primary judge‘s reasons record a submission that ―no final determination should be made about the application of a limitation period … and that, even if only $290,000 would be repayable after applying the statutory limitation period, there is a considerable sum of money paid unlawfully to the first, second and third respondents‖.36 [58] When the respondents‘ arguments for relief under s 1318 and on the possible application of s 211 are also taken into account, it is plain that there is an appreciable risk that the amount ordered to be paid to the Club, if judgment is given for the appellant, would be a sum which would attract the application of the lowest District Court scale. The difference between the amount of costs assessed on the standard basis and the Club‘s costs of the proceeding could be substantial. That, the appellant argues, does not present a difficulty as the Club will be indemnified for the costs of the action. That response, however, does not take into account questions such as the distractions to the board and disruption to the business of the 36 Re The President’s Club Limited; Coeur De Lion Investments Pty Limited v Kelly & Ors [2012] QSC 364 at [54]. -- 19 of 24 -- 20 Club in what, may be gleaned from the above historical narrative, is likely to be a turbulent time in which considerable demands are likely to be made on the time of the Club‘s directors. [59] The complaint that the rate of $200 per hour charged is unsupported by evidence lacks foundation. The fact that the appellant was aware of the proposal for a charge out rate of $200 per hour and expressed no disagreement with it prior to the meeting on 12 February 2001 and thereafter is some evidence of its appropriateness. The auditors also expressed views as to its appropriateness in some of the annual reports. [60] Against the background of the diverging interests and developing conflict between the appellant and the other shareholders of the company, the failure of the appellant to request the respondent directors to justify their remuneration and to demand repayment before resorting to litigation is significant. Also relevant is the inference available from the correspondence referred to earlier that the appellant had no interest in resolving its claims by means other than litigation. Finally, it is also relevant to the question of bona fides that the appellant alone, of the Club‘s 325 shareholders, supports the proposed derivative action: a proceeding which must be on behalf of the Club and in its best interests. [61] For the above reasons, it does not appear to me that the appellant has established any error on the part of the primary judge in not being satisfied of the existence of good faith. Was it in the best interests of the company that the appellant be granted leave? [62] The preceding finding is sufficient to determine the outcome of the appeal and it is unnecessary to determine the challenge to the primary judge‘s findings in respect of the best interests of the Club. [63] I will content myself with the observation that some of the considerations relevant to the good faith issue and, in particular, those referred to in paragraphs [57]–[60] support the primary judge‘s conclusion. Conclusion [64] For the above reasons, I would order that the appeal be dismissed with costs. [65] FRASER JA: I have had the advantage of reading the reasons for judgment of Muir JA. I agree with those reasons and with the order proposed by his Honour. [66] JACKSON J: I agree with the reasons for judgment of Muir JA and the order his Honour proposes. Given that precise and comprehensive analysis, it is unnecessary to say more to dispose of this appeal. Yet, at the risk of adding the unnecessary, I would venture some additional observations about the context of this appeal from an order dismissing an application for leave to bring a proceeding ―on behalf of a company‖ under s 236 of the Corporations Act 2001 (Cth) made pursuant to s 237 of the Act. [67] It is trite to say that the company, not someone else, is the proper plaintiff in a proceeding upon a claim for relief for compensation or damages upon a cause of action for a wrong done to the company by a director or former director. That is reflected in the also trite proposition that judgment on such a claim takes the form of an order that the company recover the amount of compensation or damages from the defendant, or an order that the defendant pay that amount to the company. -- 20 of 24 -- 21 [68] Those consequences follow from the separate legal personality of a company which under the Act ―comes into existence as a body corporate‖ with ―the legal capacity and powers of an individual‖ upon registration in accordance with the statutory process provided for under the Act.37 In the development of company law, apart from the breadth of powers, that state of affairs ante-dated but was crystallized by the corporate model adopted under the Joint Stock Companies Act 1856 (UK). That Act provided for incorporation of a company upon registration and that the liability of members as contributories could be limited. The model was continued under the first of the consolidated companies Acts, namely the Companies Act 1862 (UK). It was followed by early Australian companies legislation.38 It has not changed since. And yet, in this day and age, the error of not recognising that a company‘s claim against a director is of that kind can still be made.39 [69] A useful passage from Barrett JA‘s reasons in Elkington v Farsands Solutions Pty Ltd40 is: ―…the duties of the individual directors are owed by them to the company. Breach of such a duty, if actionable at all, is actionable at the suit of the company: Foss v Harbottle (1843) Hare 461; 67 ER 189. It is the company - and the company alone - that is the proper plaintiff. If the management of the affairs of the company is in the hands of persons who will not cause the company to seek redress for alleged breach of the duty owed to it, the proceedings may, subject to the leave of the court under s 237 of the Corporations Act 2001 (Cth), be brought on the company‘s behalf by a member, former member, officer or former officer of the company or another person with standing under s 236. As the judge correctly stated, a member of a company cannot bring an action in respect of wrongful conduct of directors diminishing the value of the member‘s shares. It is the company that suffers the relevant loss. Dr Birch SC, who appeared for the applicants on the present application, did not seek to argue otherwise and in fact drew attention to the decision of the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 which supports the proposition (see also Johnson v Gore Wood and Co [2002] 2 AC 1 where it was recognised that a shareholder may not recover for a loss which is merely consequential upon or derivative from loss suffered by the company).‖ [70] The exceptions to the rule in Foss v Harbottle were complex, even labyrinthine.41 There is no longer any need to consider them. Sections 236 and 237 replace those exceptions and provide a statutory code for the grant of leave. The decision is one that must be made in favour of granting the application if the Court ―is satisfied‖ of 37 Sections 119 and 124. 38 For example, Companies Act 1863 (Qld). 39 McCracken v Phoenix Constructions (Qld) Pty Ltd (2012) 289 ALR 710; [2012] QCA 129. 40 [2012] NSWCA 334 at [15]-[16]. 41 There are many places where any who doubt that proposition may find an anvil on which to hammer, but a good start is Gower, Gower’s Principles of Modern Company Law, 4 ed, at 644-653. A recent and engaging discussion of some of the questions may be found in Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69; [2009] NSWCA 183 at [71]-[105]. -- 21 of 24 -- 22 all of the matters listed in the five paragraphs of s 237(2). Thus s 237 creates its own taxonomy for making the decision against the hurdle of that state of satisfaction. [71] Since the introduction of ss 236 and 237 became effective on 13 March 2000, there have been many decisions on their operation and relevant principles have emerged. It would be unnecessary and unhelpful to summarise them. However, in my view, two initial points relevant to the present appeal may be made. [72] First, the outcome of a decision on an application of this sort is procedural in nature.42 Whether or not an applicant obtains an order granting leave will not affect the company‘s cause of action. In the event that an application is refused, the company‘s rights remain, although the passage of time may bar the right or the remedy under a particular limitation provision and the commercial likelihood of recovery against a defaulting director may alter. The point is that a decision under s 237 is a decision about management and control of an aspect of the company‘s affairs, not a decision which affects the substantive right alleged. [73] Secondly, I too accept that, as McPherson JA said in Metyor Inc v Queensland Electronic Switching Pty Ltd,43 it ―may be accepted that ss 236 and 237 were not intended to preserve the former law; but they should surely be approached as measures of reform designed to improve, rather than to place novel obstacles in the way of, such proceedings.‖ [74] Still, the requirement that ―the applicant is acting in good faith‖ in s 237(2)(c), on which this appeal turns, is a cumulative requirement under s 237(2). Consistently with Muir JA‘s reasons, it has been said by the Court of Appeal of New South Wales that the ―the expression ‗acting in good faith‘ in s 237(2)(b) of the Act need not be confined… to those two grounds [identified by Palmer J in Swansson]. In particular, it extends beyond conduct that would constitute an abuse of process.‖44 The requirement of good faith will operate, in some cases, to prevent a proceeding being brought even though there is a serious question to be tried, it is probable that the company will not bring it and it might otherwise be in the interests of the company that an applicant be granted leave. [75] The appellant seeks leave to bring a proceeding to recover from the directors every cent of the amounts received by them as consultant‘s fees over the period of the financial years from 2004 until 2011, as disclosed by the company‘s financial statements for those years. The critical element upon the question of the court‘s satisfaction of the good faith requirement is the possibility that the appellant‘s purpose is not really to swell the company‘s assets by the amount of any recovery. That assessment is made against the background that the appellant‘s controller, Mr Palmer, or an entity associated with him, is seeking to take over the company or to spill the board of directors of the company. The possibility of the proposed proceeding constituting a tactical claim made against the directors as part of a takeover or control strategy is clearly open. [76] A number of other factors contribute to that possibility. First, there may be defences to the claims, as the primary Judge and Muir JA both discuss. In the context of a possible contravention of s 208 of the Corporations Act, because the 42 As was the manner in which a derivative action could be brought under the exceptions to the rule in Foss v Harbottle: see Zabusky v Virgtel [2013] 1 Qd R 285 at [3]; [2012] QCA 107. 43 [2003] 1 Qd R 186 at 191. 44 Chahwan v Euphoric Pty Ltd t/as Clay & Michel (2008) 227 FLR 43 at [1], [81] and [128]. -- 22 of 24 -- 23 approval of the public company‘s members was not obtained under s 208(1), there will be many cases of non-contravention because of the operation of ss 210 or 211, where the terms are reasonable if the parties were dealing at arm‘s length or given the circumstances. Sections 210 and 211 are cast in a form that makes those matters a defence to a prima facie contravention that a defendant must plead and prove.45 That does not mean that the defences are not likely to operate in a particular case. It is not unusual for a public company‘s accounts to be published and audited showing that either s 210 or s 211 is relied on as justifying a benefit given to directors as related parties. In this case, the appellant offered no evidence either that the services said to be performed were not supplied, or that the rates charged were excessive or that it had inquired of its previous officers as to why any of the relevant amounts had not been challenged before. These matters go to good faith, in this case, because of the possibility of collateral purpose. [77] Secondly, the proceeding which has been started by the appellant without leave in the Supreme Court, if started by the company as against each of the directors, would be for a contravention of s 209(2) as a person involved in the contravention for a compensation order under s 1317H ―if…damage resulted from the contravention.‖ A proceeding for a compensation order must be started no later than six years after the contravention: s 1317K.46 Some of the amounts referred to in Muir JA‘s reasons are prima facie statute barred. The appellant accepted in submissions that this might be as much as $147,870. If limitation defences operate, the ultimate gain to the company would be for a relatively modest potential maximum amount of $290,000 and interest as against incurring the costs of a Supreme Court proceeding and the risk of not succeeding. The appellant offers to be responsible for all questions of costs. But while that would protect the company, in these circumstances it tends to support the possible conclusion that the appellant‘s purpose is not the vindication of the company‘s entitlement, if any, viewed objectively as a proper business decision in the company‘s management. [78] Thirdly, although the appellant does not challenge that the services for which the consultant‘s fees were paid were supplied by the directors, no allowance is made for the value of what was supplied in the calculation of the compensation or damages claim which the appellant seeks to propound on behalf of the company. If the directors supplied services to the company of the kind which are deposed to in their affidavits, and not contradicted by other evidence, it is not likely that no allowance will be made in reduction of the allegation of loss to the company by reason of the payment of the challenged amounts as benefits to related parties.47 Again, that stance by the appellant tends to support the conclusion that the appellant‘s purpose is not the vindication of the company‘s entitlement, if any, viewed objectively as a proper business decision in the company‘s management. 45 Waters v Mercedes Holdings Pty Ltd (2012) 203 FCR 218 at [53]. Special leave refused in Waters v Mercedes Holdings Pty Ltd [2012] HCATrans 255. 46 Section 1317K also applies to a claim for breach of an officer‘s duties – see s 1317E(1)(a). 47 As a matter of ―damage‖, the detriment to the company is the payment of the fees, but the company received the benefit of the services supplied. General principle would require the benefit to be brought into account in reduction of the assessment. Secondly, although equity holds a defaulting fiduciary to a high standard, allowance for work and skill will be allowed against honest but unauthorised profits: Boardman v Phipps [1967] 2 AC 46; cf V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16 at [71]; Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 at 14; Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561; [1995] HCA 18. -- 23 of 24 -- 24 [79] These factors, which all cast doubt on the extent of the value of any entitlement of the company against the directors, bring into focus whether the appellant‘s application was made in good faith. Muir JA has already dealt with them and with additional matters. My only purpose in raising them is limited to showing that such factors may go to the requirement of good faith, where there is a genuine question as to that factor, even though a conclusion is reached that there is a serious question to be tried. Acceptance of that relevance demonstrates that at least in some cases there is a considerable discretionary element in the court‘s satisfaction or non- satisfaction under s 237(2)(b), that an applicant is acting in good faith in seeking leave to bring a proceeding on behalf of the company. [80] Consistently with the points made above, it may be seen that the satisfaction or non- satisfaction that an applicant is acting in good faith under s 237(1)(a) will, on occasions, produce a contestable result. That contest will be about a procedural decision in the sense previously discussed. An appeal upon that question is one which is in the character of or analogous to an appeal from an exercise of discretion on a matter of practice or procedure. The appellate court‘s duty upon an appeal by way of re-hearing is not undermined by recognition of those circumstances. The rigour of Muir JA‘s analysis in this case, in my respectful view, reflects all those characteristics. [81] Lastly, after 13 years of operation of ss 236 and 237, there is now a considerable body of case law which has explored their operation,48 including a number of decisions at intermediate appellate court level.49 It is to be hoped that the case law does not serve to generate division and sub-division of cases in the application of the statutory taxonomy for the grant of leave under s 237. That would tend to ossify the operation of the sections with an unnecessary exo-skeleton. 48 At present, almost two hundred and eighty cases available on Austlii refer to s 237. 49 Apart from those mentioned previously, see True Value Solar Holdings Pty Ltd & Anor v Fernandez [2013] VSCA 27; MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; McEvoy v Caplan [2010] NSWCA 115; Ipswich Markets Pty Ltd v Novak [2008] QCA 104; Lee v AMP Ltd [2006] ACTCA 27; Resource Equities Ltd v Western Ventures Pty Ltd [2004] WASCA 242; and McLean & Anor v Lake Como Venture Pty Ltd [2004] 2 Qd R 280; [2003] QCA 562. -- 24 of 24 --