Promaco Conventions Pty Ltd v Dedline Printing Pty Ltd

6 Mr Ripley is no longer in Australia. Mrs Ripley, however, still resides in Western Australia. 7 Ms Ainsworth, Ms Brew and Ms Cooper (the second plaintiffs) now apply under s 237 of the Act for leave to issue proceedings in the name of the company, against Mrs Ripley. In support of their application dated 15 December 2005, the second plaintiffs filed a document called "the amended statement of claim", which shows that the claims proposed to be brought in the name of the company against Mrs Ripley and Dedline Printing, are in respect of the unauthorised use by Dedline Printing of the printing machine and the failure to account for profits. The proposed claims against Mrs Ripley are that she breached her director's duty to the company in respect of the use by Mr Ripley and Dedline Printing of the printing machine. 8 The "amended statement of claim" also contains claims, which Promaco proposes to bring against Dedline Printing for breach of the partnership agreement, and also against Mrs Ripley as guarantor of the company's obligations under the hire purchase agreement. 9 The second plaintiffs rely upon affidavits of Mr Pearce sworn on 7 December 2005, 3 May 2006, 26 July 2006 and 17 August 2006 respectively, an affidavit by each of Ms Ainsworth, Ms Brew and Ms Cooper each sworn on 26 July 2006 and an affidavit of Mr Douglas‑Brown sworn on 15 February 2006. Mrs Ripley read her affidavit sworn on 1 June 2006. 10 I granted Mrs Ripley a certificate under O 80 of the Federal Court Rules in respect of the second day of the adjourned hearing of this application. Statutory background 11 Section 236 of the Act provides: (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. 12 The relevant provisions of s 237 of the Act provide: (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. (3) A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that: (a) the proceedings are: (i) by the company against a third party; or (ii) by a third party against the company; and (b) the company has decided: (i) not to bring the proceedings; or (ii) not to defend the proceedings; or (iii) to discontinue, settle or compromise the proceedings; and (c) all of the directors who participated in that decision: (i) acted in good faith for a proper purpose; and (ii) did not have a material personal interest in the decision; and (iii) informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate; and (iv) rationally believed that the decision was in the best interests of the company. The director's belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold. (4) For the purposes of subsection (3): (a) a person is a third party if: (i) the company is a public company and the person is not a related party of the company; or (ii) the company is not a public company and the person would not be a related party of the company if the company were a public company; and (b) proceedings by or against the company include any appeal from a decision made in proceedings by or against the company. 13 Mr Douglas‑Brown, one of the liquidators of the company, has said in an affidavit sworn on 15 February 2006 that the company does not have the resources to pursue any claim on behalf of the company. Mr Douglas‑Brown does not identify the possible claims that might be able to be pursued on behalf of the company, nor does he identify any potential defendants. Mr Douglas‑Brown does not depose to having made an attempt to obtain funding to pursue any claim. Does Pt 2F.1A of the Act apply where the company in question is in liquidation? 14 Counsel for Mrs Ripley submitted that the application should be dismissed because the company is in liquidation and the relief referred to in s 236 and s 237 of the Act was not available when the company in question had gone into liquidation. Counsel referred to the case of BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2001) 164 FLR 268 (BL & GY International). In that case Einstein J observed that the legislative intention was that s 236 and s 237 of the Act were only to apply where the application was made in respect of a company which was a going concern, and not in respect of a company which was in liquidation. At 295, at [73], Einstein J said: There are clear indications within s 237 to the effect that the section does not extend to and does not contemplate, circumstances in which the subject company on behalf of which an application for leave to bring proceedings or to intervene in proceedings is made, is a company in liquidation. The rebuttable presumption the subject of s 237(3) contemplates the directors participating in a decisionby the company not to bring the proceedings or not to defend the proceedings or not to discontinue, settle or compromise the proceedings. Where a company is in liquidation the directors cannot participate in such a decision. Where a company is in liquidation the scheme of the Corporations Act is that it is the liquidator who is the appropriate party to determine whether proceedings should be brought on behalf of a company or whether any particular step should be taken on behalf of the company in relation to any proceedings. Absent some exceptional leave of the court, while a company is being wound up in insolvency or by the Court, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company except as a liquidator appointed for the purposes of the winding up; or as an administrator appointed for the purposes of an administration of the company beginning after the winding up order was made; or with the liquidator's written approval; or with the approval of the Court (s 471A(1)). Hence, as far as directors are concerned, they are unable to exercise their powers except where they obtain either the approval of the liquidator or the approval of the Court. The manner in which the subsection refers to a decision "by the company" also does not suggest that there was an intention to refer to a decision by a liquidator on behalf of a company in liquidation. (Original emphasis.) 15 At 294, at [70], Einstein J, after having given detailed consideration to the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth) (the Bill), observed: The matter that the legislature sought to address appears to have been the difficulties which had arisen when under the common law, a party sought to proceed on the basis of an exception to the rule in Foss v Harbottle. The intention behind the enactment of ss 236 and 237 appears to have been to avoid confusion in that regard and to codify that form of entitlement and right of action. The explanatory memorandum gave no attention whatsoever to questions involving the jurisdiction of the Court to permit actions to be taken in the name of a company in liquidation. 16 Counsel for Mrs Ripley, however, acknowledged that there were a number of decisions by judges at first instance which took a different view to that expressed by Einstein J in BL & GY International. Counsel referred specifically to the decision of Santow J in Roach v Winnote Pty Ltd (in liq) [2001] NSWSC 822 (Roach) to the effect that s 236 and s 237 of the Act were applicable in circumstances where the company in question was in liquidation. The decision in Roach has been followed on a number of occasions by judges at first instance. In the case of Brightwell v RFB Holdings Pty Ltd (in liq) (2003) 171 FLR 464, Austin J noted that in the Roach case, the decision of BL & GY International had not been cited to Santow J. However, Austin J observed that "with some hesitation" he preferred the view of Santow J in Roach to that of Einstein J in BL & GY Interntational. 17 In Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 211 ALR 457 (Carpenter), Barrett J observed at 461, at [7]‑[8]: There have now been seven cases in which this issue has been addressed. The first was BL & GY International Co Ltd v Hypec Electronics Pty Ltd where Einstein J expressed the view (without having to decide the question) that Pt 2F.1A does not apply to a company in liquidation. His Honour was influenced by the fact that one provision within that part (s 237(3)(c)) refers to a decision of directors with respect to proceedings that this company may bring. In two subsequent cases - Roach v Winnote Pty Ltd (Santow J) and Brightwell v RFB Holdings Pty Ltd (Austin J) - it was held that Pt 2F.1A did apply in relation to a company in liquidation, there being no contrary indication by reason of the reference to the directors in s 237(3)(c). I expressed agreement with that view in Charlton v Baber at [27] and [28]: "[27] My views coincide with those of Santow and Austin JJ and I respectfully adopt the approach that commended itself to them. Section 237(3), which refers to decision making by directors, does no more than cause a rebuttable presumption to arise as to one of the matters to be examined by the court under s 237(2). If the facts as found (including as to directors' decision making) cause the case to fit within s 237(3), the presumption arises. If they do not - because directors did not participate in a relevant decision, or for any other reason - the presumption does not arise. In either event, there is no reason why the substantive provisions of s 237(1) and (2) cannot operate perfectly well according to their terms. [28] The fact that a creditors' voluntary winding up pursuant to s 446A is in progress in respect of NAA therefore presents no barrier to the grant of the leave Mr Charlton seeks under s 237." In the course of recent months, Hely J (Mhanna v Sovereign Capital Ltd), Einstein J (Kamper v Applied Soil Technology Pty Ltd) and Stone J (Mhanna v Sovereign Capital Ltd) have all endorsed the view that Pt 2F.1A applies to a company in liquidation. The question should now be regarded as settled. (References omitted.) 18 Since Carpenter, the approach by Santow J in Roach has also been followed by Whelan J in Fresh Start Australia Pty Ltd (ACN 076 853 944); Scuteri v Lofthouse and Cauchi as liquidators of Fresh Start Australia Pty Ltd (in liq) (2007) 59 ACSR 327. 19 Counsel for Mrs Ripley, however, submitted that until there was a decision which was binding on a first instance judge, the Court was at liberty to apply the decision in BL & GY International. 20 Each of Santow J in Roach and Einstein J in BL & GY International took a different approach to the function of s 237(3)(c) in construing the Act. Einstein J relied upon the subsection as indicative of Parliament's intention that s 236 and s 237 were to apply only to a company as a going concern ‑ because s 237(3)(c) could not have any application where a company was in liquidation. Santow J, on the other hand, observed that the subsection was "adjectival", in that, it provided only for a rebuttable presumption, and it was possible to construe that subsection as indicative of Parliament's intention that the presumption would apply when the company in question was a going concern, but not when the company in question was in liquidation. Therefore, said Santow J, the subsection was not inconsistent with a Parliamentary intention to alter the existing law, so that Pt 2F.1A would apply, both when the company was a going concern and when it was in liquidation.

21 The difference in these two approaches calls for an examination of Parliament's intention in enacting Pt 2F.1A. In seeking to discern Parliament's intention, it is possible to have regard to the mischief that the legislation was intended to remedy; and to discern the mischief by reference to the Explanatory Memorandum to the Bill in question and to any law reform report referred to therein. In Newcastle City Council v GIO General Limited (1997) 191 CLR 85 at 99, Toohey, Gaudron and Gummow JJ observed: In the interpretation of s 40, the Court may consider the Explanatory Memorandum relating to the Insurance Contracts Bill 1984 which was laid before the House of Representatives by the responsible Minister. The common law, independently of s 15AB of the Acts Interpretation Act 1901 (Cth) (the Interpretation Act), permits the Court to do so in order to ascertain the mischief which the statute was intended to cure. (Reference omitted.) 22 In that case, the High Court examined the Explanatory Memorandum as well as the Australian Law Reform Commission, Insurance Contracts, Report No 20 which was referred to in the Explanatory Memorandum, in order to determine the mischief in the existing law for which s 40 of the Insurance Contracts Act 1984 (Cth) was "designed to provide a remedy". 23 Prior to the enactment of Pt 2F.1A of the Act, the law distinguished between the power or right of a shareholder to bring a claim in the name of a company depending upon whether the company was a going concern or was in liquidation. In the Privy Council case of Ferguson v Wallbridge [1935] 3 DLR 66 at 83 (Ferguson), Lord Blanesburgh said: [I]n the case of such a claim as was successfully made by the plaintiff in Cook v Deeks - and there is at least a family likeness between that case and this - justice would be denied to him if the mere possession of the company's seal in the hands of his opponents were to prevent the assertion at his instance of the corporate rights of the company as against them. But even in the case of a going company a minority shareholder is not entitled to proceed in a representative action if he is unable to show when challenged that he has exhausted every effort to secure the joinder of the company as plaintiff and has failed. But cessante ratione legis, cessat lex ipsa [the reason of the law ceasing, the law itself ceases]. So soon as the company goes into liquidation, the necessity for any such expedient in procedure disappears. Passing over the superficial difficulty that a company in compulsory liquidation cannot be proceeded against without the leave of the court, the real complainants, the minority shareholders, are now no longer at the mercy of the majority, wrongly retaining the property of the company by the strength of their votes. If the liquidator, acting at the behest of the majority, refuses when requested to take action in the name of the company against them, it is open to any contributory to apply to the court and under s 234 of the Provincial Companies Act, which corresponds to s 252 of the Imperial Statute (Companies Act, 1929 (Imp), c 23), it is open to the court, on cause shown, either to direct the liquidator to proceed in the company's name or on proper terms as to indemnity, and otherwise to give to the applicant leave to use the company's name as plaintiff in any action necessary to be brought for the vindication of the company's rights….And it is the policy of the Act that all claims competent to the company should be brought within the scope and control of the winding up, and that not only in a compulsory liquidation. Therefore, such procedure is not to be discouraged. (Reference omitted and translation inserted.) 24 In the case of Fargro Limited v Godfroy [1986] 1 WLR 1134 at 1138 (Fargro), Walton J, referring to Ferguson, observed: So there is clear authority in the Privy Council as to the vast distinction that there is between the position where a company is a going concern and the minority shareholders' action can be brought; and a case where it goes into liquidation where there is no longer any necessity for bringing a minority shareholders' action. 25 Further, in Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344 (Scarel), Gummow J, after having referred to the observations of Lord Blanesburgh in Ferguson and to the case of Fargro, observed at 351‑352: The point is that when the company went into liquidation, the question of the subsequent carriage of claims of a company was brought within the scope and control of the winding up and of the Court having charge of that winding up. In such a case, it is, in my view, not appropriate to speak of the rule in Foss v Harbottle or exceptions to the rule in Foss v Harbottle which have the effect of taking the carriage of such claims outside the winding up. It has been said on more than one occasion that winding up is a process which affects rights in rem, and there is obviously much sense in the policy of the legislation in confining those questions to the one forum designated by the legislation to deal with the whole of the subject matter. 26 In Christianos v Aloridge Pty Ltd (1995) 59 FCR 273 at 281‑282, the Full Court of the Federal Court referred with approval to the observations of Gummow J in Scarel and said: Although a member who is dissatisfied with a liquidator's reluctance to sue cannot rely upon the exceptions to the rule in Foss v Harbottle, it is clear that other remedies may be available, for instance, the member may use the statutory procedure to ask the court to order the liquidator to bring the proceedings (see HAJ Ford & RP Austen, Principles of Corporations Law (7th ed, 1995), p 452, referring to s 477(6) and 511 of the Law; see also s 1321, providing for appeals from acts, decisions or admissions of liquidators and provisional liquidators). There are other possible remedies, for example, removal of the liquidator or, as was done in Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd (1984) 9 ACLR 91 the appointment of a receiver of the company's right of action (see generally, Scarel at 351‑352). 27 The Explanatory Memorandum to the Bill introducing Pt 2F.1A, referred to the Corporate Law Economic Reform Program Proposal Paper No 3, "Directors Duties and Corporate Governance", released on 20 October 1997 (the CLERP Paper), which proposed, among other reforms, the enactment of a statutory derivative action. 28 The focus of the CLERP Paper was on inadequacies of the exceptions to the rule in Foss v Harbottle (1843) 67 ER 189 as affording an aggrieved shareholder a practical and effective means of enforcing rights as between the shareholders and directors. The paper criticised the existing law, particularly the so‑called "fifth exception to the rule", on the grounds that it was uncertain. Another obstacle identified was the lack of access by a minority shareholder to the company's funds to bring an action in the company's name. Also, it was said that the power of the majority to ratify breaches of duty could frustrate a minority shareholder who wanted to enforce the rights in the company's name, against a defaulting director who enjoyed the support of the majority. The paper said that these obstacles meant that few actions, relying on the exceptions to the rule in Foss v Harbottle, were ever effectively brought against defaulting directors. In this respect, the CLERP Paper contrasted the unsatisfactory operation of the existing law when the company was a going concern, with the position when a company went into liquidation. The CLERP Paper at 32 stated: A statutory derivative action would not impose a new form of liability on directors but would provide a more effective avenue of enforcement than has previously been available. In the past, relatively few breaches of directors duties have been able to be litigated, other than in the insolvency context, especially when there has been no involvement by the ASC. (Emphasis added.) 29 There is no reference in the CLERP Paper to any of the cases referred to in [23] to [26] above. There is no criticism of the existing law as reflected in those cases. To the contrary, as mentioned above, the position when a company is in liquidation, is contrasted favourably with the position when it is a going concern. There is no recommendation that the existing law as reflected in those cases be amended. In particular, there is no consideration in the CLERP Paper of whether the distinction recognised in those cases between the legal position of an aggrieved member, when the company was a going concern, and when it was in liquidation, should be abolished, merged or otherwise disturbed, and there is no recommendation to that effect. 30 The Explanatory Memorandum to the Bill also made no reference to the existing law in relation to the power of a member or contributory to bring an action in the name of the company, when the company was in liquidation. In describing the "current position" which the legislation was intended to remedy, the Explanatory Memorandum confines its description only to the exceptions to the rule in Foss v Harbottle ‑ in other words, only to the law as it applied to an aggrieved shareholder in a company which was a going concern, desirous of bringing a claim in the name of the company. The Explanatory Memorandum states: Current position 6.14 Shareholder derivative proceedings may currently be pursued at common law under the so‑called exceptions to the rule expounded in Foss v Harbottle that the company is the proper plaintiff for wrongs done to it. However, a number of practical and legal difficulties regarding the operation of the exception have meant that very few derivative actions have proceeded. 6.15 The main difficulties associated with the common law action centre around: · the effect of ratification of the impugned conduct by the general meeting of shareholders (if effective, the purported ratification by a majority of shareholders could deny the company as a whole, and hence minority shareholders, any right of action against the directors); · the lack of access to company funds by shareholders to finance the proceedings (where a shareholder seeks to enforce a right on behalf of a company, they are likely to be disinclined to risk having costs awarded against them in a case which will ultimately benefit the company as a whole, not just individual shareholders); and · the strict criteria which need to be established before a Court may grant leave 31 The Explanatory Memorandum also states: 6.23 The common (general law) derivative rights under the exceptions to the 'proper plaintiff' rule in Foss v Harbottle will be abolished. This is designed to promote certainty regarding the nature of the action and avoid confusion between any diverging principles relating to the statutory action and the common law action. 32 There is no suggestion in the Explanatory Memorandum that the existing law in relation to the power of a member or a contributory to bring an action in the name of a company which is in liquidation, would be, or should be, amended, supplemented, or in any way affected by legislative change proposed to be effected by the Bill. In particular, there is no suggestion that the proposed statutory amendment would, or should, abolish or affect the distinction recognised in the cases between the legal position of a member or contributory, when the company was a going concern, and when it was in liquidation. 33 Further, the Bill provided for the inclusion of "officers" and "former officers" in the class of persons who would be eligible to apply to Court to bring an action in the name of a company. Such a change would have represented an expansion to the category of persons who had standing to complain about the exercise of the powers of a liquidator under s 477(6) and s 511 of the former Corporations Law, which was confined to "contributories" and "creditors". Likewise, only contributories and creditors had standing to invoke the inherent power in the course of winding up, to bring proceedings in the name of the company (Cape Bretton Company v Fenn (1881) 17 Ch D 198; Cadima Express Pty Limited v Deputy Commissioner of Taxation (2000) 157 FLR 424 at 433, at [42]). However, there is no discussion in the CLERP Paper, nor in the Explanatory Memorandum, of any rationale for reforming the law by expanding the class of eligible complainants to include a director or former director of the company. 34 In my view, the mischief which Parliament intended to address was confined only to that manifest in the existing law relating to the right of an aggrieved shareholder in a company, which was a going concern, to bring an action in the name of the company. Therefore, I agree with the observations made by Einstein J at 294, at [70] in BL & GY International referred to in [15] above. 35 It follows that, in my view, the abolition of the general law right, referred to in s 236(3) of the Act, was intended to be confined to the abolition of the right founded on the exceptions to the rule in Foss v Harbottle ‑ being the general law which applied when the company in question was a going concern. It was not intended that the scope of the replacement statutory provisions would extend beyond the scope of the provisions of the general law which the statute abolished. 36 Another basis relied upon by Santow J in Roach for concluding s 236 and s 237 applied even when the company in question was in liquidation, was that the definition of "company" in the Act was wide enough to include a company in liquidation. Section 6(1) says that the definitions in Pt 1.2 of the Act "have effect for the purposes of the Act, except so far as the contrary intention appears in this Act". Accordingly, the definition of "company" does not preclude a finding that the relief in Pt 2F.1A was intended only to apply when the company in question was a going concern. 37 The distinction in the position of a person seeking to bring a claim in the name of a company, where the company is a going concern, and where it is in liquidation, and the rationale for the distinction, is authoritatively stated by Lord Blanesburgh in Ferguson and by Gummow J in Scarel in [23] and [25] respectively above. For the reasons set out above, in my view, Parliament did not intend, in enacting Pt 2F.1A, to undermine or affect that distinction. It follows, that the better view, in my opinion, is that Pt 2F.1A of the Act has no application when a company is in liquidation. 38 The case of Australian Securities and Investments Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 presents an obstacle for the submission of counsel for Mrs Ripley. That decision requires a single judge interpreting a statute applied nationally, to give effect to the decisions of other single judges construing that statute, unless the single judge is of the view that the previous decisions of those single judges are "plainly wrong". This test requires a high degree of assurance on the part of the single judge departing from the existing view. As I have said, I am of the opinion, that the better view is that Pt 2F.1A has no application where a company is in liquidation, but in light of the considerable number of other single judges who have come to a different view, I do not have the high degree of assurance necessary for me to characterise the contrary view as "plainly wrong". 39 Accordingly, I will consider whether the second plaintiffs have satisfied the conditions necessary for the grant of leave to bring an action against Mrs Ripley in the name of the company. It is necessary for the plaintiffs to satisfy the Court in respect of each of the requirements in s 237(2) of the Act. The best interests of the company 40 Counsel for Mrs Ripley submitted that the second plaintiffs have not shown that it would be in the best interests of the company that they be granted leave to bring the proposed claim in the name of the company. 41 In cases where the company in question is in liquidation, and there is an external body of creditors, it has been said that the best interests of the company are to be defined by reference to the best interests of the creditors. However, there is a special circumstance in this case which takes it outside the usual position of a company in liquidation, namely, there is not a general body of external creditors. As appears from the plaintiffs' submissions, Promaco is the company's only creditor. This circumstance arises from the fact that the company was the vehicle whereby Promaco and Dedline Printing agreed to carry on a business in partnership, and Promaco has paid all the external creditors of the company. 42 In my view, when assessing the best interests of the company, it is not appropriate, therefore, in the unusual circumstances of this case, to apply the principles which would apply where a company is in liquidation and there is a general body of external creditors. 43 In Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 at 324, at [56], Palmer J observed that whether it was in the best interests of the company that the applicant be granted leave, could "only be determined by taking into account all of the relevant circumstances". One of the circumstances referred to by Palmer J was the "character of the company". His Honour observed that "different considerations may well apply depending on whether the company is a small, private company whose few shareholders are the members of a family or whether it is a large public listed company". 44 Another relevant consideration identified by Palmer J was whether the substance of the redress, which the applicant sought, could be achieved by the applicant for leave, bringing the proceedings in his or her own name, so that the company was not involved in the litigation at all. 45 In considering the nature of this company, this is a private company which was registered, and used, as a means of giving effect to a partnership agreement between Promaco and Dedline Printing. However, neither of the "partners" were registered shareholders of the company. The evidence of Ms Ainsworth, Ms Brew and Ms Cooper does not disclose the relationship that they have with Promaco or Mr Pearce. Neither does Mr Pearce in any of his affidavits disclose the nature of the relationship between the second plaintiffs, himself and Promaco. However, I infer that the second plaintiffs act at the direction of, and are under the control of Promaco, and are, in effect, the nominees of Promaco. I found this inference on the fact that the company was formed to give effect to the partnership between Promaco and Dedline Printing, with the profits being shared between them. Secondly, the application when it was first made was accompanied only by an affidavit of Mr Pearce. That affidavit stated that Mr Pearce was authorised to swear the affidavit on behalf of the second plaintiffs. 46 The true nature of the dispute in this case is a partnership dispute between Promaco and Dedline Printing. It was these two parties, and not the company, nor its shareholders, that were entitled to the profits of the business. The complaint in substance is that Dedline Printing has breached the partnership agreement and its fiduciary duty, and that its principals have caused it to do so. Any claim which Promaco has in relation to the unauthorised use of the printing machine, or in relation to Dedline Printing's alleged failure to indemnify Promaco in respect of the payment of the partnership expenses, can be brought in the name of Promaco itself. 47 To the extent that Promaco wishes to bring a claim for an account of profits for the misuse of the printing machine, it would be able to allege a breach of fiduciary duty against Dedline Printing. Likewise, to the extent that it wishes to pursue claims against each of Mr and Mrs Ripley, it is open to Promaco to allege that each is personally liable on the grounds that he or she knowingly assisted in a breach of fiduciary duty by Dedline Printing, in using the printing machine for its own benefit, without accounting for the profits. 48 Further, it is open to Promaco to claim from Dedline Printing the share of expenses which it claims that Dedline Printing has, in breach of the partnership agreement, failed to pay. 49 There is a further consideration. The evidence shows that there is an issue between Promaco and Dedline Printing, as to the reason for the demise of the partnership business, with the consequential liquidation of the company. The report of Mr Douglas‑Brown as administrator, records as one of the possible reasons for the failure of the company, the failure of one of the partners to provide printing work to the company. Further, Mrs Ripley has deposed to deprivation being suffered by Dedline Printing, in relation to what she claims to be a failure of Promaco, in breach of the partnership agreement, to bring the level of business that it had promised to bring to the partnership. 50 Any potential cross‑claim founded upon a breach by Promaco of the partnership agreement can appropriately be dealt with in the context of a claim and cross‑claim founded upon the partnership relationship between the parties. 51 The granting of the second plaintiffs' application has the potential of leading to a counter application being made by Mrs Ripley, for the company's name to be used in an application against Mr Pearce, for a breach of his duty as a director, for preferring the interests of Promaco to that of the company. In my view, the true substance of the claims by Promaco, and any incipient cross‑claim by Dedline Printing, can be effectively litigated without the company bringing an action, at all. 52 In my view, therefore, the plaintiffs have failed to show that it is in the best interests of the company, that the plaintiffs be granted leave under s 237 of the Act. The dispute can be more properly, in my view, litigated within the context of its true nature, namely, as a partnership dispute. 53 In light of my conclusions, it is unnecessary to consider Mrs Ripley's further contentions. However, I would add, I would also have found that on the evidence, the second plaintiffs were unable to satisfy the Court that they were acting in good faith.

54 In relation of the question of good faith, the Explanatory Memorandum states: 6.36 In assessing whether an applicant is acting in good faith, the Court could be expected to have regard to whether: · there was any complicity by the applicant in the matters complained of; and · the application is being made in pursuit of interest other than that of the company. 6.37 The good faith requirement is designed to prevent the proceedings being used to further the purposes of the applicant, rather than the company as a whole. 55 In light of the absence of an arms‑length relationship between the second plaintiffs and Promaco, the question of complicity would fall to be considered by reference to Promaco's position rather than that of the second plaintiffs. The evidence of Mr Pearce on the question of Promaco failing to meet its obligations, went no further than a generalised assertion that Promaco could provide no more work to the company than it did, largely because of a "general downturn in tourism following the events of 11 September 2001 and the Ansett collapse". I would, on the balance of probabilities, have been unable to find that Promaco was not complicit in the company's failure. 56 The application is dismissed with costs. I certify that the preceding fifty‑six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Counsel for the Second Plaintiffs: Ms L Horwood

Solicitor for the Second Plaintiffs: Mackinlays Solicitors

Counsel for the Second Defendant on 19 June 2006: The Second Defendant appeared in person.

Counsel for the Second Defendant on 25 September 2006: Mr A Skinner

Solicitor for the Second Defendant on 25 September 2006: Mony De Kerloy

Date of Hearing: 19 June 2006 and 25 September 2006

Date of Judgment: 24 April 2007