Plaintiff v Defendant

(a) Lindsay Quentin Hogg, the managing director of Poly Pacific;

(b) Nigel Christopher Chandler, a director of Poly Pacific; and

2 The application is made pursuant to s 237 of the Corporations Act 2001 (the Act).

3 The application is supported by the affidavit of Barry Martin Kelly sworn 16 October 2013. Mr Kelly is the managing director of LBA. In 1980, Mirlex Pty Ltd (Mirlex) and LBA entered into a joint venture to manufacture and market polypropylene compounded products. Fifty per cent of the shares in Poly Pacific are owned by Mirlex, and the other fifty per cent were owned by Shell Chemical (Australia) Pty Ltd, but are now owned by LBA.

4 The Board of Poly Pacific comprises three directors appointed by Mirlex and three appointed by LBA. The Mirlex nominees are Mr Hogg, Mr Chandler and Miranda Hogg (a daughter of Mr Hogg). The nominees of LBA are Mr Kelly, Geoffrey Hodges and Michael Pohl. Mirlex has as its directors Mr Hogg, Mr Chandler and Mr Boulter. Mirlex has two shareholders; Mr Hogg and Mirlex Australia Pty Ltd. The directors of Mirlex Australia are Mr Hogg, Mr Chandler and Mr Boulter. The shareholders of Mirlex Australia are Mr Hogg and Mr Boulter.

5 Mr Hogg is the managing director of each of Poly Pacific, Mirlex and Mirlex Australia. Mr Hogg holds his position as managing director of Poly Pacific under a managing directors agreement that is undated. Mr Kelly believes it was entered into in about August 1982.

6 Mr Chandler is the financial controller of Poly Pacific.

7 Since at least August 1982, Mirlex Australia has provided to Poly Pacific the services and facilities necessary for the conduct of Poly Pacific's business, including general administration and accounting services, supply of material handling functions and sales and marketing (including customer services). From at least 2008 until about June 2011, Mirlex Australia invoiced Poly Pacific for the monthly services provided to Poly Pacific.

8 From July 2011, Mirlex Australia has increased the monthly services charge by about $300,000. The charge had previously been $295,000-odd per month for the period July 2010 to June 2011.

9 Mr Kelly says that LBA were first informed of the increase in September 2011. Since September 2011 to date, Mirlex Australia has continued to issue invoices for the monthly services charges in amounts greater than the sums which had been invoiced during the period to June 2011.

10 Mr Kelly says that the board of Poly Pacific has not approved any increase in the monthly services charge with respect to the period since July 2011.

11 Mr Kelly estimates that between July 2007 and September 2013, Poly Pacific paid Mirlex Australia a total of $15,979,325 by way of monthly services charged, in comparison with the monthly services charge of $295,025.50 per month for the period July 2010 to June 2011. Mr Kelly says that the total payments of $15,979,325 represent a total increase in the amount paid by Poly Pacific to Mirlex Australia of approximately $8,013,636.50.

12 Under the joint venture agreement arrangement, LBA supplies polypropylene to Poly Pacific. In about 2011, prior to Mirlex Australia increasing the monthly services charge, LBA increased the price at which it supplied polypropylene to Poly Pacific. As will be discussed later, the increase in the charge for the monthly services by Mirlex Australia has been prompted by, and is in retaliation for, the increase by LBA in its pricing of the supply of polypropylene to Poly Pacific.

13 LBA asked Mirlex Australia to provide a breakdown of the costs and allocation process justifying the increase in the service charge paid by Poly Pacific. Mr Chandler, the CFO of Poly Pacific, refused to supply the information on the basis that Poly Pacific had not been privy to the breakdown of LBA's pricing of polypropylene to Poly Pacific.

14 At a board meeting of Poly Pacific held on 18 November 2011, the increased charges for both polypropylene and the service charges were discussed. The meeting was attended by Mr Hogg, Ms Hogg and Mr Chandler, representing Mirlex, and Mr von Ilsemann and Mr Larrass representing LBA. According to the minutes, at the meeting, Mr Larrass tabled copies of a number of Poly Pacific agreements, including the All Parties Agreement, Mirlex Services Agreement, Supply Agreement and Managed Directors Agreement, which he had obtained from LBA Melbourne. The minutes record that Mr Chandler confirmed that the All Parties Agreement, Mirlex Service Agreement and Supply Agreement were no longer current and that the Poly Pacific Compound Consolidated Licence Agreement and Distribution Agreement were the only other formal related party agreements which were current.

15 The minutes record that the LBA directors explained the requirement from the LBA perspective of having the agreements in place, particularly a shareholders agreement. The minutes record that Mr Chandler said that there had not previously been a formal shareholders' agreement, however in approximately 2005 an attempt was made to put one in place, but (after discussions) agreement could not be reached.

16 The minutes record that in discussing the Mirlex service charge, the LBA directors expressed the need to understand the details of the Mirlex charge and the reason for such a large increase. In responding, the minutes note that Mr Hogg referred to LBA's decision to increase the polypropylene prices to Poly Pacific to third party pricing, based on Bob Pattel's direction. Mr Hogg apparently said that this was an arbitrary decision which ignored the pricing arrangement that had been in existence since the commencement of Poly Pacific. The minutes note that he said that no respect was given to, or consultation made with, the other shareholder when LBA implemented the change.

17 Mr Hogg is recorded as saying that, as a result, Mirlex had also taken a third party view and had re-assessed the value of its contribution and charge to Poly Pacific.

18 Mr Chandler said that the basis of the pricing arrangement between Poly Pacific and LBA was formulated at the commencement of Poly Pacific. He said it recognised and gave due consideration to the inputs brought to the joint venture by Mirlex/Hogg in terms of management, compounding technology, product formulations, market and reputation. Mr Chandler said that whilst the original shareholders had chosen, for certain reasons, not to formally record the agreement, the parties had understood the basis of the arrangement through their conduct and performance since Poly Pacific's inception in 1980.

19 The essence of Mirlex's complaint about the conduct of LBA was as follows: LBA had changed its pricing policy whereby Poly Pacific was charged as if it was a spot price third party customer, rather than under the discounts that had previously applied in the supply by LBA to Poly Pacific.

20 The minutes record that Mr Hogg described the pricing of LBA to Poly Pacific as being on four pillars: "at LBA's discretion, no formulae, no negotiation, and take it or leave it."

21 There was further discussion about Mirlex's charges and, after that, it was agreed that Mr Chandler would arrange for Mirlex to provide further details relating to the monthly service charge.

22 By an email dated 19 December 2011, Mr Chandler sent Mr von Ilsemann, Mr Larrass and Mr Kelly (the LBA-appointed directors) a document entitled "Mirlex Australia Pty Ltd, Poly Pacific Service Charge, Service Charge 2011/2012". The document set out the services provided by Mirlex Australia. The document listed certain costs totalling $6,574,000, which included $5,283,000 for remuneration and labour costs. Mr Chandler provided no breakdown of the remuneration and labour costs.

23 By an email dated 1 March 2012, Mr Larrass, on behalf of LBA, requested that Mr Chandler provide further information about the "remuneration and labour on-cost" in the document provided on 19 December 2011.

24 By an email dated 5 March 2012, Mr Chandler responded, stating that there were 17 people in the headcount under contractors that were Mirlex employees.

25 By an email dated 4 June 2012, Mr Larrass, on behalf of LBA, requested Mr Chandler to provide an explanation of the method of calculation and breakdown of service charges, and all available supporting documentation, for the financial years ending 30 June 2009, 30 June 2010, and 30 June 2011, and the 2011-2012 financial year to date.

26 By an email dated 5 June 2012, Mr Chandler informed Mr Larrass that the documents and information he had requested concerning service charges to Mirlex were proprietary information of Mirlex and not available to Poly Pacific.

27 On 27 November 2012, a meeting of the board of directors of Poly Pacific was held, attended by Messrs Larrass, Hodges and Kelly on behalf of LBA, and Mr Hogg, Ms Hogg and Mr Chandler on behalf of Mirlex. The minutes record that the Mirlex service charge was discussed at length. Mr Hodges, on behalf of the LBA directors, expressed the opinion that the increase in the service charge was excessive and that it should have been submitted to the board. Mr Hodges accused Mr Chandler and Mr Hogg of conduct involving conflict of interest. Mr Hogg refuted the claims and reminded the meeting that the circumstances then existing had stemmed from the action initiated by LBA. Mr Hogg said that the manner in which LBA had implemented the same was deplored.

28 At the conclusion of the discussions, Mr Larrass requested that Mr Kelly read a prepared statement, a copy of which was provided to the secretary for inclusion in the minutes. The statement was as follows:

The Board members appointed by LBA are very concerned about the Mirlex Board members' conduct in connection with the service charge price increase. Because Poly Pacific management is in control of Mirlex's services, a unilateral price increase, described by Mirlex directors to be in excess of market-based costs and profit, is a blatant conflict of interest. Mirlex's increased service charge to Poly Pacific should have been brought to the Poly Pacific Board, where the non-conflicted Board members should have had an opportunity to decide whether Poly Pacific would accept the price increase based on sufficient detailed information to make such a decision. Moreover, in the months since the Board members appointed by LBA have asked for detail about the service charge price increase, Mirlex has resisted providing sufficient detail for non-conflicted Board members to compare it with market-based services. During all of this time, Mirlex and the Board members appointed by Mirlex have benefited from the price increase to the detriment of Poly Pacific.

If the Board members appointed by Mirlex continue to act in a manner detrimental to the best interests of Poly Pacific, they will leave the Board members appointed by LBA no choice but to take action in the best interests of Poly Pacific.

29 On 15 February 2013, Mr Kelly, on behalf of LBA and the LBA-appointed directors, requested that Mr Hogg advise whether Mirlex was willing to provide the information and documentation sought in Mr Larrass' email of 4 June 2012, which was for an explanation of the method of calculation and breakdown of the increase in the Mirlex service charges for the financial years ended 30 June 2009 to 30 June 2012 and all supporting documentation, by no later than 8 March 2013. Mr Kelly asked Mr Hogg that if Mirlex required Poly Pacific to make a formal request for that information and documentation, would Mr Hogg confirm by 22 February 2013 that he would agree to such a request being made.

30 By a letter dated 26 March 2013, Mr Boulter, on behalf of Mirlex and Mirlex Australia, responded to Mr Kelly's request to Mr Hogg of 15 February 2013. Mr Boulter stated, under the heading "Some background", that in June 2011, Mirlex had informed Poly Pacific that Mirlex had become aware of LBA's unilateral decision to change the basis of its pricing for the supply of polypropylene to the joint venture. Mr Chandler said that, if adopted, this change would effectively put aside certain arrangements which were established by the original shareholders of Poly Pacific at the commencement of the business in 1980. Mr Chandler said that Mirlex requested that Poly Pacific resist this change and Mirlex further advised that, in the event that LBA's proposed changes were implemented, Mirlex would have no alternative but to review its charges for the inputs to Poly Pacific provided by Mirlex through Mirlex Australia Ltd.

31 Mr Chandler said that in July 2011, as a consequence of LBA's decision to implement the changes, Mirlex advised Poly Pacific of Mirlex's decision to increase Mirlex's service charge to the joint venture.

32 Mr Chandler said that over the past 30 years, the joint venture partners had each brought to the venture benefits that were the reason why the venture was established in the first place. He said that Mirlex had manufacturing and product knowhow, together with the market expertise and reputation that enabled access to developing markets. Mr Chandler said that Mirlex had provided the management skills and resources to operate the business and made available the infrastructure from which the venture had operated. Mr Chandler said that LBA and its predecessor had supplied the primary raw material (including wide specification material to which the venture was able to add significant profit) at various discounted rates suited to a plastics compounding business. Mr Chandler said that from small beginnings it was intended that the joint venture partners would share in the fruits of their input. He said that for 30 years it had been a profitable venture for both of them.

33 Mr Chandler said that two years ago, without any consultation with Mirlex, LBA imposed a new pricing structure on the venture, basically eliminating all the discounts previously provided. Mr Chandler said that this significantly increased the venture costs of manufacture and hampered Poly Pacific's ability to compete in certain areas, reducing overall profitability. He said that the removal of the discounts only benefited LBA and LBA's interests, and was at Mirlex's expense.

34 Mr Boulter said that it was not an answer to Mirlex's complaint for LBA to say that the venture could go off and access material elsewhere, and that LBA was simply applying market principles. Mr Boulter said that it was not an answer because it ignored the principal reason based on which the venture was formed. He said that it was formed to combine the unique synergies that came with LBA supplying material at a discount and Mirlex providing infrastructure, management, resources and knowhow.

35 Mr Boulter said that once LBA changed the basis of its pricing, Mirlex did likewise and have set the price on what Mirlex supply accordingly. He said that this was no different to what LBA had done.

36 Under the heading "The Service Charge", Mr Boulter said that Mirlex revised the service charge to include a more fitting remuneration for the skills and experience brought to the business through Mr Lindsay Hogg, together with the profit from the inputs Mirlex provided to the venture. Mr Boulter said that the details of the service charge had been provided to LBA, which covered a breakdown of the amount and scope of the services provided. Mr Boulter said that the breakdown of charges was consistent with previous years, except that Mirlex had included profit in the line item remuneration and labour oncosts. Mr Boulter said that Mirlex would not provide information pertaining to their salaries and wages, and other payroll records, just as LBA would not provide Mirlex with a breakdown of all of LBA's costs for the materials LBA supplies to the venture.

37 After describing the benefits of the business, Mr Boulter said that he wanted to stress that Mirlex did not initiate the change in the charges for Mirlex's services. Mr Boulter said that this resulted in a change in LBA's attitude towards the pricing of LBA's inputs to the joint venture.

38 Mr Boulter finished his letter by saying that Mirlex wished to maintain their long-established business relationship under which Mirlex would continue to provide the level of service and facilities to the joint venture made available during that time.

39 By letter dated 28 March 2013, Mr Hogg wrote to Mr Kelly of LBA responding to Mr Kelly's letter of 15 February 2013. In the letter, Mr Hogg addressed the action taken by LBA in increasing its prices for polypropylene. Mr Hogg said that LBA put aside a pricing arrangement which had been in place since the commencement of Poly Pacific. He said that the change had a significant financial impact on Poly Pacific, not only through the increased prices, but also extending to the economical use of wide-specification material, which in itself was a major part of the business model upon which Poly Pacific was founded.

40 Mr Hogg covered in some detail the history of the increase in prices by LBA to Poly Pacific.

41 Mr Hogg said that if LBA and LBA directors were genuinely concerned about protecting the best interests of Poly Pacific, they should not have allowed LBA to implement its new pricing strategy in the manner it had done. Mr Hogg said that the price increase was implemented by LBA without any consultation with LBA's joint venture partner, whose interests were directly affected by LBA's action.

Request that Poly Pacific make a demand for repayment

42 On 26 June 2013, Ashurst, the solicitors for LBA, sent to Mr Hogg a letter requesting on behalf of LBA that Mr Hogg confirm that he would, by 4.00pm on 21 June 2013, in his capacity as a director and officer of Poly Pacific, accede to a decision of the board of directors of Poly Pacific to issue a formal demand to Mirlex Australia for repayment of $6,292,409 in increased service charges paid by Poly Pacific, or that Mr Hogg excuse himself from the board's discussions and making of that decision, failing which LBA would have no choice but to take legal action to recover those amounts for Poly Pacific.

43 In the Ashurst letter, Ashurst assert that it is in Poly Pacific's interest that it make a demand on Mirlex Australia for repayment of the sum of $6,292,409, and that if the Mirlex directors refused to do so, that they were acting in their own interests rather than in the interests of Poly Pacific.

44 On 21 June 2013, Kenna Teasdale Lawyers responded to Ashurst on behalf of Mr Hogg.

45 On 9 July 2013, Ashurst sent to Kenna Teasdale a letter in which Ashurst demanded on behalf of LBA that Poly Pacific make a formal demand of Mirlex Australia for repayment of the increased service charges paid by Poly Pacific.

46 On 24 July 2013, Kenna Teasdale responded to Ashurst's letter of 21 June. They confirmed that they acted for Mr Hogg and they confirmed their instructions to accept service of any proceedings from Mr Hogg, Mr Chandler, Ms Hogg, Mirlex Pty Ltd and Mirlex Australia Pty Ltd.

47 Kenna Teasdale confirmed that the Mirlex-appointed directors considered that it was not in the best interests of Poly Pacific to serve the demand foreshadowed in Ashurst's letter of 9 July 2013.

48 Ashurst said that its client was fully aware of the unilateral decision made by LBA, communicated through its director, Mr Kelly, on 31 March 2011, to have any further supply agreement with Poly Pacific done on a third party basis. Kenna Teasdale said that this was in stark contrast to the consideration given to Poly Pacific over the previous 30 plus years. Kenna Teasdale said that at one point during the discussion, Mr Mewing (who accompanied Mr Kelly) looked at Mr Hogg across the table and said: "No matter what you say, Lindsay, your prices are going up".

49 Mr Kelly deposes in his affidavit that, on the basis of the matters referred to above, he believes that it is unlikely that Poly Pacific will bring proceedings against Mr Hogg, Mr Chandler or Mirlex Australia to seek to recover amounts which reflect the increase in the monthly service charge with respect to the period from July 2011 to date. Mr Kelly also believes that the increase in the monthly service charges were charged by Mirlex Australia in response to an increase by LBA in prices charged for polypropylene supplied to Poly Pacific, to provide a high level of remuneration to Mr Hogg, and to increase profit earned by Mirlex Australia. Mr Kelly says that he believes that Mr Hogg and Mr Chandler caused Poly Pacific to pay increased monthly charges:

(i) in circumstances where there was no information available to Poly Pacific to properly explain the basis for the increase;

(ii) without any or any proper consideration by Poly Pacific as to the basis for the increase, what the increase comprised, or whether the increase was commercially justified or in the best interests of Poly Pacific;

(iii) in respect to the increased monthly services charged for July 2011 and August 2011, without the knowledge of the board;

(iv) in relation to all the increases from July 2011 to date, without any authority having been sought or obtained from the board; and

(v) notwithstanding Mr Hogg did not have authority to do so as managing director of Poly Pacific.

50 Mr Kelly says that he believes that Poly Pacific has received (and continues to receive) no, or no material, benefit from paying the increased monthly service charges. He says that he believes that the payments of the increases are not in Poly Pacific's best interests. He says that by causing Poly Pacific to pay the increases, Mr Hogg and Mr Chandler conferred a benefit or advantage on Mr Hogg, Mirlex Australia and on Mirlex at the expense of, or to the detriment of, Poly Pacific. He says that he believes that Poly Pacific has a claim against Mr Hogg, Mr Chandler and Mirlex Australia for repayment with respect to the increase in the monthly service charges.

51 Mr Kelly says that on 26 September 2013, Ashurst sent to Poly Pacific notice that LBA intended to make the application and annexed a copy of a draft statement of claim.

52 Also on that date, Ashurst forwarded by email to Kenna Teasdale a copy of the letter.

53 Mr Kelly exhibits a draft statement of claim and says that if the application is allowed, LBA intends to commence proceedings against the proposed defendants by way of a statement of claim substantially in the form of the draft statement of claim.

54 Under the draft statement of claim, the plaintiff is Poly Pacific and the defendants are Mr Hogg, Mr Chandler and Mirlex Australia.

55 Poly Pacific claims against Mr Hogg and Mr Chandler:

(a) an order for compensation pursuant to s 1317H of the Act;

(c) further or alternatively, equitable compensation.

56 As against Mirlex Australia, Poly Pacific seeks as follows:

(a) a declaration that Mirlex Australia holds the overpayments on trust for Poly Pacific;

(b) alternatively, an account of all profits made by Mirlex Australia from its receipt of the overpayments;

57 The overpayments are defined as the alleged overpayment to Mirlex of $8,013,636.50.

58 The statement of claim sets out the demands and counterclaims, and alleges duties owed by the directors. Poly Pacific alleges breaches of statutory and fiduciary duties by Mr Hogg and Mr Chandler. As a result of the alleged breaches of duties by the directors, it claims damages to the extent of the overpayments.

59 The statement of claim alleges that, by reason of the alleged breaches of the fiduciary duty by Mr Hogg and Mr Chandler, Poly Pacific had suffered loss and damage and that Mirlex Australia had received the overpayments with knowledge of the breaches of fiduciary duties, that Mirlex Australia had profited at the expense of Poly Pacific, that Poly Pacific was entitled to an account of profits, and that Mirlex held the overpayments pursuant to a constructive trust.

60 When the matter came on before me, I was informed that the solicitors for the proposed defendants, Kenna Teasdale, had consented to the orders and signed draft orders, which were tendered. Under the consent orders, LBA, by its counsel, would give the following undertaking:

(a) subject to any order regarding payment of Poly Pacific Pty Ltd's costs by any of the defendants to the proceeding in respect of which leave is sought pursuant to s 237 of the Act, to agree to pay the costs incurred by Poly Pacific Pty Ltd in respect of the proposed proceeding; and

(b) to indemnify Poly Pacific Pty Ltd in respect of any adverse costs order that may be made against it in the proposed proceeding.

61 The consent orders then provided for the following orders:

(1) Pursuant to s 237 of the Corporations Act 2001, the plaintiff has leave to bring proceedings on behalf of Poly Pacific Pty Ltd against Mr Lindsay Quentin Hogg, Mr Nigel Christopher Chandler and Mirlex Australia Pty Ltd, the statement of claim to be substantially in the form comprising Exhibit BMK-30 to the affidavit of Barry Martin Kelly sworn 16 October 2013.

(2) Costs of and incidental to the originating process dated 18 October 2013 be reserved.

62 Section 236(1) of the Act provides:

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:

(i) a member ... of the company or of a related body corporate; or

(b) the person is acting with leave granted under section 237.

63 Section 237 of the Act provides:

(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.

64 Section 237 was recently considered by Derham AsJ in Suh v Cho,[1] where his Honour summarised the principles relevant to an application for leave under s 237 as follows:

(a) The word "must" in s 237(2) makes plain that if all five criteria are satisfied, the Court is bound to grant the application: Carpenter v Pioneer Park Pty Ltd (in liq);[2] Fiduciary Limited v Morningstar Research Pty Ltd;[3] Maher v Honeysett & Maher Electrical Contractors;[4]

(b) The cumulative structure of s 237(2) (with "and" at the end of each criteria in (a) to (d)), the structure of s 237 as a whole, including the rebuttable presumption in ss 237(3), and the discretion in ss 237(e)(ii), and the nature of the criteria, supports the view that s 237(2) was intended to prescribe the circumstances which must be satisfied before leave is granted, and not to leave open any residual discretion to grant leave if one or more of them were not satisfied: Maher v Harvey Honeyset[t] & Maher Electronical Contractors Pty Ltd[5] per Brereton J;

(c) A consequence of the conclusion that, if all five criteria are satisfied leave must be granted, and that otherwise leave must be refused, is that the relevant considerations are limited to the five specified criteria: Maher v Harvey Honeyset[t] & Maher Electronical Contractors Pty Ltd[6] per Brereton J;

(d) The burden of satisfying the Court, on the balance of probabilities, that each criterion specified in s 237(2) has been satisfied is on the applicant;[7]

(e) In deciding whether or not to grant leave under this section, a pragmatic and practical approach is to be adopted;[8]

(f) [L]eave may be granted nunc pro tunc (now for then), that is after proceedings have been commenced purportedly in the name of the company, so that the leave is taken to have been given as at the date of the commencement of the proceeding: RTP Holdings Pty Ltd v Roberts;[9] Maher v Honeysett & Maher Electrical Contractors;[10] South Johnstone Mill Ltd v Dennis;[11] Re Brighter Directions Pty Ltd;[12]

(g) [L]eave may be granted upon terms: Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732; [2005] NSWSC 442 at [16] per Austin J.

65 I will examine each of the cumulative criteria of s 237(2) in turn.

66 The first criteria is that the Court must be satisfied that it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them. As is apparent from the facts outlined above, the plaintiff has established this element on the balance of probabilities.

67 The second criteria requires that the court to be satisfied of two matters:

(a) that the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success; and

(b) that the applicant is seeking to bring the derivative action for some collateral purpose that would amount to an abuse of process.[13]

68 In essence, the dispute is between the joint venture partners. On the one hand, LBA increased the price of its product to Poly Pacific in 2011 without any negotiation or discussion, despite for some 30 years of selling to Poly Pacific at a discount. It replaced the price payable by Poly Pacific with the price payable by third party on spot sales. In response, Mirlex Australia increased the service charge to Poly Pacific. There is no dispute between the parties that the increase in the service charge was motivated solely by the desire of Mirlex to respond to the increase in the price of polypropylene charged by LBA to Poly Pacific. It is apparent that a genuine dispute exists between the joint ventures partners (albeit not so serious as to have led to a breakdown in their ongoing and still profitable relationship). LBA also pointed to its substantial shareholding in Poly Pacific, which shareholding would increase in value if the proposed proceeding were successful, and its legitimate interest in ensuring the welfare and good management of Poly Pacific. I am satisfied that LBA honestly believes that a good cause of action exists and has a reasonable prospect of success.

69 There was no evidence to suggest that the derivative action for which leave is sought was motivated by a collateral purpose which would amount to an abuse of process.[14] Poly Pacific was on notice of the application (see below) and chose not to appear; indeed, it signed minutes of consent orders the effect of which was not opposing the grant of leave for the derivative action. At the hearing of the application, I made inquiries as to whether there was another means of settling this dispute, for example by arbitration (arbitration clauses being often included in joint venture agreements). I was informed (as noted above) that the joint venture agreement had expired, and (upon inquiries being made) that - in any event - it did not include an arbitration clause. In these circumstances, on the balance of probabilities, I find that LBA is not seeking to bring the derivative action for some collateral purpose that would amount to an abuse of process.

Is it in the best interests of the company that the applicant be granted leave?

70 As is apparent from the factual background outlined above, there is an ongoing dispute which it is desirable to resolve. Counsel directed me to the apposite observation of Austin J in Fiduciary v Morningstar Research:[15]

It seems to me that, where the company in question is a joint-venture vehicle and one of the venturers alleges that the other has acted unlawfully causing the company loss, it will usually be appropriate to allow the complaining venturer to bring proceedings in the company's name against the other venturer and its representatives on the board, even though there are no other shareholding interests than those of the litigants and the effect of success of the litigation will be indirectly to benefit the complaining venturer proportionately to its shareholding.

71 LBA submits, and I accept, that Poly Pacific is akin to a joint venture vehicle and there is presently a dispute between the shareholders of Poly Pacific, which will be ventilated in the proposed proceeding. The proposed proceeding is likely to vindicate the position of one of the shareholders in relation to the dispute.

72 LBA has also proffered to give undertakings (as outlined above) to protect Poly Pacific from potential adverse cost consequences flowing from the contemplated proceeding.

73 For the above reasons, I find this criteria satisfied on the balance of probabilities.

74 On the basis of the material produced in court supporting the facts outlined above, I find this criterion to be satisfied.

Did the applicant give written notice to the company of the intention to apply for leave and of the reasons for applying?

75 By letter sent on 26 September 2013, Poly Pacific was given 14 days' notice of LBA's intention to apply for leave to bring proceedings in the name of Poly Pacific substantially in the form of the draft statement of claim enclosed with the letter. A copy of the letter was sent to the solicitors for the defendants in the proposed proceeding, who in subsequent correspondence confirmed that the required notice was given to Poly Pacific. I find this criterion to be satisfied.

76 For the above reasons, I am satisfied of the requirements set out in s 237(2) of the Act. I would therefore allow the application, and - upon counsel proffering the foreshadowed undertakings - make the orders sought, save that the proceeding be instituted by originating process supported by an affidavit substantially in the form of Mr Kelly's affidavit of 16 October 2013 (in accordance with the Corporations Rules). If pleadings are sought, that matter may be raised at the first directions hearing, although such a direction may not be made as the usual procedure in the Corporations List is to provide for points of claim and defence rather than pleadings.

[1] [2013] VSC 491, [26] (emphasis original) (citations edited).

[2] [2004] NSWSC 1007; (2004) 211 ALR 457, [31].

[3] [2005] NSWSC 442, [16] (Austin J).

[4] [2005] NSWSC 859, [12] (Brereton J).

[7] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, 318 ([24]); [2002] NSWSC 583; Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132, 143 ([69]); Fernandez v True Value Solar Holdings Pty Ltd [2012] VSC 430, [12].

[8] Herbert v Redemption Investments Ltd [2002] QSC 340, [32] (MacKenzie J).

[9] [2000] SASC 386; (2000) 36 ACSR 170, 174-5 ([27]-[29]).

[10] [2005] NSWSC 859, [17] (Brereton J).

[11] (2007) 163 FCR 343; [2007] FCA 1448 (Middleton J).

[12] [2010] VSC 287, [28].

[13] Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSC 313, [36]-[37]; Suh v Cho [2013] VSC 491, [32].

[15] (2005) 53 ACSR 732; [2005] NSWSC 743, [47].