Good Faith in Statutory Derivative Actions: Insights from Gillespie v Gillespie (2025)

The recent decision of the NSW Court of Appeal in Gillespie v Gillespie (2025) 422 ALR 224 offers valuable guidance on the inherently difficult requirement of good faith under section 237(2)(b) of the Corporations Act 2001 (Cth) (the Act) when seeking leave to bring a statutory derivative action.

The Facts

Gillespie concerned an application by Robert Gillespie (Robert) to bring derivative proceedings on behalf of Gillespie’s Cranes Nominees Pty Ltd (Cranes), the trustee of a discretionary family trust,  Gillespie Family Trust (the Trust). Robert, a former director of Cranes of the Trust, alleged that a business opportunity was improperly diverted away from Cranes by its directors. Cranes (in its capacity as the trustee) carried on the business of hiring cranes, beams, scissor lifts and similar equipment.

Robert was both a discretionary and (along with his three brothers and mother) a principal beneficiary of the Trust. Under the Trust Deed, unless the trustee made a determination otherwise, income earned annually was to be split equally between the principal beneficiaries.

Robert was a director of Cranes between October 1988 and June 1994. The directors at the time of the conduct the subject of the proceedings were Peter Gillespie (Peter) and John Gillespie (John). Peter and John (until his death in August 2021) were the brothers of Robert.

The alleged wrongdoing occurred in relation to a transaction that occurred in April 2005 by which Ainley Pty Limited (Ainley) acquired a parcel of land at Glendenning, New South Wales (the Land). The Land was transferred to JPD Equipment Pty Limited (JPD) in June 2012. Both companies were controlled by Peter and John.

Robert sought leave under sections 236 and 237 of the Act to bring statutory derivative proceedings on behalf of Cranes against:

1. its directors Peter and Helen Gillespie (Helen) (as the personal representative of John’s estate), the wife of John until his death, for alleged breaches of duties as directors of Cranes; and
2. Ainley and JPD for their knowing involvement in the breach.

The primary judge dismissed Robert’s application on the basis that he was not acting in good faith as required by section 237(2)(b) of the Act.

That decision was appealed.

The Court of Appeal granted leave to appeal and then dismissed the appeal with costs. In summary, the following findings were made in the appeal:

1. “correctness” standard of appellate review – the “correctness” standard of appellate review applies. This decision involves evaluative judgment but is ultimately a binary question of whether the criteria in section 237(2) have been met .
2. requirement of good faith – the requirement of good faith by the applicant applies to both (1) the application for leave and (2) the desire to bring the underlying action. The applicant holds the onus for establishing both these conditions.
3. a different (primary) purpose is not in good faith – The term “good faith” is not defined in the Act. Generally, however, a right is exercised in good faith if it is exercised for a purpose for which the right is conferred. The statutory purpose of derivative proceedings is to allow applicants to vindicate the company’s rights when those in control will not. If the applicant’s primary purpose is something else—such as advancing personal interests—then the good faith requirement is not satisfied.
4. unexplained delay – the Court of Appeal  accepted that that Robert was not acting in good faith because of his unexplained delay in commencing proceedings. Robert had known of the relevant facts for many years, had no recent involvement with Cranes, and failed to explain the delay in bringing the claim. His motivation appeared to be advancing his interests as a beneficiary of the Trust, as distinct from protecting Cranes’ interests.
5. evidentiary considerations – while factors such as the applicant’s connection to the company and the timing of the claim are not strict legal requirements, they are relevant evidentiary considerations. Their absence may support an inference that the application lacks a proper purpose.

Takeaways

Statutory derivative proceedings provide an avenue for members and officers (both present and former) to take action on behalf of a company when the company itself is unwilling or unable to do so.

The requirement of good faith in section 237(2)(b) of the Act is intended to preclude applicants who are advancing a primary purpose unrelated to asserting the company’s rights. Gillespie v Gillespie (2025) 172 ACSR 183 confirms that the requirement of good faith in section 237(2)(b) of the Act applies to both the application for leave and to the desire to bring the underlying action.

Contributors

• Samantha Jack, Senior Associate
• Angus Dowey, Lawyer

McCabes has extensive experience in matters involving the reinstatement of registration of companies and directors and officeholders of those companies including for any alleged breach of their duties in derivative action.  Please do not hesitate to contact McCabes if you may have claims which may only be pursued following reinstatement of the registration of a company.