Supreme Court New South Wales Medium Neutral Citation: Hannon v Doyle [2011] NSWSC 10 Hearing dates: 18, 19, 24, 31 May; 1 December 2010 Decision date: 03 February 2011 Before: Barrett J Decision: Short minutes to be brought in Catchwords: CORPORATIONS - statutory derivative action - application by qualified person to bring proceedings on behalf of each of two companies - allegations of breaches of duty by directors of each company - allegations of oppressive and like conduct in affairs of one company of which the other a member - whether serious question to be tried - whether in best interests of company that applicant be granted leave - whether applicant acting in good faith - leave to be granted Legislation Cited: Corporations Act 2001 (Cth), Chapter 2E, ss 229 232, 236(1)(a)(i), (ii), 237, 260B Cases Cited: Aberdeen Railway Co v Blaikie (1854) 1 Macq HL 461 Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18 Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 Ferrari v Ferrari Investments (Townsville) Pty Ltd [1999] QCA 230; [2000] 2 Qd R 359 Fitzpatrick v Cheal [2010] NSWSC 717 F W V Stanke Holdings Pty Ltd v O'Meara [2007] SASC 413 George A Bond & Co Ltd v Bond (1929) 30 SR(NSW) 15 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 Sudojo Consulting Pty Ltd v Africa Pacific Capital Pty Ltd [2008] NSWSC 353 Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 Category: Principal judgment Parties: David Ross Hannon (Plaintiff) Alan David Doyle (First Plaintiff) Stephen John Turner (Second Plaintiff) PSG International Financial Engineers Limited (Third Defendant) Afro Pacific Holdings Pty Limited (Fourth Defendant) Derek William Satterthwaite (Fifth Defendant) Africa Pacific Capital Pty Limited (Sixth Defendant) Representation: Counsel: Mr M R Speakman/Mr A P Spencer (Plaintiff) Ms E A Collins (1, 2, 4, 6, 7 Defendants) Solicitors: Arnold Bloch Leibler (Plaintiff) Corrs Chambers Westgarth (1, 2, 4, 6, 7 Defendants) File Number(s): 2009/290715 Judgment Introduction 1Mr David Hannon makes application under s 237 of the Corporations Act 2001 (Cth) for leave to bring proceedings on behalf of each of two "companies" within the meaning of that Act, being Afro Pacific Holdings Pty Ltd ("Holdings") and Afro Pacific Capital Ltd ("Afro Pacific"), a subsidiary of Holdings by which some 88% of the issued shares are held. 2Mr Hannon's qualification under s 237(1) to obtain such leave arises, in the case of Holdings, from his being a member of Holdings (s 236(1)(a)(i)) and a former officer of Holdings (s 236(1)(a)(ii)) and, in the case of Afro Capital, from his being a member of a related body corporate of Afro Capital, being Holdings (s 236(1)(a)(i)), and a former officer of that related body corporate (s 236(1)(a)(ii)). It is not in dispute that Mr Hannon holds about 16% of the shares in Holdings and was a director of Holdings between October 2001 and 28 March 2003 when he resigned. 3The case Mr Hannon wishes to advance is set out in points of claim (I say "set out" rather than pleaded because the points of claim do not have any formal status at this stage). 4The case has several distinct elements, some of which entail claims by Mr Hannon in his own right while others are claims he wishes to see Holdings and Afro Capital pursue by way of derivative action brought by him on their behalf. 5Claims to be brought by Mr Hannon in his own right involve allegations of breaches of contracts to which he was party (specifically a shareholders agreement and a so-called "exit agreement", although there may be a question whether the latter agreement was ever concluded), allegations of wrongful procuring of breaches of contract and allegations that the affairs of Holdings have been conducted in a manner that is oppressive or otherwise within s 232 of the Corporations Act . He can, of course, bring all these claims without any leave under s 237. 6Claims that Mr Hannon wishes to bring by way of derivative action on behalf of Holdings are, in summary: (a) claims by Holdings against directors of Holdings for alleged breach of directors' duties; (b) a claim by Holdings, as a member of Afro Capital, that the affairs of Afro Capital have been conducted in a manner that is oppressive or otherwise within s 232; (c) a claim by Holdings against Africa Pacific Capital Pty Ltd ("Africa") for the wrongful receipt of property of Holdings; and (d) a claim by Holdings for an order for the winding up of Afro Capital. 7Claims that Mr Hannon wishes to bring by way of derivative action on behalf of Afro Capital are claims against directors of that company for alleged breach of directors' duties. The legislation and the defendants' position 8In determining Mr Hannon's application for leave, I must give effect to s 237(2) of the Corporations Act which requires the court to grant leave if satisfied as to specified matters: "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." 9Mr Hannon's application is opposed by all the parties against whom he wishes to see Holdings and Afro Capital bring proceedings (there was no objection by Mr Hannon to the participation of any of those parties in the hearing of the leave application). It is convenient to refer to those persons as "the defendants". Their opposition is based on paragraphs (b), (c) and (d) of s 237(2). They say that none of those criteria is satisfied. They concede, however, that the court should conclude that the conditions in s 237(2)(a) and (e) are satisfied. 10Before considering the particular claims and the questions posed by s 237(2)(b), (c) and (d), I should refer to matters of background. Factual background 11In 1993, Mr Hannon and Mr Alan Doyle (one of the defendants) went into business together as corporate advisers. In 2001, they came into contact with the PSG Group of South Africa. It had an Australian subsidiary, Afro Capital, which was 88% owned by PSG Financial Engineers Ltd ("Engineers"). The balance of the shares was held, as to 6% each, by Mr Bekker and Mr Stephen Turner. Mr Turner is one of the defendants. 12Holdings was formed in October 2001. Its shareholders were Engineers, Mr Hannon and Mr Doyle (in February 2002, in circumstances about to be mentioned, Engineers came to hold 68% of the shares in Holdings, while Mr Hannon and Mr Doyle each held 16%). Those three parties entered into a shareholders agreement one term of which required that Mr Hannon and Mr Doyle should conduct their future business activities through Holdings unless, in a particular respect, Holdings elected not to take up the business opportunity. The individuals' corporate advisory activities were thereafter conducted through Holdings and its subsidiaries. 13The subsidiaries of Holdings came, at an early stage, to include Afro Capital. Soon after its formation, Holdings acquired Engineers' 88% shareholding in Afro Capital in return for an issue of shares by Holdings (these shares made up Engineers' 68% shareholding interest in Holdings already mentioned). 14Mr Hannon and Mr Doyle became directors of both Holdings and Afro Capital. Mr Turner was also a director. 15In January 2002, Afro Capital took up 15 million shares in Transvaal Ferro Chrome Ltd ("IFM") and 15 million options to subscribe for shares in that company. This was part of an arrangement under which Afro Capital was to assist IFM with the raising of capital with a view to obtaining a stock exchange listing. Mr Hannon, Mr Doyle and Mr Turner became directors of IFM. Mr Turner later became IFM's chief executive. 16Mr Hannon resigned his directorships of all relevant companies in March 2003 but retained his shareholding in Holdings. 17Soon after Mr Hannon's resignation, Afro Capital became party to a transaction involving the sale by Engineers to Mr Doyle and Mr Turner of its 68% shareholding in Holdings. The purchase price to be paid by Mr Doyle and Mr Turner was $7 million. Afro Capital (which was, of course, a subsidiary of Holdings) mortgaged its shares in IFM (and the associated options) to Engineers to secure the obligation of Mr Doyle and Mr Turner to pay Engineers the purchase price of $7 million. A general meeting of Afro Capital held on 7 May 2003 purported to grant, in that connection, approvals under s 260B and Chapter 2E of the Corporations Act (concerning financial assistance and related party transactions respectively) and to ratify the relevant decision of the directors of Afro Capital "to the extent that such decision may be a breach of the directors' duties" - a form of words that may not sufficiently state the nature of the contemplated breach of duty so as to be a firm foundation for an authorising decision of shareholders: Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666. 18Mr Hannon takes the view that the directors of Afro Capital acted in breach of duty in relation to the giving of this security for the benefit of Mr Doyle and Mr Turner; also that contraventions of the Corporations Act were involved. However, the s 237 application with which I am now dealing was argued on the footing that those allegations will not form part of any derivative action Mr Hannon is allowed to pursue unless and until he is successful at some later point in obtaining an extension of the leave granted to him. The complaints in that respect are thus, at this stage, relevant as background or contributing factors to other matters in respect of which leave is sought. 19Afro Capital's interest in IFM plays a part in other allegations advanced by Mr Hannon. He refers to an "alienation" of the 15 million IFM options by Afro Capital during the year ended February 2006. The parties to whom the "alienation" was made are Netyan Finance Ltd and Kin Yip International Ltd, companies owned by Mr Doyle and Mr Turner respectively. The price was 40 cents per option but, Mr Hannon says, the market value at the relevant time was about 60 cents. Also, substantial funds realised from the sale of shares in IFM by Afro Capital in the year ended 29 February 2008 are relevant to claims by Mr Hannon that Afro Capital paid excessive remuneration to Mr Doyle and Mr Turner in that year. 20There are numerous allegations about loans by Afro Capital to Mr Doyle and Mr Turner and companies associated with them. It is alleged by Mr Doyle that: (a)in the year ended 28 February 2005, Afro Capital lent $430,013 to Mr Doyle unsecured and interest free; (b)in the year ended 28 February 2006, Afro Capital lent $893,703 to Mr Doyle unsecured but on the footing that interest at the rate of 10% per annum was payable in respect of that year; (c)at some time before 28 February 2006, book entries were made to the effect that Holdings owed Afro Capital what had previously been owed by Mr Doyle to Afro Capital; and Doyle Resources Pty Ltd (a company owned by Mr Doyle) owed an equivalent amount to Holdings; (d)also in the year ended 28 February 2006, loans of $2,900,000 were made by Afro Capital to Doyle Resources; and (e)in the year ended 28 February 2007, Afro Capital made further advances of $520,000 to Doyle Resources. 21Mr Hannon's allegations concerning loans to Mr Turner and Elliott Rutledge Pty Ltd, a company owned by him, are in substance the same as the allegations concerning Mr Doyle and Doyle Resources, although the amounts are different. 22Mr Hannon says that, at a point in 2006, Mr Doyle and Doyle Resources owed Afro Capital $4,229,716, while the aggregate owing by Mr Turner and Elliott Rutledge was $4,357,155. The aggregate of more than $8.5 million compared with total assets of $16,844,000 at that date. Circumstances at the time were such that bank facilities were almost fully drawn, borrowings were more than $3.6 million and, in September 2005, Mr Doyle had told Afro Capital's bank manager that "lack of capital" had forced the Impact Mining project on to the" back burner" for two years. 23By 28 February 2007, Mr Hannon says, the position had developed in such a way that: (a) Doyle Resources owed Afro Capital $3,420,000; (b) Elliott Rutledge owed Afro Capital $3,416,000; (c) Holdings owed Afro Capital $4,995,000 of which about $2,750,000 consisted of amounts owed by Doyle Resources and Elliott Rutledge to Holdings; and (d) assets to the extent of some $9,586,000 therefore consisted of debts owing by the director-related entities; and this was in a context where the only other asset of significance (the IFM shareholding) had a book value of some $9.4 million. 24Mr Hannon further alleges that, in the year ended 28 February 2008, Doyle Resources repaid amounts due to Afro Capital; also that Afro Capital paid Mr Doyle and Mr Turner the excessive remuneration already mentioned. 25Separately, there is an allegation that, in the year ended 29 February 2008, Afro Capital lent $907,000 to Africa Pacific Capital Pty Ltd, a company established by Mr Doyle and Mr Turner in October 2005 and owned by Mr Doyle and Mr Turner. 26The next area on which Mr Hannon concentrates is dealt with in the points of claim under a heading "Diversion of business and transfer of assets to Africa", that is Africa Pacific Capital Pty Ltd, the company just mentioned (which I shall call "Africa"). The allegations under this heading refer to a context in which, as at October 2005, Holdings, through its operating subsidiary Afro Capital, was providing advisory services to clients in return for remuneration that often included equity interests in commercial ventures. These ventures are said to have included American Southwest Holdings Inc ("American Southwest"), Great Australian Resources Ltd ("GAR") and Impact Mining Pty Ltd. The allegations are, in essence, that Mr Doyle and Mr Turner, having formed Africa as their own vehicle, caused Africa to supply services to the three companies mentioned when it was Afro Capital that had the existing client connection on which the services were based; also that Mr Doyle and Mr Turner transferred or diverted to Africa assets to which Holdings or Afro Capital was entitled, being shares in the companies mentioned. 27I should record, for completeness, that the shares in Holdings are now held by Mr Hannon (16%), Mr Doyle (58%) and Mr Turner (26%) and that the shares in Afro Capital are now held by Holdings (88%), Mr Turner (6%) and Africa (6%). The defendants and the claims against them 28On the basis of alleged facts thus briefly summarised, Mr Hannon wishes to pursue proceedings on behalf of both Holdings and Afro Capital. The defendants against whom those proceedings would be brought are Mr Doyle, Mr Turner, Mr Derek Satterthwaite, Engineers and Africa. Each of the individuals was a director of Holdings during one or more relevant periods. Each was also a director of Afro Capital during one or more relevant periods. The role of Africa has already been mentioned. 29The defendants represented on the hearing of the s 237 application were Mr Doyle, Mr Turner and Africa. 30It is relevant to note that Mr Satterthwaite has recently died. I therefore approach the matter on the assumption that Mr Hannon wishes to see the several claims involving Mr Satterthwaite brought against his legal personal representative, to the extent that they are maintainable against the estate. 31The claims intended to be pursued on behalf of Holdings are: (a)claims by Holdings against Mr Doyle for: (i) breach of general law and statutory duties as a director of Holdings by participating in the decisions of Afro Capital and Holdings to make advances to him and Doyle Resources and carrying those decisions into effect; (ii) breach of general law and statutory duties as a director of Holdings in participating in the decisions of Afro Capital to alienate the IFM options to Netyan Finance and Kin Yip and as a knowing participant in same; and (iii) breaches of general law and statutory duties as a director of Holdings and as a knowing participant in procuring the diversion of the business and assets of Afro Capital to Africa; (b)claims by Holdings against Mr Turner for: (i) breach of general law and statutory duties as a director of Holdings in participating in the decisions of Afro Capital and Holdings to make advances to him and Elliott Rutledge and carrying those decisions into effect; (ii) breach of general law and statutory duties as a director of Holdings in participating in the decisions of Afro Capital to alienate the IFM options to Netyan Finance and Kin Yip and as a knowing participant in the same; and (iii) breaches of general law and statutory duties as a director of Holdings and as a knowing participant in procuring the diversion of the business and assets of Afro Capital to Africa; (c) a claim by Holdings against Mr Satterthwaite for breach of general law and statutory duties as a director of Holdings in participating in the decisions of Holdings to make certain advances to Mr Doyle, Mr Turner, Doyle Resources and Elliott Rutledge and carrying those decisions into effect; and (d) a claim by Holdings, as a member of Afro Capital, based on oppressive or other conduct within s 232 of the Corporations Act in the affairs of Afro Capital. 32The claims intended to be pursued on behalf of Afro Capital are: (a) claims by Afro Capital against Mr Doyle for: (i) breach of general law and statutory duties as a director of Afro Capital by participating in the decisions of Afro Capital to make advances to him and Doyle Resources and carrying those decisions into effect; (ii) breach of general law and statutory duties as a director of Afro Capital in participating in the decisions of Afro Capital to alienate the IFM options to Netyan Finance and Kin Yip and as a knowing participant in same; and (iii) breaches of general law and statutory duties as a director of Afro Capital and as a knowing participant in procuring the diversion of the business and assets of Afro Capital to Africa; (b) claims by Afro Capital against Mr Turner for: (i) breach of general law and statutory duties as a director of Afro Capital in participating in the decisions of Afro Capital to make advances to him and Elliott Rutledge and carrying those decisions into effect; (ii) breach of general law and statutory duties as a director of Afro Capital in participating in the decisions of Afro Capital to alienate the IFM options to Netyan Finance and Kin Yip and as a knowing participant in the same; and (iii) breaches of general law and statutory duties as a director of Afro Capital and as a knowing participant in procuring the diversion of the business and assets of Afro Capital to Africa; (c) claims by Afro Capital against Mr Satterthwaite for: (i) breach of general law and statutory duties as a director of Afro Capital in participating in the decisions of Holdings to make certain advances to Mr Doyle, Mr Turner, Doyle Resources and Elliott Rutledge and carrying those decisions into effect; and (ii) breaches of general law and statutory duties as a director of Afro Capital and as a knowing participant in procuring the diversion of the business and assets of Afro Capital to Africa; and (d) a claim by Afro Capital against Africa for knowing participation in the breaches of duty of Mr Doyle, Mr Turner and Mr Satterthwaite in procuring the diversion of the business and assets of Afro Capital to Africa. 33These summaries of the claims intended to be brought on behalf of Holdings and Afro Capital respectively are taken from counsel's closing submissions. I shall say something in due course about the relevance of the pleading in the points of claim. The loans 34The defendants do not, in any aspect of substance, deny the factual allegations about the loans to Mr Doyle, Mr Turner, Doyle Resources, Elliott Rutledge and Africa, although they allege additional facts that may point to a conclusion that interest was charged at a rate of 10% per annum at least for years after 2007 (as will be seen, it is accepted by the defendants that there is a serious question to be tried as to the interest free status of loans made before 28 February 2005). 35The defendants do, however, challenge the proposition that there is a serious question to be tried as to the lack of commercial benefit to Holdings and Afro Capital in connection with the making of the loans. They say that, to the extent that interest was charged, the rate at which it was charged (10% per annum) was higher than market rates at the relevant times and that there is no evidence to support any contention that the loan terms were more favourable to the borrowers than the terms that would have applied to arm's length transactions. Nor, it is said, is there evidence about the circumstances of the borrowers (Mr Doyle, Mr Turner, Doyle Resources, Elliott Rutledge and Africa) indicating any uncertainty about their ability to pay that might cause the loans to be irrecoverable. Furthermore, it is said that all the loans were repaid, so that no loss was suffered; also that there is no evidence that the obvious interests of the borrower-directors were not duly disclosed. 36There is, in my opinion, a live issue as to whether the Doyle Resources and Elliott Rutledge loans were in fact repaid. There is evidence that, on 30 April 2010, sums were received into Holdings' bank account which might be the equivalents of the respective loan amounts plus interest at the rate of 10% per annum. But it is not shown from where those sums came or what they represent: no evidence was given by any of the defendants on that or any other matter. 37As to the interest-free status of the pre-28 February 2005 loans, the defendants accept that those loans do not appear to have been interest bearing but point to a practice of advancing interest-free loans to directors. Reference is made to interest-free loans of $750,000 each to Mr Hannon and Mr Doyle in 2001 which, it is said, were still outstanding in 2008. Two points are then made: first, that interest foregone through the absence of interest on the pre-28 February 2005 loans was "a relatively modest sum" (said to be of the order of $30,000); and, second, that Mr Hannon does not appear to have repaid his 2001 loan (I did not understand Mr Hannon to dispute his liability in this respect). 38The defendants postulate returns that could have been achieved on the funds lent to the related parties had they been invested in bank deposits. The thesis is that those returns would have been less than those actually achieved on the funds on which interest at 10% per annum was charged. 39Having regard to the several matters thus raised by them, the defendants say that there is no serious question to be tried as to most aspects of the allegations associated with the related-party loans (the interest-free character of the pre-28 February 2005 loans is an exception to this) and that the possible quantification of any loss is so small that it is not in the companies' best interests to pursue the claims. 40I do not accept those propositions. Each contract under which a loan was made to a director or director-related entity was arguably made in disregard of the fundamental principle state by Lord Cranworth LC as long ago as 1854 in Aberdeen Railway Co v Blaikie (1854) 1 Macq HL 461: "A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect ... So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into." 41The question of fairness or unfairness - including as to the adequacy of consideration - will be relevant to another and broader species of breach of duty, that is, acting otherwise than in the interests of the company as a whole. But that aspect may be of subsidiary relevance in the case of a transaction with a director or a director related entity. 42A director may, of course, avoid breach of duty by obtaining the fully informed consent of the company to the transaction in the form of a resolution of the company in general meeting: see, for example, Winthrop Investments Pty Ltd v Winns Ltd (above) . Alternatively, dispensation from the rigours of equity is sometimes given by the company's constitution, for example, through a provision allowing a director to contract with the company subject to his or her giving appropriate notice to the other directors. Those are matters that would be pleaded in defence: Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 207D-F per Samuels JA. A point of potential relevance in the present circumstances is that disclosure or declaration of an interest by a director cannot be effective where the persons to whom it was made were his confederates in the activity generating the interest: Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18 at [39]. 43Because made with a director or director-related entity, e ach relevant loan contract was arguably voidable from inception regardless of how fair the terms may have been and how full the consideration may have been: George A Bond & Co Ltd v Bond (1929) 30 SR(NSW) 15. Quite separately, each loan contract was arguably voidable from inception because the advance of the funds on the terms on which they were lent was inconsistent with the interests of the company as a whole. 44Many of the loans were made in a context where a very significant asset of Afro Capital, in the form of the IFM shares and options, had been stultified in the hands of that company (and therefore indirectly in the hands of Holdings) because of the mortgage given to Engineers for the sole benefit of Mr Doyle and Mr Turner. There is clearly room for an argument that the making of the loans was part of a pattern of behaviour that involved putting company assets at the disposal of directors apparently without regard to the company's interests. 45It is largely beside the point, in my opinion, to say that interest was charged and that the interest return may have been less had the funds been put instead into bank deposits. The lender company was arguably in a position from the very outset to avoid the loan transactions, to recover its money and to deploy it in ways consistent with the course of its business - a course of business that was, in reality, apparently prejudicially curtailed because so much money was tied up in related party loans: see paragraph [22] above. 46The directors did not act to pursue any such course, assuming that it was available to them. They allowed the funds to be outlaid by way of loan to the directors and director-related entities and to remain with those borrowers who, one may confidently expect, themselves deployed them to advantage in money-making ventures of one kind or another - with the result that, if breach of duty is established, equity may well award a remedy by way of account of profits or equitable compensation assessed "on the basis of the value to the misappropriating fiduciary", to adopt words used by Thomas JA in Ferrari v Ferrari Investments (Townsville) Pty Ltd [1999] QCA 230; [2000] 2 Qd R 359 so that the borrower must cede to the lender of the full benefit derived from the loan transaction. 47I should add, in relation to the loans, that, given the parameters laid down by the points of claim, the defendants take issue with any attempt by Mr Hannon to rely on alleged contravention of statutory provisions in relation to the loans, specifically s 229 of the Corporations Act concerning financial benefits to related parties. It is sufficient to say, in relation to this, that, even if such a breach is not directly relied upon, it may well be an ingredient in a finding of breach of directors' duties. 48I consider the s 237(2)(c) and (d) criteria to be satisfied in relation to the claims Mr Hannon wishes to pursue on behalf of Holdings and Afro Capital regarding the loans to Mr Doyle, Mr Turner, Doyle Resources, Elliott Rutledge and Africa. There is a serious question to be tried in respect of all such claims. In reaching a positive conclusion with respect to the s 237(2)(d) criterion, I have had regard to the principles concerning "serious question to be tried" developed in the case law: see, for a recent summation, Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [140] - [159]. I note, in that connection, that the court is, generally speaking, not required to enter into the merits of the propsed derivative action to any great degree: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583: (2002) 42 ACSR 313. 49As to the s 237(2)(c) criterion and the "best interests" of Holdings and Afro Capital, I am of the opinion that the separate and independent welfare of each company will be most advantageously served by "putting it in the position to negotiate a favourable outcome for itself as a separate entity" (these are the words of Bergin CJ in Eq in Fitzpatrick v Cheal [2010] NSWSC 717 at [62]). The IFM options 50I turn now to the claims relating to what has been referred to as the alienation of the 15 million IFM options by Afro Capital to Netyan Finance and Kin Yip in 2005. The basic allegation of Mr Hannon is that the options were made available to or for the benefit of these director-related entities at an undervalue. 51It is fair to say that the evidence on this matter is somewhat confusing. The defendants, who could assist in dispelling the confusion (or some of it), have chosen not to do so. That is a course open to them. They prefer to rely heavily on the proposition that the evidence does not suggest that there is a serious question to be tried that 40 cents was below the market value of the options in mid-2005. 52The case Mr Hannon foreshadows is that Afro Capital realised the options some time between 28 February 2005 and 26 September 2005 in a way referred to in a note that the 2005 accounts the meaning of which is by no means clear: "Subsequent to year end, the company's 15 million options were effectively exercised by Netyan Finance Limited and Kin Yip International Limited as a pre-requisite to IFM listing on AIM, resulting in a surplus of $6 million, which was used to reduce debt." 53Mr Hannon postulates that the consideration received by Afro Capital for the disposal was either this "surplus" of $6 million or $4.8 million (the figure recorded for "Disposals" in the year in question). On the first basis, the consideration was 40 cents per option; on the second basis, 32 cents. Mr Hannon advances his application on the basis of 40 cents, being the alternative more favourable to the defendants. 54On the question of the true worth of the options, Mr Hannon relies on evidence of prices of IFM shares on the Alternate Investment Market of the London Stock Exchange on and after 30 September 2005 when trading in IFM shares commenced on that market. On the first day of trading, the shares changed hands at prices in the range (translated to Australian currency) of 82.67 cents to 83.83 cents. On 24 February 2006, the market price was the equivalent of 94 cents. Given that the exercise price of each option was 20 cents, the suggested inference is that Afro Capital sold for 40 cents the opportunity or ability to obtain, for an outlay of only 20 cents, a share worth between 82 cents and 94 cents. 55The defendants' response is that the only evidence about the value of the options in mid-2005 is an accounting firm's "indicative valuation" range, in December 2003, of 25 cents to 84 cents. The defendants further say that the market prices of IFM shares that emerged after listing in September 2005 cannot be regarded as indicative of the value of options in mid-2005. They point, in this connection, to the fact that, in February 2005, Afro Capital's directors recorded the shares at 20 cents per share and that, in August 2005, Mr Doyle sold 400,000 shares to Mr Hannon's company for 20 cents per share. 56Again, I do not think that the question of sale at an undervalue is by any means conclusive. Whether or not full value was given is not necessarily a matter relevant to the question whether the transaction involved breach of duty. I refer again to Lord Cranworth's observation quoted at paragraph [40] above and, in particular, the concluding words: "no question is allowed to be raised as to the fairness or unfairness of a contract so entered into". 57As with the loan transactions, the transaction involving disposal of the IFM options to companies owned by Mr Doyle and Mr Turner, if it entailed breach of duty, may well attract equitable remedies by way of account of profits or equitable compensation on the "value to the misappropriating fiduciary" basis. 58My conclusions in relation to the s 237(2)(c) and (d) criteria and the alienation of the IFM options are the same as those stated at paragraphs [48] and [49] above. Remuneration 59In the financial year ended 29 February 2008, Afro Capital paid "consulting fees" of $1,566,960 to Mr Doyle and $1,570,234 to Mr Turner. In the immediately preceding year, each was paid $133,000. 60During the year ended 29 February 2008, Afro Capital sold either the whole or a large part of its IFM shareholding. There were, in that year, total revenues of $12,743,000, of which $11,161,00 came from the sale of IFM shares. The balance consisted of interest ($1,458,000) and "service fees" ($124,000). The interest is shown as having been derived from "Parent entity" ($510,000), "Directors/shareholders related entities" ($639,000) and "Others" ($309,000). 61The statement of cash flows for the year distinguishes between cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. The first and third are negative, the second positive. The only positive components across the three categories are "Receipts from customers" ($124,000), "Interest received" ($309,000), "Proceeds from settlement of loans to related parties" ($6,748,000) and proceeds of sales, including sale of investments (IFM shares). 62It may therefore be inferred that, in the year in question, the only revenues and receipts, apart from those arising from the sale of assets (including, in particular, IFM shares) were the essentially passive items for loan repayments and interest on moneys lent, plus the very modest item of $124,000 designated "Receipts from customers". 63What can it have been, then, that warranted "consulting fees" of $1,566,960 for Mr Doyle and $1,570,234 for Mr Turner in the year in question - particularly when Mr Turner was no longer a director of Afro Capital and was the chief executive of IFM bound to devote to that company normal working hours and such additional time as was necessary? 64The lack of any answer to that question - and, in particular, the absence of any attempt by the defendants to provide an answer - prompts Mr Hannon's claim that the absence of any apparent quid pro quo or other commercial pretext for the payment of the very large consulting fees entailed breach of duty by the directors authorising the payments. 65"Consulting fees" are paid to consultants for the provision of consulting services. Assume a particular consultant charges consulting fees on a time basis at the rate of $1,000 per hour. A fee of $1,570,000 would be attracted by 1,570 hours of consulting services - or almost 45 full-time weeks, each of 35 hours. At an hourly rate of $500, something more than a year-and-a-half of full-time consulting work would be involved. 66It is the magnitude of the sum, coupled wit the lack of any evidence or submission by the defendants - apart from the observation that Mr Hannon has not led evidence of the remuneration packages of executives in like positions - that points to the fairly arguable possibility of misapplication of corporate funds by way of so-called "consulting fees" for which no or inadequate consideration was provided. 67There is an additional point in relation to Mr Doyle. He was, at the time, a director of Afro Capital. It is axiomatic, therefore, that he was entitled to only such remuneration, for his services as a director, as was provided for in the constitution or approved by the company in general meeting. Any contract for the provision of "consulting" services by him would have entailed services beyond those required or expected of a director. 68With the evidence as it is, there is, in the relevant sense, a serious question to be tried on the matter of the "consulting fees". In addition it is, in the relevant sense, in the best interests of Afro Capital that the claim for breach of duty should be brought against those directors on Afro Capital's behalf by Mr Hannon. Diversion of business and transfer of assets - general matters 69In asserting causes of action based on alleged breaches of duty in connection with diversion of business from and transfer of assets to Africa, Mr Hannon points, in the first instance, to documents which, he says, are calculated to make Africa take on the appearance of being Afro Capital. 70Attention may be directed first to the letterheads of the two companies. A letter dated 8 September 2005 from Afro Capital appears on notepaper carrying the company's name, a distinctive logo, the Australian business number (or "ABN"), office address, telephone number and facsimile number. The name, ABN, address and telephone and facsimile numbers appear in small print at the foot of the page. A letter dated 7 October 2009 from Africa is typed on paper in all respects identical, save that, in the small print section at the foot of the page, the first word of the company name ends with "ica" rather than "o", the abbreviation "Pty" is added in the name after "Capital" and a different Australian business number appears. Anyone looking at the two in the ordinary course would, in all probability, fail to notice these minor differences. The inference is irresistible that Africa deliberately adopted a letterhead deceptively similar to that which had been used by Afro Capital. 71Mr Hannon also refers to the content of Africa's website where the following appears: "Established in 2001, Africa Pacific Capital is registered through its company Afro Pacific Capital Ltd as an Australian Financial Services (AFS) dealer with the Australian Securities and Investments Commission (ASIC)" 72Several aspects of this statement make it false. Africa was not "established" in 2001. It did not exist until formed by Mr Doyle and Mr Turner in October 2005. Nor does Africa have any ownership or other rights in respect of Afro Capital that would, by any stretch of the imagination, cause Afro Capital to be "its company". The unmistakeable message is one that falsely links Africa and Afro Capital in a community of ownership and interest. 73Another part of the website includes profiles of Mr Doyle and Mr Turner. After referring to Mr Doyle's activities up to the 1990s, his profile continues: "Alan subsequently formed his own private investment bank, which was taken over by a South African bank and later sold back to management in 2001, at which time it was renamed Africa Pacific Capital." 74In the case of Mr Turner, the following appears: "He was a founding director of the Australian subsidiary of PSG Investment Group, then South Africa's sixth largest investment bank, later to become Africa Pacific Capital in a management buyout". 75In fact, the Australian subsidiary of the South African company and the object of a management buyout was Afro Capital, not Africa. Africa is thus portrayed in these extracts in a way that, as a matter of fact, is inapplicable to Africa and applicable to Afro Capital. 76The letterhead and website content points strongly towards deliberate steps to engender in the reader an impression that Africa is either identical with Afro Capital or controls that company for its own benefit. 77Mr Hannon next draws attention to Afro Capital's reported income from consulting and service fees (the years that follow are years to February): 2002: $454,000 2003: $1,055,000 2004: $605,000 2005: $1,259,000 2006: $387,000 2007: $197,000 2008: $124,000 2009: $16,000 78It is true, as counsel for the defendants pointed out, that there were noticeable fluctuations in periods before that in which Africa was formed (the year ended 28 February 2006). That, it is said, is to be expected in a business providing advisory services in relation to projects. It is nevertheless clear that there was a sudden and significant decline after the period in which Africa was formed and that the decline was on-going. 79In July 2006 - some nine months after its formation - Africa, through Mr Doyle, forwarded to its bankers "an updated Cash Flow for the APC business over the next six months". The cash flow statement referred to net receipts as follows: July 2006: $1,209 August 2006: $104,736 September 2006: $104,326 October 2006: $64,236 November 2006: $64,236 December 2006: $64,236 January 2007: $4,250,000 80The covering letter made particular reference to the large sum for January 2007. This was related to "the sale of 2 million (minimum) IFML shares at 85 pence in December". It was Afro Capital, not Africa, that owned the IFM shares. The cash flow statement itself referred to several other sources of revenue: Impact Mining, Metal Sands, IFM and Capital Axis, from which it may be inferred that Africa had advisory or other connections with the named entities of a kind that would generate revenues for it. In at least some of these cases, there had been a connection with Afro Capital. 81The matters referred to in paragraphs [68] to [80] may not, of themselves, be sufficient to make good Mr Hannon's allegations concerning diversion of business and transfer of assets to Africa. But they are of significance when considered in conjunction with specific cases to which I now turn. Diversion of business and transfer of assets - American Southwest 82The first specific case is that of American Southwest. According to a document lodged by that company with the United States Securities and Exchange Commission, it issued certain warrants to "Africa Pacific Capital Limited, formerly known as Doyle Capital Limited" some time before 30 September 2005 (and therefore before Africa came into existence) "for services rendered in connection with the acquisition by the Company [ie, American Southwest] of Metal Sands Limited, an Australian entity". 83Given the timing, the reference to the former name and the absence of "Pty", it seems that the reference here to Africa is, in reality, a reference to Afro Capital. In a similar document for the year ended 30 September 2006, American Southwest referred to expenses "in connection with services provided by Africa Pacific Capital Pty Ltd a company owned by the Company's President" (Mr Doyle) and to American Southwest's having "entered into a consulting agreement with APC providing for monthly fees of approximately $15,000". In that case, the inclusion of "Pty" in the company name makes it highly likely that the references are to Africa, not Afro Capital. These matters make clearly available an inference that Africa supplanted Afro Capital in an advisory relationship with American Southwest. 84The inference is strengthened by the fact that Africa was retained to advise Metal Sands PLC, an English company formed by American Southwest after its acquisition of the Australian company Metal Sands Limited on which Afro Capital had advised. 85Finally, in relation to American Southwest, Mr Hannon points to the fact that, in proceedings determined in 2008 and brought against Africa by Sodojo Consulting Pty Ltd, Africa was ordered to procure the transfer to Sudojo of certain shares in American Southwest held by Afro Capital: Sudojo Consulting Pty Ltd v Africa Pacific Capital Pty Ltd [2008] NSWSC 353. This was in circumstances where an agreement entered into by Africa and Sudojo had referred to "APC's American Southwest shares" - with "APC" referring to Africa, so that the clear message was that Africa owned shares in fact held by Afro Capital. It may be inferred that the American Southwest shares held by Afro Capital were seen by all relevant persons as owned by Africa, so that an order that Africa procure transfer by Afro Capital was, in reality, an order regarding property of Africa. Diversion of business and transfer of assets - Impact Mining 86The second specific case concerns Impact Mining. Before the formation of Africa, Afro Capital held 12 million shares in Impact Mining. On 8 September 2005 (a few weeks before the formation of Africa), Mr Doyle said of this investment in a letter to Afro Capital's bank (the "back burner" letter already noted): "Upside for this investment, if the results are positive, will be hundreds of millions of dollars, the downside is limited to others spending their money." 87On 28 October 2005 (the day after Africa's incorporation), Afro Capital sold the 12 million Impact Mining shares to Africa for a total consideration of one dollar. This is stated in a letter written on 20 March 2008 by Africa's solicitors in the Sudojo proceedings. This is consistent with evidence given by Mr Jowell, a Sudojo witness, concerning a conversation with Mr Doyle and Mr Turner in December 2005 (which evidence was accepted in those proceedings in preference to conflicting evidence of Mr Doyle and Mr Turner, each of whom was disbelieved): "Mr Doyle: APC [ie, Africa] is going to be our investment vehicle going forward. Mr Turner: Yes, we have taken advice that because Afro Pacific has the financial services licence we really shouldn't be holding investments in that company. Mr Jowell: What does that mean for investments subsidiaries like Impact and holdings like American Southwest? Mr Turner: Basically we will be moving everything across. Alan and I are the majority shareholders so unless it creates a tax problem, there really shouldn't be an issue. Mr Jowell: Except for that shares in ASW are restricted and may not be transferred for the time being. Mr Turner: Of course. We will probably bring them across in due course. And IFM is excluded as well." 88Before Africa was formed, GAR was in negotiation for investment in Impact Mining. GAR was to contribute $2 million for 50% of the shares in Impact Mining and the co-venturer was to contribute a nickel mining project known as a the Morokweng Project. There is reference in the evidence to heads of agreement in this respect dated 10 October 2005, before Africa came into existence. Africa became party to heads of agreement dated 1 February 2006 in this connection and, on 12 October 2006, Impact Mining issued 36 million new shares - 24 million to GAR and 12 million to Africa. The last-mentioned, together with the 12 million shares purchased by Africa from Afro Pacific for one dollar in October 2005, thus made up 50% of Impact Mining's issued share capital. That 50% interest was purchased by GAR from Africa in November 2007 in return for an issue of 17,509,413 shares in GAR the "implied diluted value" of which, according to an expert's report issued at the time, was $4,482,410. 89The shares sold by Afro Capital to Africa for one dollar in October 2005 - being the investment that Afro Capital told its bank a few weeks earlier had "upside" of "hundreds of millions of dollars" if results were positive - thus appears to have realised some $2.2 million for Africa two years later. 90Another aspect is also relevant. In September 2007, Impact Mining, by then the owner of the Morokweng project, transferred that asset to a new company (Morokweng Nickel Pty Ltd) which was owned 50% by GAR and 50% by Africa and whose entry into the context in which that transaction occurred had been through the October 2005 transfer of shares by Afro Capital. Diversion of business and transfer of assets - Kangaroo 91A new client, Kangaroo Resources Ltd, approached Africa in or about early October 2009. As part of the mandate, Africa was required to take a placement of 14 million Kangaroo shares at a cost of $1 million by 9 October 2009. The money for these shares was paid by Afro Capital. The possibility that Afro Capital might have advanced this sum to Africa is not borne out by the fact that, according to Afro Capital's accounts, the total amount receivable by Afro Capital from Africa seems to have reduced from $3.2 million to $2.9 million in the period 1 March 2009 to 28 February 2010. Diversion of business and transfer of assets - assessment 92A director who causes business opportunities of his or her company to be taken by another entity instead of the company commits a breach of fiduciary duty owed to the company and a breach of statutory duty. A director who causes his or her company's money or property to be used to pay the debts of another entity or otherwise for the benefit of an unrelated entity commits a breach of fiduciary duty owed to the company and a breach of statutory duty. 93In the present case, there is a serious question to be tried in relation to all the allegations advanced by Mr Hannon under the heading of diversion of business and transfer of assets. The evidence shows, to the relevant level, that Mr Doyle, Mr Turner or both of them together, arguably acted in each case to benefit Africa, at the expense of Afro Capital (and its holding company, Holdings), by misapplication of assets or opportunities in relation to which there was a legitimate expectation that the benefit should be secured to Afro Capital (and, through it, Holdings). The principles summarised in Vinciguerra v MG Corrosion Consultants Pty Ltd (above) indicate that the s 237(2)(d) are satisfied. 94As to s 237(2)(c), the situation is again one where the separate independent welfare of each prospective plaintiff company will be most advantageously served by "putting it in the position to negotiate a favourable outcome for itself as a separate entity": Fitzpatrick v Cheal (above). 95The s 237(2)(c) and (d) criteria are thus satisfied in relation to: (a) the use of Afro Capital's reputation and client connections to promote Africa; (b) the acquisition by Africa of shares in American Southwest to which Afro Capital was entitled; (c) the diversion to Africa of the opportunity to follow through with and take advantage of the connection with the transaction that was initially the subject of the 10 October 2005 heads of agreement; (d) the transfer of Afro Capital's Impact Mining shares to Africa; (e) the diversion to Africa of the opportunity to acquire a shareholding in Morokweng Nickel Pty Ltd; (f) the use of shares in American Southwest owned by Afro Capital to satisfy an obligation owed by Africa; and (g) the use of Afro Capital's money to take up an issue of shares in Kangaroo Resources made to Africa. Knowing participation by Africa 96Mr Doyle and Mr Turner were the only directors of Africa from incorporation on 27 October 2005 to 15 December 2005, at which point Mr Satterthwaite replaced Mr Doyle. Mr Giesse joined the board on 1 May 2006. Mr Doyle re-joined on 7 September 2006 (although there were findings in the Sudojo proceedings, under a heading "The prohibition order and subsequent defiance of it", that Mr Doyle had acted as chairman of board meetings and in other ways acted as a director during the period when he was supposedly not a director). Mr Doyle was, at all material times, the chairman of the board (with the possible exception of the period during which he was, on the face of the record, not a director). 97From 27 October 2005 to 15 December 2005, Mr Doyle, Mr Turner and Mr Satterthwaite were directors of Afro Capital. From 15 December 2005, Mr Kernaghan replaced Mr Doyle. Mr Giese joined the board on 28 April 2006. Mr Doyle re-joined on 7 September 2006. Mr Doyle was the managing director up to December 2005 and then again from September 2006. 98It is submitted on behalf of Mr Hannon that Mr Doyle should be regarded as having been the directing mind and will of both companies at all material times and that his knowledge of relevant matter may thus be imputed to Africa. That being so, it is said, Africa must be regarded as having been in knowing receipt of the benefit of the various alleged breaches of duty by directors of Holdings and Afro Capital; in addition to which Africa must, for the purposes of the Corporations Act , be regarded as "involved" in the breaches of statutory duty. 99There is a serious question to be tried on these matters. In addition, it is in the best interests of Holdings and Afro Capital that Mr Hannon bring the derivative proceedings based on general law complicity and statutory "involvement" on the part of Africa. Holdings' oppression claim 100The s 232 claim that Mr Hannon wishes to bring on Holdings' behalf in relation to the affairs of Afro Capital pays attention to all the matters concerning Afro Capital to which reference has already been made, plus the circumstance that Afro Capital has never paid a dividend even though there were - particularly in the year to 28 February 2006 and the year to 28 February 2008 - profits out of which a dividend might properly and prudently have been paid. 101Absence of dividends will, of itself, generally not amount to conduct within s 232, even where there are available profits. But the evidence of lack of dividends despite available profits is, in this case, supplemented by evidence in relation to the year to 28 February 2006 suggesting that there was no cash (and no realistic ability to raise cash) out of which any meaningful dividend could have been satisfied; and that this was because of the substantial loans to directors and director-related entities and the stultification of Afro Capital's IFM shareholding through the mortgage of its main asset for the benefit of directors. 102In the case of the year to 28 February 2008, Afro Capital recorded a profit before tax of $2.085,000 and had substantial cash, even after the payment of the substantial "consulting fees" to Mr Doyle and Mr Turner. 103The oppression claim must be assessed in the light of the whole of the circumstances. Individual acts and transactions may be relied upon; but a much more powerful case may often be made by reference to the cumulative effects of a course of conduct and a series of acts, events and transactions. In the present case, non-payment of dividends (and, in 2006, the unavailability of cash for dividend purposes, despite the availability of profits) may properly be made part of the matrix relied upon by Holdings in asserting a s 232 claim in relation to Afro Capital. 104In many cases, the essence of the s 232 criteria, as they relate to directors' decisions, is that the decisions were "such that no board acting reasonably could have made them" ( Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 at 468 per Mason ACJ, Wilson J, Deane J and Dawson J). The matters relied upon by Mr Hannon in relation to the specific allegations of breach of duty in relation to Afro Capital, coupled with the dividend matter, are such as to give rise to a serious question to be tried on the s 232 claim Mr Hannon wishes to bring on behalf of Holdings in relation to the affairs of Afro Capital. Furthermore, it is in the best interests of Holdings that Mr Hannon be allowed to bring the s 232 claim for Holdings. These conclusions apply also to the winding up application that Mr Hannon wishes to see Holdings bring in respect of Afro Capital. Section 237(2)(b) - good faith 105It is necessary now to consider whether, in relation to the whole of the claims he wishes to bring on behalf of Holdings and Afro Capital, Mr Hannon is acting in good faith. 106The s 237(2)(b) criterion involves inquiry into two related matters: first, whether Mr Hannon honestly believes that a good cause of action exists with reasonable prospects of success; and, second, whether he is seeking to act for a collateral purpose that would amount to an abuse of process: Swansson v R A Pratt Properties Pty Ltd (above) at [36]. 107As to the first aspect, it is not necessary that the applicant for leave under s 237 actually say, as part of a sworn statement, that he or she believes in the existence of a good cause of action with reasonable prospects of success. Inferences can be drawn from the nature and circumstances of the case sought to be brought and the diligence with which the applicant assets it: see generally, Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [28]ff. 108In the present case, as it affects both Holdings and Afro Capital, the several findings of serious question to be tried have been readily made and the conclusions about the best interests of the company have been readily reached. That, coupled with the quantity of evidence Mr Hannon has assembled and the effort to which he has gone in pursuing the s 237 application, sufficiently demonstrates, to my mind, his honest belief in the existence of good causes of action with reasonable prospects of success. 109As to the second aspect, there is nothing to suggest any interest or purpose of Mr Hannon other than the obtaining of appropriate redress for Holdings and Afro Capital. He is a 16% shareholder in Holdings which, in turn, owns 88% of the shares in Afro Capital. There is no reason to think that Mr Hannon has in view anything beyond the interests of those two companies and, of course, his own coinciding interest as a member of Holdings. 110The conclusion that Mr Hannon is acting in good faith is strengthened by the fact that he positively seeks an order imposing on him liability, in the first instance, to protect Holdings and Afro Capital in respect of the costs of the derivative proceedings. He invites the court to make, in addition to order 1 granting leave under s 237, the following order: "Order 1 is subject to the condition that, before such proceedings are brought, the plaintiff [Mr Hannon] must indemnify the fourth and seventh defendants [Holdings and Afro Capital] for and in respect of all reasonable costs that those defendants may incur (either on their own account or under an order of the court) by reason of the bringing, maintenance and conduct of the derivative proceedings, provided however that the indemnity is not require to extend to costs that the seventh defendant [Afro Capital] may incur in the proceedings as a defendant in respect of any any personal claim made by the plaintiff; and insofar as the court may in future otherwise direct or allow." 111I accept that Mr Hannon's request and willingness to be subjected to this order serves to confirm and strengthen the independently reached conclusion that he is acting in good faith. Conclusion on the leave application 112The s 237(2)(c) and (d) criteria are satisfied in relation to the several heads of claim in the ways already stated. That, coupled with my positive finding on the question of good faith (s 237(3)(b)) and the fact that the defendants concede that the s 237(2)(a) and (e) criteria are satisfied, means that the court must grant Mr Hannon's application for leave to bring proceedings on behalf of both Holdings and Afro Capital. 113It is not, in my opinion, appropriate to frame the grant of leave by reference to the precise claims in the existing points of claim. The points of claim are, I think, deficient in several ways. They need to be framed more precisely and with greater particularity, especially as to the relief sought, given the possibility, to which I have referred, that an account of profits or equitable compensation "on the basis of the value to the misappropriating fiduciary" might conceivably be awarded. 114The appropriate course is for the order granting leave under s 237 to contain a succinct general description of the claims to be brought, without the need for elaborate pleading. That is the course that was adopted by Austin J in Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 at [43] - [44]: "Section 237 authorises the court to grant leave to permit a person to bring proceedings on behalf of a company. Part 2F.1A does not explain the word 'proceedings' or give any direct indication of the level of specificity of pleaded allegations and prayers for relief that the applicant for leave must achieve. Typically the applicant will provide the court with a draft statement of claim or (as here) points of claim, or some other document giving particulars of the derivative claims. But in my view it cannot be the case that a full statement of the derivative claims must be presented before the court can consider and determine a leave application. Were that to be required, any subsequent amendments to the pleaded case would need to be treated as a leave application under s 237 to which the criteria in s 237(2) would have to be applied. That, in my view, would be an unnecessary burden for case management. In my opinion the applicant for leave must identify and describe the proposed proceedings with sufficient precision that the court can properly assess the application having regard to the criteria that it is required to consider under s 237(2), and the opponents can respond to the application in terms of those criteria. That may be achieved by presenting the court with a draft pleading, but it may be achieved in other ways such as by outlining the claims in affidavit evidence. It is not hard to envisage an application that falls so far short of identifying the derivative causes of action to be asserted that the court is left unable to assess, for example, whether it is in the best interests of the company that the applicant be granted leave, and whether there is a serious question to be tried. Here, however, Mrs Ehsman has done enough in her draft points of claim (defective though they are) and in the voluminous evidence that has been adduced, to permit me to identify the causes of action broadly described in paragraphs (A)-(F) above, of which paras (C) and (D) are derivative claims. I am able to consider the application for leave under s 237 as an application for leave to bring proceedings on behalf of Timentel by a statement of claim that would assert the causes of action identified in paras (C) and (D) and seek appropriate equitable and statutory relief." 115Those observations are applicable to this case. The points of claim, as supplemented by the written and oral submissions, leave no real doubt as to the essential features of the claims Mr Hannon wishes to advance on behalf of the two companies. Subject to the possibility that I may have overlooked something, I think their substance is, in any event, reflected in these reasons. The defendants appeared to have no difficulty in coming to grips with the substance of the claims in defending Mr Hannon's application. 116The grant of leave under s 237 will be in terms sufficient to allow all the foreshadowed claims to be brought without undue restrictions of a pleading kind. Pleading and the need to keep within a pleaded case are matters that should be addressed, if at all, only after the s 237 leave is exercised. 117I will direct that the parties to bring in short minutes of appropriate orders granting leave under s 237. 118At this stage the leave will not extend to any claim directly arising from the mortgage transaction outlined at paragraph [17] above. That aspect was excluded upon the hearing of the application only because it was something of which the defendants had not had fair notice. As a result, they could not be expected to deal with it. It may be, however, that Mr Hannon will now wish to make some new application in that respect: see transcript, page 7 lines 1 to 4. 119As Austin J observed in Nutectime International Pty Ltd (above), it is undesirable that s 237 leave be granted in such particular and restricted terms that refinement of pleadings within broadly drawn parameters cannot be undertaken without further leave under the section. For practical reasons in this particular case, it has been appropriate to take that generally undesirable course in relation to the particular matter of the mortgage. The costs of the derivative action 120I have set out at paragraph [110] above an order that Mr Hannon asks the court to make in respect of the costs of the derivative proceedings. It is appropriate that that order be made. It is consistent with the approach taken by the Full Court of the Supreme Court of South Australia in F W V Stanke Holdings Pty Ltd v O'Meara [2007] SASC 413. 121Such a regime provides a measure of protection for Holdings and Afro Capital against the possibility that, despite the conclusion favourable to Mr Hannon on the s 237 application, the derivative proceedings he brings may not succeed and thus be seen to have been the occasion of unwarranted cost for those companies. It also means that Mr Hannon may be relieved in whole or in part from his obligation to protect the companies for costs if, by his efforts, they are successful in making recoveries. The costs of the leave application. 122The defendants must pay Mr Hannon's costs of the s 237 application. An order to that effect should be included in the short minutes. ********** 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: 04 February 2011