Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd

JACKSON J: 1 These reasons concern a set of disputes about the affairs of the first defendant, 52 Lord Street East Perth Pty Ltd. That company is the registered proprietor of a property at the said address which had been earmarked for redevelopment (Property). There are two shareholders in 52 Lord St. One is the second defendant, Pindan Capital East Perth Pty Ltd (PCEP). It holds 70% of 52 Lord St's issued share capital, although it is common ground that those shares are not fully paid up. The remaining 30% (fully paid up) is held by the plaintiff, Ao Qing Investment Pty Ltd. 2 PCEP is a wholly owned subsidiary of the third defendant, Pindan Capital Pty Ltd. Pindan Capital is in creditors' voluntary liquidation, but PCEP is not. Each of 52 Lord St, PCEP and Pindan Capital are separately represented in this proceeding. 52 Lord St has filed a submitting appearance, and Pindan Capital relies on the stay of proceedings against it that applies by force of s 500(2) of the Corporations Act 2001 (Cth). Ao Qing has not applied for leave to proceed against Pindan Capital. So the active antagonists in the litigation are Ao Qing and PCEP. 3 This judgment concerns interlocutory applications, one by Ao Qing and one by PCEP, each for leave under s 237 of the Corporations Act to bring proceedings in the name of 52 Lord St. In order to understand the applications, it is necessary to set out the relevant events, or alleged events, in overview. This is a description of the background to the matter as presented in the parties' evidence filed to date and does not contain any firm finding on any issue.

Background 4 Around 24 October 2014, 52 Lord St, Ao Qing, PCEP and Pindan Capital executed a Shareholders' Agreement in respect of 52 Lord St. At the same time, Ao Qing subscribed for 5,100,000 fully paid shares in 52 Lord St at an issue price of $1.00 each. That was the total allotment to Ao Qing that was contemplated by the Shareholders' Agreement. The agreement contemplated that a total of 11,900,000 shares would be issued to PCEP, leaving PCEP and Ao Qing with a 70% / 30% split: see Shareholders' Agreement cl 4.1. 5 The Shareholders' Agreement provided for there to be two directors of 52 Lord St appointed by PCEP and one by Ao Qing: cl 5.2(a). Each of the shareholders could subsequently appoint different persons to be their nominee directors by written notice to 52 Lord St: cl 5.2(b). The initial directors were Qing Xia, appointed by Ao Qing, and David Pringle appointed by PCEP: cl 5.2(c). The evidence is not entirely clear as to Mr Pringle's role, but he appears to have been a senior manager in and part owner of the Pindan group of companies. 6 On about 4 November 2014, 52 Lord St completed its purchase of the Property for $11,600,000. According to an affidavit affirmed by the current sole director of Ao Qing, Mengdie Kuang (Ms Xia's daughter), the purchase was funded by money deposited into 52 Lord St's bank account by each of Ao Qing and PCEP, without 52 Lord St having to obtain any debt finance. 7 According to Ms Kuang, 52 Lord St's bank statements record $9,150,000 in 'contributions for equity', presumably meaning contributions from PCEP. ASIC's records, however, say that PCEP's shares are partly paid to $9,635,000. It appears from an annexure to an affidavit sworn by PCEP's solicitor, Ian Taylor, on 22 June 2022 that PCEP accepts that latter figure, which would mean that $2,265,000 remains unpaid on the 11,900,000 shares in 52 Lord St that have been issued to PCEP. So it is common ground that PCEP's shares in 52 Lord St are only partly paid, although it is unclear whether the parties agree as to the amount. 8 Attempts were made to start a project to develop the Property but apartment pre-sales did not go well, and 52 Lord St was unable to obtain construction finance. In July 2015 it was agreed that the project pre-sales would be suspended for two years in order to watch the market. The affidavit evidence of Anthony Gerber, who was a director of PCEP at the time of the affidavit, is to the effect that at the meeting where this was agreed, it was also agreed that 'Pindan' would be repaid 'the funds it has contributed to the project to date from the proceeds of the finance'. Ao Qing would leave its equity in, and 'finance would be pursued on this basis'. 9 It appears that the Pindan group needed cash for other purposes. However whether that is so, and what the money was needed for and was used for, may be in issue in the proceeding. While it is not entirely clear what Mr Gerber's reference to 'finance' means, it appears that PCEP's version of events as presented in his evidence is that the proposal at this stage was for PCEP to withdraw equity it had contributed, with that to be funded by a loan to be taken out by 52 Lord St. PCEP places some emphasis on events which in broad terms show, according to PCEP, that Ms Xia rejected several earlier approaches from Mr Pringle for her to agree to this proposal. On 27 August 2015 Ms Xia sent Pindan an email (through her daughter Ms Kuang) which has been translated as including the sentence, 'For what you suggested in your reply as the repayments to Pindan for the loan provided to the project, it was simply nonsense'. 10 In September 2015, however, Ms Xia, in her capacity as a director of 52 Lord St, signed a loan agreement for 52 Lord St to borrow up to $7,000,000 from Commonwealth Bank of Australia trading as Bankwest (Bankwest Facility). The Bankwest Facility was secured by a mortgage over the Property and by a General Security Interest over the assets and undertaking of 52 Lord St. Ms Xia appears to have agreed to sign the loan agreement either at or after a meeting in China with Mr Pringle and others that took place on 23 September 2015. It is common ground between PCEP and Ao Qing that this meeting occurred. According to Ms Xia, Mr Pringle persuaded her to sign it at this meeting. 11 According to Ms Kuang, by 19 October 2015, $5,000,000 had been drawn down on the Bankwest Facility and paid to a company called Pindan Nominees Pty Ltd. Mr Pringle was a director of that company and appears to have had a 45% interest in it via his family trust. One George Allingame was the other director and owner of Pindan Nominees through his family trust. According to PCEP, Pindan Nominees on-lent the money to Pindan Pty Ltd. 12 52 Lord St advanced the $5,000,000 to Pindan Nominees pursuant to a written loan agreement which provided for Pindan Nominees to pay an interest rate and fees that were the same as the rate and fees under the Bankwest Facility (First Loan Agreement). Ms Xia also signed this agreement at the meeting in China on 23 September 2015. On the face of this arrangement, if Pindan Nominees honoured it, 52 Lord St would neither receive any benefit nor incur any loss by reason of having taken the Bankwest Facility. 13 The advance to Pindan Nominees was unsecured. The loan agreement said David Pringle and George Allingame would give personal guarantees of that company's indebtedness under the loan agreement, but it is not apparent whether they did so at that stage. According to the loan agreement, it was contemplated that the $2,000,000 balance that remained available under the Bankwest Facility could be drawn down, if necessary, to pay costs of the 52 Lord St project. It seems that this $2,000,000 was never drawn down. 14 The Bankwest Facility had a term of 24 months. It was renewed for a further two years on 16 October 2017. It is common ground that Ms Xia did not know about that renewal before the renewal documentation was signed. It has been renewed several times since then and it does not appear that any issue about Ao Qing's knowledge of those subsequent renewals arises on the present application. As at the time of the hearing of the applications the Bankwest Facility was due to expire on 30 June 2022, although evidence filed after the hearing suggests that an extension has since been obtained. 15 In about May 2018, an updated loan agreement was signed between 52 Lord St and Pindan Nominees, as well as Pindan Pty Ltd, Mr Pringle and Mr Allingame (Second Loan Agreement). Under this agreement, each of Pindan Pty Ltd, Mr Pringle and Mr Allingame provided guarantees and indemnities in respect of Pindan Nominees' obligations to repay the loan to 52 Lord St. 16 In August or September 2019, Ms Kuang became the director of 52 Lord St appointed on behalf of Ao Qing, and Scott Davison became the director appointed on behalf of PCEP in place of Mr Pringle. 17 Also in August 2019, Ms Kuang alleges, she learned that Pindan Nominees had not been paying interest on its loan from 52 Lord St, effectively meaning that funds of 52 Lord St had been used to pay interest due under the Bankwest Facility. According to Ms Kuang, from about January 2019 'Pindan Group' had stopped making interest payments to 52 Lord St. It appears she claims that, at the direction of someone from the Pindan group, the interest payments were instead met out of rental payments from the tenants of the Property, leaving 52 Lord St out of pocket. 18 On 14 November 2019, 52 Lord St commenced proceedings in the Supreme Court of Western Australia against Pindan Pty Ltd, Pindan Nominees, Mr Pringle and Mr Allingame for breach of the Second Loan Agreement with 52 Lord St. About the same time, Pindan Pty Ltd entered voluntary administration. On 3 or 4 December 2019, Pindan Pty Ltd went into liquidation. 19 On 8 January 2020, 52 Lord St obtained default judgment against defendants in the Supreme Court proceeding. However according to Ms Kuang, 52 Lord St has not recovered any money from any of them. 20 On 6 July 2020, Ao Qing's solicitors sent a detailed letter of demand to PCEP and to Mr Davison as director of 52 Lord St and as director of Pindan Capital. The letter made allegations that misrepresentations to Ms Xia caused loss to 52 Lord St in connection with the loan to Pindan Nominees. The letter also complained of the shortfall in PCEP's share capital. It called for a meeting of the board of 52 Lord St to consider a resolution to instruct lawyers to investigate and advise 52 Lord St with respect to the complaints raised in the letter with a view to taking legal action against parties that would potentially include Pindan Capital and PCEP, as well as a capital call against PCEP. 21 On 4 August 2020 the then directors of 52 Lord St, Ms Kuang and PCEP's nominee Mr Davison met. Ao Qing wanted to propose board resolutions foreshadowed in the letter of 6 July 2020 to investigate legal action against PCEP and potentially other members of the Pindan group, and to make a call on PCEP for the unpaid share capital. PCEP wanted to propose board resolutions to investigate claims against Mr Pringle and Ms Xia as former directors of 52 Lord St and other associated action. Ms Kuang and Mr Davison could not even agree on who should chair the meeting, and it ended without any consideration of the resolutions. 22 On 4 August 2020, Pindan Nominees went into liquidation. 23 Ao Qing commenced this proceeding on 26 October 2020. 24 On 15 December 2020 both Mr Pringle and Mr Allingame became bankrupts. 25 On 30 March 2021 PCEP filed its interlocutory application seeking leave to commence proceedings in the name of 52 Lord St. According to Mr Gerber's evidence as at that date, 52 Lord St had been marketing the Property for sale and had accepted a conditional offer for the purchase of the Property. In a further affidavit sworn 14 May 2021, Mr Gerber said that the sale was yet to be formally documented. 26 On 18 May 2021, the third defendant, Pindan Capital, went into liquidation. 27 It appears that by 4 November 2021, the sole director of PCEP was one Michael Yang. It is not clear when or why Mr Gerber ceased to be the sole director. On that date, the solicitors for PCEP sent to Ao Qing's solicitors a notice of appointment of Mr Yang as a nominee director for PCEP on the board of 52 Lord St. It appears that at that stage Mr Davison continued as PCEP's other nominee director. There is, however, some dispute between the parties dating from around this point of time about the validity of this and other appointments of nominee directors by PCEP. 28 There were mediation conferences convened by a registrar of this Court on 28 October 2021 and 16 February 2022. The mediation mostly explains what was a considerable hiatus between the filing of PCEP's interlocutory application and the hearing of it and of Ao Qing's similar application (made in its originating process). The mediation has not resulted in any resolution of the parties' disputes. 29 On 12 February 2021 an email was sent from Mr Yang to Ms Kuang apparently advising that PCEP had given a notice of removal of Mr Davison as nominee director and appointment of Jingxiao Li in his place. This notice is not in evidence. 30 However, there is also evidence that on 25 May 2022 Mr Yang wrote an email saying that he wanted to step down as a director of 52 Lord St and proposed the appointment of Mrs Li as his replacement. It is not clear exactly when or how this happened, but it appears to be PCEP's position that Mrs Li has been a director of 52 Lord St since 6 June 2022. 31 The Property had two tenants up until at least early 2021, but one of those tenants has since vacated. According to Ms Kuang, the Property remains unsold. It is unclear what happened to the conditional sale that Mr Gerber referred to in his affidavits. 32 As at the date of the hearing, Bankwest had put 52 Lord St on notice that it did not intend to provide a further extension of the Bankwest Facility should the Property not have been sold by 30 June 2022. What Bankwest apparently required was an unconditional agreement for sale by that date or a reduction in the debt. According to Ms Kuang's affidavit of 22 June 2022, the company's two bank accounts could not be accessed because Mr Yang was a signatory to one and was not responding to Ms Kuang's telephone calls, and both Mr Yang and Mrs Li were signatories to the other but the bank had placed a hold on the account as Mr Yang was no longer a director and Mrs Li had not provided verification of her identity to the bank. It appeared that Ms Kuang was in discussions with Bankwest about 52 Lord St repaying up to $2.5 million to secure a short term extension of the facility. But because of the lack of communication from Mr Yang or Mrs Li, Ms Kuang had been unable to take any action upon that (according to her). 33 Counsel for the parties indicated at the hearing that they had instructions that a transfer of $1,000,000 could be arranged to remove the immediate obstacle to any further extension of the term of the Bankwest Facility, as it appeared the bank would accept that amount and the further $1.5 million repayment within three months. Affidavit evidence filed subsequent to the hearing of the applications confirmed that this was in train. 34 On 22 June 2022, PCEP appointed one Youwei Zhang as director of 52 Lord St. That is, at least, the case according to affidavits filed on behalf of PCEP and affirmed by Mr Zhang and PCEP's solicitor, Ian Taylor. So, at least on PCEP's version of events, the current directors are its nominees, Mrs Li and Mr Zhang (Mr Zhang is Mrs Li's son), and Ao Qing's nominee, Ms Kuang.

The applications for leave to bring derivative proceedings and the proposed claims 35 Against that background it is now possible to describe the proceeding and the present applications. Ao Qing commenced the proceeding as plaintiff. As has been said, the defendants are 52 Lord St, PCEP and Pindan Capital, with only PCEP taking active part. The relief that Ao Qing seeks in the originating process includes an order pursuant to s 237 of the Corporations Act that Ao Qing may bring proceedings on behalf of 52 Lord St against PCEP and Pindan Capital in respect of causes of action described in a draft statement of claim which Ao Qing has provided. I will describe those causes of action soon. 36 In addition to that order, Ao Qing seeks a number of other orders in its originating process. In summary these are: (a) a declaration under s 232 of the Corporations Act as to oppression, that is, a declaration that the affairs of 52 Lord St are being conducted in a manner contrary to the interests of the members as a whole or in a manner that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against Ao Qing; (b) remedies in respect of the difference between the face issue value of the shares issued to PCEP and the amount of capital PCEP has actually contributed by way of equity, including an order for specific performance of the term of the Shareholders' Agreement requiring a total contribution of $11,900,000, alternatively a selective reduction of capital to bring the number of shares down to the number of dollars PCEP has actually contributed, alternatively that selective reduction coupled with an order that PCEP sell its shares to Ao Qing; (c) a declaration that PCEP has breached the Shareholders' Agreement by causing 52 Lord St to renew the Bankwest Facility without a unanimous board resolution; (d) an order that PCEP and Pindan Capital repay the Bankwest Facility; (e) damages (on various bases); and (f) other ancillary orders. 37 PCEP, by way of interlocutory application, also seeks an order under s 237, giving it leave to commence proceedings in the name of 52 Lord St against the former director of 52 Lord St, Ms Xia, for alleged breaches of her directors' duties to 52 Lord St. PCEP has, without that leave, filed a cross-claim in 52 Lord St's name, apparently to guard against limitation period problems. That cross-claim seeks compensation under s 1317H of the Corporations Act, alternatively common law damages and, it seems, equitable compensation. PCEP has also proffered a draft statement of claim setting out its proposed causes of action. 38 It is only necessary to describe selected aspects of each of the proposed pleadings. The statement of claim proposed by Ao Qing raises PCEP's alleged breach of the Shareholders Agreement by failing to provide the full amount of equity capital required and also pleads that unpaid share capital could be called for under 52 Lord St's constitution. 39 Ao Qing also alleges in the draft statement of claim that Mr Pringle and other persons as agents for 'Pindan Entities' including PCEP, made representations that included that the Pindan group had a short term cash flow shortage and needed loan monies, that the moneys were only needed for a short period, and that they would be paid back because the Pindan group was financially sound. The representations are said to have been made in emails and orally in late August and September 2015 as well as at the meeting in China on 23 September 2015. Ao Qing alleges that in reliance on the representations, Ms Xia in her capacity as a director of Ao Qing consented to 52 Lord St entering into the Bankwest Facility, and in her capacity as a director of 52 Lord St signed the First Loan Agreement, permitted proceeds of the facility to be advanced to 'the Pindan Group', and agreed to the grant of security to Bankwest. 40 The causes of action that are thus pleaded in Ao Qing's proposed statement of claim are for breach of the Shareholders' Agreement in respect of the unpaid share capital and the first renewal of the Bankwest Facility, a claim under s 18 of the Australian Consumer Law (being Schedule 2 to the Competition and Consumer Act 2010 (Cth)) in respect of the alleged representations and a claim for promissory estoppel arising out of the same representations, and oppression (this last claim for oppression is, properly, brought only in Ao Qing's own name). 41 As for PCEP's proposed statement of claim, it focuses on what PCEP alleges was Ms Xia's initial opposition to the idea that 52 Lord St should borrow money for the purpose of allowing Pindan Capital [sic] to recover funds that it had contributed to the Project. As of late August and early September 2015, Ms Xia is alleged to have refused to sign documentation for the Bankwest Facility for reasons that included that the proposed loan would increase risk for the Project, which at that time carried no debt. But after further efforts at persuasion that are pleaded as chiefly having been made by Mr Pringle, Ms Xia allegedly agreed at the meeting on 23 September 2015 to proceed with the Bankwest Facility (in the amount of $5 million), to grant the bank security over the Property, and to proceed with a back to back loan to advance the funds to Pindan Nominees. 42 The draft statement of claim also refers to the execution of the Second Loan Agreement in May 2018, adding Pindan Pty Ltd as a guarantor (and, although this is not pleaded, apparently making Mr Pringle and Mr Allingame actual guarantors too). 43 In broad terms, PCEP's proposed statement of claim alleges that: Mr Pringle and Mr Allingame were acting in the interests of Pindan Nominees and Pindan Pty Ltd; that Ms Xia knew that, or that a reasonable person in her position would have known it; that she was aware of the risks to 52 Lord St and the lack of any benefit to 52 Lord St from the arrangements surrounding the Bankwest Facility and the loan to Pindan Nominees; and that she was aware that those arrangements were not in the best interests of 52 Lord St. It is alleged that she agreed to the arrangements to benefit herself or Ao Qing and not for any proper purpose related to the best interests of 52 Lord St. This is said to have resulted in contraventions of s 180, s 181 and s 182 of the Corporations Act and in breach of Ms Xia's fiduciary duties.

Consideration 44 Both applications for leave to bring proceedings in 52 Lord St's name were opposed. 45 Section 236 and s 237 of the Corporations Act relevantly provide: 236 Bringing, or intervening in, proceedings on behalf of a company (1) A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if: (a) the person is: (i) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or (ii) an officer or former officer of the company; and (b) the person is acting with leave granted under section 237. (2) Proceedings brought on behalf of a company must be brought in the company's name. … 237 Applying for and granting leave (1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings. (2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied. … 46 Neither party relied on a rebuttable presumption that granting leave is not in the best interests of the company which is governed by s 237(3) and s 237(4), so those provisions do not need to be set out. 47 It was common ground that each applicant for leave under s 237 had standing as a member as required by s 236(1)(a)(i). The parties' submissions focussed on the five criteria for leave established by s 237(2). It was also common ground that if the Court was satisfied of all of those criteria in respect of an application, then leave must be granted: De Tocqueville v Pacific Current Group Ltd [2020] FCA 172 at [54] (Moshinsky J). The Court has no discretion in that regard, although the parties accepted that leave can be granted subject to conditions, which are inherently discretionary: Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 at [16]. 48 It is convenient to deal with the two applications together by reference to each of the five criteria. As will be seen, there is significant overlap in the matters that are relevant to the different criteria.

It is probable that the company will not itself bring the proceedings 49 The parties accept that this criterion is satisfied in respect of each application. I also accept it. The aborted meeting of 4 August 2020 which was convened to pass resolutions to investigate litigation against PCEP and others, and for which resolutions to investigate Ms Xia were also proposed, is ample proof of this.

The applicant is acting in good faith 50 In support of its application, Ao Qing pointed to what it said was the serious case to be tried against PCEP (see below), to an express statement affirmed by Ms Kuang that she has 'a good faith belief that 52 Lord St has each cause of action available to it that is identified in the draft statement of claim', and to an indemnity that is proposed to be granted in relation to the costs of the action (also see below). 51 In oral submissions counsel for PCEP contested Ao Qing's good faith, however. This was seemingly on the basis that the nature of the parties' respective cases meant that there was a kind of inverse relationship between them, meaning that the strength of PCEP's case (in 52 Lord St's name) against Ms Xia meant that Ao Qing's case (in 52 Lord St's name) against PCEP was so weak that Ao Qing could not be proposing it in good faith. The same argument was made against Ao Qing in respect of the fourth criterion in s 237(2), whether there is a serious question to be tried (again, see below). 52 Counsel for PCEP developed the argument at some length. He carefully took the Court to evidence which, he submitted, established the following propositions: (a) there could not have been any misrepresentation to Ms Xia in circumstances where the loan proposals had been initially rejected by her, and she said that one of them was 'simply nonsense'; (b) in particular, in rejecting the proposal to permit PCEP to withdraw its equity capital, Ms Xia must have understood that subsequent proposals were not for the benefit of PCEP, but potentially for the benefit of other entities such as Pindan Nominees or Pindan Pty Ltd; (c) Mr Pringle had no ostensible authority to make the alleged representations on behalf of PCEP; (d) Ms Xia signed the loan documents for both the Bankwest Facility, and the back to back loan which she must have understood was made to Pindan Nominees, a company with no immediate connection to 52 Lord St; (e) Ms Xia could have been labouring under no misapprehension when she 'ratified' the arrangements by signing the Second Loan Agreement, at which point she insisted that Pindan Pty Ltd, Mr Allingame's and Mr Pringle's 'main vehicle' be added as a guarantor; (f) the true reason Ms Xia signed the documents was that she and her family were in Australia on visas that had conditions requiring them to invest a certain amount of money in local investments, so they needed to keep the Project on foot; and (g) Ms Xia did not arrange for PCEP to be sued when 52 Lord Street proceeded in the Supreme Court of Western Australia. 53 I will return to these submissions below in relation to the fourth criterion, a serious question to be tried. In relation to the second criterion, I do not accept that they negative the finding that would otherwise follow on the face of the evidence that Ao Qing is acting in good faith. In Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583 at [38] Palmer J said: Where the application is made by a current shareholder of a company 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, good faith will be relatively easy for the applicant to demonstrate to the Court's satisfaction. PCEP's submission appeared to be that Ao Qing's proposed case to be brought in 52 Lord St's name is so devoid of merit that it cannot possibly be advancing the case in good faith. That is an ambitious standard to meet. I do not accept that these propositions meet it. As powerful as they may or may not be, they go to difficult forensic issues that can only be properly assessed in the context of all the evidence after a trial. That is especially so given the importance of full context in misleading or deceptive conduct claims: see Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at [74] (Gleeson CJ, Hayne and Heydon JJ), [102], [109] (McHugh J); and Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [102]. 54 It is true that when Ao Qing (and Mr Davison as nominee director of PCEP) arranged for 52 Lord St to commence proceedings in the Supreme Court seeking to recover funds lost by way of the Pindan Nominees loan, PCEP was apparently not a defendant. But that may be explicable on several grounds, including that PCEP's assent was required to commence the proceeding (in the absence of an application like these ones), and Ao Qing was taking the relatively uncomplicated course of action of suing the promisors under the Second Loan Agreement, rather than embarking on a less straightforward claim of misleading or deceptive conduct. The potential availability of such explanations means that 52 Lord St's choice in 2019 not to sue PCEP does not give rise to any inference that supports a serious finding of lack of good faith on Ao Qing's part. As PCEP submitted, the question of good faith usually calls for consideration of whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success, and whether there is a collateral purpose as would amount to an abuse of process: see Swansson at [36]. I do not consider that the above propositions are so irrefutable as to require findings adverse to Ao Qing on either of those bases. I am satisfied that Ao Qing is acting in good faith. 55 Another point senior counsel for Ao Qing made, which I accept, is that PCEP's propositions relate only to the misleading conduct claim Ao Qing seeks to make. In this regard, PCEP's submissions do not engage with the fact that Ao Qing is also advancing a claim for breach of the Shareholders Agreement. PCEP has not identified any reason to doubt Ao Qing's good faith in relation to that claim. 56 PCEP's satisfaction of the good faith criterion was also controversial. In contrast to PCEP's position, Ao Qing did not claim that the case against Ms Xia was so weak that PCEP's good faith should be doubted. Ao Qing accepted that there was a serious case to be tried. Nor did it dispute a statement in an affidavit affirmed by PCEP's director, Mr Zhang, that he believes that 52 Lord St has a good cause of action against Ms Xia. As will be seen, Mr Zhang will give an indemnity in respect of 52 Lord St's costs in proceeding against Ms Xia. Nevertheless, Ao Qing pointed to three matters which, it said, should lead the Court to conclude that PCEP is not acting in good faith. 57 The first was that the Bankwest Facility and the loan to Pindan Nominees was, in Ao Qing's submission, 'orchestrated' by Mr Pringle, who was PCEP's then representative on 52 Lord St's board. Ao Qing says that PCEP cannot be acting in good faith when it proposes to sue Ms Xia for a decision that was orchestrated by Mr Pringle, its then representative on 52 Lord St's board. While this reaction to the proposal might provoke some intuitive sympathy, when properly considered it does not support a conclusion that PCEP is not acting in good faith. PCEP is a separate entity in the eyes of the law. Mr Pringle is no longer in control of it (assuming that he once was). There is no reason to think that those who are now in control of it wish to commence the proceeding for any reason other than for 52 Lord St to recover compensation that will benefit PCEP in its capacity as a shareholder. Even if it was Mr Pringle who brought about the transactions that PCEP now seeks to impugn, it could be argued that he did so against PCEP's interests as a shareholder in 52 Lord St. Ao Qing did not rely specifically on the fact that PCEP proposes to sue Ms Xia and not Mr Pringle for breaches of directors' duties, but that is explicable by the fact that Mr Pringle is a bankrupt and 52 Lord St has already proceeded against him in the Supreme Court of Western Australia (under the guarantee), without any recovery from him. It is not clear whether Mr Pringle may have been insured under a policy that may respond in relation to directors' duties, but Ao Qing did not take that point. 58 Senior counsel for Ao Qing supplemented this submission orally by reference to the concept of ratification. He submitted that Mr Pringle knew exactly what Ms Xia was doing, and did nothing to stop it, but on the contrary encouraged and approved it. Senior counsel seemed to suggest that Mr Pringle's state of mind and actions should be attributed to PCEP, which should be taken to have ratified any breach of duty by Ms Xia. Senior counsel submitted that this informs the question of whether PCEP is acting in good faith. I accept that issues concerning who Mr Pringle was acting for when he did what he is alleged to have done, and the effect of that on PCEP's cause of action, may prove to be important if PCEP does proceed in 52 Lord St's name against Ms Xia. But those issues will potentially involve difficult forensic and legal questions, and senior counsel did not suggest that the ratification point was so strong as to mean that there is no serious case to be tried against Ms Xia. It was, as senior counsel acknowledged, a more formal way of putting the point that is addressed in the preceding paragraph, and for the reasons given in that paragraph I do not accept it. 59 The second matter that Ao Qing raised concerning PCEP's good faith relied on a statement in Mr Gerber's main affidavit to the effect that PCEP would not have sought leave to proceed against Ms Xia had Ao Qing not decided to proceed against PCEP. PCEP has described this as making PCEP's application a 'defensive' one. Ao Qing submits that this suggests that PCEP's application has been commenced not to vindicate 52 Lord St's rights or increase its funds, but to exert pressure on Ao Qing to discourage prosecution of its application. But those submissions were made a year ago under different circumstances. The things I have said in the previous paragraph in relation to Ao Qing's first point also apply to this second one. PCEP's application needs to be assessed in the circumstances that obtain at the time of the hearing. A statement made in an affidavit more than a year ago by a person who no longer appears to be associated with PCEP is no basis to say now that PCEP is pursuing the application in order to obtain some tactical benefit. So I do not accept this second point. 60 Ao Qing's third point in its written submissions concerned what was then the lack of an indemnity from PCEP to 52 Lord St in respect of the costs of the proposed proceeding. That has since been addressed, as described below. 61 I am satisfied that in applying for leave to commence proceedings in 52 Lord St's name, PCEP is acting in good faith.

It is in the best interests of the company that the applicant be granted leave 62 Counsel for PCEP submitted that this criterion was not met for Ao Qing's application. He based that on two points: first, that the issue Ao Qing seeks to press concerning the shortfall in capital which PCEP was to contribute to 52 Lord St was not really an issue; and second, that granting both competing applications 'would lead to a calamitous outcome' that could not be reconciled with the best interests of the company. 63 The first of these submissions was based on evidence that in 2018, Pindan Capital gave its assent to a proposal to reduce its share capital to reflect the lesser amount of equity capital it had actually contributed (and presumably it is alleged this was on behalf of PCEP). For that reason, PCEP submitted, it would not be in the interests of 52 Lord St to pursue litigation over that issue. But this overlooks that Ao Qing seeks a selective capital reduction in the alternative to the primary remedy it seeks in relation to this issue, namely specific performance of the obligation to contribute $11,900,000. On the figures stated above, if Ao Qing's primary remedy is granted and PCEP is able to pay, that would result in 52 Lord St receiving moneys of the order of $2 million in further equity capital, a self-evidently beneficial outcome for the company. I do not accept PCEP's first point. 64 Nor do I accept the second point. To be sure, the idea that two antagonistic shareholders will each be given leave to commence proceedings in the name of the same company against the other, or against a person associated with the other, causes some discomfort. Is the company then pursuing conflicting objectives? How will access to confidential and privileged information be managed? The fact that neither party was able to refer me to a previously decided case in which this has been done did not alleviate the discomfort (although in Hawksford v Hawksford [2006] NSWSC 1458 it appears that a similar outcome was ordered). 65 But the problem of conflicting objectives is likely illusory. Section 236 of the Corporations Act is clear that it is the applicant for leave, in this case each shareholder, who will bring the proceeding if leave is granted, albeit on behalf of the company and in the company's name: see s 236(1) and s 236(2). Consistently with that, it will be solicitors appointed by that shareholder who will have the conduct of the proceeding, who will take evidence from witnesses, collect documents in the usual way, and brief barristers to present that evidence and submissions in court. It goes without saying that the costs of all that should be borne by the shareholder, at least in the first instance. So once leave has been granted, the intervention of the company, as distinct from the shareholder and its representatives, is unnecessary. 66 That is reflected in cases where the courts have had to consider whether a company would, because of leave to bring a derivative proceeding, be plaintiff and defendant in the same proceeding. In Power v Ekstein [2010] NSWSC 137 at [33], Austin J said that '[w]hen proceedings are already constituted and the company is a defendant, and derivative claims are to be added to the proceedings, the weight of authority indicates that the company may remain as a defendant'. Austin J cited his earlier judgment in Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91 where, at [122], his Honour said: If it were necessary for the Company to be plaintiff, to the extent that the amended proceedings would make derivative claims, the result would be absurd. The same entity would, as plaintiff, be under the effective control of the minority shareholder for the purpose of prosecuting derivative claims, and under the effective control of the majority shareholder for the purpose of dealing with the oppression claims. At the very least, that would lead to complexity in the hearing of the case and in making appropriate costs orders. Further, opposing solicitors would be required to act for the Company in its respective capacities, and if the oppression proceedings are successful, the Court might be required to make orders against one plaintiff for the benefit of the other. If conversely, the Company is allowed to remain as first defendant, it can be treated for practical purposes as only a nominal party, the real protagonists being the plaintiff who asserts personal claims for relief under the statutory oppression ground, and derivative claims for relief that will go for the benefit of the Company; and his real opponents will be clearly identified as the second and subsequent defendants, against whom substantive relief is sought both on the oppression and the derivative grounds. 67 The same approach can be taken here. 52 Lord St is already a defendant in the proceeding as currently constituted. It may remain so, and claims can be brought in the same proceeding in its name against PCEP (in form, a cross-claim against another existing defendant) and Ms Xia (not yet a party, but capable of being joined as a defendant) without any absurdity arising. However there is also no need to assume that the claims will be brought in this proceeding, or to be prescriptive that the claims must be heard together. Whether that is the outcome that best achieves the overarching purpose of civil practice and procedure rules, as stated in s 37M of the Federal Court of Australia Act 1976 (Cth), is a question to be resolved in the management of the cases as and when it arises. 68 As for confidential and privileged information, senior counsel for Ao Qing pointed out that if that were in truth a problem, it is a problem that would arise all the time. Leave to proceed in the name of a company under s 237 will often be granted to, say, a minority shareholder whose interests have been overborne by the will of the majority. That majority may well be in control of the company's board, and may well include the defendants in the litigation. The company, as controlled by that antagonistic majority board, cannot have any right to confidential and privileged information about the litigation in which those board members are defendants, simply because it has been brought in the name of the company. Consistently with the approach outlined in the previous paragraph, that information remains confidential to the successful applicant for leave and its legal representatives. 69 Counsel for PCEP did not describe any other way in which a grant of leave to both his client and Ao Qing would be 'calamitous'. It may well cause difficulties that are not presently foreseen, however it is likely that they can be addressed by suitable directions pursuant to the Court's power to make directions under s 241(1) of the Corporations Act and generally. 70 I accept that it is in the best interests of 52 Lord St for Ao Qing to bring its proposed proceedings in the company's name. Ao Qing did not contend that it would not be in the interests of 52 Lord St for PCEP to bring its proceedings, and I accept that PCEP's application also satisfies this criterion as there is a real (that is, not far-fetched) prospect that it will be successful in the proceeding against Ms Xia and may be able to recover funds from her for the benefit of 52 Lord St. 71 There were also submissions about the need for each of the applicants to provide indemnities, with adequate security, against any adverse costs order against 52 Lord St if the derivative proceeding brought in its name failed. However in the end both applicants accepted that indemnities essentially in the form proffered by Ms Xia would be appropriate and adequate, such indemnities being given by Ms Xia and Xuejiang Kuang for the proceedings Ao Qing seeks to bring, and by Mrs Li and Mr Zhang for the proceedings PCEP seeks to bring. Also, there was no serious submission that the security each had proffered, being two pieces of residential real estate, one in the Perth metropolitan area and the other in the Adelaide metropolitan area, were inadequate. As the parties accepted, it is appropriate in this case for those indemnities and securities to be the subject of prescriptive conditions attaching to the Court's grant of leave.

There is a serious question to be tried 72 PCEP submitted that Ao Qing's proposed claim against it does not raise a serious question to be tried. That is because, its counsel submitted, the propositions set out at [52] above both show the strength of PCEP's claim against Ms Xia and establish the inherent weakness of Ao Qing's claim. To reiterate: they show, it is said, that Ms Xia must have known that what she was doing was not in the interests of PCEP and was in the interests of other companies in the Pindan group. She was under no misapprehension about that when she agreed to the Bankwest Facility and the First Loan Agreement and she certainly knew the true position when she signed the Second Loan Agreement. So, it is submitted, Ao Qing cannot claim that 52 Lord St suffered loss because Ms Xia was misled in relation to those transactions. 73 I do not accept those submissions, essentially for the same reasons that I do not accept the submission that these matters negative Ao Qing's good faith in seeking to bring the claims. The requirement that there be a serious question to be tried is not a demanding one. The Court will not normally enter into the merits of the proposed derivative action to any great degree, and the applicant has the same relatively low threshold to surmount as in the case of an application for an interlocutory injunction: Swansson at [25]. Whatever the ultimate merits of the case prove to be after a full trial, Ao Qing's allegations meet that threshold. The essence of Ms Xia's evidence about the meeting of 23 September 2015 is that Mr Pringle assured her that the loan was necessary for Pindan's short term cash flow and would soon be paid back. The evidence PCEP relies on to derive the propositions at [52] above is not necessarily inconsistent with that. Perhaps belief in that assurance may have fallen away by the time, two years later, when the Bankwest Facility was renewed and the Second Loan Agreement was made. But it may be that by that time Ao Qing was simply trying to make the best of a bad situation, for example by obtaining such guarantees as it could from Mr Pringle, Mr Allingame and Pindan Pty Ltd. Whether those possibilities prove to be correct will only be able to be properly determined after a full trial where the events are presented in all their context. Ao Qing's claim does raise serious questions to be tried. 74 PCEP also made an argument against Ao Qing's claim based on an Anshun estoppel said to arise from the fact that Ms Xia, as a privy of Ao Qing, caused 52 Lord St to commence the Supreme Court proceedings against Pindan Pty Ltd, Pindan Nominees, Mr Pringle and Mr Allingame but not against PCEP. But the question of whether this does raise an estoppel of that kind depends on whether the claim that Ao Qing now wishes to bring was so connected to the subject matter of the first proceeding as to make it unreasonable, in the context of the first proceeding, for the claim or issue not to have been made in it: Timbercorp Finance Pty Ltd (in liq) v Collins [2016] HCA 44; (2016) 259 CLR 212 at [27] (French CJ, Kiefel, Keane and Nettle JJ). That requires an assessment of the nature and circumstances of the Supreme Court proceeding which the Court cannot and should not make in the present application. I have raised above possible explanations for the composition of the Supreme Court proceeding. Questions of who was acting as Ao Qing's privy, and the effect of that by way of Anshun estoppel in a derivative action claim brought in the name of 52 Lord St, are also not without difficulty. Any defence based on Anshun estoppel that may be made does not at this stage appear so compelling that Ao Qing has no serious question to be tried. 75 Ao Qing accepts that PCEP's proposed claim raises a serious question to be tried and, in view of the series of events outlined above, so do I.

14 days written notice to the company 76 Ao Qing has not complied with the first limb of s 237(2)(e), because it did not give 52 Lord St 14 days written notice of its intention to apply for leave and of the reasons for applying. However its solicitors did send the detailed letter of demand to PCEP and to Mr Davison at Pindan Capital on 6 July 2020. That letter was a prelude to the abortive directors' meeting of 4 August 2020, so the directors of 52 Lord St, and thus the company itself, must be taken to be aware of the proposal for the company to commence proceedings against PCEP. Ao Qing did send the specific written notice required by s 237(e)(i), albeit in November 2020, after it had commenced the proceedings including the application for leave in October 2020. PCEP has pointed to no prejudice by reason of the delay. This is an appropriate case to grant leave under s 237(2)(e)(ii), even though subparagraph (i) is not satisfied. 77 PCEP has complied with s 237(2)(e)(i) in the case of its proposed action.

Conclusion 78 I am satisfied that, in the case of each application, all five of the criteria in s 237(2) are satisfied. Accordingly the Court will grant leave to bring proceedings in the name of 52 Lord St to each applicant. As I have said, the leave will be subject to conditions requiring suitable indemnities and suitable security in relation to costs. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.