Supreme Court New South Wales Medium Neutral Citation: In the matter of Gillespies Cranes Nominees Pty Ltd [2024] NSWSC 1136 Hearing dates: 29 August 2024 Date of orders: 5 September 2024 Decision date: 05 September 2024 Jurisdiction: Equity - Corporations List Before: Black J Decision: Dismiss application for leave to the First Plaintiff under s 237 of the Corporations Act 2001 (Cth) to bring derivative proceedings, on behalf of the Second Plaintiff, against the Defendants. Catchwords: CORPORATIONS – Statutory derivative action – Application to bring proceedings on behalf of company – Whether leave to bring derivative action should be granted. Legislation Cited: - Corporations Act 2001 (Cth), ss 236, 237, 239 - Evidence Act 1995 (NSW), s 136 - Limitation Act 1969 (NSW), s 47 - Real Property Act 1900 (NSW), s 42 Cases Cited: - Aidzan Pty Ltd (in liq) v K & A Laird (NSW) Pty Ltd (in liq) [2024] NSWCA 185 - App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 - Australian Annuities Pty Ltd v Rowley Superfund Pty Ltd (2015) VSCA 9 - Baba v Sheehan (2021) 151 ACSR 462; [2021] NSWCA 58 - Barnes v Addy (1874) LR 9 Ch App 244 - Byers v Saudi National Bank [2024] 2 WLR 237; [2023] UK 51 - Cemcon: Re Hall Constructions Pty Ltd [2009] FCA 696 - Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661; [2008] NSWCA 52 - Charlton v Baber (2003) 47 ACSR 31; [2003] NSWSC 745 - El Sayed v El Hawach (2015) 88 NSWLR 214; (2015) 317 ALR 771; [2015] NSWCA 26 - Farah Constructions Pty Ltd v Say-Dee Pty Ltd] (2007) 230 CLR 89; [2007] HCA 22 - Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 - Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534; [2002] NSWSC 640 - Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 - Hannon v Doyle (2011) 82 ACSR 259; [2011] NSWSC 10 - Huang v Wang (2016) 114 ACSR 586; [2016] NSWCA 164 - K&A Laird (NSW) Pty Ltd (in liq) v Aidzan Pty Ltd (in liq) [2023] NSWSC 603 - Kerns v Hill (1990) 21 NSWLR 107 - Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 - Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd (1998) 3 VR 133 - Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 - Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Limited [2012] NSWSC 462 - MG Corrosion Consultants Pty Ltd v Vinciguerra (2011) 82 ACSR 367; [2011] FCAFC 31 - Mount Gilead Pty Ltd & Hobhouse v L Macarthur-Onslow (2021) 398 ALR 629; [2021] NSWSC 948 - Mount Gilead Pty Ltd v Macarthur-Stanham (as executor of Estate of late Lee Macarthur-Onslow) (2023) 168 ACSR 32; [2023] NSWCA 37 - Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137 - Re ASP Aluminium Holdings Pty Ltd [2024] NSWSC 183 - Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 - Re FAL Healthy Beverages Pty Ltd [2017] NSWSC 476 - Re Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432; [2011] NSWSC 1235 - Re Global Advanced Metals Pty Ltd (2019) 141 ACSR 222; [2019] NSWSC 1804 - Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; 41 ACSR 72; 20 ACLC 576; [2002] NSWSC 171 - Re Imperium Projects Pty Ltd [2015] NSWSC 16 - Re Legal Practice Management Group Pty Ltd (2018) 125 ACSR 513; [2018] NSWSC 527 - Re Lotus Property Fund No 8 Pty Ltd [2020] NSWSC 1349 - Spellson v George (1992) 26 NSWLR 666 - Super 1000 Pty Ltd v Pacific General Securities Ltd (2008) 221 FLR 427; [2008] NSWSC 1222 - Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583 - Turner v O'Bryan­Turner (2022) 107 NSWLR 171; [2022] NSWCA 23 - Twigg v Twigg (2020) 147 ACSR 389; [2020] NSWSC 1159 - Vinciguerra v MG Corrosion Consultants Pty Ltd (2010) 79 ACSR 293; [2010] FCA 763 - Vlahos v Vlahos [2016] VSC 284 - Vrisakis v Australian Securities Commission (1993) 9 WAR 395; 11 ACSR 162 Texts Cited: JD Heydon and MJ Leeming, Jacobs Law of Trusts in Australia, 8th ed, [23-05] Category: Procedural rulings Parties: Robert Gillespie (First Plaintiff/Applicant) Gillespies Cranes Nominees Pty Ltd (Second Plaintiff/First Respondent) Peter Timothy Gillespie (First Defendant) Helen Ann Gillespie (as personal representative of the Estate of the late John William Gillespie) (Second Defendant) JPD Equipment Pty Limited (Third Defendant) Ainley Pty Limited (Fourth Defendant) Representation: Counsel: H Insall SC (First Plaintiff/Applicant) J C Hewitt SC (First to Fourth Defendants) J A C Potts SC/P A R Langshaw (First Respondent) Solicitors: Hugh & Associates (First Plaintiff/Applicant) Pitcher Partners (First to Fourth Defendants) Maddocks (First Respondent) File Number(s): 2024/223271 (002) Judgment Nature of the application 1. By Statement of Claim ("SoC") filed on 17 June 2024, the First and Second Plaintiffs, Mr Robert Gillespie ("RG") and Gillespies Cranes Nominees Pty Ltd ("GCN") (which was and is the trustee of the Gillespie Family Trust ("GFT")) seek a declaration that the First Defendant, Mr Peter Gillespie ("PG") and the late Mr John Gillespie ("JG") breached fiduciary duties owed to GCN and consequential relief, including a declaration that the Third Defendant, JPD Equipment Pty Ltd ("JPD"), holds land situated at Glendenning NSW ("Glendenning Land") as constructive trustee for GCN and a consequential order that JPD transfer that land to GCN. By the SoC, and also by Amended Notice of Motion filed on 26 June 2024, RG seeks leave under s 237 of the Corporations Act 2001 (Cth) ("Act") to bring the proceedings in the name of and on behalf of GCN, and the SoC has to date been pursued by interim leave granted by Meek J. GCN, as respondent to the Amended Noticer of Motion, and the Defendants opposed the applications and put overlapping submissions. This Judgment determines the application for leave to bring the derivative proceedings. 2. I should first outline the broad scope of the claim that RG seeks to bring on behalf of GCN before turning to the affidavit evidence on which the parties rely. It is common ground (SoC [1]) that RG was, between October 1988 and June 1994, some 30 years ago, a director of GCN. He relies on that matter for his standing to bring this application, but the length of time since he has been a director of GCN raises a question as to whether he satisfies the statutory requirements for leave under s 237 of the Act, to which I return below. It is also common ground (SoC [3]-[4], [15]) that PG and the JG were each directors and 50% shareholders of GCN, which conducted a business of hiring cranes and other equipment, initially from premises at Lilyfield in NSW and subsequently from the Glendenning Land. The Fourth Defendant, Ainley Pty Ltd ("Ainley"), acquired the Glendenning Land in circumstances to which I refer below and JPD subsequently acquired the Glendenning Land from Ainley. RG pleads (SoC [16]-[17]) that PG and JG were the directors and guiding minds of Ainley and JPD, and that each of PG and JG owed fiduciary duties including the "no conflict" duty to GCN. He does not rely on their statutory duties owed to GCN. 3. RG pleads (SoC [20]) that, no later than April 2005 (although an earlier contract dated May 2004 is in evidence) GCN required or could benefit from additional space and premises for its business and PG or alternatively JG became aware of an opportunity to buy the Glendenning Land which could be used for additional space and premises for the business ("Glendenning Opportunity"); that opportunity arose in connection with the operation of the business or GCN's activities or within the scope of its business, and was a "business opportunity belonging to" GCN. RG alleges (SOC [26]) that, shortly before April 2005, PG and JG devised a plan to acquire the Glendenning Land in the name of Ainley and caused Ainley to buy that land in April 2005. He alleges, inter alia, a breach of the no conflict rule and other fiduciary duties in that regard (SoC [27]-[28]). RG in turn alleges (SoC [31]) that PG and JG, through their alter ego Ainley, or Ainley held the Glendenning Land as constructive trustee for GCN. 4. RG in turn pleads (SoC [32]) that, in June 2022, Ainley transferred the Glendenning Land to JPD; JPD had actual knowledge that Ainley held the Glendenning Land as constructive trustee for GCN; or alternatively the opportunity to acquire the Glendenning Land was again a corporate opportunity of GCN ("2012 Opportunity") and that (SoC [42]) the acquisition of that land by JPD was a further breach of the no conflict rule and other fiduciary duties by PG and JG and that (SoC [45]) JPD holds the Glendenning Land as constructive trustee for GCN. Affidavit evidence and some matters of chronology 1. Turning now to the affidavit evidence, none of the deponents of affidavits were required for cross-examination. RG reads the affidavit dated 18 June 2024 of his solicitor, Mr Dignam, which refers to a current proposal by JPD to sell the Glendenning Land which likely provides part of the commercial context of the proceedings but was not in issue in this application. A company search for GCN which is annexed to that affidavit relevantly discloses that RG was a director and company secretary of GCN between October 1988 and June 1994, as I noted above. 2. RG also reads the affidavit dated 19 June 2024 of Mr Debenham, who was the chief financial officer of GCN for many years. Mr Debenham outlines the history of the business and refers to GCN's role as trustee of the GFT and his evidence (Debenham 19.6.24 [10]) is that GCN only traded in that capacity, implicitly from the point at which the GFT was established, and that GCN operated the business until 2013 or 2014 (Debenham 19.6.24 [11]). Mr Debenham refers to GCN's purchase of two properties at Lilyfield and to GCN's later grant of a mortgage over one of those properties to support Ainley's subsequent purchase of the Glendenning Land (Debenham 19.6.24 [15]). An exhibit to Mr Debenham's affidavit (Ex P1) includes the Deed of Declaration of Trust dated 22 December 1981 by which GCN declared that it held the Lilyfield property on trust for the GFT. 3. Mr Debenham also refers to the incorporation of Ainley which became the trustee of the Gillespie Property Unit Trust ("GPUT") in about July 2004, and to a loan made by GCN to Ainley (as trustee of GPUT) of $210,600 in the financial year to 30 June 2004, which appears to have been applied to the deposit paid by Ainley to purchase the Glendenning Land. Mr Debenham also refers to Ainley's purchase of the Glendenning Land, as trustee for GPUT, in April 2005 for approximately $4.2 million. His evidence, partly admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as a submission, is that: "Although Glendenning was bought because it was required for the Business, it was bought by GPUT and not [GCN as trustee of the GFT]." 1. His evidence is also that Ainley, as trustee for GPUT, did not have any assets other than the nominal amount of capital to settle GPUT at the time it purchased the Glendenning Land and that: "The finance for the purchase of Glendenning was first arranged with NAB in around August 2024. GPUT borrowed approximately $4,500,000 from NAB and granted a mortgage to NAB over Glendenning as security for the loan in the usual way … However, the approved finance from NAB was not enough to fund the purchase of Glendenning and the needed improvements. Ainley did not trade and had no regular income although Ainley (in its own right and not as trustee of GPUT) had received distributions from [GCN] from time to time. Consequently, the purchase of Glendenning was only possible by [GCN] providing a guarantee to NAB as security for GPUT's borrowings … In effect, GPUT's borrowings from NAB were secured over [the Lilyfield Property] and guaranteed by [GCN]." 1. Mr Debenham also referred to subsequent work undertaken on the Glendenning Land and to the relocation of part of GCN's business to that land and to a substantial structure later built on that property by JPD in 2018. Mr Debenham's evidence was that Ainley satisfied its interest liability to NAB and other payments in respect of its borrowings from money it received from GCN including loans and trust distributions, as set out in his affidavit. Mr Debenham also referred to the circumstances of the transfer of the Glendenning Land by Ainley as trustee for GPUT to JPD in late June 2012; to his concern as to the amount of stamp duty payable on that transfer; and to a valuation of $3.4 million obtained in respect of the property "for stamp duty purposes". His evidence was that JPD had no funds to purchase the Glendenning Land which was funded by book entry and that GCN funded (at least to the amount of $2,337,916) the transfer of the Glendenning Land from Ainley as trustee of the GPUT to JPD. 2. RG also read his affidavit dated 12 August 2024, by which he responded to aspects of the affidavit dated 1 August 2024 of Mr Lucas. RG there referred to the creation of the GFT in 1982 and to several provisions of the trust deed for the GFT, to matters arising in other proceedings between the relevant parties and the circumstances in which he became aware of a proposed sale of the Glendenning Land by JPD. RG confirmed his agreement to pay the legal costs which GCN incurred in the proceedings and to indemnify it in respect of any costs orders made against it in the proceedings (RG 12.8.24 [20]). By a second affidavit dated 20 August 2024, RG referred to his assets and liabilities, and there is no suggestion that he would be unable to meet the costs incurred by GCN in pursuing the proceedings or any costs likely to be ordered against it in respect of the proceedings. 3. RG also tendered a bundle of documents (Ex P2) which included the trust deed for the GPUT, to which the parties paid little attention in submissions, and the front page of the contract for the sale of land from the third party vendor to Ainley dated 21 May 2004 which recorded the amount paid by Ainley to purchase that land. More significantly, the financial report for the GPUT dated 30 June 2005 recorded, relevantly, the amount of $210,600 (apparently the deposit) for the Glendenning Land in 2004; the amount of $4,046,981 in 2005; loans from GFT being $210,600 in 2004 and $521,131 in 2005; and a commercial bill, presumably the loan by NAB guaranteed by GCN as trustee for the GFT, in the amount of $4,068,154 in 2005. 4. GCN, as respondent to RG's Amended Notice of Motion, relied on the affidavit dated 1 August 2024 of its solicitor, Mr Lucas, who referred to the commencement of these proceedings and to other proceedings between the parties in the Court. Mr Lucas exhibited the Deed of Settlement dated 16 December 1981 for the GFT (Ex D1.1, 42), which identified the "Principal Beneficiaries" of the GFT including JG, PG and RG, and identified other "Beneficiaries" extending to any company other than GCN in which any of the "Beneficiaries" (as defined) had any interest by shareholding or membership of the board of directors. Clause 2 provided for a trust as to income, which allowed GCN to pay so much of the net annual income as in its absolute discretion it thought fit to any of the Beneficiaries, and otherwise for a distribution in default of such a decision. Clause 4 allowed GCN to apply the capital of the trust fund for the benefit of the Beneficiaries in its absolute discretion; cl 4(o) allowed it to lend monies on such terms and conditions as it thought proper in its absolute discretion; cl 6(b) provided that, notwithstanding any rule of law or equity to the contrary, GCN was at liberty in its absolute discretion, inter alia, to sell or lend the whole or any part of the assets forming part of the trust fund to any person notwithstanding any fiduciary relationship between GCN and that purchaser or borrower; and cl 6(j) provided for the exercise of such discretions by resolution of GCN, but there is no suggestion that any relevant discretion was here exercised by GCN in that matter, or at all, in respect of the matters in issue in this application. Clause 7(c) provided that every discretion, power or right conferred on GCN was an absolute and uncontrolled discretion, power or right and could be exercised without, relevantly, the intervention or approval of any of the Beneficiaries and cl 8 provided for the appointment, removal and retirement of trustees by the appointor, relevantly, PG. 5. By his second affidavit dated 21 August 2024, Mr Lucas referred to an advertisement for the sale of the Glendenning Land, which it appears may have been published in 2004. It appears that evidence is intended to establish that the Glendenning Landy was sold by a third party to Ainley, although it is not apparent to me that that advances GCN's or the Defendants' position, so far as most properties that are acquired, whether in breach of the duty of conflict of interest or not, will be sold by third parties to their purchasers after advertisement. Standing 1. It is common ground that RG has standing to bring a claim under s 237 of the Act, satisfying the standing requirement in s 236 of the Act where he is a former director of GCN, although a real question arises as to whether his exercise of that standing satisfied the good faith requirement. Mr Insall, who appears for RG, submits that RG was the "natural" person to be granted such leave, and the only person with standing who would ever seek such leave and, as a discretionary object of the GFT, has a legitimate interest in GCN bringing the proceedings. I address that question further in dealing with the issue of good faith below. Applicable principles 1. Counsel referred to the principles applicable to the grant of leave under s 237 of the Act and I have drawn below on Counsels' submissions and my summary of those principles in Re Legal Practice Management Group Pty Ltd (2018) 125 ACSR 513; [2018] NSWSC 527 at [50]-[54] ("Legal Practice Management Group"); Re Global Advanced Metals Pty Ltd (2019) 141 ACSR 222; [2019] NSWSC 1804 ("Global Advanced Metals"); Mount Gilead Pty Ltd & Hobhouse v L Macarthur-Onslow (2021) 398 ALR 629; [2021] NSWSC 948 ("Mount Gilead"), affirmed by the Court of Appeal in Mount Gilead Pty Ltd v Macarthur-Stanham (as executor of Estate of late Lee Macarthur-Onslow) (2023) 168 ACSR 32; [2023] NSWCA 37l ("Mount Gilead CA"); and Re ASP Aluminium Holdings Pty Ltd [2024] NSWSC 183 ("ASP"). 2. In an application for leave to bring statutory derivative proceedings, RG must satisfy the criteria for the grant of leave specified in s 237(2) of the Act. In order to grant leave under that section, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. Those matters are that it is probable that GCN will not itself bring the proceedings; RG is acting in good faith; it is in GCN's best interests that RG be granted leave; there is a serious question to be tried; and at least 14 days before making the application, RG gave written notice to GCN of his intention to apply for leave and of the reasons for applying, or the Court should dispense with that requirement. 3. RG bears the onus of establishing that each of these matters is satisfied on the balance of probabilities: Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583 ("Swansson") at [26]; Huang v Wang (2016) 114 ACSR 586; [2016] NSWCA 164 ("Huang v Wang"). If all the requirements of s 237(2) are satisfied, the Court must grant leave to bring the proposed proceedings. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12]-[13]. Whether an application for leave under s 237 of the Act is treated as final or interlocutory, leave to bring a derivative action is not given lightly: Swansson at [24]. No party sought to rely on the statutory presumption in s 237(3) of the Act in this application. Whether GCN will bring the proceedings 1. It is common ground that the first of the requirements for a grant of leave to bring a derivative action under s 237(2)(a) of the Act, that it is likely that GCN would not itself bring the proceedings, is satisfied. Whether RG is acting in good faith 1. The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Act, is that RG must establish to the Court's satisfaction that he is acting in good faith. Factors relevant to the good faith requirement at least include whether RG has an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief and whether RG is seeking to bring the action for a collateral purpose. 2. In Swansson, Palmer J (at [36]) observed that: "… 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." 1. Palmer J also there observed (at [42]) that where those in control of a company refuse to take proceedings to redress a wrong which appears to have been done to it, the Court should permit a derivative action to be instituted by those within the categories allowed by s 236(1) of the Act, and that such a person: "… would suffer a real and substantive injury if the action were not permitted. The injury must be necessarily dependent upon or connected with the applicant's status as a current or former shareholder or director and the remedy afforded by the derivative action must be reasonably capable of redressing the injury." 1. That observation was approved in Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661; [2008] NSWCA 52 ("Chahwan") at [70] and Tobias JA there noted (at [74]) that: "… I take his Honour to be saying that an applicant will only be acting in good faith for the purpose of s 237(2)(b) where, as a current or former shareholder or director of the company, he or she would suffer a real and substantive injury if a derivative action were not permitted provided that that injury was dependent upon or connected with the applicant's status as such shareholder or director. It might be a positive indication of the good faith of a shareholder if he or she sought to institute a derivative action which would have the effect, if successful, of restoring value to his or her shares in the company." 1. It is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, but RG does not fall within that category where he is not a shareholder in GCN: Swansson at [38]; Re Gladstone Pacific Nickel Ltd (2011) 86 ACSR 432; [2011] NSWSC 1235 ("Gladstone Pacific Nickel") at [58]; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Limited [2012] NSWSC 462. 2. In Re Lotus Property Fund No 8 Pty Ltd [2020] NSWSC 1349 at [75]-[76], Stevenson J in turn observed that: "An enquiry as to whether, in these circumstances, [the plaintiff] is acting in good faith involves consideration of these questions: (a) Does [the plaintiff] honestly believe that [the company] has a good cause of action against [the defendant] with reasonable prospects of success?; (b) Does [the plaintiff] honestly believe that it is in the best interests of [the company] to bring the proceedings?; (c) Is [the plaintiff] seeking to bring these proceedings for a collateral purpose or to obtain "some advantage for which the action is not designed". It is not necessary that [the plaintiff] actually depose to having the beliefs to which I have referred. These matters can be inferred from the nature and circumstances of the case and from the diligence with which [the plaintiff] has sought to assert a desire to bring the proceedings in question." 1. Mr Insall also draws attention to the Explanatory Memorandum for the Corporate Law Economic Reform Program Bill 1998, which introduced the provisions for a statutory derivative action now found in Pt 2F.1A of the Act and to the observation in that Explanatory Memorandum (at [6.37]) that: "The good faith requirement is designed to prevent proceedings being used to further the purposes of the applicant, rather than the company as a whole." I accept that that is plainly a purpose of the good faith requirement, but it does not exhaust the scope of that requirement. 1. Mr Insall submits, and I accept, that relevant matters to whether RG was acting in good faith include whether he honestly believes that a good cause of action exists and has reasonable prospects of success and whether he is seeking to bring the derivative suit for a collateral purpose that would amount to an abuse of process. Mr Insall also submits that: "[RG] is acting in good faith. The objective circumstances support this conclusion. The claim is one which, upon its face, is a good cause of action. It is one which will benefit [GCN]. It is based on longstanding and orthodox equitable principles". 1. Mr Insall also refers to Swansson, to which I have referred above, and submits that the present case is analogous and that: "[RG] is pursuing the proceedings because they will be for the benefit of [GCN] and thus for the [GFT] in which he has a legitimate interest. [GCN] is a trustee and has a duty to recover trust property. If [GCN] is successful in this action, the assets of the trust will be restored, for the benefit of all beneficiaries or objects, including [RG]." I recognise that RG is merely a discretionary beneficiary of the GFT, and has no present entitlement to GFT's assets, unless and until a discretion were exercised in his or her favour. Mr Insall also points to RG's willingness to fund GCN's legal fees as a matter in support of his good faith. 1. Mr Potts, with whom Mr Langshaw appears for GCN, responds that the relevant proceedings are brought some 19 years after the acquisition of the Glendenning Land by Ainley; RG has standing to seek leave to bring the proceedings only by reason that he was a director of GCN for a six year period ending some 30 years ago; and he has not had any involvement with GCN in those 30 years and has never been a shareholder of GCN. He also points to the other proceedings brought by RG relating to the GFT in this Court, although it was not necessary to address the substance of those proceedings in order to determine this application. Mr Potts emphasises Palmer J's observations in Swansson (at [42]) to which I referred above and the observation of Tobias JA in Chahwan (at [75]) that an applicant would not be acting in good faith where, in reality, he or she was seeking to vindicate his or her interest as a creditor and not as a former director of the company. Mr Potts also submits that the basis on which RG brings the claim "has no connection at all with his former status as a director some 30 years ago" and points to the fact that RG had ceased any role in GCN's management some 11 years before the impugned transaction. He submits that: "Any benefit that [RG] could conceivably obtain from the proceedings as a discretionary object of a discretionary trust – on the unstated assumption that … if the Glendenning Land were to be transferred to [GCN], it would become a trust rather than a company asset – which has no connection to his status as a former director decades ago. His only interest in the affairs of [GCN] is a contingent indirect economic interest, reflected in the fact that he has a beneficial object of [GFC] of which [GCN] is trustee. This is precisely the same economic interest as all other members of the class of beneficial objects of the trust, the vast majority of whom are not afforded standing to bring a derivative claim under the Act." 1. Mr Potts also refers to Mount Gilead (at [59]) for the proposition that, to grant RG leave to bring a derivative action by reference to his status as a former director of GCN, would allow the standing requirements under s 236 of the Act to operate in an arbitrary way, where persons with otherwise identical interests would or would not be permitted to bring a derivative action, depending on whether they had at some previous point been a director of GCN. I accept that proposition, the significance of which I recognise below. 2. Mr Hewitt, who appears for the Defendants (but not GCN) submits that RG is not acting in good faith, because a reasonable person in his position could not hold the view that the proceedings have reasonable prospects of success, having regard to the other submissions made by Mr Hewitt which I address below. I do not accept that submission, where it is consequential on the other submissions made by Mr Hewitt which I do not accept below. Mr Hewitt also points to RG's only interest in the proceedings as an object of a discretionary trust and his submission in that respect overlaps Potts' submission in that respect. Mr Hewitt also points, with some force, to RG's delay in bringing the proceedings and the lack of explanation why RG has taken so long to advance the claim. 3. I accept that several factors identified by RG support a finding that RG holds an honest belief in the existence of good causes of action and is acting in good faith in respect of the claims. There is no reason to doubt that RG has the requisite belief as to the prospects of success of the proceedings, and there is no suggestion that he brings them for a collateral purpose, other than his acknowledged purpose of advancing the interests of potential beneficiaries of the GFT including himself. I will find below that there is a serious question to be tried in respect of each of the claims and RG has proposed arrangements to indemnify GCN in respect of its potential liability to costs in respect of the proposed proceedings. A result in GCN's favour would be to the advantage of the GFT and the possible advantage of its discretionary beneficiaries including RG. 4. I also accept, as was common ground between the parties, that at least a current director or shareholder, and potentially a former director or shareholder, of a company that is the trustee of a trust has standing to bring proceedings in order to recover trust property, and could well be acting in good faith in doing so. That proposition is established by Cemcon: Re Hall Constructions Pty Ltd [2009] FCA 696 at [17] and Vlahos v Vlahos [2016] VSC 284 at [34]-[35]. However, those cases are distinguishable from the present case where those proceedings were brought by persons who had a current connection with the corporate trustee, as shareholders in the trustee. 5. On the other hand, at first instance in Mount Gilead, I held that the good faith requirement was not satisfied where a former director of a company sought to bring proceedings where she had not been a director of that company for many years; she did not have any shareholding in that company; any benefit which she would obtain from the proceedings was only as a beneficiary of a trust that could indirectly benefit from the proceedings; and, in a factor not present here, those proceedings were commenced and continued in breach of her obligations under a settlement deed. I referred (at [54]ff) to Swansson and to Chawan and to a concession by Counsel in Mount Gilead that the director's claim must be connected with her former status: "… since otherwise the standing requirement would operate in an arbitrary fashion, where persons with otherwise identical interests would or would not be permitted to bring a derivative action, depending upon whether they had once been a director of a company many years before." 1. On appeal from my decision, in Mount Gilead CA, Bell CJ (with whom Ward P and White JA relevantly agreed) observed (at [64]-[65]) that: "While there may be room for debate as to whether there is a requirement for the demonstration of a real or substantive connection between the loss or injury and the status of the particular applicant for leave to bring a statutory derivative action for the purposes of establishing good faith (as to which, see Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661; [2008] NSWCA 52 (Chahwan) at [70]; Swansson), what is clear is that there was no such nexus in the present case. As noted above, there was no connection between the status the Applicant invoked to seek leave to bring proceedings, namely as a former director, and the claims sought to be agitated. The events leading to those claims did not arise on the Applicant's "watch" as a director, as it were, and did not reflect in any way on the discharge of her responsibilities or performance. The [relevant transaction] occurred more than 10 years after she ceased to be a director of the company. As a long-retired director of the company, the Applicant had no interest in or connection with the issues that formed the subject of her complaint; she had not been removed as a director, for example, in order to permit the [relevant transaction] to proceed." 1. The Chief Justice also observed (at [67]) that: "As a general proposition, the greater the gap in time between a person's ceasing to hold the office which entitles him or her to make an application under s 237 and the events that are sought to be made the subject of the claim brought on behalf of a company, the more difficult it will be to establish the requirement of good faith. In the present case, not only was there a lengthy gap between the Applicant ceasing to be a director and the happening of the events the subject of the putative claim, there was a further lengthy gap between those events and the making of the application for leave to bring proceedings. …." 1. It seems to me that, both in principle and by reason of the Court of Appeal's approach to this issue in Mount Gilead CA, I must find that the long period of time that has elapsed between RG's holding the office of director and secretary of GCN and the commencement of these proceedings, and the lack of any apparent connection between his holding that office many years ago and the relief now claimed, is such that he cannot establish good faith, notwithstanding his subjective belief that the proceedings have merit. That has the consequence that one of the elements necessary to grant leave under s 237 of the Act is not established and that I cannot grant that leave. Whether the proposed proceedings are in GCN's best interests and whether there is a serious question to be tried 1. The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Act, is that the grant of such leave is in GCN's best interests. The fourth requirement for the grant of leave, under s 237(2)(d) of the Act, is that there is a serious question to be tried in the proceedings. It is convenient to first address the former requirement, then the latter requirement and then an issue that is likely relevant to both requirements. 2. The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Act, is that the proceedings are in GCN's best interests. The relevant principles were summarised in Swansson at [55]-[60], where Palmer J noted that that provision required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the relevant company's best interests. In order to prove that leave is in the best interests of the company, an applicant should generally give evidence of the character of the company, in the sense of the nature of the company's operations; the business of the company so that the effects of the proposed litigation on the conduct of its business may be appreciated; whether there are other means of obtaining the same redress so that the company does not have to be brought into litigation against its will; and the proposed defendant's ability to meet at least a substantial part of any judgment in favour of the company so that the Court may ascertain whether the action would be of practical benefit to the company. In Gladstone Pacific Nickel, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the company if the action is unsuccessful. Whether it is in the best interests of GCN to bring a claim depends not only on whether it might succeed as to liability, but whether there would be any practical benefit from its success. In Re Imperium Projects Pty Ltd [2015] NSWSC 16 at [14], I observed that it did not follow that it was in a company's best interests that a remedy be pursued, merely because it appeared to have suffered an actionable wrong, and any assessment of the company's best interests depended on matters including "the strength of the suggested claims". 3. Mr Insall submits that the claim will never be brought unless RG is granted leave and, if not, GCN stands to lose an asset worth no less than $20 million. I note, first, that I am here required to exercise a statutory discretion, by reference to specified criteria; and the case law makes clear that I must grant the relevant leave, if those criteria are satisfied, and may not grant that leave if those criteria are not. I recognise that the question of loss of the opportunity to recover such an asset would be relevant to whether the proceedings were in GCN's best interests. I do not, however, accept that a refusal of leave would have the consequence that the asset was not recoverable. First, Mr Potts pointed to the possibility that leave could be granted to RG, presumably in the other proceedings that are ongoing, to bring the proceedings as representative of the GFT. Second, the case law recognises the possibility that a receiver could be appointed to GFT's property, including any cause of action available to GCN in respect of the Glendenning Land, if GCN itself failed to bring in that property: JD Heydon and MJ Leeming, Jacobs Law of Trusts in Australia, 8th ed, [23-05]. In some respects, the appointment of a receiver to the relevant cause of action so as to allow it to pursue that cause of action would have been a more appropriate form of relief than that sought by RG, even if RG had otherwise been able to satisfy the criteria necessary for the grant of leave under s 237 of the Act. 4. Mr Potts responds that it would be surprising if it were in GCN's best interests to bring an action against its sole shareholder for acts which could have been ratified by them as shareholders. I do not accept that submission, where GCN was acting as trustee of the GFT, and I point to the limits of ratification in this context below. Second, Mr Potts also points to the potential limitations defence, but that does not seem to me to prevent the grant of leave to bring the proceedings for the reasons noted below. Third, Mr Potts submits that the substantive relief sought could only be granted on terms, where JPD paid consideration for the Glendenning Land. That submission has two difficulties. First, the evidence to which I have referred above raises a real question whether JPD had assets available to pay, or in fact paid, any consideration to acquire the Glendenning Land. Second, there is no reason to think that a Court of equity, in granting relief, would not or could not tailor that relief to address that issue. 5. Mr Hewitt also submits that there is no practical benefit to GCN in bringing the proceedings on the basis that, if RG was granted leave to bring the proceedings in GCN's claim and succeeded in them, and the Court ordered a constructive trust over the property in favour of GCN and against JPD, then PG (or the then directors of GCN) could exercise the absolute discretion conferred on GCN under the trust deed for the GFT to transfer the property back to JPD or to other persons associated with PG or the late JG. That proposition seems to me to be wholly speculative, where there is no evidence that PG or the then directors of GCN would choose to exercise that discretion in that manner. It would obviously be open to the estate of JG and PG now to concede that the transfer of the Glendenning Land to Ainley or JPD was improper and submit to any relief that follows from that position, while reserving the possibility that GCN would then exercise a proper discretion in respect of a transfer of the land, but there is no suggestion that they plan to take that course. There would be a real question whether, if they instead put GCN to the costs of pursuit of the proposed proceedings so as to vindicate its rights as trustee, a subsequent resolution to transfer the land to JPD would be consistent with their statutory duties as directors of GCN, or could be implemented without prompting the appointment of a receiver by the Court so as to preserve the assets of the GFT. I do not accept that the speculative possibility of such a transaction is reason that the proceedings are not in GCN's best interests, so far as they would otherwise be consistent with the proper performance of its duties as trustee of the GFT in respect of the Glendenning Land. Mr Hewitt also advances essentially the same submission as Mr Potts, that GCN does not have the funds necessary to do equity in respect of any payment due to JPD, if a constructive trust were ordered in its favour. I have addressed that submission above and it does not displace a finding that the proceedings would be in GCN's best interests. I return to an additional issue that is relevant to this matter below. 6. I turn now to the fourth requirement for the grant of leave under s 237(2)(d) of the Act that there is a serious question to be tried in the proceedings. In Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534; [2002] NSWSC 640 at [34], Barrett J observed that: "… a serious question to be tried can be found only by reference to an infringement of some legal or equitable right or the commission of some legal or equitable wrong, with the result that the issue needs to be approached by inquiring whether there exists, in the circumstances and on the evidence, a sufficiently cogent showing of some such infringement or wrong to warrant the imposition of an order to preserve the status quo pending full investigation." His Honour also observed (at [35]) that the s 237(2)(d) test is imported from equity's approach to the grant of interlocutory injunctions. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd (2010) 79 ACSR 293; [2010] FCA 763 ("MG Corrosion") at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra (2011) 82 ACSR 367; [2011] FCAFC 31. 1. In Gladstone Pacific Nickel, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]): "The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [above] at [25] per Palmer J; Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69; 257 ALR 558; 72 ACSR 506; [2009] NSWSCA 183 at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL [(1987) 8 NSWLR 533] at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163; 74 ALR 505 at 509–10: "However, applying the "serious question" test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief." 1. I have referred above to the authorities which indicate that the test for a serious question to be tried is a "relatively low threshold": Swansson at [25]; Gladstone Pacific Nickel at [56]. An application of this character does not involve a consideration of the underlying merits of the proposed litigation, except to the extent that it is necessary to determine whether there is a serious question to be tried and it will not generally be appropriate for the Court to attempt to resolve disputed questions of fact in such an application: Swansson at [25]; Gladstone Pacific Nickel at [56]; Huang v Wang at [60]: Legal Practice Management Group at [94]. The need for evidence to establish the factual basis of a serious question to be tried was noted in Charlton v Baber (2003) 47 ACSR 31; [2003] NSWSC 745, where Barrett J held that a serious question to be tried in respect of a breach of directors' duties was not established, where an assertion of loans on uncommercial terms and without adequate security was not supported by evidence of the terms of the loans. The need for evidence to support such claims was also recognised by Gilmour J in MG Corrosion (at [141]), approved in Hannon v Doyle (2011) 82 ACSR 259; [2011] NSWSC 10 at [48]. 2. I have referred above to the structure of the claim that RG seeks to bring on GCN's behalf. I summarised the applicable principles in respect of a somewhat similar claim in K&A Laird (NSW) Pty Ltd (in liq) v Aidzan Pty Ltd (in liq) [2023] NSWSC 603 at [90]ff as follows: "A director of a company is a recognised category of fiduciary and the "no conflict" and "no profit" rules apply to a director as a status-based fiduciary. The "no conflict" rule has a strict application when it applies in the sense that, if a transaction has occurred in conflict of interest, a company director cannot avoid a breach of that rule by asserting the fairness of the transaction or that it was in the company's best interests or that the director was not acting with subjective dishonesty. … In Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37, Payne JA (with whom Gleeson and Leeming JJA agreed) summarised the no conflict and no profit rules (at [105]) as follows: "A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed … A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary. [citations omitted] The case law has also recognised the application of these principles in relation to corporate opportunities. In Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 at 138, Hill J summarised the state of the law relating to the diversion of corporate opportunity as being that: a fiduciary must account for a profit or benefit if that profit or benefit was obtained either where there was a conflict or possible conflict between his fiduciary duty and his personal interest, or, where that profit or benefit was obtained, by reason of his fiduciary position or by reason of his taking advantage of an opportunity or knowledge derived from that fiduciary position. In SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 at 557, Cooper J observed that: What is to be drawn from the authorities is that a director will act in breach of his fiduciary obligations to a company (the scope of which will vary in the circumstances of each particular case) if he or she takes up an opportunity for profit where there is a sufficient temporal and causal connection between the obligation and the opportunity. What is a sufficient connection will depend, in any particular case, upon a number of factors, including the circumstances in which the opportunity arises and the nature of it and the nature and extent of the company's operations and anticipated future operations. The relevant principles were also considered in Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; 292 ALR 382; 90 ACSR 288; [2012] FCA 634; by the Court of Appeal in Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580; 116 ACSR 566; [2016] NSWCA 347 at [171]ff (Australian Careers Institute); by Beach J in CellOS Software Ltd v Huber (2018) 132 ACSR 468; [2018] FCA 2069 and in my decision in Mudgee Dolomite & Lime Pty Ltd v Murdoch; Re Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510 and on appeal in Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12." I do not understand that summary to have been doubted in the Court of Appeal in Aidzan Pty Ltd (in Liq) v K & A Laird (NSW) Pty Ltd (in Liq) [2024] NSWCA 185, which expanded the relief which I had allowed in that case. 1. Mr Potts submits that RG has adduced no evidence that the opportunity to purchase the Glendenning Land "belonged" to GCN or came to the attention of JG or PG in their capacity as directors of GCN, or that the property was obtained by reason of their use of their fiduciary position, and has not demonstrated that there is any serious question to be tried as to the alleged breach of fiduciary duty. I do not accept that submission, where it seems to me that the facts that JG and PG were directors of both GCN on the one hand and Ainley and JPD on the other, that the property would be used by GCN and that GCN's assets were applied to assist Ainley and JPD in acquiring that property are sufficient to establish a seriously arguable case that JG and PG were subject to a substantial conflict of interest in respect of any decision whether the property would be required by GCN or Ainley, or subsequently GCN or JPD. 2. Mr Potts also submits that the "no profit" rule and the "no conflict" rule are both subject to an exception where the person to whom the fiduciary duty is owed gives fully informed consent to the transaction and he submits that PG and JG were the sole directors and shareholders of both GCN and Ainley and their knowledge and consent would be imputed to both companies. I will assume, without deciding, that that proposition may be an arguable defence at a hearing, but it seems to me that it is plainly not sufficient to deprive the claim that RG seeks to bring of a seriously arguable character. The better view is likely that, by analogy with the position where interests of creditors intrude where a company is near insolvency (Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 at 730), the shareholders in a trustee company cannot ratify a breach of duty which is adverse to the interests of beneficiaries or potential beneficiaries of the trust. That view finds support in then observations of Garde JA (with whom Neave JA agreed) in Australian Annuities Pty Ltd v Rowley Superfund Pty Ltd (2015) VSCA 9 at [253]ff, cited with apparent approval by Ball J in Twigg v Twigg (2020) 147 ACSR 389; [2020] NSWSC 1159 at [155]. Mr Insall also responds, and I accept, that even the consent of a beneficiary to a breach of trust, which was not established here, would not necessarily be an absolute bar to a claim against the trustee for that breach of trust: Spellson v George (1992) 26 NSWLR 666 at 669. I also bear in mind that s 239 of the Act allows the Court to have regard to the effect of ratification of conduct by shareholders in a company, in determining whether to grant leave, but that section itself provides that ratification does not necessarily prevent a person from bringing proceedings with leave under s 237 of the Act or have the consequence that an application for such leave must be refused. 3. Mr Potts also refers to a limitation issue arising under, inter alia, s 47 of the Limitation Act 1969 (NSW), both in respect of whether RG has established a serious question to be tried and in respect of the question the claims are in GCN's best interests. That limitations defence is weakened here because, as Mr Potts fairly accepts, the second transaction which RG seeks to attack, the transfer of the property to JPD, was within the relevant limitation period with the result that a substantial part of the claim is not subject to that defence. Second, the case law has indicated that limitation questions are relevant to the defence of the proceedings and will generally require a detailed examination of the relevant facts and are not such as to exclude a grant of leave for derivative proceedings: Legal Practice Management Group at [98]; Mount Gilead at [68]. It seems to me that that approach is plainly applicable here, where any exploration of limitation issues would require an exploration, inter alia, of when RG first discovered or might with reasonable diligence have discovered the facts giving rise to GCN's cause of action and potentially involve the complexities addressed in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 at [70]-[75] and Aidzan at first instance and on appeal. 4. Mr Hewitt in turn puts an elaborate submission that the conflict rule must be applied "realistically" and is excluded by the trust deed for the GFT in the relevant circumstances. The elements of that submission include, in brief summary, that JG and PG as controllers of GCN are entitled to cause to act in a way which favours their personal interests including by causing GCN to distribute trust property to them, relying on the Court of Appeal's decision in El Sayed v El Hawach (2015) 88 NSWLR 214; (2015) 317 ALR 771; [2015] NSWCA 26 at [66] ("El Sayed"); the trust deed for the GFT established a "discretionary trust" by which broad powers were conferred on GCN, relying on Kerns v Hill (1990) 21 NSWLR 107 at 109 and El Sayed; and the trust was a "modern discretionary trust" involving a nominal settlor and appointor in the sense noted by Brereton J in Baba v Sheehan (2021) 151 ACSR 462; [2021] NSWCA 58. 5. Assuming, without deciding, that GCN could properly have exercised a discretion under the trust deed for the GFT to transfer the Glendenning Land to Ainley, or JPD, and that that discretion would have been an absolute discretion that was not open to challenge by other potential beneficiaries, that is not what occurred here. The essential premise of Mr Hewitt's submission is that, because GCN has an absolute discretion as to the proper exercise of trust powers, the rule against conflict of interest has no or narrowed application to acts of GCN's directors which have the result that GCN as trustee never acquires the relevant property, which they divert to themselves or their associates, and never exercises any proper discretion as to how that property is to be dealt with or distributed to potential beneficiaries. That proposition has remarkable implications, if it extends beyond assets that could be acquired by GCN to assets that GCN had not yet received but had a right to receive; for example, could JG and PG, on the same reasoning, divert any amount that was payable to GCN for crane hire, or appropriate any other amount due to GCN to themselves, without the exercise of any discretion by GCN as trustee under the trust deed as to how it was to be distributed to beneficiaries or potential beneficiaries? If that proposition is arguable, it seems to me that it is not so obviously correct that it displaces a seriously arguable claim by GCN against the Defendants, or has the consequence that the proceedings would not otherwise be in GCN's best interests. Mr Hewitt also puts essentially the same argument as Mr Potts that the proceedings are barred by a limitation period, and I have addressed that argument above. 6. I now turn to an issue that is relevant to both the requirement for a serious question to be tried and the best interests requirement. After I reserved judgment, I invited further submissions from the parties as to "whether the relief sought in paragraph 2 of the Statement of Claim [which seeks a declaration as to a constructive trust] and the order sought in paragraph 3 of the Statement of Claim [as to the transfer of the Glendenning Land] is available", having regard to the decisions in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd (1998) 3 VR 133 at 156-157, Farah Constructions Pty Ltd v Say-Dee Pty Ltd] (2007) 230 CLR 89; [2007] HCA 22 at [193] ("Farah"), Super 1000 Pty Ltd v Pacific General Securities Ltd (2008) 221 FLR 427; [2008] NSWSC 1222 at [234] ("Super 1000") and several subsequent cases. 7. It is convenient first to address the Defendants' submissions as to this matter. Mr Potts points out that, as is common ground, JPD is now the registered proprietor of the Glendenning Land and RG seeks to bring a claim for proprietary relief in respect of that land in GCN's name, by way of the imposition of a constructive trust and an order for the transfer of the land to GCN. He submits that the two alternative bases of the claim against JPD, to which I referred above, depend on the allegation of breach of fiduciary duty against JG and PG and the claim that JPD became the registered proprietor of the land with knowledge of the breach or, I would add, as their alter ago or as a purchaser with notice of the breach. Mr Potts submits that the claim against JPD arises under the first limb of Barnes v Addy (1874) LR 9 Ch App 244, although the issues which arise here are not limited to a claim on that basis. He submits that such a claim is not within an exception to indefeasibility of JPD's registered title to the land under s 42 of the Real Property Act 1900 (NSW) ("Real Property Act"). 8. Mr Potts refers to Farah, where the High Court held that that a proprietary claim for knowing receipt was not available in respect of Torrens Title land, absent an exception to statutory indefeasibility under s 42 of the Real Property Act. The High Court there observed (at [193]) that: "An exception operating outside the language of s 42(1) can exist in relation to certain legal or equitable causes of action against the registered proprietor. So far as Say-Dee was relying on Barnes v Addy, it was certainly alleging a recognised equitable cause of action. In [Sixty-Fourth Throne], Tadgell JA (Winneke P concurring, Ashley AJA dissenting) held that a claim under Barnes v Addy was not a personal equity which defeated the equivalent of s 42(1) in Victoria, namely the Transfer of Land Act 1958, s 42(1)…" 1. Mr Potts in turn refers to Super 1000 (at [213]-[237]), where White J (as his Honour then was) undertook a full review of these cases. His Honour observed, possibly with reluctance, that he was bound to follow the earlier case law and that "at least no proprietary remedy is available against Super 1000 as an accessory to Mr McLay's breach of fiduciary duty by having taken a mortgage over the company's property." His Honour there left open (at [235]ff) the possibility of a personal claim, which had not there been sought. Mr Potts refers to the many subsequent cases that have followed those decisions and submits that: "Although the reasoning in Farah has been subject to some criticism …, it nonetheless remains binding authority on all first instance and intermediate appellate courts." 1. Mr Potts also points to the observation of the Court of Appeal in Turner v O'Bryan­Turner (2022) 107 NSWLR 171; [2022] NSWCA 23 ("Turner") at [101], where White JA (Meagher and McCallum JJA concurring) treated Farah as binding authority that: "the in personam exceptions to indefeasibility do not extend to proprietary claims arising under the first limb of Barnes v Addy". 1. On that basis, Mr Potts submits that: "It follows that the relief [RG] seeks leave to pursue on behalf of [GCN], being a proprietary claim over the Glendenning Land arising under the first limb of Barnes v Addy, is not available, and the proposed claim is untenable." 1. Mr Potts also refers to Ball J's observation in Gladstone Pacific Nickel (at [57]) that, in considering what is in the best interests of the company, it is necessary to consider the prospects of success of the action; and it is not necessary to address the question whether Bathurst CJ in Huang v Wang (at [38] and [67]) adopted a different approach, where the question is more one of classification rather than of substance. He also refers to my observation in ASP (at [119]) that: "Whether it is in the best interests of Holdings to bring a claim depends not only on whether it might succeed as to liability, but whether there would be any practical benefit from its success. In Re Imperium Projects Pty Ltd [2015) NSWSC 16 at [14), I observed that it did not follow that it was in a company's best interests that a remedy be pursued, merely because it appeared to have suffered an actionable wrong, and any assessment of the company's best interests depended on matters including 'the strength of the suggested claims'." 1. Mr Hewitt also refers to the review of the case law in Turner and submits that the reasoning in that case is correct and, equally importantly for present purposes, binding on a court at first instance. Mr Hewitt in turn points out, and it is common ground, that JPD is the registered proprietor of the Glendenning Land and has indefeasible title to that land pursuant to s 42 of the Real Property Act. He points to the nature of the claims sought to be brought by RG for GCN and submits, by reference to Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [254] and Turner at [92] that "the principles noted above in relation to the first limb of Barnes v Addy are applicable to a claim that a party has received property transferred in breach of fiduciary duty with requisite knowledge of the breach. On that basis, he submits that: "the relief sought in paragraph 2 of the Statement of Claim and the order sought in paragraph 3 of the Statement of Claim are not available to the plaintiffs. Paragraph 2 of the Statement of Claim seeks a declaration that is incompatible with JPD's indefeasible title to the Glendenning Land. Order 3, which is an order that JPD transfer the Glendenning Land to the Company, is a proprietary claim that does not fall within the in personam exception to indefeasibility." 1. Mr Wood, who made submissions for RG as to this issue, submitted, first, that RG puts the claim on the basis that the Glendenning Land retains its character as trust property and the availability of s 42 of the Real Property Act is a defence and not relevant to the application for leave to bring the proceedings. I do not accept that submission, although I recognise that I have taken that approach, consistent with the case law, in respect of limitations questions. Here, there is no contest as to the fact that JPD has registered title to the Glendenning Land; the legal principles noted above are well-established, if not wholly uncontroversial; and it seems to me that it would be artificial, in the extreme, to accept the proposition put by Mr Wood that RG (for GCN) could plead fraud (in the sense required for an exception to indefeasibility) on the part of JG or PG in reply, where no factual basis for that proposition has been identified. 2. Second, Mr Wood submits that not all forms of knowledge "will necessarily fall short of fraud in the s 42 [of the Real Property Act] sense." Mr Wood submits and I accept that the present claim extends to a claim against JPD as the "alter ego" of JG and PG as allegedly defaulting fiduciaries, or alternatively that this is a case of actual knowledge which "may" bring JPD's conduct within the fraud exception. The difficulty with this proposition is that RG bears the onus of establishing that the requirements for leave under s 237 of the Act are satisfied, and neither the pleaded case nor the evidence led in support of that application provides any factual basis for an arguable case for dishonesty in the relevant sense, as distinct from the pleaded claim of breach of fiduciary (and possibly also equitable) duties. 3. Third, Mr Wood submits that, "depending on the facts", the mere act of registering the transfer to JPD may amount to dishonesty. Assuming, without deciding, that possibility is open, it does not assist RG where the facts pleaded and the evidence on which he relies in this application do not extend beyond matters that have been held, in decisions by which I am bound, not to support proprietary relief in this context. Fourth, Mr Wood submits that indefeasibility does not protect a person who "dishonestly" obtains title, and JPD was a primary wrongdoer in the relevant sense. That submission also does not assist JPD, because he does not plead dishonesty against JPD, and, As I noted above, the facts pleaded and the evidence on which he relies in this application do not extend beyond matters that have been held, in decisions by which I am bound, not to support proprietary relief in this context. 4. Last (although taking this point out of order), Mr Wood submits that GCN's proposed claim is not limited to proprietary remedies and that JPD is prima facie liable to pay equitable compensation to GCN for knowing receipt. I recognise that the relief sought in the SoC is directed to declaratory relief as to a breach of fiduciary duty and proprietary relief, although GCN also reserves a claim to any other order that the Court deems fit. The cases to which I have referred above leave open the possibility of personal remedies in this area, by contrast with the position now taken in England and Wales: Byers v Saudi National Bank [2024] 2 WLR 237; [2023] UK 51. I treat Mr Wood's submissions as indicating that GCN will in fact press a claim for personal relief and the pleaded facts are sufficient to establish a seriously arguable case for that relief, as I noted above. There is no suggestion that JPD, which still owns the Glendinning Land (as trustee of GPUT) and is presently seeking to sell it for a substantial price, would not have the capacity to meet a substantial judgment against it. This seems to me to be a sufficient answer to the absence of an available claim by GCN for proprietary relief. 5. The question whether RG offers an adequate indemnity in favour of GCN in respect of the costs to which it would be exposed if the proceedings were unsuccessful is also relevant to whether the proceedings are in GCN's best interests. The case law has recognised that a relevant and significant matter in determining whether the proceedings are in a company's best interests is the adequacy of an indemnity in respect of the costs to which the company would be exposed by the conduct of proceedings and in the event of their failure: Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137; App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 at [19]. I have noted above that RG offers such an indemnity and there is no reason to doubt its adequacy. 6. On the basis that RG (on GCN's behalf) would extend GCN's claim beyond declaratory and proprietary relief, to include a claim for personal relief by way of a claim for compensation (or potentially an account of profits), I find that RG has established that there is a serious question to be tried as to the proposed claim and that it is in GCN's best interests to bring the proceedings. Notice requirement 1. It is common ground that the notice requirement under s 237 of the Act should be dispensed with. Determination 1. For these reasons, although on a narrow basis, I am not persuaded that I can grant leave to RG to continue the proceedings on behalf of GCN under s 237 of the Act, where the passage of time since he was a director and secretary of GCN and the lack of any real connection between that role and GCN's claim has the result that I cannot find the claim is brought in good faith. 2. I order that RG's Amended Notice of Motion filed on 26 June 2024 and the corresponding application for leave in paragraph 4 of the SoC be dismissed. I will hear the parties as to whether the wider proceedings should now be dismissed and as to costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 September 2024