Supreme Court New South Wales

Transcription

1 Supreme Court New South Wales Medium Neutral Citation Hearing Dates In the matter of Featherston Resources Limited; Tetley & ors v Weston & ors [2014] NSWSC 1139 Monday, 14 July 2014 Decision Date 22/08/2014 Jurisdiction Equity Division - Corporations List Before Brereton J Decision Proceedings dismissed. Plaintiffs to pay defendants' costs. Catchwords Legislation Cited Cases Cited CORPORATIONS - types of companies - foreign corporations - whether a registered foreign company is a company "registered under this Act" - held, it is not CORPORATIONS - membership, rights and remedies - members' remedies and internal disputes - derivative actions - whether statutory derivative action available in respect of registered foreign company - held, not available CORPORATIONS - winding up - liquidators - supervisory jurisdiction - jurisdiction to permit creditor or contributory to bring proceedings in name of company in liquidation - whether available in respect of company subject to foreign administration - held, not available CORPORATIONS - winding up - generally - stay of proceedings - whether application for leave to bring derivative action is a proceeding against the company or in respect of its property - held, it is not PRIVATE INTERNATIONAL LAW - stay of proceedings - generally - forum non conveniens - application under (CTH) Trans-Tasman Proceedings Act 2010 (CTH) Corporations Act 2001, s 5(7), s 9, s 112, Part 2A.2, s 117, s 118, s 119, Pt 2C.1, s 167A, s 168, s 169, s 172, 180, 181, 182, 183, Part 2F.1A, s 236, s 237, s 440D, s 444E, s 445D, s 447D, s 447E, s 471B, s 500(2), s 511, Part 5B.1, Part 5B.2, Div 1, Div 2, Part 5.7, Part 5.7B, Part 5.8, s 583, s 585, 596, 597, s 601CD, s 601CE, s 601CM, s 601CN (CTH) Trans-Tasman Proceedings Act 2010, s 17, s 19, s 20 (CTH) Service and Execution of Process Act 1992, s 20 (CTH) Jurisdiction of Courts (Cross-Vesting) Act 1987, s 5 (NZ) Companies Act 1993, s 165, Part 15A, s 239ACS, s 239ACU, s 239ADS (NZ) Trans-Tasman Proceedings Act (NSW) Uniform Civil Procedure Rules r 13.4 Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 BHP Billiton Ltd v Schultz (2004) 221 CLR 400 BioAg Pty Ltd v Hickey [2007] NSWSC 296 British American Tobacco Australia Ltd v Gordon [2007] NSWSC 230 Cape Breton Co v Fenn (1881) 17 Ch D 198 Carpenter v Pioneer Park Pty Limited (2008) 66 ACSR 564 Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 245 ALR /19

2 Commissioner for Revenue (ACT) v Slaven [2009] FCA 744; (2009) 178 FCR 334 Ebbage v Manthey [2001] QSC 4 Fargro Ltd v Godfroy [1986] 1 WLR 1134 Ferguson v Wallbridge (1935) 3 DLR 66 Holding Redlich Lawyers v Reef Cove Resort Limited [2009] QSC 378 Hu v PS Securities Pty Ltd (as trustee of the Joseph Family Trust) [2011] NSWSC 303 In the matter of CGH Engineering Pty Ltd [2014] NSWSC 1132 (CGH Engineering) In the matter of Featherston Resources Limited (Receiver and Manager Appointed) (Administrators Appointed) [2014] NSWSC 12 In the Matter of Staway Pty Ltd (in liq) (Receivers and Managers Appointed) [2013] NSWSC 819 James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357 Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269 Lloyd-Owen v Bull (1936) 4 DLR 273 MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354 Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69 Peninsula Group v Kintsu Co Ltd (1984) 44 NSWLR 534 (Kintsu) Ragless v IPA Holdings Pty Limited (in liq) (2008) 65 ACSR 700 Ramsay v Featherston Resources Limited [2013] NSWSC 1923 Re Bank of Gibraltar and Malta (1865) LR 1 Ch APP 69 Re Dominion Portland Cement Co Ltd (No 2) [1919] NZLR 478 Re Imperial Bank of China India and Japan (1866) LR 1 Ch App 339 Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 Syndicate Mortgage Solutions Pty Ltd v El-Sayed [2010] NSWSC 348 Virgtel Ltd v Zabusky [2006] 2 Qd R 81 (Virgtel Limited v Zabusky) Wenham v General Credits Ltd (Supreme Court (NSW), McLelland J, 16 November 1988, unrep) Category Interlocutory applications Parties Representation Glenn Tetley (1st plaintiff) Lyndsey Banfield (2nd plaintiff) Douglas Best (4th plaintiff) AXL Limited (5th plaintiff) Jacqueline and Quentin Partis (7th plaintiff) Toby Iaccarino (8th plaintiff) William Godfrey (10th plaintiff) S Harold Koppe (11th plaintiff) Julian Management Services P/L (12th plaintiff) Josephine Gregan and John Percival (14th plaintiff) Charlene and Christopher Watts (15th plaintiff) Thiry-Three Trading Pty Limited (16th plaintiff) Emma Weston (1st defendant) Simon Kember (2nd defendant) Timothy Goodacre (3rd defendant) FRCN Pty Ltd (4th defendant) Featherston Resources Limited (5th defendant) Adveco Fertilisers Pty Ltd (6th defendant) James Mollison (7th defendant) Driftwood Capital Pty Ltd (8th defendant) Plaman Group Pty Ltd (9th defendant) Solicitors: Ashlaw Legal Services (plaintiffs) 2/19

3 HWL Ebsworth (1st & 4th defendants) ELaw legal Services (2nd & 3rd defendants) Hicksons (7th & 8th defendants) King & Wood Mallesons (9th defendant) Counsel: C Withers w C Botsman & P Meagher (plaintiffs) T M Faulkner (1st & 4th defendants) A W Smith w T Yeh (2nd & 3rd defendants) J Svelha (7th & 8th defendants) A J Sullivan QC w M Izzo (9th defendant) File Number(s) 2013/ JUDGMENT The fifth defendant company Featherston Resources Limited (Administrators Appointed) (Subject to a Deed of Company Arrangement) ("FRL") was incorporated in 1997 in New Zealand, where it is an unlisted public company. Its business is the mining of diatomite, a product used in fertilisers, for which purpose it holds mining and exploration permits in New Zealand; it does not own land, but has paid a deposit to acquire land in New Zealand from Holcim NZ Ltd. FRL's 213 shareholders are predominantly resident in New Zealand. However, its administrative functions were located in Sydney between April 2008 and mid-2013, when they returned to New Zealand, and it is registered as a foreign company under (CTH) Corporations Act 2001, Part 5B.2, Div 2. The first defendant Emma Weston was a director of FRL from April 2008 and Managing Director from September 2008 until her resignation in June She resides in New South Wales. The second defendant Simon Kember (a resident of New Zealand) and the third defendant Timothy Goodacre (a resident of Victoria) were appointed non-executive directors in May 2008, and are FRL's current non-executive directors. Ms Weston, Mr Kember and Mr Goodacre are all shareholders in FRL. The seventh defendant James Mollison (a resident of New South Wales) was Chief Executive Officer of FRL between 24 September 2013 and 10 December 2013; the plaintiffs allege that he was a de facto director. Mr Mollison is also a director of the eighth defendant Driftwood Capital Pty Ltd, a company registered in New South Wales, to which FRL on 23 April 2013 gave a mandate to raise funds for FRL, by equity or debt. The fourth defendant FRCN Pty Ltd ("FRCN"), which is the corporate trustee of the Featherston Resources Unit Trust, was incorporated in Australia (registered in New South Wales) on 23 August 2012 by Ms Weston, another FRL shareholder Mr Brett Codlin, and Mr Gregory Plummer. Ms Weston is a director of FRCN, and a beneficiary of the trust. Messrs Kember and Goodacre are also beneficiaries of the trust. On 24 September 2012, FRCN and FRL entered into a convertible note deed pursuant to which FRCN lent FRL $1.4m at interest of 20% per annum (with an option to convert the loan into shares at a price of 20 cents per share), secured (pursuant to general security agreements) by fixed and floating charges over the assets and undertakings of FRL and its subsidiaries Envirofocus Limited and Adveco Fertilisers Pty Ltd. On 3 December 2012, in proceedings 13/364099, on the ex parte application of two of the current plaintiffs in response to what they perceived to be the financial difficulties facing the company and the conflicted position of the directors, Slattery J appointed Hall Chadwick as Receiver and Manager of FRL. On 10 December 2013, Black J set aside the appointment [Ramsay v 3/19

4 Featherston Resources Limited [2013] NSWSC 1923]. On the same day, FRCN appointed Giles Woodgate as receiver and manager of FRL pursuant to the general security agreement; Mr Mollison resigned his office and Driftwood terminated its mandate with FRL; and (by a resolution of its directors Messrs Kember and Goodacre) FRL appointed Andrew Barnden and Paul Vlasic of Rodgers Reidy as joint voluntary administrators under (NZ) Companies Act 1993, Part 15A On 13 January 2014, competing proposals for a deed of company arrangement were submitted by the ninth defendant Plaman Group (on behalf of Iris Corporation Berhard) and by Ashlaw Legal Services (on behalf of Dynamesh Hong Kong Limited). The administrators recommended acceptance of the DoCA proposed by Plaman. On 16 January 2014, the plaintiffs applied to the Court for an adjournment of the second creditor's meeting, which was scheduled for 23 January Black J heard the application on 22 January 2014 and dismissed it on 23 January 2014 [In the matter of Featherston Resources Limited (Receiver and Manager Appointed) (Administrators Appointed) [2014] NSWSC 12], observing (at [11] and [13]) that certain statements in the report of the administrators may have been misleading and that it was arguable that if such matters had arisen in respect of an Australian administration, the deed of company arrangement might potentially be set aside by an Australian court under Corporations Act, s 445D. His Honour suggested that a prudent course would be for the meeting to be adjourned. On 23 January 2014, at the second meeting of creditors, the administrator mentioned Black J's concerns and put a resolution that the meeting be adjourned, which was unanimously rejected by the creditors who voted. The creditors resolved unanimously (with FRCN and Envirosil abstaining) that FRL enter into the DoCA proposed by Plaman. An amended DoCA was executed on 4 April Pursuant to their originating process filed on 13 December 2013 and amended on 13 March 2014, the plaintiffs - who are now twelve shareholders together holding approximately 10% of the issued share capital in FRL, apply for leave, pursuant to Corporations Act, ss 236 and 237, and alternatively in the Court's inherent jurisdiction, for leave to bring a derivative action on behalf FRL. The plaintiffs' proposed derivative claim comprises two main components. The first, which involves Weston and FRCN, pertains to the events of September 2012, culminating in the convertible note deed transaction with FRCN. The plaintiffs complain that the transaction was one which under FRL's constitution required the approval of a special resolution, and that no such approval was sought or obtained; that Messrs Kember and Goodacre did not disclose that they had an interest in the FRCN transaction or seek FRL's informed consent; and that Weston, Kember and Goodacre used "FRL money" to finance their proportion of FRCN's loan commitment to FRL (in the case of Kember and Goodacre, by capitalising their director's fees in advance to pay for their commitments). The plaintiffs contend that FRCN's charge is voidable inter alia because it was a transaction with a related entity that should have been, but was not, disclosed to shareholders. The second concerns the events of late 2013 culminating in the appointment of the administrators, allegedly in pursuance of a scheme to force FRL into administration for the purpose of acquiring FRL's assets at a fraction of their market value. The plaintiffs contend that the directors drove FRL into administration through a course of conduct that included causing FRL in August 2013 to borrow $400,000 through a convertible note procured by Driftwood with an effective interest rate of 200% per annum, and subsequently to borrow a further $800,000 through convertible notes procured by Driftwood at an interest rate of 6%, necessitated by a threat by Kember and Goodacre on 25 May 2013 to place FRL into voluntary liquidation within a week; agreeing in October 2013 to pay $175,000 to FRCN in respect of a purported notice of 4/19

5 redemption, despite advice that the notice was ineffective and that no payment was owing; rejecting over the period from June to October 2013 investment proposals from several interested parties; and not seriously pursuing the raising of equity By way of relief, the proposed derivative action would claim (1) avoidance of the FRCN convertible note deed and associated security agreements; (2) compensation from Ms Weston, Mr Kember, Mr Goodacre and Mr Mollison for breaches of their statutory and general law duties, (3) compensation from Driftwood and Plaman as accessories, and (4) an account by Plaman of profits derived from its role in proposing the DoCA, on the basis that having been given a mandate to raise capital for FRL, it resigned it on 4 December 2013 and then used the knowledge it had acquired to propose the DoCA on behalf of Iris. By interlocutory process filed on 17 March 2014, Plaman seeks an order pursuant to Uniform Civil Procedure Rules r 13.4, or in the court's inherent jurisdiction, that the proceedings be stayed as an abuse of process; and alternatively an order pursuant to (CTH) Trans-Tasman Proceedings Act 2010, s 19, that the proceedings be stayed on the ground that the High Court of New Zealand is the more appropriate court to determine the proceedings. Plaman contends that (a) there is no jurisdiction under the Corporations Act, Part 2F.1A, to bring a statutory derivative action in respect of a foreign registered company, and no inherent jurisdiction to permit a contributory to bring an action in the name of a company in liquidation where the liquidation is not under the supervision of this Court; (b) that the proceedings cannot be brought without the leave of the High Court of New Zealand, which has not been obtained; and (c) that in any event New Zealand is the more appropriate forum. The other defendants support Plaman's application, save that some are ambivalent in respect of the application for a stay under the Trans-Tasman Proceedings Act. When the proceedings commenced in December 2013, there were fourteen plaintiffs. Since that time, four have discontinued, and two have joined. The second and third defendants have contended that they are entitled to recover their costs of the proceedings from the former plaintiffs who have discontinued. By interlocutory process filed on 3 April 2014, the plaintiffs seek an order that the discontinuing plaintiffs and relevant defendants bear their own costs of the discontinued proceedings, or alternatively that those costs be reserved. If Plaman's application for dismissal or stay succeeds, it would be unnecessary to determine its application for leave to bring derivative proceedings on the merits, and it may well also be unnecessary to consider the plaintiffs' interlocutory process. Accordingly, the court proceeded to hear, first, Plaman's interlocutory application for dismissal or stay, on which four main issues arise: (1) (2) (3) (4) Is Corporations Act, Part 2F.1A (which contains ss 236 and 237) available in respect of a registered foreign company; Can this Court grant leave in the inherent jurisdiction where the company is not being wound up under its supervision; Do the proceedings require the leave of the High Court of New Zealand under (NZ) Companies Act 1993, s 239ACU; and Is the High Court of New Zealand the "more appropriate forum", within the meaning of Trans- Tasman Proceedings Act, s 19? Is Corporations Act, Part 2F.1A (which contains ss 236 and 237) available in respect of a registered foreign company? 5/19

6 14 15 The issue is whether there is no jurisdiction to grant leave to the plaintiffs under ss 236 and 237 of the Act, because FRL - being a foreign company registered under Corporations Act, Part 5B.2, Div 2 - is beyond the scope of those provisions. Section 236 provides as follows: 236 Bringing, or intervening in, proceedings on behalf of a company (1) [Circumstances where person may bring proceedings on behalf of company] 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 to be brought in company's name] Proceedings brought on behalf of a company must be brought in the company's name. (3) [Right at general law is abolished] The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished. 16 Relevantly, s 236 makes provision for bringing or intervening in proceedings "on behalf of a company". In the Corporations Act, "company" is defined in s 9, as follows: company means a company registered under this Act and: (c) in Parts 5.7B and 5.8 (except sections 595 and 596), includes a Part 5.7 body; and (d) in Part 5B.1, includes an unincorporated registrable body. 17 In contrast, "registered foreign company" is defined as follows: registered foreign company means a foreign company that is registered under Division 2 of Part 5B While s 5(7) provides that each provision of the Act applies according to its tenor to all bodies corporate and unincorporated bodies whether formed or carrying on business in Australia or not, the note to it states: Note: Paragraph (b) - many of the provisions in this Act apply only in relation to companies (that is, to companies that are registered under this Act) It is clear that an unregistered foreign company is not "a company" for the purposes of s 236 [Virgtel Ltd v Zabusky [2006] 2 Qd R 81; Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69, [21], [23]]. But the plaintiffs submit that, by virtue of its registration under Part 5B.2, Div 2, a registered foreign company is "a company registered under this Act" and thus within s 236. Ultimately, the question is whether registration under Part 5B.2, Div 2, is registration "under this Act". For the reasons that follow, it is not. Section 112(1) sets out what types of companies can be "registered under this Act". Part 2A.2 provides for how a company is so registered. The terms of those provisions clearly are not applicable to foreign companies registered under Div 2 of Part 5B.2; the process is applicable, only, to a company that is originally registered (and thus taken to be incorporated) in Australia. On 6/19

7 the other hand, in Part 5B.2, Div 2, s 601CD provides for registration "under this Division", which is a different concept from registration "under this Act". Section 601CE provides, differently from ss 117 and 118, for how a foreign company becomes registered as such under Div Other provisions of the Act that apply to "a company" plainly do not apply to a registered foreign company: for example, the provisions of Part 2C.1, are expressed to apply to "all companies" [s 167A], but ss 168, 169 and 172 (which deal with the register of members) are not only on their face inapt for foreign registered companies, but different provision is made in respect of registered foreign companies by 601CM and 601CN. Whereas ss 168 and 172 require a "company" to maintain a register in this jurisdiction, s 601CM clearly contemplates that the keeping of a register in the jurisdiction is not compulsory for such foreign companies. If "company" included a registered foreign company, it would be curious that separate provision is made for their winding up, and for the presumption of insolvency, by ss 583 and 585 respectively; and for the application of the voidable transaction and insolvent trading provisions by the specific extension of the definition of "company" (by para (c)) to Part 5.7 bodies (which, by subparagraph (b)(i) of the definition of that term in s 9, includes a registered foreign company). The extension of the definition of "company" by para (c) to include, in Parts 5.7B and 5.8 (except ss 596 and 597), a Pt 5.7 body, indicates that Part 5.7 bodies (including registered foreign companies) are not otherwise companies within the meaning of that definition. The plaintiffs respond to those considerations with the argument that it is because the definition of "Part 5.7 body" includes bodies which are not registered that it is necessary to make separate provision in respect of Part 5.7 bodies. That definition is as follows: Part 5.7 body means: (a) a registrable body that is a registrable Australian body and: (i) is registered under Division 1 of Part 5B.2; or (ii) is not registered under that Division but carries on business in this jurisdiction and outside its place of origin; or (b) a registrable body that is a foreign company and: (i) is registered under Division 2 of Part 5B.2; or (ii) is not registered under that Division but carries on business in Australia; or (c) a partnership, association or other body (whether a body corporate or not) that consists of more than 5 members and that is not a registrable body; 24 However, I do not agree. The purpose of that definition and of Part 5.7 is to deal generically with registered and unregistered bodies that are not companies as defined. A registrable body under Div 1 of Part 5B.2 as referred to in para (a) of the definition is not a company. (In this respect, Part 5B.1, which provides for the registration as a company of a body corporate that is not a company, provides a clear contrast). Nor is a partnership etc referred to para (c). Adoption of the plaintiffs' construction would involve not only treating a body of the type referred to in paragraph (b)(i) as a "company" when all the others described as Part 5.7 bodies are not, but also leave open the possibility that, as a company, such an entity could be wound up under the provisions of Chapter 5 that are applicable to companies, rather than under Part 5.7 (which by its heading expressly provides for the winding up of bodies other than companies). Were a foreign company registered under Div 2 of Part 5B.2 a "company", it would already be covered by Chapter 5 of the Act, and making special provision in respect of it under Part 5.7 would be unnecessary. Part 5.7 proceeds on the basis that the bodies to which it applies are not "companies" which would otherwise be subject to the provisions of Chapter /19

8 25 Moreover, the definition of "Part 5.1 body" in s 9 is as follows: Part 5.1 body means: (a) a company; or (b) a registrable body that is registered under Division 1 or 2 of Part 5B If a registered foreign company were "a company", the reference in para (b) to Div 2 of Part 5B.2 would be surplusage. The above considerations demonstrate, very plainly in my view, that the concepts of "a company registered under this Act" and "a foreign company registered under Division 2 of Part 5B.2" are two distinct concepts that do not overlap. Registration of a foreign company under Part 5B.2, Div 2 is not registration of a company "under this Act". A foreign company does not become "a company registered under this Act" by becoming registered under Part 5B.2, Div 2. That conclusion is supported by the judgment of White J in Holding Redlich Lawyers v Reef Cove Resort Limited [2009] QSC 378 (at [8]-[10]): The status of Reef [8] The primary issue for decision is whether Reef is a Part 5.7 body. By s 9 of the Corporations Act, "company": "... means a company registered under this Act and: (a) in Chapter 2K (other than sections 273A to 273E), includes a registrable body that is registered under Division 1 or 2 of Part 5B.2 of this Act; and (b) in sections 273A to 273E, includes a registered body that carries on business outside its place of origin; and (c) in Parts 5.7B and 5.8 (except sections 595 and 596), includes a Part 5.7 body; and (d) in Part 5B.1, includes an unincorporated registrable body." It is the expression "registered under this Act" which must be considered. Chapter 2A of the Corporations Act concerns registering a company. Section 112 describes what types of companies may be registered under the Corporations Act. They are: proprietary companies limited by shares or unlimited with share capital; and public companies limited by shares, limited by guarantee, unlimited with share capital, or no liability companies. [9] Part 2A.2 describes how a company is registered. Section 117(1) provides that to register a company a person must lodge an application with the Australian Securities and Investments Commission ("ASIC"). Section 117(2) sets out what the application must include. The balance of the subsections in s 117 deal with other machinery requirements for registration. By s 118, if an application is lodged under s 117, ASIC may give the company an ACN number and register the company and issue a company certificate stating, inter alia, that the company is registered as a company under the Corporations Act and naming the State or Territory within Australia in which the company is taken to be registered. [10] By s 119 Corporations Act: "A company comes into existence as a body corporate at the beginning of the day on which it is registered... [and] remains in existence until it is deregistered." Section 119A provides that a company is incorporated "in this jurisdiction". This is because the States referred powers to the Commonwealth to enact corporations legislation as a federal law of national application while retaining certain State (or Territory) incidents such as stamp duty. Each company is taken to be registered in a particular State or Territory. In Peninsular Group Ltd v Kintsu Co Ltd, Sheppard AJA, with whom Meagher and Sheller JJA agreed, concluded that "company" as defined in s 9 of the Corporations Law is not a company which is a "foreign company". Such a "company" must be wound up pursuant to s 583 as a Part 5.7 body. 8/19

9 That reasoning is not undermined by the fact that, as the plaintiffs point out, the decision of the New South Wales Court of Appeal in Peninsula Group v Kintsu Co Ltd (1984) 44 NSWLR 534, to which her Honour referred, was concerned with the (somewhat different) definition of "company" in s 9 of the Corporations Law, which referred to a company incorporated under or taken to be incorporated under the Law. Her Honour's reasoning stands independently of that decision. But while I am prepared to accept that, because of the difference in wording, Kintsu may not govern the outcome in the present case, it is far from clear that the current definition was intended to expand the definition beyond that for which the Corporations Law provided in 1984, to include registered foreign companies, which had been judicially held not to be caught by the definition. The substitution of "registered" for "incorporated" simply reflected that under the present legislation a company is brought into existence by registration rather than incorporation [Corporations Act, s 119]. It follows that in so far as the plaintiffs' claim leave under ss 236 and 237 to bring a statutory derivative action, the Court has no jurisdiction to grant such leave because FRL is not "a company", and the proceedings must fail. If I were wrong in this conclusion, an application for leave to bring a statutory derivative action would face the further hurdle that Part 2F.1A does not apply in respect of a company in administration, for substantially the same reasons that, in Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 245 ALR 780, it was held not to apply to a company in liquidation [see In the matter of CGH Engineering Pty Ltd [2014] NSWSC 1132]. Can this Court grant leave in the inherent jurisdiction where the company is not being wound up under its supervision? The issue is whether this Court has no jurisdiction to grant leave to the plaintiffs, as contributories, to bring proceedings in the name of FRL, because FRL is not the subject of a liquidation that is under its supervision. In the alternative to leave under s 237, the plaintiffs seek leave in the inherent jurisdiction to bring proceedings in the name of FRL. The jurisdiction in question is the court's inherent jurisdiction to permit a contributory or creditor to bring proceedings in the name of a company in liquidation, where the liquidator does not do so. This jurisdiction survives the enactment of Part 2F.1A, which does not apply to a company in liquidation [Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661; Ragless v IPA Holdings Pty Limited (in liq) (2008) 65 ACSR 700; Carpenter v Pioneer Park Pty Limited (2008) 66 ACSR 564, 573 [35]]. The jurisdiction was described, by McLelland J, in Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250, in the following terms. The form in which orders 1 and 2 are expressed is based on a recognition of the power of the court to order that a creditor or contributory of a company in liquidation be authorised to use the company's name as a plaintiff. This is a matter which I discussed in Wenham v General Credits Ltd (16 November 1988, SC(NSW), unreported). Such a procedure is of respectable antiquity and is sanctioned by high authority. Orders of that kind were made in Re Bank of Gibraltar and Malta (1865) LR 1 Ch APP 69; Re Imperial Bank of China India and Japan (1866) LR 1 Ch App 339; Re Dominion Portland Cement Co Ltd (No 2) [1919] NZLR 478 and Lloyd-Owen v Bull (1936) 4 DLR 273 (Privy Council). The legitimacy of the procedure was also recognised in Cape Breton Co v Fenn (1881) 17 Ch D 198 at 207, 208; Ferguson v Wallbridge (1935) 3 DLR 66 at 83 (Privy Council) and Fargro Ltd v Godfroy [1986] 1 WLR 1134 at It was said by Jessel MR in Cape Breton (at 207) to be based on "the same principle on which a man could always have filed a bill in the old Court of Chancery against his trustee to be allowed to use his name to recover the trust property" /19

10 The proper approach of the court in such an application as this has been described by the Privy Council in Lloyd-Owen at 276 in the following terms: "A judge in winding up is the custodian of the interests of every class affected by the liquidation. It is his duty... to see to it that all assets of the company are brought into the winding up. In authorising proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where... they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company's name under his authority is not vexatious or merely oppressive." While this jurisdiction is analogous to the "exceptional circumstances" jurisdiction pursuant to which the court will permit a beneficiary to sue in the right of a trustee where the trustee refuses to do so, or a member to bring a derivative action at general law in exception to the rule in Foss v Harbottle, it is distinct from it [see Syndicate Mortgage Solutions Pty Ltd v El-Sayed [2010] NSWSC 348, [11]]. The differences include that in the exceptional circumstances jurisdiction, there is no requirement first to obtain the Court's leave, because the beneficiary is asserting a right of the beneficiary in circumstances where the trustee is joined as a defendant, whereas in the jurisdiction presently under consideration, leave to bring proceedings in the name of the corporation is required. As appears from the passage cited by McLelland J from the judgment of the Privy Council in Lloyd-Owen v Bull (1936) 4 DLR 273, the jurisdiction to permit a contributory or creditor to sue in the name of a company in liquidation where a liquidator does not do so is an aspect of the court's supervisory jurisdiction over liquidators. That is consistent with the view expressed by Rares J in Commissioner for Revenue (ACT) v Slaven [2009] FCA 744; (2009) 178 FCR 334, that Corporations Act, s 511, is the source of "the Court's undoubted jurisdiction and power to permit a person other than the liquidator to commence proceedings in the Company's name when it is in voluntary liquidation" [see also Hu v PS Securities Pty Ltd (as trustee of the Joseph Family Trust) [2011] NSWSC 303, [25]; In the Matter of Staway Pty Ltd (in liq) (Receivers and Managers Appointed) [2013] NSWSC 819, [25]-[26]]. FRL, however, is not in liquidation, but under a Deed of Company Arrangement (DoCA). The Court exercises a supervisory jurisdiction with respect to administrators and deed administrators closely analogous to that which is has with respect to liquidators [Corporations Act, s 447D, s 447E]. An omission by an administrator or a deed administrator to bring proceedings on behalf of a company might well be prejudicial to the interests of some or all of the company's creditors or members; if so, the Court could authorise a creditor or contributory to bring the proceedings, under s 447E(1) - as occurred in CGH Engineering. Thus it seems to me that the Court has power under s 447E(1), if not in its inherent jurisdiction, to authorise a creditor or contributory to bring proceedings where a deed administrator's failure to do so is contrary to the interests of the creditors or contributories. However, it is unnecessary to resolve this question, because the jurisdiction to permit proceedings to be brought in the name of the company, whether in liquidation or in administration, and whether inherent or statutory, is an incident of the court's supervisory jurisdiction. That means that it must be a function of the court of the administration, which in this case is the High Court of New Zealand. This court has no supervisory jurisdiction in respect of a liquidation or administration under the supervision of the New Zealand court. The question whether permission to sue in the name of the company should be given is peculiarly a matter for the court of the administration. It follows that this court has no jurisdiction to grant leave to the plaintiffs as contributories of FRL to bring proceedings in its name, it being in administration and subject to a DoCA under the supervision of the High Court of New Zealand. 10/19

11 39 If the plaintiffs initiated proceedings in reliance on a general law derivative action (the availability of which is not excluded by s 236(3), as that section applies only to "a company", which for reasons already explained FRL is not), it might then be necessary to consider whether (1) the capacity to bring a general law derivative action survives administration and a DoCA, as it does not survive liquidation; and (2) if so, whether a sufficient basis to support a general law derivative action was pleaded. Those questions do not presently arise, as all that is before the court is an application for leave to bring proceedings in the name of the company. Do the proceedings require the leave of the High Court of New Zealand under (NZ) Companies Act 1993 (NZ), s 239ACU? 40 The issue is whether the present proceedings are brought in contravention of (NZ) Companies Act 1993, s 239ACU(1), which provides that a person who is bound by a deed of company arrangement must not, while the deed is in force: (b) except with the court's permission, begin or continue a proceeding against the company or in relation to any of its property: Under s 239ACS, a deed of company arrangement binds, inter alia, the company's creditors, the company, its directors, officers and shareholders, and the deed administrator. Accordingly, the plaintiffs are bound by the DoCA. The Court referred to in s 239ACU is the High Court of New Zealand. There is no suggestion that its permission has been obtained. The question is whether the present proceedings are to be characterised, for the relevant purpose, as a "proceeding against the company or in relation to any of its property". The applicants submitted that, as FRL was (properly and necessarily) named as a defendant in the current proceedings, they were "proceedings against FRL", and that as they pertained to a chose of action of FRL (against the directors), they were proceedings with relation to property of FRL. The provision (and its equivalent in Corporations Act, s 444E) is similar to Corporations Act, s 440D, in respect of which it has been held that the expression "proceedings in a court... in relation to any of its property" is not intended to encompass an action by the company where it seeks to enforce, in Court proceedings, a chose in action that it has. As Barker J observed in MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354 (at [21]): The point of s 440D(1) is to ensure that where the company is the target of a proceeding or in some relevant way its property is the target of a proceeding, then that proceeding may not be begun or proceeded with, except with the administrator's written consent or with the leave of the Court. This ensures that, in the first instance, the administrator has the opportunity to view the continuance of such proceedings, and the Court has a final say as to whether or not the proceeding may proceed. 45 Section 444E, and analogous provisions such as s 471B and s 500(2), all place constraints on commencing and continuing proceedings against a company or its property without the consent of the liquidator or administrator, or the leave of the Court. Those provisions have never been considered to apply to an application for leave itself, as distinct from the substantive proceeding that is the subject of the application for leave. In my view, those provisions are concerned with proceedings in which relief is sought against the company or its property; not with applications for leave to bring such proceedings to which the company is necessarily joined. 11/19

12 46 47 In my view, an application for leave to bring proceedings in the name and on behalf of the company is not a proceeding against the company or its property in the relevant sense. It does not seek relief against the company, and it does not target any of its property. Accordingly, the leave application does not itself require the leave of the New Zealand court. I would therefore not hold that these proceedings are precluded on that ground. Is the High Court of New Zealand the "more appropriate court", within the meaning of Trans-Tasman Proceedings Act, s 19? It is not disputed that, as a civil proceeding involving parties from New Zealand (namely FRL and Mr Kember), the proceedings are subject to the (CTH) Trans-Tasman Proceedings Act The issue is whether the proceedings should be stayed pursuant to s 19 on the ground that the High Court of New Zealand is the more appropriate court to determine the matter. I approach this question on the assumption that my conclusion that this Court cannot grant leave to sue in the name of the company, either under Part 2F.1A or in the inherent or supervisory jurisdiction, is incorrect. Assuming, contrary to my conclusions, that this court could grant such leave, is the New Zealand court the more appropriate court to determine such an application? Section 17(1) provides: (1) A defendant in a civil proceeding in an Australian court may apply to the court for an order staying the proceeding on the grounds that a New Zealand court is the more appropriate court to determine the matters in issue. 50 Section 17(2) limits the time for bringing that application. Section 19 relevantly provides: 19 Order of stay of proceeding (1) On application under section 17, the Australian court may, by order, stay the proceeding if it is satisfied that a New Zealand court: (a) has jurisdiction to determine the matters in issue between the parties to the proceeding; and (b) is the more appropriate court to determine those matters. (2) In determining whether a New Zealand court is the more appropriate court to determine those matters, the Australian court must take into account the following matters: (a) the places of residence of the parties or, if a party is not an individual, its principal place of business; (b) the places of residence of the witnesses likely to be called in the proceeding; (c) the place where the subject matter of the proceeding is situated; (d) any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be commenced (other than an exclusive choice of court agreement to which subsection 20(1) applies); (e) the law that it would be most appropriate to apply in the proceeding; (f) whether a related or similar proceeding has been commenced against the defendant or another person in a court in New Zealand; (g) the financial circumstances of the parties, so far as the Australian court is aware of them; (h) any matter that is prescribed by the regulations; (i) any other matter that the Australian court considers relevant; 12/19

13 and must not take into account the fact that the proceeding was commenced in Australia. (3) An order under subsection (1) may be made subject to any conditions the Australian court considers are appropriate in order to facilitate, without delay or undue expense, the determination of the matters in issue between the parties to the proceeding Thus on an application under s 17, the Australian court may stay the proceeding if satisfied that a New Zealand court (a) has jurisdiction to determine the matters in issue between the parties to the proceeding, and (b) is the more appropriate court to determine those matters, having regard to the factors listed in s 19(2), which is not exhaustive, provided that the Australian court may not take into account the fact that the proceeding was commenced in Australia. The test provision is therefore a discretionary one, which permits but does not require the court to stay the proceedings if satisfied that the New Zealand court has jurisdiction and is the "more appropriate court" (unless there is an exclusive choice of court agreement, in which case s 20 mandates a stay of the proceedings). But notwithstanding that the power is discretionary, it would be an exceptional case, if there is one at all, in which being satisfied that the New Zealand court had jurisdiction and was the more appropriate one, the Court would not stay the Australian proceedings. As to the first limb, there is no doubt that the New Zealand court has jurisdiction. (NZ) Companies Act 1993, s 165, enables it to grant leave for a statutory derivative action, and as the court of the administration it would have jurisdiction to grant permission to sue in the name of the company in the inherent or supervisory jurisdiction. Indeed, its jurisdiction is much more plainly established than that of this Court. As to the second limb, the "more appropriate forum" test mirrors the test provided in respect of domestic proceedings by (CTH) Service and Execution of Process Act 1992, s 20 and Jurisdiction of Courts (Cross-Vesting) Act 1987, s 5, in place of the "clearly inappropriate forum" that applies at common law. The test directs attention to the more appropriate, not the more convenient, court. While convenience is undoubtedly an importance consideration, it is not determinative. Notions of the "natural forum" can inform what is the "more appropriate forum", as I observed, in the context of the Cross-Vesting Act, in BioAg Pty Ltd v Hickey [2007] NSWSC 296 (at [7]): [7] In identifying the "more appropriate forum", relevant considerations including the cost and efficiency of proceedings in the respective jurisdictions, and the connecting factors referred to by Lord Goff in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460, including matters of convenience and expense such as availability of witnesses, the places where the parties respectively reside or carry on business, and the law governing the relevant transaction [BHP v Schultz, 422 [18]]. Sometimes, consideration of relevant connecting factors will identify a "natural forum". Ordinarily, the residence of the defendant is more significant than that of the plaintiff to establish jurisdiction and this may count in identifying the natural forum [BHP v Schultz, 423 [19]; British American Tobacco Australia Ltd v Gordon & Anor [2007] NSWSC 230, [44]]. 54 In James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357, Spigelman CJ said, also in the context of the Cross-Vesting Act (at 361 [7]): To determine which court is, in the interests of justice, the appropriate court, it is necessary to inquire, in the case of a tort, as to what is the place of the tort. Indeed, in the context of administering the co-operative national scheme in the Jurisdiction of Courts (Cross-Vesting) Act, where the place of the tort and the residence of the parties coincide, this will generally be determinative of the issue of "appropriate court", although other factors may need to be assessed in the process of determining where the interests of justice lie. 13/19

14 It is convenient to address first the mandatory considerations referred to in s 19(2). The places of residence of the parties or, if a party is not an individual, its principal place of business. All the plaintiffs are resident variously in New South Wales, Victoria and Tasmania. Of the defendants, Ms Weston and Mr Mollison are resident in New South Wales, and Mr Goodacre in Victoria. Of the non-corporate defendants, only Mr Kember is not an Australian resident; he lives in New Zealand. The principal place of business of FRCN is in Australia. Although FRL's corporate headquarters were located in Sydney between April 2008 and at least mid-2013, they have now returned to Auckland. The seat of the administration is in Auckland, although one of the administrators is resident in New South Wales. Adveco's principal place of business appears to be in Sydney, as are those of Driftwood and Plaman. The places of residence of the witnesses likely to be called in the proceeding. So far as can be ascertained from the affidavits which it has been indicated would be read in the proceedings, the overwhelming majority of the witnesses reside in Australia, and all but one of them in New South Wales, the exception being in Victoria. Only Mr Kember and a lawyer reside in New Zealand, and it is doubtful that the lawyer would need to attend. The place where the subject matter of the proceeding is situated. The subject matter of these proceedings is a cause of action that FRL is said to have against its directors for alleged breaches of their statutory and general law duties. Where those breaches (if established) occurred is far from clear. The company was incorporated in New Zealand; the majority of its shareholders are in New Zealand; and its business is in New Zealand. Although its administrative functions were located in Sydney until about mid-2013, since then they have returned to Auckland. (The FRL Group 2013 Annual Report states that the administrative functions of FRL were moved back to New Zealand from Sydney in June 2013). The matters that found the second part of the plaintiffs' claim occurred in late 2013, after the administrative functions were moved back to New Zealand. One of the directors (Mr Kember) was resident in New Zealand. Where relevant meetings of the directors were held; where relevant agreements, arrangements or understandings were made; and where the relevant steps that culminated in FRL being put into voluntary administration were taken, is not pleaded or particularised. It is likely that some of the relevant conduct occurred in Australia, but also that some occurred in New Zealand. Any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be commenced (other than an exclusive choice of court agreement to which subsection 20(1) applies). Save that the general security agreement between FRL and FRCN (to which the plaintiffs and the directors are not party) contains a submission to the non-exclusive jurisdiction of New South Wales, there is no relevant choice of jurisdiction agreement. The law that it would be most appropriate to apply in the proceeding. Prevailing Australian authority is that the right of a shareholder to bring a derivative suit is procedural and thus governed by the law of the forum [Ebbage v Manthey [2001] QSC 4 (Helman J); Virgtel Limited v Zabusky (de Jersey CJ)]. However, in Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269, Lawrence Collins J held that while such a right was procedural in the purely domestic law context, in the international context it should not be so regarded, and consequently, the applicable law was that of the place of incorporation. It might be regarded as likely that this Court would follow the Australian authorities, but they are not binding and the question must be regarded as open. Plainly enough, on an application under ss 236 and 237, Australian law would apply. If the application were made in New Zealand, Companies Act, s 165 would apply. It is not apparent that there is any material difference between the law of Australia and that of New Zealand. Accordingly, the law applicable on the application for leave is not a significant factor. 14/19