Case: Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313
Outcome: cited
The applicants bear the onus of satisfying the Court, on the balance of probabilities, that the criteria identified in s 237(2) have been met: Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313 at [24]-[26] per Palmer J; Fiduciary v Morningstar 53 ACSR at [15] per Austin J; Re Varsity Queensland Pty Ltd [2006] QSC 356 at [9] per Mullins J. 64 In relation to the second criterion that the applicants are acting in good faith it is established that there are at least two interrelated factors to which the court will have regard, namely: &#8226; whether the applicants have an honest belief of a good cause of action with reasonable prospects of success; and &#8226; whether the applicants have a collateral purpose that would amount to an abuse of process. See Swansson 42 ACSR at [36] per Palmer J; Goozee 42 ACSR at [56] per Barrett J; Herbert [2002] QSC at [27] per Mackenzie J; Fiduciary v Morningstar 53 ACSR at [21] per Austin J; Maher v Honeysett [2005] NSWSC 859 at [28] per Brereton J. 67 I accept that more than "bald assertion" is required in order to establish an applicant's honest belief: Swansson 42 ACSR at [36] per Palmer J; Fiduciary Ltd 53 ACSR at [22] per Austin J. In fact, in the present case no applicant has deposed that he or she honestly believes that a good cause of action exists and has a reasonable prospect of success. The applicants' solicitor, Mr Maitland, has not sought to give hearsay evidence as to the existence of such an honest belief. 68 Whether or not good faith may be "relatively easy" to demonstrate (see Swansson 42 ACSR at [38]), there must be some positive evidence before the Court to show the applicants are acting in good faith. The fact that 31 shareholders seek to recover monetary compensation is not enough for the burden to be satisfied as to the good faith requirement of s 237. I do not think it is a sufficient answer for the applicants to say that there has not been any suggestion that any of them is acting otherwise than in good faith. The onus is upon the applicants to satisfy the Court that the applicants are acting in good faith. 69 However, in my view the onus has been discharged. It is not a requirement that the applicants depose to their belief; all that is required is that the Court be satisfied that the applicants are acting in good faith. The fact that the applicants are willing, as a condition of leave, to indemnify the Company for costs and any adverse costs order, that there is no suggestion of any collateral purpose, that the 31 applicants properly identified as shareholders constitute more than a token shareholding, and in any event if they are successful that the value of the shares of each such applicant (and other shareholders) will increase, is sufficient to demonstrate good faith. I do not rely on the mere existence of the expert reports sought to be adduced into evidence relating to undervalue for the purposes of my conclusion on this aspect. 70 In relation to the third criterion that it is in the best interests of the Company that the applicants be granted leave the applicants submitted that if the action is successful some potential benefit can be foreseen for the Company. In particular, the applicants submitted that the respondents will be able to meet any judgment ordered against them, and as such, there will be a practical benefit to the Company from the proceeding. 71 However, the respondents submitted that more needs to be shown. In Swansson 42 ACSR at [55]-[56], Palmer J said: At the outset, it is important to note that s 237(2)(c) requires the Court to be satisfied, not that the proposed derivative action may be , appears to be , or is likely to be , in the best interests of the company but, rather, that it is in its best interests. In this respect, s 237(2) differs significantly from its counterpart in the Canadian legislation, which requires the Court to be satisfied that the proposed derivative action "appears to be" in the interests of the company, and from s 165(3) of the New Zealand Act which requires that the Court "have regard to ... the interests of the company". These provisions seem to have led the Courts of those countries to the view that the best interests of a company need be considered only in a prima facie way: see eg Re Bellman and Western Approaches Ltd (1981) 130 DLR (3d) 193, at 201; Vrij v Boyle (1995) 3 NZLR 763, at 765; Techflow (NZ) Ltd v Techflow Pty Ltd (1996) 7 NZCLC 261,138. The requirement of s 237(2)(c) that the applicant satisfy the Court that the proposed action is in the best interests of the company is a far higher threshold for an applicant to cross. It requires the applicant to establish, on the balance of probabilities, a fact which can only be determined by taking into account all of the relevant circumstances. 78 This requirement may be equated with that which applies on an application for an interlocutory injunction: Swansson 42 ACSR at [25] per Palmer J; Goozee 42 ACSR at [32]-[32] per Barrett J; Ehsman v Nutectime International Pty Ltd (2006) 58 ACSR 705 at [59] per Austin J.