Plaintiff v Defendant

2 Briefly, in the Primary Proceeding Orico Australia claims damages, alternatively equitable compensation, and other relief against Mr Xu in connection with alleged breaches of the terms of his employment agreement with Orico Australia and alleged breaches of fiduciary duty said to be owed by Mr Xu to Orico Australia as an employee. The breaches relate to allegations that, whilst still an employee of Orico Australia, Mr Xu was involved in setting up and becoming a director and 50 per cent shareholder of a competitor company, Orico Australia and New Zealand Pty Ltd (ACN 611 873 477) (Orico ANZ), and that using company information he diverted major customers of Orico Australia to Orico ANZ. Further details of these claims are referred to later in these reasons.

3 Ms Biyu Jin (Ms Jin) is the other director and 50 per cent shareholder of Orico Australia. She is also Mr Xu's wife. Ms Jin opposes the application and contends that the criteria in s 237(2) of the Act have not been satisfied. In particular, Ms Jin contends that Ms Zhu has not established that she is acting in good faith, that the grant of leave is in the best interests of Orico Australia, or that there is a serious question to be tried in relation to the claims sought to be pursued in the Primary Proceeding.

4 For the reasons that follow, and subject to the Court receiving from Ms Zhu a satisfactory undertaking regarding paying Orico Australia's costs and expenses incurred in connection with the Primary Proceeding and indemnifying it in respect of any adverse costs orders in the Primary Proceeding, leave pursuant to s 237 of the Act will be granted nunc pro tunc to Ms Zhu to bring proceedings in respect of the claims in the Primary Proceeding on behalf of Orico Australia.

5 Ms Zhu relied upon her affidavits affirmed 16 August 2018,[1] 1 November 2018 and 1 April 2019, an affidavit of a former employee of Orico Australia, Mr Xiaoqing Zhu, affirmed 9 November 2018, and an affidavit of her solicitor, Ms Dorcia Si Hui Chia, affirmed 21 November 2018.

6 Ms Jin relied upon her affidavit affirmed 11 February 2019.

7 The parties each filed and relied upon detailed written outlines of submission filed in advance of the hearing.

8 The hearing proceeded on the affidavit material, to which no objection was taken by either party. No witnesses were called and neither party sought to cross-examine any of the deponents.

9 The background to the dispute and the application is evident from the affidavit material, submissions, and aspects of the statement of claim in the Primary Proceeding (Statement of Claim). Given the contested positions between the parties regarding various factual matters, and particularly those regarding the period of Mr Xu's employment, and the competing positions of the parties regarding the existence or otherwise of a serious question to be tried, it is appropriate to refer to the background and evidence in the affidavit so as to allow, among other things, insight into these competing positions.

10 Ms Zhu alleges that Mr Xu was employed by Orico Australia from October 2014 until 1 July 2016 to market, negotiate and sell its products to customers in Australia. Ms Jin initially contested that Mr Xu was an employee, contending that he was a consultant or contractor but, having regard to the evidence ultimately before the Court, expressly conceded that there was a serious question to be tried as to whether or not Mr Xu was an employee of Orico Australia.[2] Ms Jin contended that Mr Xu only worked with Orico Australia until about 31 March 2016.

11 The affidavit evidence relied upon by Ms Zhu included evidence to the following effect:

(a) Ms Zhu and Ms Jin are each 50 per cent shareholders of Orico Australia and its only directors.

(b) Mr Xu is Ms Jin's husband.

(c) Orico Australia was incorporated on 24 April 2014 and carried on the business of importing computer and information technology products from manufacturers in China and distributing the products to retailers in Australia.

(d) Between October 2014 and 1 July 2016 Mr Xu was an Orico Australia employee and this was supported by copies of cheque payments and superannuation payments in bank documents recording payment of 'wages'.

(e) Ms Zhu's belief that Orico Australia has a good cause of action against Mr Xu on the basis that he diverted two of Orico Australia's largest purchasers, Leader Computers Pty Ltd (Leader) and PB Technologies Ltd (PB), to his newly set up company, Orico ANZ.

(f) Mr Xu is a director and 50 per cent shareholder of Orico ANZ.

(g) The diversion of Leader to Orico ANZ was evidenced by invoices from Orico ANZ issued to Leader, dated 16 May 2016 and 27 May 2016. The diversion of PB to Orico ANZ was evidenced by an invoice dated 17 June 2016 from Orico ANZ to PB.

(h) Ms Zhu believed that Mr Xu had used his position as an employee of Orico Australia in order to divert Leader and PB to Orico ANZ in breach of his duties owed to the company.

(i) On 23 October 2017 Ms Zhu gave instructions in her capacity as a director of Orico Australia for Orico Australia to issue proceedings against Mr Xu in the Magistrates' Court of Victoria, being the Primary Proceeding.

(j) Orico Australia's directors, being Ms Zhu and Ms Jin, are unable to agree that the action ought to continue and that Ms Zhu believes the inability of the directors of the company to agree was most likely due to Mr Xu being Ms Jin's husband.

(k) Ms Zhu believed that if judgment was given in favour of Orico Australia, Mr Xu would be able to meet the obligations because Orico ANZ is active and trading and therefore Mr Xu, as a director and shareholder, would receive remuneration and dividends from Orico ANZ.

(l) On 31 July 2018 Ms Zhu gave notice to Orico Australia of the intention to apply for leave pursuant to s 237 of the Act and the reasons for applying.

(m) After the complaint in the proceeding was served on Mr Xu he engaged a solicitor who questioned the authority of Orico Australia to commence and continue the proceeding, and correspondence was exchanged between solicitors. Ms Jin also engaged her own solicitors and correspondence was exchanged regarding the authority of Orico Australia to commence and continue the Primary Proceeding.

(n) Orico Australia has not carried on any business since 1 July 2016 and therefore no business of the company will be affected by the bringing of the proceeding and the proposed litigation would not require the physical or human resources of the company.

(o) Orico Australia does not have any creditors.

(p) Ms Zhu believes that there are no other means for Orico Australia to recover the loss it has suffered against Mr Xu and she believes Orico Australia has a good cause of action against Mr Xu and a reasonable prospect of success. In this regard Ms Zhu referred to the ASIC search showing that Mr Xu was a director and shareholder of Orico ANZ whilst still employed, and that Orico ANZ issued invoices to Orico Australia's major customers, being Leader and PB, while Mr Xu was still an employee of Orico Australia.

(q) Orico Australia's only assets comprise $114.94 in its bank account.

(r) Ms Zhu believes that bringing the Primary Proceeding was in the best interests of the company and that a successful claim would increase the value of the shareholders' shareholdings in Orico Australia.

(s) Ms Zhu '... will undertake to pay the Company's costs, associated with the claims and indemnify the Company in respect of any costs orders made against it'.[3]

(t) Ms Zhu currently resides in China and does not own properties in Australia. Ms Zhu referred again to the undertaking referred to above and further stated that if security for costs was ordered in the Magistrates' Court of Victoria then she would also undertake to deposit money into the trust account of the Magistrates' Court of Victoria.

(u) Emails from Mr Xu to an Orico Australia customer dated 16 May 2016 and an email to Mr Xu from Ms Jin dated 27 May 2016, each said to evidence Mr Xu's ongoing employment.

(v) A title search of the land at 47 Verdant Street, Wantirna South, Victoria, 3152, which recorded that Mr Xu and Ms Jin were the registered proprietors of the estate in fee simple as tenants in common of that land, each holding one of a total of two equal undivided shares.

12 Ms Zhu also relied upon an affidavit from Mr Xiaoqing Zhu, affirmed 9 November 2018 (Mr Zhu's affidavit). In that affidavit Mr Zhu deposed to the following:

(a) That he was employed by Orico Australia between May 2014 and 1 July 2016 as Operations Manager.

(b) The nature of the company's business of importing electronic products and computer accessories from China and on selling them to retailers in Australia at a profit.

(c) That he was responsible for liaising with suppliers in China, placing orders and accepting delivery, and that in his position he had knowledge of Orico Australia's general operations such as its customers and the processing of sales to those customers, and that he was aware of the general level of sales and proportion of those sales that were made to Orico Australia's biggest customers.

(d) 'When [Mr Zhu] was working for the company, Mr Xu was also employed by the company. Mr Xu was employed as a sales manager to market, negotiate and sell the company's products to companies in Australia. Mr Xu's responsibilities in the company included ... :'[4] corresponding with clients including Leader and PB to procure sales to these customers; providing instructions to the operations department to generate and finalise relevant pro forma invoice and purchase orders; providing instructions to the operations department to place the relevant orders with suppliers in China; and ensuring that the clients received delivery of goods purchased from the company.

(e) In about June 2016 another employee of Orico Australia, Mr Billy Lin, informed Mr Zhu that Mr Xu had approached him and asked him whether he would like to join Mr Xu in his new company and that in about July 2016 Mr Lin left Orico Australia.

(f) Prior to April 2016 Orico Australia's sales to PB and Leader were in the order of approximately $200,000 per quarter and that sales to PB and Leader comprised approximately 70 per cent of Orico Australia's total sales in each year. Mr Zhu deposed that he was unable to exhibit the financial statements and accounting documents which include total sales because Ms Jin was the only person who had access to and possession of those financial records.

(g) Due to the reduction in Orico Australia's sales from April 2016 onwards Orico Australia ceased its trading activities in about July 2016.

13 The affidavit evidence relied upon by Ms Jin included evidence to the following effect:

(a) She was one of two directors and a 50 per cent shareholder of Orico Australia and objected to Ms Zhu's application for leave.

(b) The Primary Proceeding was commenced without prior notice to her and she had not at any time provided authority for the proceeding to be commenced, and that this was the subject of correspondence from her solicitors in March 2018.

(c) Orico Australia was deregistered by ASIC on about 17 September 2018 but was reinstated in October 2018 as a result of what Ms Jin understood to be steps taken by Ms Zhu that Ms Jin was not consulted about.

(d) On 12 and 13 September 2017 payments totalling $3,993 were transferred from the Orico Australia account to Ms Zhu's solicitors, VSTAR, for payment of legal fees that were authorised by Ms Zhu and that Ms Jin was not asked about or authorised.

(e) To the best of Ms Jin's knowledge, Ms Zhu was ordinarily resident in China and it was her understanding that Ms Zhu did not own property in Victoria and that this had been the subject of correspondence from her solicitors.

14 With respect to the 'merits' of the Primary Proceeding Ms Jin's evidence included evidence to the effect that:

(a) Ms Jin was the only director residing in Australia and was responsible for undertaking all of Orico Australia's bookkeeping and the day-to-day operations of the business.

(b) Mr Zhu was a former employee of Orico Australia and Ms Zhu's brother.

(c) From the middle of 2015 Orico Australia had experienced problems with delivery of products to some of its customers and this was said to be as a result of personal items belonging to Mr Zhu being included in customers' containers which had resulted in Orico Australia's relationship with Leader deteriorating. This was said to be supported by an email from Leader dated 18 February 2016.

(d) Mr Xu '... ceased working with [Orico Australia] in March 2016.'[5] In this context Ms Jin referred to various documents including: a PAYG payments summary for the year ending 30 June 2016; Orico Australia's payroll advice for the period 1 July 2015 to 30 June 2016; and a business activity statement for the period April 2016 to June 2016 showing that during the period $13,000 in wages was paid, all of which were said to be to Mr Billy Lin.

(e) From about June 2015 Orico Australia experienced cash flow issues which had resulted in wages being paid late for Ms Jin, Mr Xu, Mr Zhu and his wife Mrs Chen, but that Mr Billy Lin was always paid on time. Ms Jin referred to various bank statements said to support late payment of wages.

(f) Ms Jin 'always endeavoured' to ensure that superannuation payments and taxes were paid on time and that superannuation payments for Mr Xu were made by way of cheque dated 28 April 2016.

(g) On 14 April 2016 Orico ANZ was incorporated with the directors and shareholders being Mr Xu and Sheng Lin, and that from about April 2016 Orico China appointed Orico ANZ as its exclusive authorised agent in Australia and New Zealand.

(h) Ms Jin believed the prospects of success in the Primary Proceeding were 'extremely low' because: Orico Australia's business was in decline prior to Mr Xu incorporating Orico ANZ and it becoming the exclusive authorised agent of Orico brand products in Australia and New Zealand; and Mr Xu ceased to be an employee of Orico Australia at the end of March 2016, some two or three months prior to the invoices sent by Orico ANZ to Leader and PB.

15 On 1 November 2017, the Primary Proceeding was commenced.

16 In the Statement of Claim it is alleged, among other things that:

(a) From October 2014, Orico Australia employed Mr Xu to market, negotiate and sell its products to customers in Australia pursuant to an employment agreement that was partly oral, partly in writing and partly by conduct.

(b) It was a term of the employment agreement that, during the course of the employment, Mr Xu:

(i) would serve and carry out his duties with fidelity and/or in good faith to Orico Australia;

(ii) would use Orico Australia's customer contact details to sell its products to those customers; and/or

(iii) would not use Orico Australia's customer contact details to sell a competitor's products to those customers.

(Employment Agreement Terms)

(c) Mr Xu, as an employee, owed Orico Australia a fiduciary duty of loyalty and to act in the good faith, and a duty:

(i) not to prefer Mr Xu's interest to those of his own;

(ii) not to make a profit out of his fiduciary position;

(iii) not to place himself in a position where his duty and his own interest might conflict;

(iv) not to act for his own benefit or for the benefit of a third person.

(d) On 14 April 2016, Orico ANZ was incorporated and carried on the business of importing computer and information technology products from China and selling the products to customers in Australia in direct competition with Orico Australia.

(e) From 14 April 2016, Mr Xu became a director and 50 per cent shareholder of Orico ANZ and/or diverted Orico Australia's customers, mainly being Leader and PB, to Orico ANZ, which made sales to those customers.

(f) By reason of the matters referred to above, Mr Xu breached the Employment Agreement Terms and/or breached the fiduciary duties he owed to Orico Australia as an employee.

(g) Orico Australia suffered loss and damage totalling USD$70,413.58, comprising lost profit it would have made had the sales made by Orico ANZ not been diverted to it by Mr Xu.

17 Orico Australia claims damages in the sum of US$70,413.58, alternatively, equitable compensation, costs and other relief.

18 Subsequent to the service of the Statement of Claim on Mr Xu, Mr Xu and Ms Jin each appointed solicitors who questioned the authority of Orico Australia to commence and continue the Primary Proceeding without the authorisation of both its directors and shareholders, being Ms Zhu and Ms Jin.

19 On 23 July 2018, Mr Xu's solicitors filed a summons in the Primary Proceeding seeking orders to set aside the proceeding.

20 On 28 August 2018, Ms Zhu commenced this proceeding seeking leave nunc pro tunc pursuant to s 237 of the Act to bring the Primary Proceeding on behalf of, and in the name of, Orico Australia against Mr Xu.

21 The Primary Proceeding is effectively on hold pending the outcome of Ms Jin's application for leave in this proceeding. The Court was informed that although the Statement of Claim has been filed and served in the Primary Proceeding, Mr Xu has not yet filed a defence, and that an earlier planned mediation did not proceed. A judicial mediation in the context of this proceeding was subsequently directed and took place in April 2019. The mediation did not resolve the Primary Proceeding or this proceeding.

22 Section 236 of the Act provides as follows:[6]

(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.

(3) The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished.

23 Sections 237(1) and (2) of the Act are in the following terms:

(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.

24 The issue for determination is whether the requirements of s 237(2)(a)-(e) of the Act have been met. As things transpired not all matters were ultimately disputed and the primary sub-issues in this case became whether, on the evidence, Ms Zhu had established that: she is acting in good faith; it is in the best interests of Orico Australia to grant leave; and that there is a serious question to be tried in respect of the claims sought to be brought on behalf of Orico Australia in the Primary Proceeding.

Section 237 - General observations

25 Before turning to the particular requirements of s 237(2) it is useful to refer to some of the general observations that have been made in other cases regarding relevant aspects of the operation of ss 236 and 237 of the Act before turning to the statutory criteria.[7] It must also be kept in mind that each case depends on its own facts.

26 The applicant bears the onus of establishing the requirements of s 237(2) of the Act on the balance of probabilities.[8]

27 If the criteria provided for in s 237(2) of the Act are made out there is no discretion and the court is required to grant leave. If any one of the criteria is not made out the court should refuse leave.[9]

28 It is well established that leave may be granted nunc pro tunc[10] and that leave may be given on terms.[11]

29 Before considering each of the criteria it is necessary to consider the claim sought to be brought on behalf of Orico Australia and the evidence that is relied on to support it.[12]

30 Whilst a concession can be taken into account when a court is undertaking the exercise required by s 237(2) of the Act, because that section requires the court to be satisfied of each criterion a concession does not entirely relieve the court from examination of the matter, although it may reduce the extent of the court's inquiry.[13]

31 If the matter is to be pursued through an existing proceeding, a question may arise as to whether the application is to be characterised as an application to bring a proceeding or an application to intervene in a proceeding. This can be important because if it is characterised as an application to intervene then s 237(2)(d) of the Act is not engaged and therefore the applicant is not required to establish that there is a serious question to be tried.[14] I add that in this case the parties proceeded on the basis that, although the Primary Proceeding had been commenced without seeking or obtaining leave, the application in this Court was an application for leave nunc pro tunc to 'bring' the proceeding rather than an application to 'intervene' in an existing proceeding. This was the correct approach for the parties to take.

32 Part 2F.1A does not explain the word 'proceedings' or give any direct indication of the level of specificity of pleaded allegations and prayers for relief that the applicant for leave must achieve. Typically an applicant will provide a draft statement of claim or some other document giving particulars of the derivative claims. However, it is not the case that a full statement of the derivative claims must be presented before the court can consider and determine a leave application.[15] The applicant must identify the proposed proceedings with sufficient precision so that the court can properly assess the application having regard to the criteria that it is required to consider under s 237(2) of the Act, and the opponents can respond to the application in terms of those criteria. That may be achieved by presenting the court with a draft pleading, but it may be achieved in other ways such as by outlining the claims in affidavit evidence.[16]

33 Where a proposed amended statement of claim or other like document is defective, if the criteria in s 237(2) of the Act have been satisfied it may be appropriate to refuse leave in respect of the claims articulated in that document but grant leave to bring proceedings asserting causes of action that are identified in some other way.[17]

34 It is not necessary for disputes between members of the company to be resolved before leave is granted to bring proceedings on behalf of the company as that may defeat the purpose that the statutory provisions are designed to serve and for which derivative proceedings were formerly permitted under the relevant exception to the rule in Foss v Harbottle.[18] Whilst ss 236 and 237 of the Act were not intended to preserve the former law, they should be approached as measures of reform designed to improve rather than to place obstacles in the way of such proceedings.[19]

35 Different views have been expressed as to whether an application under s 237 of the Act is interlocutory or final in nature. In McEvoy v Caplan,[20] the New South Wales Court of Appeal concluded that an order refusing the grant of leave under s 237 of the Act was interlocutory and this was referred to with apparent approval by Bathurst CJ and McColl JA in Huang v Wang.[21] In the same case Barrett AJA explored the issue further and concluded that whether an order under s 237 of the Act is final or interlocutory may depend upon the manner in which the application is brought, including whether it is brought by way of application in an existing proceeding.[22]

36 Ms Zhu has standing to bring the application. She is a current shareholder and director of Orico Australia and therefore the requirements of s 236(1)(a) of the Act are satisfied. This was not disputed.

37 I turn to the criteria in s 237(2) of the Act.

Section 237(2)(a) - Probable that the company will not bring the proceedings

38 As observed by Palmer J in Swansson v RA Pratt Properties Pty Ltd (**'**Swansson'),[23] in many cases it will be readily apparent whether it is probable that the company will not itself bring the proceedings. If there is not a clear refusal by the company to take specific proceedings after receipt of a properly particularised request to do so, the applicant bears the onus of establishing that actual refusal or its probability is to be inferred.

39 Ms Jin conceded that it was probable that Orico Australia will not itself bring the proceeding and there was no issue on the point between the parties. The section requires that the Court be 'satisfied' of the requirement so something more should be said.[24]

40 Ms Zhu and Ms Jin are equal shareholders and directors of Orico Australia and it is evident from the material that they are in dispute, that their relationship has broken down, and that Orico Australia is relevantly deadlocked. Ms Jin is also the wife of Mr Xu and on the evidence it may be inferred that it is not in Ms Jin's interests for the claims to be brought against her husband. Having regard to these matters, Ms Jin's concession, and Ms Jin's strong opposition to the application, I am satisfied that it is at least probable that Orico Australia will not itself bring the proceeding and that s 237(2)(a) of the Act is therefore satisfied.

Section 237(2)(b) - Applicant acting in good faith

41 Relevant observations that have been made in other cases regarding the good faith requirement in s 237(2)(b) of the Act include those referred to below. It may also be observed that factual circumstances relevant to the satisfaction (or otherwise) of one of the requirements in s 237(2) of the Act may also be relevant to the satisfaction (or otherwise) of the other requirements in s 237(2) of the Act. Overlap between considerations relevant to different criteria is common.

42 There is no elaboration in s 237 of the Act as to what matters the court should take into account when determining whether an applicant is acting in good faith. Two interrelated matters that will be taken into account are whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success, and whether the applicant is seeking to bring the derivative suit for a collateral purpose of a kind that would amount to an abuse of process.[25] The enquiry as to good faith is not limited or confined to these two factors. Further, a collateral purpose or related conduct may still be germane even if the applicant's purpose or conduct would not constitute an abuse of process.[26]

43 In Swansson, Palmer J identified a state of mind which must be found to exist in the applicant, rather than any particular means by which that state of mind is to be proved. While in some cases the presence or absence of a sworn assertion of the relevant state of mind might be important, generally speaking such statements will be of limited weight or utility and the objective facts and circumstances will speak louder than the applicant's words.[27]

44 Where an application is made by a current shareholder 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, it has been said that good faith should be relatively easy to demonstrate.[28] So also where the applicant is a current director or officer.[29]

45 A derivative action sought to be instituted by a current shareholder for the purpose of restoring value to his or her shares may not be an abuse of process even if the applicant is spurred by personal animosity, even malice. It is not the law that only a plaintiff who feels goodwill towards the relevant parties is entitled to sue. However, an action sought to be instituted by a former shareholder with a history of grievances against the current majority of shareholders or the current board may be easier to characterise as being brought for the purpose of satisfying nothing more than the applicant's private vendetta and therefore reveal an absence of good faith.[30]

46 Where the applicant is a former shareholder or officer with nothing obvious to gain directly by the success of the derivative action the court will scrutinise with care the purpose for which the derivative action is said to be brought.[31] If an applicant for leave seeks by the derivative action to receive a benefit which, in good conscience, he or she should not receive, an application may not be made in good faith even though the company itself stands to benefit if the derivative action is successful.[32]

47 There is no collateral purpose in bringing an application in order to restore full value to a shareholder's shareholding enabling it at some future point in time to realise that value as well as increasing through dividends a higher share of the profits.[33]

48 Ms Zhu contended that the Court should be satisfied that she is acting in good faith. She submitted that:

(a) Orico Australia has a good cause of action and has reasonable prospects of success, but that this state of mind is not merely a bare assertion.

(b) Ms Zhu's state of mind is supported by objective facts and circumstances, including that she is a 50 per cent shareholder of Orico Australia which is more than a token shareholding; that the derivative action, if successful, achieves the commercial object of recovering property which has the consequential effect of increasing the value of her shares; and that she is a current director of Orico Australia.

(c) The strength of Orico Australia's claims against Mr Xu are not founded upon 'flimsy' hearsay or only viva voce evidence, but, in part, various kinds of documentary evidence, such as Orico Australia's bank statements, emails sent by Mr Xu evidencing his work for Orico Australia, Orico ANZ's ASIC search, and invoices issued by Orico ANZ, which it was submitted demonstrate that Mr Xu has a case to answer in relation to the allegations made against him.

(d) Once accepted that Ms Zhu is seeking to restore the value of her 50 per cent shareholding, the derivative suit cannot not fall to be characterised as an abuse of process - noting also that the fruits of the Primary Proceeding will be shared by Ms Zhu and Ms Jin in equal measure.

(e) Ms Zhu has deposed that she is willing to undertake to pay Orico Australia's costs associated with the claims and indemnify Orico Australia in respect of any costs orders made against it. The fact that Ms Zhu is not domiciled in Australia and does not have assets in Australia does not affect the question of good faith and, further, providing an undertaking to the Supreme Court of Victoria cannot fairly be characterised as mere words.

(f) Consistent with the observations of Sifris J in Knights Quest Pty Ltd v Barokes Pty Ltd,[34] using a proceeding as a means of resolving a deadlock is not a collateral purpose but a legitimate purpose specifically embraced and approved by authorities.

(g) Ms Zhu has deposed that if security for costs is ordered in the Primary Proceeding she will satisfy it by depositing funds.

49 Ms Jin contends that Ms Zhu has not established that she is acting in good faith and submitted that:

(a) Ms Zhu's assertion as to an honest belief of a good cause of action with reasonable prospects of success is no more than a bald assertion.

(b) Whilst it was accepted that, generally, the proffering of an undertaking to pay the company's costs and to indemnify the company in respect of any adverse costs orders would be sufficient to demonstrate that the applicant believes there is a good cause of action with a reasonable prospect of success, that did not follow in this case because Ms Zhu's undertaking was not sufficient because she does not have any assets in the jurisdiction and has not put any funds into trust.

(c) Ms Zhu's proposed undertaking is insufficient to establish good faith, as any enforcement of the undertaking and indemnity by Orico Australia would be prohibitively difficult and expensive.

(d) When assessing Ms Zhu's offer of indemnity against her past conduct in this proceeding, it should be given even less weight in respect of establishing good faith because an amount of $3,993.00 was caused to be paid by the company for legal fees without Ms Jin's approval or knowledge.

50 It was further submitted that a lack of good faith can be inferred from Ms Zhu's conduct prior to issuing the application currently before the Court because Ms Zhu issued the Primary Proceeding without a proper resolution of Orico Australia's Board and without Ms Jin's knowledge or approval, and Ms Zhu caused Orico Australia to transfer some funds to her solicitors to pay the fees in the substantive proceeding

51 Mindful of the observations referred to in paragraphs 41 to 47 above regarding the operation of s 237(2)(b) of the Act, I am satisfied on the evidence before me that in the circumstances of the present case the good faith requirement has been satisfied.

52 First, Ms Zhu is a current director and shareholder with a real interest in the financial position of Orico Australia given her 50 per cent shareholding.

53 Second, although disputed, it is evident that the claims are directed towards enhancing or restoring the value of Ms Zhu's (and therefore also Ms Jin's) shareholding, noting also that there are no other creditors of Orico Australia. Bringing an application directed to restoring full value to a member's shareholding does not of itself demonstrate a collateral purpose or undermine good faith and in this regard I echo the observations referred to in paragraphs 44, 45 and 47 above.

54 Third, the benefit that is sought to be gained for Orico Australia will benefit Ms Zhu and Ms Jin in equal measure in their capacity as shareholders.

55 Fourth, Ms Zhu has deposed to her genuine belief that there are good causes of action that have a reasonable prospect of success, and done so in circumstances where she has also been represented by solicitors and counsel.[35]

56 Fifth, Ms Zhu has deposed to her willingness to give an undertaking to the Court regarding payment of Orico Australia's costs and indemnifying it in respect of any adverse costs order, and this willingness was confirmed by counsel during the hearing. This further militates in favour of good faith, and the fact that Ms Zhu is resident outside of Australia and does not have assets in this jurisdiction does not detract from that position in the circumstances of this case.

57 It will therefore be apparent that I do not consider that these matters, or the absence of the offering of security, detract from the establishment of good faith, or support or allow for an inference of impermissible or collateral purpose. That is not to say that such matters are irrelevant or to deny the relevance of these matters when considering other criteria in s 237 of the Act such as the best interests of Orico Australia.

58 Sixth, and as I discuss in more detail later in these reasons, having regard to the evidence I am satisfied that it has been established that there is a serious question to be tried in relation to the claims the subject of the Primary Proceeding.

59 Insofar as it was submitted that the evidence currently before me establishes the existence of an impermissible or collateral purpose on the part of Ms Zhu that tells against good faith, I do not accept that submission. The evidence does not allow an inference of that kind to be drawn.

60 Further, having regard to all of the evidence, in the circumstances, the fact that the Primary Proceeding was commenced without leave and that there is a dispute between the parties regarding funds paid to the solicitors does not alter my conclusion regarding the establishment of good faith.

Section 237(2)(c) - Best interests of the company that leave be granted

Best interests requirement - general observations

61 Section 237(2)(c) of the Act requires the court to be satisfied that the proposed derivative action is in the best interests of the company, not that it may be, appears to be, or is likely to be.[36] Observations that have been made regarding the operation of the 'best interests' requirement follow.

62 The phrase 'best interests' directs attention to the company's separate and independent welfare which imports the familiar concept of the interests of the company as a whole.[37] Best interests, at least assuming the company concerned is solvent, will predominantly reflect the interests of shareholders in that capacity and the fact that such shareholders may derive some collateral benefit from the bringing or otherwise of the proceedings will often be of no concern.[38]

63 The section requires the applicant to establish a fact which can only be determined by taking into account the relevant circumstances. This will normally require the applicant to adduce evidence regarding at least the following matters:[39] the character of the company; the business, if any, of the company so that the effects of the proposed litigation on its proper conduct may be appreciated; evidence enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will; and the ability of the defendant to the proposed proceeding meet at least a substantial part of any judgment in favour of the company in the proposed action so that the court may ascertain whether the action would be of any practical benefit to the company.

64 Other matters that have been considered in the context of best interests of the company include prospects of success, the likely costs and likely recovery if the proceedings are successful, the likely consequences if the proceedings are not successful, the nature of any indemnity the applicant has offered to the company, the likelihood of the company recovering under the indemnity, the resources the company will need to devote to the proceedings and the resources it has available, and the effect that the proceedings may have on other parts of the company's business.[40]

65 There is no fixed test to determine best interests and there is no special standard of proof or any presumption or disposition against the granting of relief. The court will always have regard to whether the benefits of the proceeding are outweighed by the costs and risks that the company would suffer in bringing them.[41] Whether or not an application under s 237 of the Act is final or interlocutory does not alter the requirement that an applicant satisfy the court on the balance of probabilities that the proceedings are in the best interests of the company.[42]

66 In determining whether granting leave to an applicant is in the best interests of the company the fact that the applicant has a personal interest in the outcome of the action or the applicant has personal animus against other members of the company is not significant or decisive because this is common in the types of disputes that lead to derivative actions.[43]

67 A proceeding to protect the interests of members as members from breaches of duty by the directors is likely to be in the best interests of a company as a whole, although that may not invariably be the position.[44]

68 It may be in the best interests of the company to grant leave for the company to bring proceedings against shareholders where there is a deadlock and the proceeding is a suitable means by which the deadlock can be resolved.[45] Joint venture companies in which no one shareholder has a controlling interest have a real potential to become bogged down in a stalemate where shareholders cannot agree how to conduct the business of a company. A grant of leave may be a suitable means by which to resolve deadlocks of that kind.[46]

69 If there is a common or similar substratum of facts that underlie the personal dispute in a proceeding and the dispute in respect of which the leave is sought, this may make it desirable and in the interests of a company that the subject matter be litigated concurrently.[47]

70 Where a company is being wound up the question as to what is in the best interests of the company will, as a general rule, be answered by having regard to what is in the best interests of the creditors.[48] Where there are no creditors the question may then be what is in the best interests of the contributories, being the shareholders. It may often be to their advantage to resolve the issues between them and to have the assets distributed to them.[49]

71 Where the company 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 shareholding interests other than those of the litigants and that the effect of success will be indirectly to benefit the complaining venturer proportionately to its shareholding.[50]

Ms Zhu's application and the best interests of the company

72 In substance Ms Zhu submitted that the grant of leave was in the best interests of the company because:

(a) Although Orico Australia has little assets, there are no creditors, and the company remains solvent in the sense that it is not in a situation where it could not pay its debts as and when they fall due and payable.

(b) Orico Australia's best interests are, therefore, predominantly reflected in the shareholders' interests.

(c) Ms Zhu has deposed to her belief that the bringing of the Primary Proceeding is in the best interests of Orico Australia.

(d) Orico Australia is a small private company with two unrelated shareholders holding a practical ability to veto any decision made by the other, which in substance means the company is like a joint venture vehicle between two private individuals. The enhancement of Orico Australia's assets represents a separate and independent aspect of the welfare of the company that indirectly benefits the shareholders through their shareholding. The company's best interests and the shareholders' best interest in their capacity as shareholders may, therefore, be viewed as being aligned.

(e) Orico Australia is no longer trading which, consistent with the factual circumstances in Li v Dao, is a fact that does not point against a grant of leave as the proposed proceeding will not occupy the physical, human or other resources of Orico Australia other than the time and effort of Ms Zhu. The Primary Proceeding would not impinge upon the company's day-to-day operations, and therefore does not have an adverse effect on it.

(f) That Orico Australia has little assets is a matter which militates in favour of, rather than against, the grant of leave because, relative to other assets that the company currently holds, the claims against Mr Xu represent its most significant value and Orico Australia ought not be deprived of its ability to pursue it. As such, Orico Australia, and indirectly Ms Zhu, would suffer a real and substantial prejudice if the action were not permitted.

(g) The Primary Proceeding has been brought in a low-cost jurisdiction where legal costs are controlled and disciplined by the Magistrates' Court Scale of Costs, which are proportionate to the relief which Orico Australia is seeking against Mr Xu.

(h) Ms Zhu has deposed that she is willing to give an undertaking that she will pay Orico Australia's costs associated with the Primary Proceeding and indemnify Orico Australia in respect of any costs orders made against it. Further, the offering of an undertaking to the Supreme Court of Victoria is more than 'mere words', and carries with it other serious consequences and sanctions if breached. Ms Zhu has also deposed that she will pay into Court any amount ordered by way of security for costs in the Primary Proceeding. Accordingly, the company's litigation costs risks are sufficiently accommodated.

(i) Consistent with the observations in Ragless v IPA Holdings Pty Ltd ('Ragless')[51] and Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd the Primary Proceeding is likely to operate as a means of resolving a deadlock. Ms Jin is purporting to use her practical veto power to shield her husband's alleged wrongdoings from the reach of Orico Australia. There are no other non-litigious ways for Orico Australia to obtain the redress it seeks against Mr Xu and a grant of leave would be a suitable means of breaking the deadlock.

(j) As the relief sought in the Primary Proceeding against Mr Xu is relatively modest,[52] Mr Xu is a 50 per cent shareholder in Orico ANZ, and Mr Xu is a 50 per cent owner of real property in Wantirna South, it could not be said with reasonable confidence that any judgment in Orico Australia's favour would be hollow and that the proceeding would be fruitless. To the contrary, there is evidence that Mr Xu has the ability to meet a substantial part of the judgment in favour of Orico Australia such that the action would be of a practical benefit to it.

73 Ms Jin submitted that Ms Zhu has not established that the granting of the application is in the best interests of Orico Australia because:

(a) The undertaking and indemnity offered by Ms Zhu is of limited value.

(b) Due to Orico Australia's lack of assets, and the absence of evidence of any costs agreement with the solicitor's acting in the Primary Proceeding, there is a real risk that Orico Australia will incur debts which it will be unable to pay.

(c) Ms Zhu had not put on any evidence establishing that Mr Xu was an employee, or an employee at the relevant time, and Orico Australia has poor prospects of success in the Primary Proceeding. It should be noted, however, that this submission was initially made in written submissions prior to additional evidence being filed. As earlier mentioned, having regard to the evidence before the Court at the time of the hearing, Ms Jin conceded that Ms Zhu had established that there was a serious question to be tried as to whether or not Mr Xu was previously an employee of Orico Australia[53] - although no concession was made that there was a serious question to be tried that his employment continued after 31 March 2016 or until the start of July 2016.

(d) Orico Australia's risks in the substantive proceeding outweigh the benefits, and the Court cannot be satisfied that granting the application is in its best interests.

(e) It has not been established on the evidence that there was a serious question to be tried regarding Mr Xu being an employee after 31 March 2019.

(f) Because no costing detail had been provided regarding steps taken to date in the Primary Proceeding or future steps to be taken, the Court could not carry out a satisfactory cost benefit analysis in considering the best interests of Orico Australia.

(g) The possibility of a security for costs order being made in the Primary Proceeding was speculative. Further, any security for costs order would relate only to the position of the defendant in the Primary Proceeding, Mr Xu, and not the position of Orico Australia.

(h) There was no evidence that even if Mr Xu was an employee at the relevant time that his conduct caused Orico Australia to lose the business from Leader and PB and, further, there was evidence that Orico Australia's relationship with Leader and PB had deteriorated.

74 Having regard to the observations referred to in paragraphs 61 to 71 above regarding the operation of the 'best interests' requirement in s 237(2)(c) of the Act, on the evidence I am satisfied that Ms Zhu has established that the grant of leave to bring the Primary Proceedings is in the best interests of Orico Australia.

75 If the claims are successful, the financial position of Orico Australia is likely to be enhanced in circumstances where the business of the company has concluded, and where the Court has been informed that there are no other creditors.

76 Orico Australia's business will not be adversely affected. Orico Australia is no longer trading.

77 Having regard to the character of Orico Australia as just described, the Primary Proceeding will not be occupying physical, human or other resources of Orico Australia other than the time and effort that might be required of Ms Zhu.

78 So far as the cost to Orico Australia of the litigation is concerned, the claims in the Primary Proceeding are directed at improving the financial position of Orico Australia in circumstances where Ms Zhu has informed the Court that she will undertake to pay Orico Australia's costs of the Primary Proceeding and indemnify it against adverse costs orders. Consequently, the financial risk to Orico Australia is limited. I accept that the giving of an undertaking to the Court cannot be characterised as 'mere words'.

79 Next, taking this course and granting leave in respect of the Primary Proceeding will facilitate the breaking of the deadlock that currently exists between the directors and the shareholders, which is in the best interests of Orico Australia.

80 Further, because Orico Australia no longer conducts a business and Ms Zhu and Ms Jin are its only shareholders, the best interests of Orico Australia can, in the present circumstances, be seen to be aligned with the best interests of the shareholders in their capacity as shareholders. If that is so, it is in the interests of the shareholders, and therefore Orico Australia, to have the substantial disputes between them resolved. In her capacity as a 50 per cent shareholder Ms Jin will also benefit from any successful outcomes that flow through to the two shareholders.

81 Although Ms Zhu is domiciled outside of the jurisdiction and does not have assets within it, she has deposed to a willingness to provide an undertaking to the Court regarding costs and expenses and such willingness has been confirmed my Ms Zhu's counsel. It may also be observed that the matter is proceeding in circumstances where, given the evidence regarding the asset position of Orico Australia, the ongoing costs cannot have been paid by Orico Australia.[54]

82 In the circumstances of this case, I am not persuaded that a failure to provide additional details of the costs and steps taken in the proceeding, and the further costs and steps to be taken, tips the balance the other way. Although it is correct that additional evidence could have been given regarding these matters, having regard to all of the evidence and the matters referred to earlier, including the absence of other creditors and the proposed undertaking regarding costs and indemnity, I remain satisfied that a grant of leave is in the best interests of Orico Australia. Each case depends on its own facts. Further, in considering applications of this kind I agree with the observations of Mackenzie J in Herbert v Redemption Investments Limited[55] that a 'pragmatic and practical approach is to be adopted'.[56] I also accept that the Primary Proceeding has been brought in a lower cost jurisdiction.

83 With respect to the submission regarding prospects of success and the employment status of Mr Xu, I have earlier indicated that I am satisfied that Ms Zhu has established that there is a serious question to be tried in relation to the claims the subject of the Primary Proceeding. I address these matters further when addressing the contentions regarding the serious question to be tried criterion below.

84 That said, I do accept that the possibility of security for costs being sought and obtained in the Primary Proceeding is of little or no weight in the current context, and is speculative. It is also correct that any security ordered and paid would be security for Mr Xu's costs, although it is at least conceptually possible that if ordered and paid by Ms Zhu a level of protection beyond that which currently exists would be provided to Orico Australia. However, the speculative nature of this possibility renders it of little if any weight in relation to the 'best interests' criterion.

85 Given Mr Xu's interest in Orico ANZ and his interest in the Wantirna South property it cannot be said on the evidence that obtaining judgment in the Primary Proceeding would be fruitless or of no benefit.

86 Having regard to the matters referred to above, I am satisfied that it is in the best interests of Orico Australia to grant Ms Zhu leave to bring the Primary Proceeding in respect of the claims referred to in the Statement of Claim.

Section 237(2)(d) - Serious question to be tried

Serious question to be tried - general observations

87 Section 237(2)(d) of the Act requires that where an applicant is applying for leave to bring a proceeding on behalf of a company, it is necessary for the applicant to establish that there is a serious question to be tried.

88 In Swansson, Palmer J observed that the court will not normally enter into the merits of the proposed action to any great degree and that the applicant has the same relatively low threshold as in the case of an interlocutory injunction.[57] In this context Austin J observed in Ehsman v Nutectime International Pty Ltd ('Ehsman')[58] that the court does not make factual determinations concerning the case that the applicant seeks leave to bring but only considers whether there is a serious question to be tried.[59] When referring to Maher v Honeysett & Maher Electrical Contractors Pty Ltd,[60] His Honour also observed that the standard has been described as relatively low.[61]

89 In MG Corrosion Consultants Pty Ltd v Vinciguerra,[62] it was emphasised that an application for leave pursuant to s 237 of the Act is not intended to be like a trial or determination of the issues sought to be raised in the proposed proceeding, observing also that there would be little point in the amendments to the legislation that introduced ss 236 and 237 of the Act if that was the case.

90 Middleton J in South Johnstone Mill v Dennis[63] referred to the decisions in Swansson, Ehsman[64] and Australian Broadcasting Corporation v O'Neill ('O'Neill')[65] and also observed that the requirement may be equated with that applying on an application for an interlocutory injunction, and that there is no requirement for the court to make factual determinations about contested issues.[66] His Honour noted the need for the application to be supported by evidence and also that which was said in O'Neill regarding the need to show a 'sufficient likelihood of success at trial' in the sense explained by Gummow and Hayne JJ.[67]

91 In Ragless[68] the Full Court of the Supreme Court of South Australia made related observations regarding the parallel with the test for an interlocutory injunction and, by reference to the terms of the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth),[69] drew attention to this being the reason for the inclusion of the 'serious question to be tried' language in the section.

92 In the context of a discussion of O'Neill and the reference in that case to the need for a 'sufficient likelihood of success to justify the preservation of the status quo pending trial', Debelle J in Ragless raised the 'interesting question whether s 237(2)(d) requires that the applicants be able to show a sufficient likelihood of success to justify the grant of leave or merely that there is a real question to be tried that is not frivolous or vexatious'.[70] In the circumstances of that case the Court concluded that it was not necessary to determine the issue (which was not argued), noting also that if the test in O'Neill applied, the applicant in that case had a sufficient likelihood of success to justify a grant of leave.[71]

93 In this court, Robson J in Slea Pty Ltd v Connective Services Pty Ltd[72] and Kennedy J in In the matter of Innovateq Pty Ltd[73] adopted the approach taken by Middleton J.[74] I have also adopted the approach of Middleton J in South Johnstone Mill v Dennis ('South Johnston Mill').[75]

94 I note also that paragraph 6.46 of the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth) expressly states that the serious question to be tried test is familiar and regularly employed by the courts in the context of injunction applications and that this test 'was preferred to the alternative of requiring the applicant to show a prima facie case'. It was further stated that it is important that the application for leave to bring proceedings is not turned into a trial of the substantive issues.[76] This appears to confirm the legislative intention to equate the requirement with that applying on an application for an interlocutory injunction in the way that Palmer J, Middleton J, and others have observed. And if that is correct, which in my respectful view it is, it necessarily leads to a consideration of that which was addressed by the High Court in O'Neill and what was there said regarding the phrase 'serious question'.[77]

Ms Zhu's application - serious question to be tried

95 The parties differ in their view as to whether on the evidence Ms Zhu has established that there is a serious question to be tried in relation to the claims in the Primary Proceeding so as to satisfy the criterion in s 237(2)(d) of the Act.

96 It became apparent during the hearing that the central focus in this regard was whether the evidence established that there was a serious question to be tried that Mr Xu was an employee after 31 March 2016 until about 1 July 2016.

(a) It is settled law that an employee stands in contractual and fiduciary relations to his or her employer.

(b) Every employment contract contains an implied term under which employees are subject to a duty of good faith and fidelity for the period of their employment.

(c) A fiduciary's proscriptive duties include the 'no-profit' and 'no-conflict' rules, and an employee's fiduciary duties to act honestly (sometimes expressed as a duty of loyalty or good faith), in the service of an employer may be breached by the employee acting in his or her own interest or the interests of another rather than the employer's interest.

(d) Affidavit evidence and objective documentary evidence supported Orico Australia's case against Mr Xu, including:

(i) company cheques dated 28 April 2016 for Mr Xu's superannuation which was after the new entity, Orico ANZ, was incorporated;

(ii) the company's bank statements showing that Mr Xu was paid 'wages' as late as 1 July 2016 and 19 August 2016; and

(iii) Orico ANZ's invoices to Leader dated 16 May and 27 May 2016 and to PB dated 17 June 2016, which occurred whilst Mr Xu remained in Orico Australia's employment.

(e) Emails sent by Mr Xu evidenced that he was still working for Orico Australia after 31 March 2016 and no explanation had been given for the sending of those emails.

(f) No evidence had been adduced from Mr Xu, who was Ms Jin's husband and 'in her camp', and therefore, an inference should be drawn that any evidence Mr Xu could have given would not have assisted Ms Jin's position.[78]

(g) The threshold to be satisfied with respect to a serious question to be tried was relatively low.

(h) There was a correlation or temporal coincidence between the deterioration in Orico Australia's sales and Mr Xu's alleged wrongdoings.

(i) There was evidence before the Court to demonstrate that there is a sufficient likelihood of success, and there are real questions to be tried in relation to the claims in the Primary Proceeding that are not frivolous or vexatious.

(a) It was accepted that establishing a serious question to be tried was a 'low threshold' and that the approach referred to in paragraph 93 above was the corre[79] approach.79

(b) Through his solicitor's letter dated 8 December 2017,[80] Mr Xu denies undertaking any paid work for Orico Australia after March 2016 and says he '... worked as a contractor or consultant only until approximately the end of March 2016 ...' and received his final payslip in March 2016 but did not receive payment until August 2016. It was also initially submitted Ms Zhu has not put on any evidence to establish otherwise, other than mere assertion.

(c) Having regard to the evidence as a whole, the fact that Mr Xu received payment from Orico Australia after 31 March 2016 is not sufficient to establish that there is a serious question to be tried, because:

(i) even on Ms Zhu's evidence, Orico Australia did not historically pay Mr Xu his wages on time, therefore it cannot be inferred that the date of payment of wages corresponds with dates on which Mr Xu was an employee of Orico Australia;

(ii) Orico Australia's bank accounts show that it routinely paid wages long after the relevant work was carried out;

(iii) the final cheque for payment of Mr Xu's superannuation from Orico Australia is dated 24 April 2016, which is consistent with Mr Xu only having worked at Orico Australia until 31 March 2016; and

(iv) various aspects of Orico Australia's records (comprising exhibit 'BJ-10' to Ms Jin's affidavit of 11 February 2019) show that Mr Xu only worked for Orico Australia until 31 March 2016.

(d) That it could be inferred from the emails relied on by Ms Zhu and their disclosure in Ms Zhu's reply affidavit that she had access to Mr Xu's email accounts at Orico Australia and that, because only two emails were put in evidence by Ms Zhu, this supported the position of Ms Jin. Otherwise, so it was submitted, more evidence would have been tendered that recorded Mr Xu's activities given the role he was said to have occupied within Orico Australia.

99 As I observed in Li v Dao,[81] when addressing the criterion of serious question to be tried in s 237(2)(d) of the Act care must be taken not to allow the task to descend into a forensic evidentiary exercise of the kind that would occur at trial rather than on an application for leave to proceed. Although sufficient evidence is required for an applicant to discharge the onus regarding the existence of a serious question to be tried, it does not follow that an applicant is required to bring forward all of the evidence that might be presented on the issue at trial or seek to address by the evidence all the questions that might conceivably be raised. Whilst gaps or weaknesses in the evidence relied upon may be able to be identified or contended for, in the end the question for the Court is whether on the whole of the evidence before it there is sufficient evidence for it to be satisfied on the balance of probabilities that a serious question to be tried has been demonstrated.

100 Having regard to the evidence before me I am satisfied that there is a serious question to be tried regarding the claims the subject of the Primary Proceeding.

101 Although Ms Jin understandably conceded that, having regard to the evidence ultimately before the Court, there was a serious question to be tried as to whether Mr Xu was an employee of Orico Australia, this concession was not made in relation to the period of employment, which remains a strongly contested factual issue between the parties. It also appears that the determination of this and other issues at trial will involve issues of the credit of various witnesses, including Ms Zhu, Mr Xu, Mr Zhu and Ms Jin if they are called as witnesses in the Primary Proceeding. These are matters that cannot be, and should not be, resolved on this application. Given that the claims in the Primary Proceeding remain to be heard, and mindful of observations such as those in paragraphs 87 to 92 above, this also requires that caution should be exercised in the present context when elaborating as to why a serious question to be tried has been established. That said, it is in my view clear on the evidence before the Court that a serious question to be tried has been established.

102 Notwithstanding the contention in the correspondence passing between solicitors and in Ms Jin's submissions that Mr Xu was a contractor or a consultant, Ms Jin in her affidavit refers to her husband as having been an employee of Orico Australia and sought to rely upon superannuation records evidencing payment to Mr Xu as an employee. This alone satisfies me that there is a serious question to be tried regarding this issue.[82]

103 With respect to the period of employment, there is evidence from Ms Zhu and Mr Zhu regarding Mr Xu working beyond March 2016 until the start of July 2016. There was no affidavit evidence from Ms Jin's husband, Mr Xu, about the matter but Ms Jin said that Mr Xu ceased working with Orico Australia in March 2016. There was conflicting documentary material and no witnesses were called or sought to be cross-examined. Having regard to the whole of the evidence and the limited exercise I am required to undertake in determining whether Ms Zhu has established that there is a serious question to be tried upon the issue, I am satisfied that she has and, conscious of that which is to follow in the Primary Proceeding upon the granting of leave, make the following brief observations:

(a) Ms Zhu said that between October 2014 and 1 July 2016 Mr Xu was an employee of Orico Australia. That evidence remains untested.

(b) Mr Zhu said that between May 2014 and July 2016 Mr Xu was Orico Australia's Operations Manager and that when he was working for the company Mr Xu was also employed by the company. That evidence remains untested.[83]

(c) Although the documentary evidence raises a number of questions, and there is some documentary material that on its face supports Ms Jin's position,[84] there is also documentary evidence supporting Ms Zhu's position. This serves to underscore rather than to undermine the existence of a serious question to be tried and includes, for example, the bank documents evidencing payment of wages subsequent to March 2016.[85]

(d) In any event, and notwithstanding Ms Jin's evidence regarding late wages, company records, and superannuation records and payments, the evidence included emails to and from Mr Xu in May 2016 that support the contention that there is a serious question to be tried regarding the period of employment issue. For example, the email from Mr Xu dated 16 May 2016 to what appears to be an Orico Australia customer, appears on its face to have been sent by Mr Xu as 'Business Development Manager' for Orico Australia. Further, it attaches 'the new statement for Com One, already overdue!' and requests payment, as well as a request to 'please let me know one month early if you need more enclosures!'. This was responded to by the customer by an email sent to Mr Xu at an Orico Australia email address confirming the account was paid that morning and offering 'apologies for delay'. There is no explanation in the evidence as to how or why this would occur if Mr Xu had ceased working with Orico Australia in March 2016.

(e) There is also evidence, albeit hearsay evidence, regarding a former employee, Mr Billy Lin, being asked by Mr Xu whilst Mr Billy Lin was still employed with Orico Australia if he would like to join Mr Xu's new company, and evidence that Mr Lin ceased employment at the start of July 2016.

(f) It is not in dispute that Orico ANZ was incorporated in April 2016 and that Mr Xu became a director and 50 per cent shareholder at about that time, and that it is now distributing products on behalf of Orico China. Further, there is evidence of Mr Zhu regarding the importance of revenue from Leader and PB to Orico Australia's business, and the financial deterioration of the business of Orico Australia subsequent to April 2016. Mr Zhu's evidence regarding these matters, the stated reduction in Orico Australia's sales from April 2016 onwards, and the company ceasing its trading activities in about July 2016, remains unchallenged.

(g) Further, the amounts claimed in the Primary Proceeding are alleged to relate to three invoices issued by Orico ANZ in May and June 2016 to Leader and PB, who, on the evidence, were Orico Australia's major customers.

104 Having regard to the evidence as a whole, including the evidence of Mr Zhu regarding the business operations, the position of Leader and PB, the impact on sales, and the cessation of the business, I also do not accept the submission that Ms Zhu has not established that there is a serious question to be tried regarding causation. I note further that different considerations in relation to 'causation' may arise in relation to the alternative claims for equitable compensation or further or other relief sought in relation to the equitable claims.

105 That there is evidence from Ms Jin regarding matters such as late payment of wages, company records, the relationship with Leader deteriorating, and related matters does not materially assist Ms Jin's position on the serious question to be tried issue given the other evidence, and the fact that all of the evidence remains untested. Whilst these and other matters may take on greater significance if the claims in the Primary Proceeding proceed to trial, that is for another day.

106 Further, the hearsay evidence in the solicitor's letter of 8 December 2017 regarding Mr Xu working as a contractor or consultant until the end of March 2016 sits in tension with Ms Jin's own evidence regarding Mr Xu being an employee - and is of limited weight in any event.

107 I do not accept the submission that on the evidence it is open to infer that Ms Zhu had access to Mr Xu's emails at Orico Australia. The fact that the emails comprising exhibits 'LZ-1' and 'LZ-2' to Ms Zhu's affidavit of 1 April 2019 have been exhibited to that affidavit is not sufficient to allow such a broad inference to be drawn. However, even if such an inference could have been drawn and it was to be assumed that there were no additional emails or records, the conclusion I have reached would not change given the content and context of the emails exhibited. On the evidence before me, including Mr Xu's email on behalf of Orico Australia to one of Orico Australia's customers in May 2016, Ms Zhu has established that there is a serious question to be tried.

108 It will be apparent from the above that to reach the conclusion that there is a serious question to be tried in relation to the claims the subject of the Primary Proceeding it has not been necessary for me to draw an inference that the failure of Mr Xu to give evidence means that an inference should be drawn that any evidence he could have given would not have assisted Ms Jin's position. That said, Mr Xu is Ms Jin's husband and on the evidence before me I accept the submission that he can fairly be regarded to be in Ms Jin's 'camp'. The central allegations directly concern him and no explanation was offered or material submission put regarding the absence of his evidence or as to why such an inference ought not to be drawn. In my view it is open to draw such an inference and this further reinforces the conclusion that Ms Zhu has established that there is a serious question to be tried.[86]

Section 237(2)(e) - 14-Day notice requirement

109 Section 237(2)(e) of the Act requires an applicant to satisfy the court that either at least 14 days' notice was given (before making the application) of the intention to apply for leave and of the reasons for applying, or that it is appropriate to grant leave even though notice of the kind referred to was not given.

110 Ms Zhu submitted that the notice requirement was satisfied because she gave written notice to Orico Australia on 31 July 2018 of her intention to apply for leave under s 237 of the Act and of her reasons for applying, to which she received no response. On 28 August 2018, Ms Zhu applied to this Court for leave.

111 Ms Jin did not contest the issue and, having regard to the evidence, Ms Zhu has established that s 237(2)(e)(ii) has been satisfied.[87]

Sections 241 and 242 - General powers of the court and power to make costs orders

112 Section 241 of the Act provides the court with broad powers in connection with leave or intervention applications and proceedings brought or intervened in with leave. This includes the power to make any orders and give any directions it considers appropriate in relation to an application for leave, including directions about the conduct of the proceedings.[88]

113 Pursuant to s 242 of the Act, the court may at any time make any orders it considers appropriate about the costs of the person who applied for or was granted leave, the company, and any other party to the proceedings or application. An order under this section may require indemnification for costs.[89]

114 Where a company is essentially a vehicle to pursue the commercial interests of parties who are at odds with one another and the bringing of the derivative claim is opposed, or where a plaintiff wishes to combine derivative claims with personal claims largely arising out of the same facts, it may be appropriate to require the plaintiff to indemnify the company in respect of costs it may incur.[90]

115 In the present case Ms Zhu has indicated that she will undertake to the Court to pay Orico Australia's costs of bringing the proceeding and indemnify Orico Australia in respect of any adverse costs orders. That being so, and subject to an appropriate undertaking being given, it is not necessary to make an order of the character made by Austin J in Ehsman.[91]

116 It is proposed that the undertaking be qualified by being made subject to further order so that it can be adjusted at a later date, if appropriate. As observed by Austin J in Ehsman, the main purpose of such a qualification is to enable the trial judge to make such orders as to costs as he or she thinks appropriate after the final hearing, and may also be useful to allow the court to override the undertaking in circumstances not presently foreseeable.[92]

117 Subject to Ms Zhu giving a satisfactory undertaking to the Court regarding Orico Australia's costs and any adverse costs orders, it is proposed that leave will be granted to Ms Zhu nunc pro tunc pursuant to s 237 of the Act to bring the Primary Proceeding on behalf of Orico Australia.

118 I will hear the parties regarding the precise form of order and the question of costs.

[1] But dated on its face 3 August 2018.

[3] Ms Zhu's affidavit affirmed 1 November 2018 (but dated on its face 24 October 2018) at [15].

[5] Ms Jin's affidavit affirmed 11 February 2019 at [22].

[7] These and subsequent observations made in these reasons are largely extracted from the observations set out in Li v Dao [2018] VSC 530 at [41]-[52], [60]-[66], [82]-[92], [114]-[122], [176], [180]-[184], and to which I refer in any event. See also, generally, Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd [2018] VSC 633 at [158] and following.

[8] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 [24] (Palmer J); Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586 [56], [58] (Bathurst CJ, McColl JA and Barrett AJA agreeing).

[9] Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586, [57] (Bathurst CJ, McColl JA and Barrett AJA agreeing). But see Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732, [16] (Austin J). Note also the qualification in s 237(2)(e)(ii) of the Act.

[10] See, for example, Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [17] (Brereton J).

[11] Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732, [16] (Austin J).

[12] Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609, [52] (Robson J).

[13] Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [20] (Brereton J) c.f. Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84, 96 (Mason and Deane JJ, Brennan J agreeing at 103; Toohey J agreeing at 133).

[14] See s 237(2)(d) of the Act and the discussion in Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, [53]-[57] (Austin J).

[17] See, for example, ibid [42]-[44].

[18] [1843] EngR 478; (1843) 67 ER 189.

[19] Metyor Inc. v Queensland Electronic Switching Pty Ltd [2002] QCA 269; [2003] 1 Qd R 186, [10] (McPherson JA, Williams and Wilson JJA agreeing).

[20] [2010] NSWCA 115; (2010) 78 ACSR 167 (Macfarlan JA, Allsop P and Beazley JA agreeing).

[21] [2016] NSWCA 164; (2016) 114 ACSR 586, [58] (Bathurst CJ, McColl JA and Barrett AJA agreeing) citing McEvoy v Caplan [2010] NSWCA 115; (2010) 78 ACSR 167, [4] (Macfarlan JA, Allsop P and Beazley JA agreeing).

[23] [2002] NSWSC 583; (2002) 42 ACSR 313, [29] (Palmer J).

[25] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [36] (Palmer J); Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296, [38]-[40] (Sifris J).

[26] Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661, [82]-[83] (Tobias JA, Beazley and Bell JJA agreeing); Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229, [105]-[110] (Ferguson CJ, Whelan and McLeish JJA).

[27] Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [33] (Brereton J); Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296, [40] (Sifris J).

[28] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [38] (Palmer J).

[30] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [41] (Palmer J).

[33] Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609, [108] (Robson J). See also Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229, [105]-[111] (Ferguson CJ, Whelan and McLeish JJA).

[34] [2018] VSC 426.

[35] That is not to ignore the observation in paragraph 43 above, that, generally speaking, objective facts and circumstances will speak louder to the question of good faith and genuine belief than statements to that effect by an applicant. See footnote 27 above.

[36] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [55] (Palmer J).

[37] Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296, [60] (Sifris J) citing Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [44] (Brereton J). See also Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, [53]-[57] (Austin J).

[38] Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586, [59] (Bathurst CJ, McColl JA and Barrett AJA agreeing).

[39] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [56]-[60] (Palmer J).

[40] Robash Pty Ltd v Gladstone Pacific Nickel Pty Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432, [57] (Ball J).

[41] Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296, [61] (Sifris J) citing True Value Solar Holdings Pty Limited v Fernandez [2013] VSCA 27, [13] (Osborn JA, Neave JA and Priest JJA agreeing); Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732, [15] (Austin J); Oates v Consolidated Capital Services Limited [2009] NSWCA 183; (2009) 76 NSWLR 69, 93, [119] (Campbell JA, Spigelman CJ and Allsop P agreeing).

[42] Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586, [58] (Bathurst CJ, McColl JA and Barrett AJA agreeing).

[43] Robert P Austin and Ian M Ramsay, Ford, Austin and Ramsay's Principles of Corporations Law (LexisNexis, 17th ed, 2018) 762 [10.240.9] citing Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 (Brereton J); Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705 (Austin J); Ragless v IPA Holdings Pty Ltd [2008] SASC 90; (2008) 65 ACSR 700, [55]-[60] (Debelle J, Sulan and Vanstone JJ agreeing). See also Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [41] (Palmer J).

[44] Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229, [120] (Ferguson CJ, Whelan and McLeish JJA) citing with approval Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609, [159] (Robson J).

[45] Metyor Inc. v Queensland Electronic Switching Pty Ltd [2002] QCA 269; [2003] 1 Qd R 186, [10] (McPherson JA, Williams and Wilson JJA agreeing); Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732, [47], [51] (Austin J); Ragless v IPA Holdings Pty Ltd [2008] SASC 90; (2008) 65 ACSR 700, 709-10, [35] (Debelle J, Sulan and Vanstone JJ agreeing); Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296, [62]-[65] (Sifris J).

[46] Ragless v IPA Holdings Pty Ltd [2008] SASC 90; (2008) 65 ACSR 700, [35] (Debelle J, Sulan and Vanstone JJ agreeing).

[47] Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [51] (Brereton J).

[48] Charlton v Baber [2003] NSWSC 745; (2003) 47 ACSR 31, [53] (Barrett J).

[49] See Ragless v IPA Holdings Pty Ltd [2008] SASC 90; (2008) 65 ACSR 700, [38] (Debelle J, Sulan and Vanstone JJ agreeing).

[50] Fiduciary Ltd v Morning Star Research Pty Ltd (2005) 53 ACSR 732, [47] (Austin J).

[51] [2008] SASC 90; (2008) 65 ACSR 700.

[53] Having regard to the evidence before the Court, including Ms Jin's evidence regarding Mr Xu being an employee and the documents evidencing the payment of superannuation, the concession was properly made. See T32:8-24.

[54] Putting to one side the payment of $3,993 said to have been made in September 2017.

[55] [2002] QSC 340.

[57] Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, [25] (Palmer J); Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, [58] (Austin J); Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859, [19] (Brereton J).

[58] [2006] NSWSC 887; (2006) 58 ACSR 705 [6] (Austin J).

[60] [2005] NSWSC 859, [19] (Brereton J).

[61] Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, [59] (Austin J). But note that this decision was decided four weeks before the High Court handed down its reasons in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57.

[62] [2011] FCAFC 31; (2011) 82 ACSR 367 (North J, McKerracher and Jagot JJ).

[63] [2007] FCA 1448; (2007) 163 FCR 343, [79]-[80] (Middleton J).

[64] Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705.

[65] [2006] HCA 46; (2006) 227 CLR 57.

[66] South Johnstone Mill v Dennis [2007] FCA 1448; (2007) 163 FCR 343 ('South Johnston Mill'), [80] (Middleton J).

[68] [2008] SASC 90; (2008) 65 ACSR 700.

[69] [2008] SASC 90; (2008) 65 ACSR 700, [40] (Debelle J, Sulan and Vanstone JJ agreeing at page 23).

[71] Ibid [40]. This aspect was also raised by Sifris J in Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296 in circumstances where it was not necessary for the issue to be resolved because His Honour found that the sufficient likelihood of success test was satisfied in any event.

[72] [2017] VSC 609, [176] (Robson J).

[73] [2018] VSC 124, [79] (Kennedy J).

[74] Although the issue does not appear to have been raised by the parties in those cases. See also the observations of Sifris J in Daiwa but note that the issue was not raised on appeal from Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 609 (Robson J). See Connective Services Pty Ltd v Slea Pty Ltd [2018] VSCA 229, [124]-[129] (Ferguson CJ, Whelan and McLeish JJA).

[75] [2007] FCA 1448; (2007) 163 FCR 343, [79] (Middleton J).

[76] Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998, 23 [6.46].

[77] Australian Broadcasting Corp v O'Neill [2006] HCA 46; (2006) 227 CLR 57, [65]-[72] (Gummow and Hayne JJ, Gleeson CJ and Crennan J agreeing at 466 [19]). In any event, the approach in South Johnstone Mill has been followed and adopted by other judges at first instance and such a conclusion cannot be regarded as 'plainly wrong'. See Australian Securities Commission v Marlborough Gold Mines (1993) 117 CLR 485.

[78] Relying on Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 ('Jones v Dunkel').

[80] Forming part of exhibit 'LZ-1' to Ms Zhu's affidavit affirmed 1 November 2018.

[81] [2018] VSC 530.

[82] Which also appeared to have influenced Ms Jin's proper concession in this regard.

[83] That is not to ignore the possible ambiguity or uncertainty in his statement regarding timing.

[84] Including, for example, the PAYG payment summary relied upon.

[85] Forming part of exhibit 'LZ-3' to Ms Zhu's affidavit affirmed 3 August 2018.

[86] See Jones v Dunkel, ibid and the discussion in Cross on Evidence (10th ed) Heydon J at [1215].

[87] This conclusion does not involve an impermissible exercise of discretion pursuant to s 237 of the Act. Unlike the other criteria in s 237(2) of the Act, s 237(2)(e) expressly contemplates and provides for the exercise of a judicial discretion in circumstances where the 14-day notice requirement has not been established.

[90] Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; (2006) 58 ACSR 705, [61] (Austin J).

[91] See, for example, ibid [61]-[65].