Wood v Links Golf Tasmania Pty Ltd

Counsel for the Defendant: Mr D Williams SC and Dr E Boros

Solicitor for the Defendant: Piper Alderman

Counsel for Richard Geoffrey Sattler and R G Sattler Nominees Pty Ltd: Mr M Roberts SC and Mr D B Bongiorno

Solicitors for Richard Geoffrey Sattler and R G Sattler Nominees Pty Ltd: Shields Heritage

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 47 of 2013

AND: LINKS GOLF TASMANIA PTY LTD (ACN 096 711 661)

JUDGE: GORDON J DATE OF ORDER: 27 FEBRUARY 2013 WHERE MADE: MELBOURNE

1. The application is dismissed.
2. The Plaintiffs pay the Defendant's costs of the application, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 47 of 2013

AND: LINKS GOLF TASMANIA PTY LTD (ACN 096 711 661)

JUDGE: GORDON J DATE: 27 FEBRUARY 2013 PLACE: MELBOURNE

INTRODUCTION 1 The Plaintiffs, Peter Andrew Wood (Wood) and Justin Charles Hetrel (Hetrel), are former directors of the Defendant, Links Golf Tasmania Pty Ltd (Links). Wood and Hetrel sought, and obtained, leave pursuant to s 237 of the Corporations Act 2001 (Cth) (the Act) to conduct a derivative proceeding (VID 204 of 2010, the Derivative Proceeding) on behalf of Links against another former director, Richard Sattler (Sattler), and his family company, RG Sattler Nominees Pty Ltd (referred to collectively as the Sattler Parties). The Derivative Proceeding was heard and reasons for judgment were published on 26 June 2012: Links Golf Tasmania Pty Ltd v Sattler (2012) 292 ALR 382 (the Judgment). On 16 July 2012, orders were made (the Orders). Links was largely unsuccessful. 2 Wood and Hetrel now seek leave under s 237 of the Act to commence, on behalf of Links, an appeal from the Orders and, if leave is granted, an extension of time for the filing of any notice of appeal. 3 For the reasons that follow, Wood and Hetrel's application is dismissed.

SATTLER PARTIES' APPEARANCE 4 The Sattler Parties sought leave to be heard pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth). Rule 2.13 relevantly provides that: (1) The Court may grant leave to any person who is, or who claims to be: (a) a creditor, contributory or officer of a corporation; or (b) an officer of a creditor, or contributory, of a corporation; or (c) any other interested person; to be heard in a proceeding without becoming a party to the proceeding. 5 The Sattler Parties submitted that the following grounds supported the exercise of the Court's discretion: a. Being [Links'] majority shareholder, the Sattler Parties have a significant interest in [Links'] finances. b. Having been present at the 47 day trial from which Hetrel and Wood seek to appeal, the Sattler Parties are better apprised to assess the merits of that proposed appeal. c. The Sattler Parties were heard at the nine returns of the previous proceeding (No (P)VID 933/2009) brought by Hetrel and Wood under s 237 of the Act (seeking to commence proceedings against the Sattler Parties). d. The Sattler Parties are the proper respondents to any application for an extension of time nunc pro tunc (see paragraph 2(b) above). Further, being the prospective respondents to the appeal, the Sattler Parties have a significant interest in the outcome of this application. 6 The Sattler Parties are creditors of Links, as a result of the costs orders made in the Derivative Proceeding. Further, the Sattler Parties hold shares in Links. Neither Wood and Hetrel nor Links opposed the Sattler Parties' application to be heard. In light of the matters listed above, and the parties' attitudes, the Sattler Parties were permitted to file written submissions and to make oral submissions at the hearing of the application. Given the nature and extent of their involvement in the application, the Sattler Parties should bear their own costs of the application by Wood and Hetrel for leave under s 237 of the Act and the related application for an extension of time for the filing of a notice of appeal.

ANALYSIS 7 These reasons for decision address the background to the application, the principles relevant to an application for leave under s 237 of the Act and then consider three aspects of the application - whether the proposed appeal is in the best interests of Links, whether the proposed appeal raises a serious question to be tried and, finally, whether Wood and Hetrel are acting in good faith.

Background 8 It is unnecessary to set out the background facts in any great detail - they are described in the Judgment. It is sufficient to note that Links developed, and now operates, a golf course in Tasmania called "Barnbougle Dunes". At the relevant points in time, Wood, Hetrel and Sattler were directors and, through their respective holding companies, shareholders of Links. Sattler owned the land upon which the course was developed and leased it to Links. Sattler also owned land adjacent to Barnbougle Dunes on which he subsequently, and separately, developed a golf course called "Lost Farm". The Derivative Proceeding concerned, inter alia, claims that: 1. Sattler acted in breach of his fiduciary duties in developing Lost Farm and that he appropriated the opportunity to develop Lost Farm which properly belonged to Links; 2. Sattler acted in breach of his fiduciary and statutory duties in developing Lost Farm while he remained a director and CEO of Links; and 3. Sattler acted in breach of his fiduciary and statutory duties when he negotiated a loan, not for Links benefit, but for his own and used those funds to acquire shares in Links. 9 Naturally, prior to commencing the Derivative Proceeding, Wood and Hetrel obtained leave of the Court pursuant to s 237 of the Act (VID 933 of 2009) (the First Leave Proceeding). On 19 March 2010, an order was made in the following terms: The plaintiffs have leave to bring proceedings to pursue causes of action in the form or to the effect of those pleaded in the statement of claim filed in proceeding VID-523 of 2009, which is exhibit 'JCH-2' to the affidavit of Justin Hetrel sworn 23 December 2009 and filed in this proceeding, on behalf of the defendant (LGT) against Richard Sattler (Sattler) and R. G. Sattler Nominees Pty Ltd (ACN 009 525 348) (Sattler Nominees). 10 The trial of the Derivative Proceeding occupied some 47 days between April and September 2011. The Judgment is over 300 pages long. Links' claims in the Derivative Proceeding were largely unsuccessful. By the Orders, the trial judge ordered that, while Links was entitled to equitable compensation or an account of profits in respect of two limited aspects of its claim, there be judgment for the Sattler Parties. The trial judge also ordered that the time for Links to file any notice of appeal was extended until 9 November 2012. 11 Following the making of the Orders, there remained two outstanding issues in the proceeding: the quantum of the claims in which Links was successful and costs. On 24 October 2012, in the course of making procedural orders regarding the first issue, the trial judge further extended the time for Links to file a notice of appeal until 14 December 2012. 12 On 16 November 2012, the trial judge ordered that: 1. The plaintiff pay 85% of the defendants' costs of the proceeding, not including - (a) the costs of and incidental to the preparation of the reports of - (i) David Breadmore, dated 25 March 2011; and (ii) Campbell Jackson, dated 28 March 2011 (Ex 298); and (b) the costs of the assessment of the plaintiff's damages pursuant to its entitlement under the declaration made on 16 July 2012, which costs are hereby reserved. 2. Peter Andrew Wood and Justin Charles Hetrel indemnify the plaintiff for one half of the costs payable to the defendants pursuant to the previous order. 3. For the purposes of the application of Div 40.2 of Pt 40 of the Federal Court Rules 2011 in relation to the defendants' costs, Peter Andrew Wood and Justin Charles Hetrel be treated as interested parties and, to the extent appropriate to reflect their proper interest, as parties to the taxation. 4. The defendants' Interlocutory Application filed on 11 October 2012 be stood over to 10:15 am on 30 November 2012. 5. The costs of that application be reserved. 6. Peter Andrew Wood and Justin Charles Hetrel pay the defendants' costs of their Interlocutory Application filed on 2 August 2012. 7. Save as aforesaid, there be no order as to the costs of that application. 13 In this proceeding, Sattler filed an affidavit in which he estimated his costs of the Derivative Proceeding to amount to approximately $2.7 million. Links filed an affidavit of Melissa Ann Gesovski, an employee of its solicitors, in which she deposed that a partner of her firm had estimated the Sattler Parties' costs to be in the vicinity of $1.5 million. Links has not made any payments to the Sattler Parties and Wood and Hetrel have not made any payments to Links in respect of the Sattler Parties' costs. Links remains liable for 85% of the Sattler Parties' costs of the Derivative Proceeding (save for the exceptions described above) and Wood and Hetrel remain liable to indemnify Links for 50% of that amount. The best guesstimate of Wood and Hetrel's liability in respect of the Sattler Parties' costs of the Derivative Proceeding was in excess of $600,000. 14 Separately, but also on 16 November 2012, the trial judge made orders in the First Leave Proceeding as follows: 1. Order 1 made on 8 June 2010 be further varied, nunc pro tunc, by inserting after the word "pay" the expression "60% of". 2. The parties, and Richard Geoffrey Sattler and Sattler Nominees Pty Ltd, have leave to apply for a variation of the previous order on the ground that the figure of 60% is not a fair reflection of the intent of the court as expressed in paras 4-36 of its reasons published this day, any such application to be - (a) filed and served within 7 days; (b) returnable at 9:30 am on 30 November 2012; and (c) supported by affidavit giving particulars of the ground relied on. 3. Conformably with the intent of Order 3 made by the court on 24 March 2011, the joint plaintiffs pay 85% of the defendant's costs of its interlocutory process dated 15 March 2011, including the costs of 24 March 2011. 4. The joint plaintiffs pay the defendant's costs of its Interlocutory Application filed on 12 July 2012, not including one half of the costs incurred in relation to the defendant's written submissions as amended filed on 5 October 2012. 5. Save as aforesaid, there be no order as to the costs of that application. 15 The effect of order 1 was that Wood and Hetrel became liable for 40% of their own costs of the Derivative Proceeding. Ms Gesovski deposed that the solicitors instructed by Wood and Hetrel to conduct the Derivative Proceeding on behalf of Links (Maddocks) had rendered invoices totalling $3,584,364. Pursuant to orders made on 24 March 2011, Links was obliged to pay Maddocks $75,000 at the end of each month where such payment would not reduce its cash reserves below $300,000. Ms Gesovski deposed that, but for that order, Links would be insolvent. Links has made payments to Maddocks of approximately $1.07 million. 16 That was not the end of the matter. On 14 December 2012, the trial judge made final orders in the Derivative Proceeding. In relation to the limited claims where Links was successful, the Sattler Parties were ordered to pay Links $361,500 by way of equitable compensation and $90,714.84 in interest. The trial judge ordered the Sattler Parties to pay Links' costs of that aspect of the claim, but allowed the Sattler Parties' liability for those costs to be set off against their entitlement to costs under the orders made on 16 November 2012. Finally, the time for the filing of a notice of appeal was extended until 1 February 2013. 17 On 25 January 2013, Wood and Hetrel filed an originating application which included two parts. The first was an application for leave pursuant to s 237 of the Act, which is the subject of these reasons. The second was an application made on an interlocutory basis for an extension of the time within which to file a notice of appeal. The interlocutory application was heard and dismissed on 31 January 2012. In dismissing the interlocutory application, Gray J noted (Wood v Links Golf Tasmania Pty Ltd [2013] FCA 75 at [19]) that: In addition, it must be said that, if Mr Wood and Mr Hetrel see fit to proceed with their application pursuant to s 237 of the Corporations Act, to bring an appeal in the name of Links Golf, whichever judge is to deal with that application will, if necessary, have available to him or her the power given by r 36.03(b) of the Federal Court Rules to fix a date for the purpose of the filing of a notice of appeal. In other words, if a judge should think it appropriate to grant leave to Mr Wood and Mr Hetrel, the judge will be able to make an order in relation to the time for filing any notice of appeal. 18 Finally, it is relevant to note that Wood and Hetrel have filed two further applications by which they seek leave to appeal, and/or an extension of time within which to file a notice of appeal, in relation to the orders made on 16 November 2012. The first is an application for leave to appeal from the orders of the trial judge in the First Leave Proceeding made on 16 November 2012 (VID 60 of 2013). Wood and Hetrel seek that the orders made on 16 November 2012 (see [14] above) be set aside with the effect that the orders made on 8 June 2010 would be restored to their original form, as follows: 1. Links Golf Tasmania Pty Ltd (LGT) pay the joint plaintiffs' reasonable costs of bringing proceedings on behalf of LGT against Richard Sattler and RG Sattler Nominees Pty Ltd pursuant to leave granted by the Court on 16 March 2010. 2. There be no order as to costs of this application. The effect of that appeal, if successful, would be to relieve Wood and Hetrel of their obligation to bear 40% of their own costs of the Derivative Proceeding. Links would be forced to bear all of Maddocks' fees. 19 The second is an application for leave to appeal and an application for an extension of time within which to file a notice of appeal from the orders of the trial judge in the Derivative Proceeding made on 16 November 2012 (VID 62 of 2013). Wood and Hetrel seek that orders 2 and 6 of the trial judge's orders be set aside: see [12] above. The effect of that appeal, if successful, will be to render Links liable for the whole of the Sattler Parties' costs of the Derivative Proceeding and to relieve Wood and Hetrel of their liability for the Sattler Parties' costs of an interlocutory application filed on 2 August 2012. At present, the application in VID 60 of 2013 has been referred to a Full Court for hearing in the May sittings. The parties agreed that the directions to be made in VID 62 of 2013 should await the outcome of this application under s 237 of the Act.

Leave to commence a derivative proceeding 20 There was no dispute that Wood and Hetrel required a further grant of leave pursuant to s 237 of the Act in order to conduct a derivative appeal on behalf of Links. The original grant of leave did not extend to the conduct of an appeal. Further, and in any event, an appeal is a new and separate proceeding: Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577 and Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd (No 3) [2008] WASC 231. 21 As to the criteria governing the grant of leave itself, s 237 of the Act relevantly provides as follows: (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. 22 Wood and Hetrel have standing to bring the application; they are former officers of Links: s 236(1)(a)(ii) of the Act. 23 Under s 237(2) of the Act, there are five matters which the Court must consider: (1) whether Links will itself bring the proceeding, (2) whether Wood and Hetrel are acting in good faith, (3) the bests interests of Links, (4) whether there is a serious question to be tried and (5) whether Wood and Hetrel have either given notice or it is appropriate to grant leave in the absence of notice. The Court must grant leave if satisfied that the criteria in s 237(2) of the Act have been met. Wood and Hetrel bear the onus of satisfying the Court that the criteria have been met: South Johnstone Mill Ltd v Dennis (2007) 163 FCR 343 at [61]. The prevailing view is that failure to satisfy any one of these criteria means that leave must be refused: South Johnstone Mill at [60]. 24 The first and last matters are straightforward. By letter from Maddocks dated 21 December 2012, Wood and Hetrel provided Links with a draft notice of appeal and sought the consent of the Board of Links to the institution of the appeal. If the Board would not provide consent, Wood and Hetrel indicated that they would make an application under s 237 of the Act. Their stated reason for doing so was that "[t]he benefits to the company of a successful appeal are self-evident, in light of the significant costs incurred by [Links] in the proceeding and the relatively modest costs of bringing the Appeal." On 22 January 2013, Links responded, through its solicitors, and advised that the Board did not consent to Wood and Hetrel bringing an appeal. Maddocks' 21 December 2012 letter satisfied s 237(2)(e)(i) of the Act. Further, based on the response from Links' solicitors and Links' submission that it does not wish to appeal, I accept that it is probable that Links will not itself bring the appeal. 25 The remaining matters require further consideration. It is necessary to consider them in the following order: (1) the best interests of Links, (2) whether there is a serious question to be tried and (3) whether Wood and Hetrel are acting in good faith. Counsel for Links and the Sattler Parties principally focussed on whether the appeal was in the best interests of Links and, in doing so, included reference to, and consideration of, the nature of the appeal and the possible relief if the appeal were granted, matters also relevant to the other two considerations. I turn first to the question of best interests.

Best interests 26 Wood and Hetrel must establish that the proposed appeal, as a matter of fact, is in the best interests of Links: Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313 at [55]; Chahwan v Euphoric Pty Ltd t/as Clay & Michel (2008) 245 ALR 780 at [86]-[88]. The threshold is higher than that the proposed appeal "may be", "appears to be", or "is likely to be", in the best interests of Links. It has been described as a "far higher threshold": Swansson at [56]. 27 A company may have sound reasons for not pursuing a cause of action (or an appeal) and may have legitimately decided that the best interests of the company would be served by not taking action: Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998 (Cth) at [6.38]; see Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 at [44]. In ascertaining whether the appeal is in the best interests of Links, relevant considerations include the company's size and character, the effect of the litigation on its business, the alternatives available and whether the defendant is likely to be able to satisfy any judgment: Swansson at [57]-[60]. The strength of the proposed action is also relevant: South Johnstone Mill at [73]. In Fiduciary Ltd Austin J held at [51] that: … there is a balance to be struck between the prejudice that the company will suffer if claims are pressed unsuccessfully on its behalf and there is an adverse costs order, and the advantage that it will gain, indirectly for the benefit of its shareholders, if the claims are successful … 28 Wood and Hetrel submitted that the proposed appeal was in Links' best interests in circumstances where: 1. they would meet Links' costs of conducting the appeal and would provide security for the Sattler Parties' costs; and 2. should the appeal succeed, there might be significant benefits for Links, including the grant of equitable compensation or an account of profits, the rectification of its share register and a readjustment of the costs order requiring Links to pay 85% of the Sattler Parties' costs. 29 Further, Hetrel filed an affidavit in which he deposed that he and Wood had received advice from senior counsel and, as a result, both believed it would be in the interests of Links for the company to pursue an appeal. Hetrel further deposed that he had been advised by Maddocks and believed that, in the event that an appeal was successful, the following benefits would be likely to flow to Links: 1. there might be a further hearing to determine Links' entitlement to equitable compensation or an account of profits; and 2. it was likely that the Full Court would revisit the costs orders made by the Court so that they properly reflected the respective success of each party on the questions of liability. Wood and Hetrel's subjective beliefs as to the best interests of Links are irrelevant to the Court's consideration of the criterion in s 237(2)(c) of the Act. They may be put to one side. 30 Links submitted that it was in a precarious financial position as a result of the costs of the Derivative Proceeding. It submitted that it remained liable to Maddocks for up to $1.15 million (subject to taxation of their fees) and to the Sattler Parties for up to $600,000 (subject to taxation of their costs). In those circumstances, Links submitted that the best interests requirement would only be able to be satisfied if leave was granted on terms that Links would not be liable for the costs of the appeal or for any adverse costs order. I accept that submission. The effect of the litigation so far has been to saddle Links with significant additional financial burdens. 31 In order to demonstrate that the grant of leave would be in the best interests of Links, it was necessary for Wood and Hetrel to demonstrate that, even if the appeal was unsuccessful, Links would be in no worse a financial position: Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 51 ACSR 299 at [38]-[39], [45]-[47]; Roach v Winnote Pty Ltd (2006) 57 ACSR 138 at [25]-[29] and Charlton v Baber (2003) 47 ACSR 31 at [74]. To overcome that hurdle, Wood and Hetrel offered to undertake to: (a) indemnify [Links] in relation to any costs orders made against the defendant in; (b) provide security for the costs of [the Sattler Parties] in such sum as may be agreed by the parties or ordered by the Court in; (c) pay the costs of conducting, any appeal commenced by [Wood and Hetrel] on behalf of [Links] pursuant to leave granted to them by these orders. 32 Further, Wood and Hetrel's proposed undertaking was accompanied by an undertaking proposed to be given by Maddocks in the following terms: If leave to appeal is granted, then Maddocks undertakes that it will not seek to enforce payment, as against, Wood or Hetrel, of any fees owing by them in respect of: a) Proceeding No 204 of 2010 (the Derivative proceeding before Justice Jessup); b) Proceeding No 933 of 2009 (the application for leave to bring the Derivative proceeding); c) Any applications for leave to appeal from any orders of Justice Jessup (including Proceeding Nos VID 47/2013, VID 60/2013 and VID 62/2013); d) Any appeal proceeding from the orders of Justice Jessup as a result of the leave applications referred to in c), (collectively, the proceedings), unless and until not less than six months have elapsed since Wood and Hetrel have paid or otherwise been released from any costs orders made in any of the proceedings or satisfied any indemnity that one or both of them has provided in the proceedings. There was also evidence before the Court that, if leave pursuant to s 237 was granted, Maddocks and senior counsel would act for Links in the derivative appeal on a "no win, no fee" basis. It will be necessary to address the other costs of any appeal below. 33 Before turning to consider the strength of Wood and Hetrel's offer, it is appropriate to record that the offer fell short of that sought by Links and the Sattler Parties in the following respects: 1. the proposed undertaking to be given by Maddocks did not extend in its terms to protect Links; 2. while Wood and Hetrel offered an indemnity, it did not go far enough in its terms and, in any event, as considered below, Wood and Hetrel's assets were insufficient; and 3. Wood and Hetrel were unable or unwilling to proffer security in the amount of $1.65 million which was requested by Links. 34 The matters just listed are important. They are important because Links accepted that, if Hetrel had been willing and able to fund the proposed appeal and to provide a complete indemnity to Links against any adverse costs order it might suffer, then the financial aspect of Links' best interests might be satisfied. As is apparent, Wood and Hetrel did not proffer the terms sought by Links. 35 Given the form and content of the financial security in fact offered to Links by Wood and Hetrel, could it be said that the proposed appeal was in the best interests of Links? Wood did not give evidence of his financial position. Counsel for Wood and Hetrel informed the Court that Wood's financial position was not relied upon to support the contention that the proposed appeal was in Links' best interests. 36 That leaves Hetrel's financial position and the need to assess whether it is sufficient to justify the conclusion that the proposed appeal was in Links' best interests. Hetrel gave evidence concerning his financial position. Hetrel's evidence included a "statement of assets and liabilities" prepared by his accountant, which was described as "updated 12/2/13", and which disclosed total assets of $4,419,251 and total liabilities of $2,584,251 - a net position of $1,835,000. The difficulty was that the "statement of assets and liabilities" included assets and liabilities held by a discretionary trust, the "Josephine Trust", of which Hetrel was a beneficiary. Taking only the assets in his name, his net asset position was in fact $1,259,251. 37 There was, however, another difficulty for Hetrel; his "statement of assets and liabilities" was missing two line entries - his liability (with Wood) to pay 40% of Links' costs of the Derivative Proceeding and his liability (with Wood) to pay 50% of Links' liability to pay 85% of the costs of the Sattler Parties in the Derivative Proceedings (the Sattler Costs Liability). Links quantified those liabilities as totalling $2.08 million. I accept that the first of those liabilities is subject to the undertaking referred to at [32] above. The Sattler Costs Liability is in a different category. On the assumption that the Sattler Costs Liability is in the vicinity of $600,000, the other costs that must be met by Hetrel if leave was granted to institute the appeal are the liability to Maddocks for the costs of junior counsel and what might be described as Court fees and expenses (estimated to be in the vicinity of $65,000). In other words, if leave pursuant to s 237 was granted, Hetrel would be required to find close to $700,000 in the near future. Accounting for those liabilities, Hetrel's net personal asset position is reduced to approximately $500,000. 38 The difficulties did not stop there. Hetrel's largest asset was a property in Sandy Bay, Tasmania, valued in his "statement of assets and liabilities" at $2.2 million. There was evidence that the property had been on the market for some time. Further, there was no evidence to demonstrate how the valuation of $2.2 million was arrived at. Another of Hetrel's assets was a $349,251 loan to the Josephine Trust. There was no evidence of the terms of the loan or when it was likely to be repaid. In those circumstances, the Court can have no certainty that Hetrel's personal assets will be sufficient to ensure that Links is in no worse a position if the leave that is sought were granted. 39 What then is Hetrel's income position? His affidavit evidence disclosed a salary for the year ended 30 June 2012 of $235,315. His employer was described as "a family business". No employment contract was in evidence. There was nothing to suggest that this was an annual salary, how long he had been employed by that company or what his income was in the current financial year. The other source of income disclosed by the evidence was distributions from discretionary trusts in the 2011 financial year totalling in excess of $400,000. As was pointed out during the course of argument, the evidence did not disclose a pattern of distributions over a period of time either by amount or identity of beneficiary. Moreover, the distributions were to third parties, not to Hetrel. The evidence did not disclose that those third parties were entitled to and expected to receive (or had received) subsequent distributions and that they would make those distributions available to Hetrel. 40 What then is the position Links would find itself in if the Court were to grant Wood and Hetrel leave to commence the appeal under s 237 of the Act? 41 The effect on Links' financial position may be explained by reference to three possible scenarios: 1. assuming that Wood and Hetrel were granted leave under s 237 and the resulting appeal was unsuccessful, there is every likelihood that Hetrel's personal assets will be insufficient to meet the Sattler Parties' costs of the appeal; 2. assuming that Wood and Hetrel were granted leave under s 237 and the resulting appeal was unsuccessful, but Wood and Hetrel were successful in their appeals in VID 60 and 62 of 2013, Hetrel's assets may well be sufficient to meet the Sattler Parties' costs of the appeal. But that success would come at the expense of exposing Links to significant further liabilities. This issue will be addressed in further detail below; and 3. assuming that Wood and Hetrel were granted leave under s 237 and the resulting appeal was successful, that is not the end of the matter. There would need to be a further trial. The basis on which the proceeding would be remitted for further trial is far from certain. Who would fund that further trial for Links is also far from certain. 42 If the Court was to grant leave pursuant to s 237, there are several factors which would impact upon whether Links would be likely to be in a better position. Why should Links be exposed to that risk? Wood and Hetrel did not adduce evidence of Links' size and character, the alternatives available and whether the Sattler Parties are likely to be able to satisfy any judgment. 43 Wood and Hetrel's applications for leave to appeal in VID 60 and 62 of 2013 are also relevant to a consideration of Links' financial position: see [41(2)] above. At the same time as seeking leave to institute an appeal on Links' behalf, Wood and Hetrel are also seeking to set aside orders made by the trial judge so as to expose Links to significant further liabilities. If those appeals are successful, Links will become liable for the whole of Maddocks' fees and the Sattler Parties' reasonable costs of the Derivative Proceeding. The undertaking referred to at [32] above did not extend, in its terms, to Links. In assessing Links' best interests, therefore, it is relevant to consider the likelihood that its liabilities will in fact be far greater than the $1.75 million referred to at [30] above. In those circumstances, Links' best interests may well be best served by devoting its resources to resisting Wood and Hetrel's applications for leave to appeal in VID 60 and 62 of 2013. It must be recalled that Links' solicitor gave sworn evidence to the Court that Links cannot afford to run an appeal. 44 Balanced against those considerations are the benefits which would flow to Links if the appeal succeeds. As mentioned above, the strength of the proposed appeal is relevant to an assessment of Links' best interests. In order to meet the criterion, Wood and Hetrel must demonstrate that Links would be entitled to some monetary compensation, and not just nominal damages, should the appeal succeed: South Johnstone Mill at [74]. Given the nature of the various grounds of appeal, it is difficult to assess the nature and size of the benefits that might flow to Links. Wood and Hetrel identified what they described as three "significant benefits". Two of the "benefits" may be put to one side - rectification of the share register and an adjustment of the costs order. It was suggested that Links would benefit from the rectification of its share register because "a company is duty bound to maintain a register which truly reflects its membership". While that may be true, the value of such a benefit (to the company itself) is nominal, at best. The basis for that conclusion is complicated factually and legally. For present purposes, it is sufficient to note that if an appeal was successful in relation to these proposed appeal grounds (Part D of the draft notice of appeal) and rectification of the register was ordered (both matters are by no means certain), rectification of the register would result in the replacement of equity (by the subscription for shares) in Links with debt. How that could be of advantage to Links was not explained by counsel for Wood and Hetrel. 45 The reference to and reliance on the costs order is without substance. That benefit could not be described as "significant" and is by no means certain given it is concerned with the question of costs, a matter of discretion. I accept that if Links was successful, it would necessitate a revisiting of the costs orders in the Derivative Proceeding. That, of itself, cannot in the circumstances of this application be regarded as significant. 46 The remaining item - "equitable compensation or an account of profits in relation to Lost Farm" - is also difficult to assess. If leave to commence the appeal was granted and the appeal was successful, it was common ground that the proceeding would need to be remitted for further hearing. What was not clear was the basis on which the proceeding might be remitted. Put simply, it was by no means clear that if an appeal court identified error it would proceed to make some findings of fact or whether, given the complicated facts of the case, the appeal court would remit the whole matter to the trial judge or for a new trial. Alternatively, the appeal court might remit any further assessment of compensation or taking of an account of profits. Given the nature of the issues, whatever course is adopted, the further hearing is unlikely to be a short or an inexpensive exercise. And it would inevitably require expert evidence. 47 Weighing all of those matters, I am not satisfied that it is in Links' best interests for Wood and Hetrel to have leave under s 237 of the Act to conduct a derivative appeal on behalf of Links. The benefits do not outweigh the risks to which Links would be exposed and the protections proposed, see [31] and [32] above, are insufficient to hold Links harmless.

Serious question to be tried 48 Given the conclusion reached above, it is strictly unnecessary to consider the remaining criteria. Nevertheless, if, contrary to the views formed, the grant of leave would be in Links' best interests, it would be necessary to consider each of ss 237(2)(d) and (b) of the Act. 49 Wood and Hetrel supplied a draft notice of appeal which listed 22 grounds of appeal under four headings (parts A, B, C and D). Parts A and B related to the trial judge's conclusion that the Sattler Parties' development and operation of Lost Farm was not a breach of Sattler's fiduciary or statutory duties. Part C related to the trial judge's acceptance of a defence of laches in relation to the development of Lost Farm. Part D related to a loan which Sattler procured from the Tasmanian government, for his own benefit, the proceeds of which he used to purchase shares in Links and thereby enlarge his shareholding. 50 The principles to be applied were summarised by Middleton J in South Johnstone Mill at [77] to [80]. In South Johnstone Mill at [79], Middleton J adopted the threshold or test referred to by the High Court in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65] when seeking a grant of an interlocutory injunction - that the applicant must demonstrate a prima facie case, which "did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial": cf the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill (1998) where the "serious question" test was actually described at [6.46] as an 'alternative' to having the applicant demonstrate a prima facie case and that all that was required was that "the applicant ... simply ... show that proceedings should be commenced". 51 In applications under s 237 of the Act for leave to bring first instance proceedings, the Court has to decide whether or not to grant leave at a time when the merits of the action have not been tested. There are two stages. First, a consideration of the evidence in support of the application. Second, a consideration of whether that evidence has attained a certain threshold. However, an application for leave under s 237 to bring an appeal is a different matter. Any consideration of whether there is a serious question to be tried must necessarily address the orders the subject of the proposed appeal and the relevant reasons for judgment. Moreover, consideration of the various grounds of appeal must proceed from established principles including that an appeal court will be loathe to overturn at least some findings of fact made by the trial judge, unless incontrovertible facts or uncontested testimony demonstrate the trial judge's findings were "glaringly improbable" or "contrary to compelling inferences": Fox v Percy (2003) 214 CLR 118 at [25]-[29]. As pointed out by Gray J at the return of Wood and Hetrel's interlocutory application for an extension of time (Wood v Links Golf Tasmania Pty Ltd [2013] FCA 75 at [14]): … Because of the need of an appellant to establish error in the making of findings of fact, rather than simply the opportunity to make different findings of fact, the nature of the appeal is somewhat hazardous. 52 Links and the Sattler Parties were critical of many of the grounds proposed by Wood and Hetrel on the basis that they were simply a rejection of findings of fact made by the trial judge, a recitation of the findings of fact which it was alleged ought to have been made and a submission as to what conclusions ought to have flowed. Justice Gray echoed those concerns when his Honour noted at [14] that: The draft notice of appeal does not engage at all with any orders of the Court that have been made. Although in its terms it is said to be an appeal from paragraph 2 of the orders made on 16 July 2012, it does not in its terms seek the setting aside of that order. What it does is to contain a number of grounds suggesting that particular findings of fact that the trial judge made should not have been made. It advances findings that it is suggested should have been made. It then says that, having regard to findings that were made and to those that should have been made, certain consequences should have flowed. Little, if any, of it is directed to issues of principle. Much, if not all, is directed to seeking to reshape the case as it was determined by the trial judge so as to make it a case in factual terms favouring the arguments that Mr Wood and Mr Hetrel advanced. … 53 Legitimate criticisms can be made of the proposed grounds of appeal which tend to suggest that the merits of the appeal are uncertain. That is not surprising. This application, however, is not the occasion to test the merits of the appeal. Wood and Hetrel must, however, establish they have a sufficiently cogent case before leave to prosecute the appeal will be given: Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534 at [34]. Adopting the test applied to the grant of an interlocutory injunction, they do not need to establish that it is more probable than not that the appeal would succeed: Australian Broadcasting Corporation at [65]. Rather, the Court's essential function is to undertake a screening process, excluding those cases with insufficient prospects of success: Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2006] NSWSC 1002 at [27]. The Court will not normally entertain the merits of the action to any great degree: Swansson at [25]. The tender of legal advice, subject to the maintenance of privilege, may facilitate the Court in reaching the conclusion that an action is not merely hypothetical or unsupported: Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 51 ACSR 299 at [16]. 54 I am satisfied that Wood and Hetrel have met the relevant threshold. I reach that conclusion conscious of the limited task which the Court is to undertake when considering s 237(2)(d) of the Act. The parties' submissions were directed, to a large degree, to the merits of the proposed grounds of appeal. It is unnecessary and inappropriate to reach any conclusion as to those matters. However, those submissions, in conjunction with the tender of legal advice provided by senior counsel for Woods and Hetrel, provide an adequate basis to conclude that the proposed grounds of appeal raise a case with sufficient prospects of success. They are not merely hypothetical or unsupported. Accordingly, I am satisfied that there is a serious question to be tried.

Good faith 55 As mentioned, Wood and Hetrel must show they are acting in good faith: Chahwan at [69]. The onus is usually met by the applicant supplying affidavit evidence: Chapman v E-Sports Club Worldwide Ltd (2000) 35 ACSR 462 at 464. The Court may also draw inferences based on the nature of the allegations and the circumstances in which they have arisen: Fiduciary Ltd at [22]. The courts generally look at two factors when assessing good faith: (1) whether the applicant honestly believes that a good cause of action exists and has reasonable prospects of success and (2) whether the applicant has such a collateral purpose as would amount to an abuse of process: Swansson at [36]. It will be relatively easy to demonstrate good faith where the application is made by a current shareholder and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased: Swansson at [38]. It is also relevant to consider the applicant's offer to indemnify the company for its costs of the derivative action: South Johnstone Mill at [65] and [69]. 56 Wood and Hetrel submitted that good faith was demonstrated in circumstances where they are both shareholders in Links, through their respective corporate vehicles, and they rely upon the advice of senior counsel: see [29] above. Prior to the hearing, Wood and Hetrel conceded that Hetrel was no longer a shareholder: see [58] below. Neither Wood nor Hetrel provided sworn evidence that they honestly believed that good grounds of appeal existed and that any appeal had reasonable prospects of success. It is not a requirement, however, that Wood and Hetrel depose to their beliefs. All that is required is that the Court be satisfied that they are acting in good faith: South Johnstone Mill at [69]; Hannon v Doyle (2011) 82 ACSR 259 at [107]. 57 Links submitted that Wood and Hetrel's desire to pursue remedies which would advance their personal interests qua shareholders, to the detriment of Links, was inconsistent with the proposition that they were acting in good faith. That submission was made in conjunction with a submission that Wood and Hetrel's claim in respect of the share register (see [44] above) was a claim which advanced their interests individually, as against those of other shareholders, rather than the interests of Links. In Links' submission, the particular shareholdings of its various members as represented in the share register is a matter of indifference to the company itself. Even accepting that one aspect of Wood and Hetrel's claim is brought to advance their personal interests, I do not accept that they have a collateral purpose in the sense that it would be an abuse of process or that they seek to institute an action without the intention of prosecuting it to completion: Goozee at [68]. Links referred to Swansson at [39] as authority for the proposition that where a derivative action is to be brought by a former shareholder or officer, the Court will scrutinise with particular care the purpose for which the action is said to be brought. That recitation of the proposition omitted an important qualification, that is, the Court will engage in such scrutiny "where the applicant … [has] nothing obvious to gain directly by the success of the derivative action": Swansson at [39]. Further, in Swansson, Palmer J went on to give two examples which demonstrated that an applicant was not disentitled from bringing a derivative action merely because they had some interest in the outcome: Swansson at [40] to [41]. Accordingly, it cannot be said that Wood and Hetrel's personal interest in the outcome of the claim demonstrates a lack of good faith. 58 The Sattler Parties noted that Hetrel had, following the conclusion of the Derivative Proceeding, transferred his shares in his corporate vehicle (which in turn holds shares in Links) to his wife and resigned as a director of that company. The shares are held in the Josephine Trust, of which Hetrel is a nominated beneficiary. They submitted that while the transfer did not affect Hetrel's standing to bring the application under s 237 of the Act as a former officer of Links, it left him "further extracted from Links' affairs". The Sattler Parties submitted that the change of circumstances (and Hetrel's failure to explain them) "bears on the Court's discretion in Hetrel's application for control of [Links] to prosecute an arguably meritless and lengthy appeal on its behalf". I reject that submission. Not only is Hetrel's standing unaffected, the change in the shareholding does not display a lack of good faith and the Sattler Parties did not go so far as to submit that it did. 59 Accordingly, I am satisfied that the criterion in s 237(2)(b) of the Act is satisfied, that is, Wood and Hetrel are acting in good faith. However, because of the conclusion that the grant of leave would not be in Links' best interests, Wood and Hetrel's application for leave should be dismissed with costs. In the circumstances, the balance of Wood and Hetrel's application that an order should also be made under r 36.03(b) of the Federal Court Rules 2011 (Cth) does not arise for determination. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.