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Li & Anor v Wu [2019] ACTCA 14 | Case summary | Zoe

ACTACTCA

Li & Anor v Wu [2019] ACTCA 14

[2019] ACTCA 14

Court of Appeal (ACT)|2019-05-16|Before: Elkaim, Loukas-Karlsson & Rangiah JJ

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Source facts

Court

Court of Appeal (ACT)

Decision date

2019-05-16

Before

Elkaim, Loukas-Karlsson & Rangiah JJ

Catchwords

APPEAL – GENERAL PRINCIPLES – In General and Right of
Appeal – Application for leave to appeal against primary judgment –
good faith and solid foundation
in derivative action

Source

Original judgment source is linked above.

Catchwords

APPEAL – GENERAL PRINCIPLES – In General and Right ofAppeal – Application for leave to appeal against primary judgment –good faith and solid foundationin derivative action

Judgment

Source: the ACT Courts (www.courts.act.gov.au). Converted to plain text by ZoeLaw. Not the official version.

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY COURT OF APPEAL

Case Title: Li & Anor v Wu

Citation: [2019] ACTCA 14

Hearing Date: 13 February 2019

Decision Date: 16 May 2019

Before: Elkaim, Loukas-Karlsson & Rangiah JJ

Decision: See [108]

Catchwords: APPEAL – GENERAL PRINCIPLES – In General and Right of Appeal – Application for leave to appeal against primary judgment – good faith and solid foundation in derivative action

Legislation Cited Corporations Act 2001 (Cth) s 237 Bankruptcy Act 1966 (Cth) ss 40(1)(g), 52(2) Limitation Act 1985 (ACT) ss 11(1), 33

Cases Cited: Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250 Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; 71 NSWLR 577 Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; 245 ALR 780 Challis v Hoffmann [2017] NSWSC 870; 121 ACSR 585 Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; 87 FCR 134 Hall v Poolman [2009] NSWCA 64;75 NSWLR 99 Li v Wu [2013] FCA 1067 Li v Wu [2016] FCCA 2836 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; 101 ACSR 233 Re Featherston Resources Pty Ltd; Tetley & Ors v Weston & Ors [2014] NSWSC 1139; 288 FLR 265 Re Karinya Haulage Pty Limited [2017] NSWSC 888 Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; 42 ACSR 313 Varawa v Howard Smith & Co Ltd (1911) 13 CLR 35 Vouris as liquidator of Cadima Express Pty Ltd v Deputy Commissioner of Taxation [1999] NSWSC 1143; 33 ACSR 527 Williams v Spautz (1992) 174 CLR 509 Wu v Li [2015] FCAFC 109 Wu v Li [2017] FCA 500

Parties: Yuxin Li (First Applicant) Hong Chen (Second Applicant) Tao Wu (Respondent) Representation: Counsel Mr Neal with Mr Flecknoe-Brown (First and Second Applicant) Mr Karam with Mr Thomas (Respondent)

Golden Constructions is in liquidation. Mr Wu is a former director of Golden Constructions and the holder of 35% of its shares.
Mr Li holds 30% of the shares in Golden Constructions and Ms Chen, his wife, holds the remaining 35%.
The present litigation arises out of a series of business dealings between Mr Wu, Golden Constructions, Mr Li and Ms Chen. It is necessary to outline those dealings and the subsequent course of litigation in order to understand the basis of the derivative proceeding.
Mr Li and Ms Chen are Chinese citizens who wished to immigrate to Australia. They entered into a business relationship with Mr Wu and several companies that Mr Wu had incorporated. This included Mr Li lending money to at least one of those companies. Mr Wu’s “corporate group” collapsed in August 2011.
Mr Li commenced proceedings against Mr Wu in the Federal Court of Australia, and on 6 November 2013, he obtained judgment in the amount of $976,866.80 plus interest: Li v Wu [2013] FCA 1067. Mr Wu appealed and Mr Li cross-appealed.
On 6 December 2013, Mr Li issued a bankruptcy notice to Mr Wu based upon the judgment debt. The time to comply with the bankruptcy notice was successively extended pending judgment upon the appeal and cross-appeal.
On 17 August 2015, the Full Court of the Federal Court varied the judgment so that Mr Wu was ordered to pay Mr Li $1,076,767 plus interest: Wu v Li [2015] FCAFC 109.
On 9 September 2015, Mr Wu applied to the Federal Circuit Court to set aside the bankruptcy notice, including on the ground that he had a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt. That application was dismissed on 11 September 2015. On 6 October 2015, Mr Li presented a creditor’s petition against Mr Wu.
In the meantime, the liquidator of Golden Constructions asserted that Mr Li and Ms Chen owed debts to Golden Constructions. The first alleged debt was an amount said to be owed by Mr Li and Ms Chen under a contract pursuant to which Golden Constructions was to construct a residential dwelling at a property located at 48 Akame Circuit, at O’Malley, in the ACT (the Building Contract). The second alleged debt was a loan said to have been made by Golden Constructions to Mr Li in the sum of $572,998.02 (the alleged loan).
On 13 August 2014, the liquidator entered into a Deed of Assignment with Mr Wu, assigning to him, relevantly, all claims that Golden Constructions may have against Mr Li and Ms Chen in relation to the construction of the dwelling. The consideration for the assignment was $16,000 plus 5% of the proceeds of any such claims.
On 9 October 2015, three days after the creditor’s petition was presented, Mr Wu commenced the present proceedings against Mr Li and Ms Chen in the ACT Supreme Court claiming:

Mr Wu’s application for leave to bring a derivative proceeding on behalf of Golden Constructions relied upon the Court’s inherent jurisdiction. The primary judge noted that the parties had agreed that the applicable principles were those set out in Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; 71 NSWLR 577 at [34] (Carpenter).
Her Honour summarised the principal issue as being whether the proposed proceedings, “have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success”. Her Honour described the basis of the proposed claims as follows:
The claim as articulated turns primarily on the Building Contract, a copy of which was in evidence. It includes on the front page the Company as the builder and the defendants as the contracting parties, although only [Mr Li] appears to have signed each page. Further, some of the appendices to the Building Contract were incomplete and not signed by anyone. The Company was contracted to build a residential dwelling at the site in O’Malley for $1.8 million inclusive of GST. The Building Contract names Mr Li as the owner of the site. 15. As outlined above, the first proposed claim in the proceedings is that the Company performed work in constructing the dwelling in which the defendants now live, for which it remains substantially unpaid, and for which it is entitled to be paid, either in contract or on what was described as a quantum meruit basis. Further, the Company made loans to the first defendant, which also remain unpaid. 16. The plaintiff contends the joinder of the Company to the existing proceedings being pursued by him is necessary as there is now a question about the operation of a non-assignment clause in the Building Contract, namely clause 18. The terms of clause 18 prohibit the assignment of “rights or obligations under the [Building Contract] without the written consent of the other [party].” 17. The plaintiff has been proceeding on the basis that he held a valid assignment of the Company’s rights to sue for recovery of the unpaid amount, which was entered into by the liquidator pursuant to a Deed of Assignment dated 13 August 2014 (Deed of Assignment), a copy of which was also in evidence. 18. By the Deed of Assignment, the liquidator purported to assign all claims, rights, actions, suits and demands the Company may have against the defendants whether at law, in equity or under statute which arise to any extent out of or in consequence of any act or omission by the defendants in relation to the Company or the Company’s construction of the dwelling in O’Malley. 19. The defendants contend that they did not give written consent to such assignment. In the event that the Deed of Assignment is ineffective, the legal claim to pursue the debts said to be owed lies with the Company (although an equitable assignment may arise), and thus, the Company may be the proper plaintiff to pursue recovery.
In the remainder of the reasons, when referring to the applicants for leave to appeal (the defendants to the proceeding), it will be convenient to generally refer to Mr Li, and not to Ms Chen, except where it is necessary to do so.
Mr Li submitted before the primary judge that each of the three causes of action proposed to be pursued on behalf of Golden Constructions in the derivative proceeding were statute barred. In each case, s 11(1) of the Limitation Act 1985 (ACT) (Limitation Act) provided for a limitation period of six years.
As to the claim for breach of the Building Contract, Mr Li and Ms Chen argued that the pleaded cause of action for breach of contract first accrued in June 2011, and the six year limitation period had expired in June 2017.
However, the primary judge held that there was a genuine dispute and a serious issue to be tried about whether the limitation period for breach of contract had expired. Her Honour held, firstly, that it was by no means clear that any breach of contract occurred in June 2011. Her Honour did not explain that proposition. Secondly, her Honour noted that there had been a change of position in that Ms Chen had initially claimed that she had not signed the Building Contract, but Mr Li and Ms Chen had admitted in their defence that they had entered the Building Contract. Her Honour considered that Mr Wu had raised an arguable case that Mr Li and Ms Chen’s conduct had amounted to a “concealment” that operated to suspend the limitation period under s 33 of the Limitation Act.
As to the claim based on quantum meruit, the primary judge noted that Mr Li contended that the cause of action accrued at the time the goods were supplied and delivered, or the services were rendered, and this had occurred, at the latest, on 3 August 2011. Mr Li submitted that the six year limitation period had expired in August 2017.
The primary judge considered that the availability of a quantum meruit could be affected by the Court’s findings concerning the Building Contract. The claim would only arise where recovery pursuant to the Building Contract was unavailable. Her Honour thought that it would be premature to refuse leave to pursue an alternative claim based on a limitation period having expired in circumstances where the facts concerning the alleged breach of contract claim were yet to be determined. Her Honour thought that such facts may have an impact, for example, upon the “unjust” nature of the enrichment. Her Honour considered that the entirety of the facts were not before the Court, and that did not allow the Court to have a sufficient level of certainty that the claim was statute barred.
As to the alleged loan, Mr Li contended that the cause of action for recovery arose from the date the loan was advanced. He contended that the last advancement of alleged loan funds was made on 30 June 2011, and, accordingly, the six year limitation period had expired. He contended, alternatively, that even if a cause of action arose upon demand being made by the company, demand was made on 20 March 2012, and that was still more than six years ago.
The primary judge expressed some doubt about the necessity to join the company to pursue a claim based upon the alleged loan because that claim did not arise under the Building Contract and the non-assignment clause was irrelevant. However, her Honour considered that while Mr Li’s written and oral submissions accepted that there was no barrier to the assignment of that loan, the current defence pleads otherwise.
The primary judge observed that there were no particulars in the proposed amended statement of claim as to the nature of the alleged loan, and it was unknown whether the loan was evidenced in writing, or what its terms were. Her Honour considered that it was difficult to conclusively determine a date when a cause of action to recover the loan monies arose. Her Honour also considered that if the facts in the pleading were accepted at their highest, any finding that the limitation period had conclusively expired would be based on assumptions of fact made by the Court that had not been pleaded.
The primary judge considered that a separate difficulty was that Mr Li did not accept that there was any loan from Golden Constructions, but characterised the “loan funds” as the repayments made by a different company. Her Honour said that she did not see how the Court could conclusively find that the limitation period had expired in respect of “loan funds” made to Mr Li in circumstances where there was a clear dispute whether there was any loan made by Golden Constructions in the first place.
Her Honour considered that the facts underlying the dispute were not so clear cut as to permit a summary determination of any questions concerning expiry of the limitation period. Her Honour held that, accordingly, the claims had arguable merit.
The primary judge next considered Mr Li’s argument that there was no genuine prospect of a tangible benefit to Golden Constructions. Mr Li argued that the potential monetary benefit if the proposed claims were ultimately successful was small and uncertain.
The primary judge observed that the liquidator had undertaken a costs/benefit analysis and was satisfied that pursuing the litigation would benefit Golden Constructions. Her Honour considered that Golden Constructions had the prospect of recovering more than $200,000, and that this was a reasonable sum, properly characterised as a tangible benefit, to warrant pursuing legal proceedings.
Her Honour also considered it to be significant that Mr Wu had agreed to indemnify Golden Constructions and the liquidator, and had already provided $70,000 to support the indemnity.
Mr Li also argued that the derivative action was being brought for a collateral purpose, and that the application had not been made in good faith. He submitted that the true reason for Mr Wu seeking to pursue the derivative proceeding was to create a basis for defending any fresh bankruptcy notice and creditor’s petition. He argued that under the deed of assignment, Mr Wu must pay the liquidator only 5% of any net proceeds recovered through the derivative actions, and that such a small percentage of recovery demonstrated that the true purpose of the causes of action was to benefit Mr Wu directly and personally, rather than Golden Constructions.
The primary judge observed that the liquidator’s evidence was that the company may receive a benefit of approximately $150,000 plus interest and that, in circumstances where the Golden Constructions and the liquidator were indemnified as to costs, some return would be better than no return at all.
Her Honour held that the mere fact that a plaintiff might receive a personal benefit from pursuing a derivative action beyond the benefit received by the company was insufficient to establish that the proceedings would amount to an abuse of process. Her Honour considered that if Mr Wu was permitted to pursue the proposed causes of action and was successful, there would undoubtedly be a personal benefit to him, separate to the benefit to the company. However, any such benefit would be a consequence of the lawful assignment of the causes of action by the liquidator. The personal interest of Mr Wu fell into a category of an entitlement which the law permits, and the proceedings did not constitute an abuse of process.
The primary judge considered it was significant, in assessing the genuineness of Mr Wu’s motives, that the proceedings had already been prosecuted by him, and that the purpose to be served in joining Golden Constructions was to take into account the possibility that the Court may construe cl 18 of the Building Contract in favour of Mr Li and Ms Chen.
Her Honour was not satisfied that there was any lack of good faith in the plaintiff seeking leave to pursue the derivative actions. In particular, the possibility of a future argument by the plaintiff and hypothetical bankruptcy proceedings was insufficient to establish that Mr Wu lacked good faith in seeking to commence the derivative proceeding, or to warrant a refusal to grant leave in the overall exercise of the Court’s discretion.
For these reasons, the primary judge was satisfied that the Court should grant leave to Mr Wu to commence the derivative proceeding. Her Honour expressly reserved Mr Li and Ms Chen’s right to raise the operation of the Limitation Act as a defence to any claim pleaded by Golden Constructions. The parties’ submissions
Mr Li’s proposed notice of appeal alleges, firstly, that the primary judge erred in failing to be satisfied that there was a lack of good faith in the respondent seeking leave to pursue the derivative actions. Mr Li submits that the primary judge ought to have refused leave to bring the derivative proceeding because Mr Wu’s purpose was an improper one, namely to resist future bankruptcy proceedings that may be brought by the applicants. Mr Li submits that Mr Wu wishes to advance an argument previously rejected by the Federal Circuit Court that there is “other sufficient cause” why a sequestration order ought not be made.
Mr Li submits that the correct enquiry for the primary judge to undertake was as to Mr Wu’s subjective purpose; and that purpose could be established by inference from the way Mr Wu has conducted the present proceeding. Mr Li submits that her Honour wrongly treated the question as an objective enquiry. Mr Li points out that the primary judge stated that the potential personal benefit to Mr Wu “does not result in the proceedings being unreasonable so as to constitute a lack of good faith”.
Mr Li also submits that it was irrelevant that Mr Wu had already brought proceedings in his own name before applying for leave to bring the derivative proceeding.
Mr Li further submits that the primary judge failed to address the case that he actually put. That case was, that for the better part of six years, Mr Wu had been consistently staving off Mr Li’s efforts to recover the judgment sum. He had failed to establish his off-setting claim defence in the Federal Circuit Court, but fortuitously escaped bankruptcy for other reasons. Mr Li submits that each time he had taken a step that would expose Mr Wu to impending bankruptcy, Mr Wu had responded by taking a step to advance the present proceedings, but has not sought to prosecute those claims other than when prompted by the need to stave off the bankruptcy proceedings. He submits that if the purpose of bringing the derivative proceeding was to create a defence for the bankruptcy proceedings, then the proceeding is an abuse of process.
Mr Li submits that in considering whether Mr Wu had an improper purpose, the validity of the assignment by the liquidator was irrelevant, and the question of law involved could not be imputed to Mr Wu as a factor in his commercial or forensic calculus in bringing the application.
Mr Li next submits that her Honour ought to have refused leave to bring the derivative action on the basis that each cause of action pleaded by Mr Wu is statute barred. He submits that if, as her Honour found, the facts before the Court as to Mr Wu’s claims were not sufficiently clear to enable the Court to be satisfied that the claims were viable, that necessarily meant that Mr Wu had not discharged his onus of satisfying the Court that the claims had a solid foundation. Mr Li submits that if Mr Wu’s pleading did not address some necessary fact, that could only properly be taken to reflect the inadequacy of the case Mr Wu proposed to run and impair their prospects of success. But, it would not change how the pleaded case was to be assessed for the limitation issues.
Mr Li submits that it would be an error to assume that a limitation question can only be determined if pleadings explicitly join issue over the application of the limitation period. That would mean such a point could only ever be determined when the pleadings were closed. There is no reason why that must be so.
Mr Li submits that all the primary judge had to determine was whether each of the causes of action asserted had arisen, at the latest, at a time which was more than 6 years earlier. Mr Li submits that the evidence did not provide any basis for a dispute over when the transactions giving rise to the asserted causes of action had occurred.
As to the concealment point, Mr Li submits that the issue was whether his previous denial of a fact in the course of litigation constituted a deliberate concealment of that fact for the purposes of s 33 of the Limitation Act. Mr Li submits that the primary judge failed to make any finding that there was even arguably a deliberate concealment, much less determine the point. He submits that if her Honour had considered the issue the only available conclusion was that the denial of a fact asserted in a pleading cannot possibly constitute the deliberate concealment of the fact.
Mr Wu submits that the appeal ought to be dismissed on the basis that there was no error in the reasons of the primary judge.
Mr Wu submits that her Honour considered and expressly addressed the issue raised by the applicants that his purpose was to enable him to resist future bankruptcy proceedings. He submits that Mr Li’s submission that he has not sought to prosecute the claims other than when prompted by the need to stave off or defend the bankruptcy proceedings is incorrect. He points out that there are no extant bankruptcy proceedings.
Mr Wu submits that the primary judge correctly observed that while other personal interests may be relevant to the question of good faith, it does not follow from the existence of such interests that the proposed proceedings lack good faith. He submits that he does have a genuine grievance in respect of which Golden Constructions is a proper party. That grievance is that Mr Li and Ms Chen obtained the benefit of having their house built by Golden Constructions without paying for it.
Mr Wu submits that the primary judge was also correct in declining to make a final determination of the limitation issues. He points out that the limitation issues are a matter for defence and reply, but no such pleadings have yet been filed in response to the proposed amended statement of claim. He submits that a court should always be reluctant to determine limitation defences in interlocutory proceedings except in the clearest of cases.
Mr Wu submits that the primary judge’s finding that Mr Li and Ms Chen had engaged in conduct which arguably amounted to deliberate concealment for the purpose of s 33 of the Limitation Act was open to her Honour. He submits that the applicant’s submission that the primary judge had never made the finding that there was even arguably a deliberate concealment is quite wrong.

The Court has an inherent jurisdiction to authorise a creditor or contributory of a company in liquidation to bring proceedings in the company’s name: Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252; Vouris as liquidator of Cadima Express Pty Ltd v Deputy Commissioner of Taxation (1999) 33 ACSR 527 at [42]. The inherent jurisdiction is an aspect of the Court’s supervisory jurisdiction over liquidators: Re Featherston Resources Pty Ltd; Tetley & Ors v Weston & Ors [2014] NSWSC 1139; 288 FLR 265 at [35].
Mr Wu’s application to bring the derivative proceeding was made in the inherent jurisdiction of the Court, and not under s 237 of the Corporations Act 2001 (Cth) (Corporations Act). That was because Golden Constructions is in liquidation, and the settled view is now that s 237 has no application to a company in liquidation: Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; 245 ALR 780 at [124], [125] (Chahwan).
The Court’s discretion to allow a derivative proceeding to be commenced is exercised according to all the circumstances of the case: see Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [369]. However, as Barrett J observed in Carpenter at [34], attention is focused on three main matters, namely:
The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success. 2. The attitude of the liquidator to the question whether the proceedings should be pursued. 3. The question whether “practical considerations support the initiation of the proceedings”, with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.
In Challis v Hoffmann [2017] NSWSC 870; 121 ACSR 585 at [28]–[29], Gleeson JA emphasised that the matters identified in Carpenter are not exhaustive.
In the present case, the argument before the primary judge focused principally upon the first of the matters identified in Carpenter, although, as her Honour recognised, there was overlap with the second and third matters. In Carpenter, Barrett J at [30] regarded the requirement that the proposed proceedings have a “solid foundation” as “indicating, as a practical matter, that there are reasonable prospects of success and some tangible benefit is genuinely in prospect.” The plaintiff must provide sufficient material to enable the Court to determine that there is a serious question to be tried: Re Karinya Haulage Pty Limited [2017] NSWSC 888 at [12].

Proceedings will be an abuse of process if they are brought, not to vindicate a legal right, but to effect some purpose outside the ambit of the legal claim the court is asked to adjudicate: Varawa v Howard Smith & Co Ltd (1910) 13 CLR 35 at 91; Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; 87 FCR 134 at [64].
In Williams v Spautz (1992) 174 CLR 509 (Williams v Spautz), the majority of the High Court held at 526 that, “the purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event”. Their Honours held, at 526-527, that proceedings will constitute an abuse of process, “when the purpose of bringing them is not to prosecute them to a conclusion, but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers.” Their Honours also held, at 529, that for there to be an abuse of process, the improper purpose must be “the predominant purpose.”
Although the issue of “good faith” in the sense described in Swansson and Chahwan arises under s 237 of the Corporations Act, it may readily be accepted that it is also relevant in the exercise of the inherent jurisdiction. No court would grant leave to commence proceedings that would constitute an abuse of process.
Mr Li has raised two principal arguments. The first is that the primary judge applied an objective test of “good faith”, rather than a subjective test. Mr Li relies particularly upon the primary judge’s statement that the potential personal benefit to Mr Wu from the derivative proceeding, “does not result in the proceedings being unreasonable so as to constitute a lack of good faith”.
While Swansson and Chahwan describe two interrelated factors in determining whether the proceedings are brought in good faith, the focus in this appeal is on the second of these factors—whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process. The issue of an applicant’s purpose must be determined on a subjective basis: cf Williams v Spautz at 532.
An applicant’s assertion of his or her purpose in bringing the proceedings is admissible but not conclusive: Williams v Spautz at 532. Such an assertion must carry limited weight. An obvious way of testing the applicant’s assertion of a proper purpose against the respondent’s assertion of an improper one is to compare the assertions with the undisputed or accepted evidence. Consideration of how a reasonable person would act in the circumstances will usually illuminate the subjective purpose of the applicant in seeking to bring a derivative proceeding.
In our view, that is the exercise the primary judge embarked upon in this case. Mr Wu deposed that his purpose was to, “preserve my rights in the event that the Court ultimately finds that the Assignment was ineffective”. Her Honour considered Mr Li’s submission that, “the true reason the plaintiff is seeking to pursue a derivative proceeding on behalf of the company in this Court is to seek to create a basis (or some other reason) for defending any fresh bankruptcy notice and creditor’s petition”. Her Honour assessed whether Mr Wu was bringing the proceeding in good faith by comparing his asserted purpose against the available evidence. One aspect of her Honour’s consideration was to examine whether a reasonable person in Mr Wu’s circumstances would seek to prosecute the proceeding to a conclusion. The circumstances included the fact that Mr Wu had already commenced proceedings in his own name, the pleading in the defence of the non-assignment clause in the Building Contract and the respective benefits that Mr Wu and Golden Constructions stood to derive from the derivative proceeding. These matters will be discussed in more detail later. For present circumstances, it is enough to conclude that her Honour applied a subjective test, not an objective one, to the issue of good faith.
Mr Li’s second principal argument is that the primary judge reached the wrong conclusion upon the issue of good faith, and that the Court should reach a contrary conclusion in the appeal. As part of that argument, he submits that her Honour made several subsidiary errors. These include taking into account irrelevant matters (that Mr Wu had already brought proceedings and the validity of the assignment) and failing to address the submission that Mr Wu’s conduct of his proceeding demonstrated that his purpose was to create a defence for the bankruptcy proceedings. It is convenient to begin by considering the primary judge’s approach and to address the subsidiary arguments in the course of that consideration.
Her Honour accepted that there would undoubtedly be a personal benefit, separate to the benefit to Golden Constructions, to Mr Wu from bringing the proceedings. Under the Deed of Assignment and the Deed of Agreement, he will take 95% of any net proceeds he recovers from the derivative proceeding. However, her Honour considered that such a benefit was a consequence of the lawful assignment of the causes of action by the liquidator.
Mr Li submits that the validity of the assignment by the liquidator is irrelevant, and her Honour erred by taking that matter into account. Before her Honour, Mr Li had submitted that the true “illegitimate” reason Mr Wu sought to pursue the derivative proceeding was to create a basis for defending any fresh bankruptcy proceedings. However, Mr Wu contended that, as a result of the assignment, both he and Golden Constructions’ creditors stood to benefit from the potential proceeds of the derivative proceeding. Any such benefit was relevant to considering whether Mr Wu’s true purpose was merely to create a defence to future bankruptcy proceedings, or to prosecute the derivative proceeding to a conclusion. In our view, the assignment and its validity were therefore plainly relevant to the issue of abuse of process.
Mr Li also submits that the question of law involved in the validity of the assignment could not be imputed to Mr Wu as a factor in his commercial or forensic calculus in bringing the application. By this, Mr Li appears to mean that Mr Wu would not understand that the non-assignment clause meant that Golden Constructions would have to bring the proceeding, so that Mr Wu must have been seeking to bring the derivative proceeding for a different purpose, namely to create a defence to potential bankruptcy proceedings. However, Mr Li and Ms Chen expressly pleaded in their defence that the assignment to Mr Wu without their consent was invalid. Mr Wu is represented and advised by lawyers who plainly understand the issue raised by the defence. It seems obvious that, by commencing the derivative proceeding, Mr Wu seeks to avoid the effect of the non-assignment clause.
The primary judge took into account the liquidator’s evidence that it was in the interests of Golden Construction’s creditors for Mr Wu to pursue the proposed claims. Her Honour observed that in a slightly different context, it had been held in Hall v Poolman [2009] NSWCA 64; 75 NSWLR 99 at [147], that the fact a liquidator has seen fit to agree that the plaintiff who funds the litigation will retain the majority of proceeds, does not necessarily result in the proceedings being so unreasonable as to constitute a lack of good faith. The liquidator considered that the company may receive approximately $150,000 plus interest. The liquidator’s evidence was that, in circumstances where he lacks the funds to pursue the claims against Mr Li and Ms Chen, the derivative proceeding provided the only prospect of providing a return to creditors.
The primary judge considered it significant that Mr Wu had entered a deed of indemnity, indemnifying the liquidator and Golden Constructions against any adverse costs orders in the derivative proceeding. In the context of considering whether practical considerations supported a grant of leave, her Honour rejected Mr Li’s submission that, given Mr Wu’s financial position, the indemnity was worthless. The evidence disclosed that Mr Wu’s wife was helping with the funding of the litigation, that $70,000 had already been paid into the liquidator’s solicitor’s trust account and, under the terms of the Deed of Assignment, the liquidator was able to make demand for such other sums as the liquidator considered appropriate. Her Honour gave Mr Li and Ms Chen liberty to apply to revoke the grant of leave if Mr Wu fails to provide additional security upon request from the liquidator, acting reasonably. The primary judge considered that the indemnity provided by Mr Wu to the liquidator and Golden Constructions against adverse costs orders in the derivative proceeding added weight to the genuineness of Mr Wu’s purpose in commencing the proceedings.
The primary judge also considered it significant that Mr Wu was already prosecuting proceedings on his own behalf under the Building Contract and for the alleged loans. Her Honour found that Mr Wu’s purpose in bringing the derivative proceeding was to take account of the possibility of the non-assignment clause of the Building Contract being construed against him in the proceedings on foot.
Mr Li submits that it is irrelevant that Mr Wu had already brought proceedings in his own name. In our view, that was a matter plainly relevant to consideration of Mr Li’s submission that Mr Wu’s predominant purpose in bringing the derivative proceeding was to create a defence to future bankruptcy proceedings. It was relevant because the outcome of any claim under the Building Contract depended, or could depend, upon whether leave was given to bring the derivative proceeding. The defence had pleaded that the assignment was invalid because of the non-assignment clause in the Building Contract. That strongly suggests that the purpose of the derivative proceeding is to allow the proceedings already commenced to be prosecuted to a successful conclusion in a different form, rather than merely creating a defence to future bankruptcy proceedings.
Mr Li submits that the primary judge failed to address the case that he actually put, that Mr Wu had been consistently resisting Mr Li’s efforts to recover the judgment sum, and that Mr Wu had only sought to advance the present proceedings when prompted by the need to stave off the bankruptcy proceedings. Mr Li submits that this history demonstrates that Mr Wu’s purpose in bringing the derivative proceeding is to create a defence to the bankruptcy proceedings.
The primary judge described the history of the bankruptcy proceedings. It is true that the primary judge did not expressly examine the manner of Mr Wu’s conduct of his existing proceedings. However, it is not evident from the transcript of the hearing before the primary judge that this argument was put in the same way and with the same emphasis as it was on appeal. The relevant passages of the transcript of the hearing before the primary judge occupy only half-a-page.
In any event, we do not accept that consideration of Mr Li’s argument that Mr Wu conducted the existing litigation in a way designed to stave off bankruptcy proceedings makes any difference to the outcome. While there are no bankruptcy proceedings presently on foot, there would obviously be a close connection between the derivative proceeding and any bankruptcy proceedings that may be brought by Mr Li. The effect of s 40(1)(g) of the Bankruptcy Act is that a debtor may have a bankruptcy notice set aside if he or she demonstrates a counter-claim, set-off or cross demand that could not have been set up in the proceeding in which the judgment was obtained. Further, under s 52(2) of the Bankruptcy Act, if the court exercising bankruptcy jurisdiction is satisfied by the debtor that “for other sufficient cause” a sequestration order ought not be made, it may dismiss the creditor’s petition. The Federal Circuit Court declined to dismiss Mr Li’s creditor’s petition on 4 November 2016, because, amongst other things, it was satisfied that Mr Wu’s likelihood of success on the Building Contract claim was poor because of the non-assignment clause (the creditor’s petition was later dismissed upon appeal because it had expired).
If, after leave were granted to commence the derivative proceeding, Mr Li brought fresh bankruptcy proceedings upon the judgment debt, those proceedings may well fail. The reason is that Mr Wu could demonstrate that he may recover an amount greater than the judgment debt as a result of the assignment and the derivative proceeding. That exposes the connection between the derivative proceeding and potential bankruptcy proceedings, and their connection with Mr Wu’s purpose or purposes. By succeeding in the derivative proceeding, Mr Wu would have not only the benefit of 95% of the net proceeds (the judgment sum could be up to $3,380,995 on the liquidator’s estimation), but could avoid bankruptcy upon the judgment debt obtained by Mr Li against him. The former purpose must be at least as important a purpose of prosecuting the derivative proceeding as the latter. Even if having a purpose of setting up a defence to potential bankruptcy proceedings is an illegitimate collateral purpose, it cannot be regarded as Mr Wu’s predominant purpose. Further, Golden Constructions interests coincide with those of Mr Wu—both would benefit from the successful prosecution of the derivative proceeding.
Leaving aside the issue of the limitation period for the moment, there is no reason to doubt that there are reasonable prospects of success in the derivative proceeding. Mr Li and Ms Chen appear to have had the benefit of having their residence constructed by Golden Constructions without paying for it. Golden Constructions also appears to have made payments to Mr Li recorded as a loan in the company’s accounts. Such prospects of success and the prospect of a substantial return provide Mr Wu with an incentive to prosecute the derivative proceeding to its conclusion.
We can see no error in the primary judge’s conclusions that Mr Wu’s prosecution of the derivative proceeding would be in good faith, and that its commencement would not be an abuse of process. The first ground must be rejected.

Mr Wu argues that Mr Li and Ms Chen deliberately concealed a fact relevant to a cause of action or the identity of persons against whom the cause of action lies. The fact alleged to be concealed was that Mr Li and Ms Chen were parties to the Building Contract.
On 30 March 2012, the liquidator’s solicitors wrote to the solicitors for Mr Li and Ms Chen asking, “does your client deny that it engaged the Company to undertaken construction works at the O’Malley site?” In a letter dated 19 October 2012, Mr Li and Ms Chen’s solicitors responded saying that, “Ms Chen’s evidence at her examination was that she did not sign the construction contract”. The letter went onto say that, “it is entirely conceivable that the contract was fraudulently entered into without the knowledge of either Mr Li or Ms Chen”. In an affidavit affirmed on 16 November 2015, Mr Li and Ms Chen’s solicitor deposed that Mr Li’s defence to Mr Wu’s proceedings would include, “a denial of the existence of construction contract, as alleged by the respondent, between Golden Constructions, the applicant and Hong Chen”.
However, in their defence to Mr Wu’s proceeding filed on 16 March 2016, Mr Li and Ms Chen admitted that they entered into the Building Contract.
Mr Wu alleges that through the correspondence to the liquidator’s solicitors, Mr Li and Ms Chen concealed the fact that they were parties to the Building Contract. Mr Wu submits that this was a deliberate concealment of a relevant fact or the identity of persons against whom an action lies for the purpose of s 33(1)(b) of the Limitation Act. He submits that the effect is that the time that expired between that concealment (19 October 2012) and the filing of the defence (16 March 2016) does not count in the reckoning of the limitation period.
Mr Li submits that the primary judge erred by characterising Mr Wu’s proposition as giving rise to a factual controversy, when it was a purely legal issue. He submits that Mr Wu pleaded in his statement of claim that Golden Constructions entered into the Building Contract with Mr Li and Ms Chen, and that the contract was executed by Ms Chen on her own account and as agent for Mr Li. Mr Li submits that Mr Wu must clearly have had an evidential basis for making that allegation, which was made before the defence was filed. Mr Li argues that, accordingly, it was known to Mr Wu at all relevant times that Mr Li and Ms Chen were parties to the Building Contract. He argues that s 33(2) of the Limitation Act did not operate to suspend the limitation period.
The problem with Mr Li’s submission is that it focuses upon Mr Wu’s state of knowledge, when what is relevant is the knowledge or means of knowledge of the liquidator. Section 33(1) of the Limitation Act refers to the suspension of the limitation period between the date “a person having…the cause of action” first discovers, or may with reasonable diligence discover, the concealment. Golden Constructions went into liquidation on 30 June 2011. The alleged concealment occurred after that date. The person “having…the cause of action” at those times was the liquidator, not Mr Wu. Accordingly, assuming deliberate concealment, it was necessary for the primary judge to consider when the liquidator first discovered, or could with reasonable diligence have discovered, the concealment.
There are both factual and legal issues involved in the determination of Mr Wu’s claim that s 33(1) of the Limitation Act applies. The factual issues include whether there was a deliberate concealment and the liquidator’s state of knowledge and means of knowledge. Mr Wu’s argument that there was a deliberate concealment by Mr Li and Ms Chen of the fact that they were parties to the Building Contract is at least arguable. In our opinion, the primary judge did not err in concluding that the factual issues involved meant that no conclusion could be reached that the limitation period had expired in respect of the proposed derivative action based upon the Building Contract.
The primary judge gave Mr Wu leave to commence a derivative proceeding, not only in respect of Golden Constructions’ claims under the Building Contract, but also in respect of the alleged loan to Mr Li. Her Honour considered that it was not possible to conclusively find that the limitation period had expired in respect of the alleged loan. That conclusion is challenged by Mr Li in the appeal.
It is unnecessary to consider the correctness of that conclusion because there is another reason to conclude that leave should not have been granted to commence a derivative proceeding in respect of the alleged loan. The non-assignment clause in cl 18(a) of the Building Contract applies only to the assignment of rights or obligations under that contract. That clause does not apply to the alleged loan. Her Honour expressed doubt about the necessity to join Golden Constructions to the proceedings on the basis that doing so was, “irrelevant to the claim based on a loan to [Mr Li], because that claim does not arise under the Building Contract”. Her Honour also noted that in oral submissions, that Mr Li and Ms Chen accepted that there was no barrier to the assignment of the loan and had submitted, on that basis, that the claim by Golden Constructions did not have a solid foundation because the proper plaintiff was Mr Wu. Her Honour rejected that submission on that following basis: