46 The defendant did not give evidence on this application. There was no evidence as to the arrangements that were made between the defendant and Chilli #1 for the use of the Trade Marks other than the Chilli #1 Licence Agreement. There is no evidence as to what happened when the Trade Marks disappeared from the Chilli #1 financial statements. However the entry in Chilli #1's 2005 financial statements of a Receivable of $9183 for "James Cheal (Patents & Trade Marks)" suggests a purported purchase or other transaction in respect of those Trade Marks. The irresistible inference at this stage of the claim is that defendant decided to transfer the business operations into the new company, Chilli #2, leaving Chilli #1 with no source of revenue.
47 It seems to me, on the evidence in this application, that this claim is not so lacking in merit that it is not fairly arguable. Although the plaintiff did not descend into stating that she honestly believes that a good cause of action exists and has a reasonable prospect of success, I regard her evidence that she is acting in good faith as inclusive of such a belief and I accept that the plaintiff genuinely holds that belief.
48 There was no evidence in relation to any previous litigation or claims between the plaintiff and the defendant as a consequence of the break up of their relationship nor was it suggested to the plaintiff that she could obtain relief otherwise than involving Chilli #1 in litigation.
49 The plaintiff is a current shareholder who has more than a token shareholding seeks recovery for the purpose of increasing the value of her shareholding. However Ms Francois submitted the plaintiff's real motive is to seek compensation for having helped the defendant establish the business when they were in a de facto relationship. In cross- examination, the plaintiff agreed that she did not own any land, property, shares other than those in Chilli #1, or a car. She also agreed that she did not have any savings and that her average net weekly income was $715 with rental outgoings per week at $270. The plaintiff rejected the suggestion that she was bringing the application because she had been in a relationship with the defendant and believes that he owes her something. The plaintiff was totally unaware of the transfer of the business operations from Chilli #1 to Cheal Industries or Chilli #2 until after the event. The defendant did not advise the plaintiff of his intention to remove the business from Chilli #1 and to set up a new company to operate the business.
50 Mrs Cheal gave evidence that she was not willing to provide financial support for Chilli #1 because she was not a shareholder and because the plaintiff had a shareholding in the company. Mrs Cheal also gave evidence that she did not consider buying out the plaintiff's share in Chilli #1. When asked why she did not inform the plaintiff of the defendant's intention to transfer the business of selling surfboards to Chilli #2, Mrs Cheal said that she did not think what she and the defendant did "together as a couple" had anything to do with the plaintiff.
51 Although it is obvious that the plaintiff was in a relationship with the defendant for some years I am not persuaded that she is motivated by a collateral purpose in bringing these proceedings. It is true that Mrs Cheal was a friend of the plaintiff prior to commencing her relationship with the defendant, however that occurred in late 2003. The evidence does not support a finding that the plaintiff is pursuing this application for a collateral purpose.
52 I am satisfied that the plaintiff has established that she is acting in good faith in bringing this application.
Best interests of the company
53 The defendants submitted that even if I were to find that there is a serious question to be tried, the application should be rejected on the ground that it is not in the best interests of Chilli #1 that leave be granted.
54 The requirement of "the best interests of the company" was considered in Swansson by Palmer J as follows :
[55] 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. …
[56] 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.
55 His Honour proceeded to describe the relevant matters in relation to which the applicant would normally be required to adduce evidence. They include: (1) the character of the company (for example, whether it is a small private company or a large public listed company, as different considerations would apply); (2) evidence of the business of the company so that the effects of the proposed litigation on that business may be understood; (3) whether the substance of the redress that the applicant seeks to achieve is available by other means such that the company does not need to be brought into litigation to achieve the desired result; and (4) the ability of the defendant to meet at least a substantial part of any judgment in favour of the company so as to determine whether the action would be of any practical benefit to the company.
56 In Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 Austin J referred to the "best interests of the company" criterion as described in the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998, as follows at [44]:
6.38 This criterion would allow the Court to focus on the true nature and purpose of the proceedings. It would recognise that a company might have sound business reasons for not pursuing a cause of action open to it and that its management might legitimately have decided that the best interests of the company would be served by not taking action. For example, a decision may be taken in a case where, although it may be clear that there has been a breach of duty by a director, the loss to the company may only be nominal. In this case, the costs of taking proceedings may outweigh any benefit to the company.
6.39 The inclusion of this criterion would allow the Court to refuse to grant leave in these circumstances because the applicant for leave would not be able to show that to do so would be in the best interests of the company.
57 His Honour also referred to Charlton v Baber (2003) 47 ACSR 31 in which, after reviewing the expression "best interests" in the context of other areas of the law, including the parens patriae jurisdiction of the Court, trusteeship, and the field of unconscionability and undue influence, Barrett J concluded that it is an expression concerned with a "person's separate and independent welfare": [47]- [52]. In the context of this case, the question is whether, having regard to the separate and independent welfare of Chilli #1, it is in its best interests that leave be granted.
58 The defendants submitted that Chilli #1 is a very small company incorporated for the purpose of providing the defendant with a corporate structure for the business that he had been conducting as a sole-trader. It was submitted that the intellectual property the subject of these proceedings is, on its own, of little value because the "real value of the business" lies in the craftsmanship and personal labour of the defendant. In support of this submission, the defendant relied on the following evidence given by the plaintiff in cross-examination (tr 5-6):
Q. And would you agree that in shaping surfboards involves manual labour?
A. Yes.