Supreme Court New South Wales - INSOL … Re Featherstone case... · 9/11/2014 In the matter of...

9/11/2014 In the matter of Featherston Resources Limited; Tetley & ors v Weston & ors [2014] NSWSC 1139 - Supreme Court - NSW Caselaw

http://www.caselaw.nsw.gov.au/action/pjudg?s=1000,jgmtid=173561 1/19

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Supreme Court

New South Wales

In the matter of Featherston Resources Limited; Tetley & ors v Weston & ors [2014]

NSWSC 1139

Monday, 14 July 2014

22/08/2014

Equity Division - Corporations List

Brereton J

Proceedings dismissed. Plaintiffs to pay defendants' costs.

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 780



Category

Parties

Representation

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)

Interlocutory applications

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)



File Number(s)

1

2

3

4

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)

2013/377035

JUDGMENT

The fifth defendant company Featherston Resources Limited (Administrators Appointed) (Subjectto a Deed of Company Arrangement) ("FRL") was incorporated in 1997 in New Zealand, where itis an unlisted public company. Its business is the mining of diatomite, a product used infertilisers, for which purpose it holds mining and exploration permits in New Zealand; it does notown land, but has paid a deposit to acquire land in New Zealand from Holcim NZ Ltd. FRL's 213shareholders are predominantly resident in New Zealand. However, its administrative functionswere 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 Directorfrom September 2008 until her resignation in June 2012. She resides in New South Wales. Thesecond defendant Simon Kember (a resident of New Zealand) and the third defendant TimothyGoodacre (a resident of Victoria) were appointed non-executive directors in May 2008, and areFRL's current non-executive directors. Ms Weston, Mr Kember and Mr Goodacre are allshareholders 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; theplaintiffs allege that he was a de facto director. Mr Mollison is also a director of the eighthdefendant Driftwood Capital Pty Ltd, a company registered in New South Wales, to which FRL on23 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 FeatherstonResources Unit Trust, was incorporated in Australia (registered in New South Wales) on 23August 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 Goodacreare also beneficiaries of the trust. On 24 September 2012, FRCN and FRL entered into aconvertible 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 andundertakings 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 currentplaintiffs in response to what they perceived to be the financial difficulties facing the company andthe conflicted position of the directors, Slattery J appointed Hall Chadwick as Receiver andManager of FRL. On 10 December 2013, Black J set aside the appointment [Ramsay v



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Featherston Resources Limited [2013] NSWSC 1923]. On the same day, FRCN appointed GilesWoodgate as receiver and manager of FRL pursuant to the general security agreement; MrMollison resigned his office and Driftwood terminated its mandate with FRL; and (by a resolutionof its directors Messrs Kember and Goodacre) FRL appointed Andrew Barnden and Paul Vlasicof 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 submittedby the ninth defendant Plaman Group (on behalf of Iris Corporation Berhard) and by Ashlaw LegalServices (on behalf of Dynamesh Hong Kong Limited). The administrators recommendedacceptance of the DoCA proposed by Plaman. On 16 January 2014, the plaintiffs applied to theCourt for an adjournment of the second creditor's meeting, which was scheduled for 23 January2014. Black J heard the application on 22 January 2014 and dismissed it on 23 January 2014 [Inthe matter of Featherston Resources Limited (Receiver and Manager Appointed) (AdministratorsAppointed) [2014] NSWSC 12], observing (at [11] and [13]) that certain statements in the reportof the administrators may have been misleading and that it was arguable that if such matters hadarisen in respect of an Australian administration, the deed of company arrangement mightpotentially be set aside by an Australian court under Corporations Act, s 445D. His Honoursuggested 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'sconcerns and put a resolution that the meeting be adjourned, which was unanimously rejected bythe creditors who voted. The creditors resolved unanimously (with FRCN and Envirosilabstaining) that FRL enter into the DoCA proposed by Plaman. An amended DoCA was executedon 4 April 2014.

Pursuant to their originating process filed on 13 December 2013 and amended on 13 March2014, the plaintiffs - who are now twelve shareholders together holding approximately 10% of theissued share capital in FRL, apply for leave, pursuant to Corporations Act, ss 236 and 237, andalternatively in the Court's inherent jurisdiction, for leave to bring a derivative action on behalfFRL.

The plaintiffs' proposed derivative claim comprises two main components. The first, whichinvolves Weston and FRCN, pertains to the events of September 2012, culminating in theconvertible note deed transaction with FRCN. The plaintiffs complain that the transaction wasone which under FRL's constitution required the approval of a special resolution, and that nosuch approval was sought or obtained; that Messrs Kember and Goodacre did not disclose thatthey 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 loancommitment to FRL (in the case of Kember and Goodacre, by capitalising their director's fees inadvance to pay for their commitments). The plaintiffs contend that FRCN's charge is voidableinter 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 theadministrators, allegedly in pursuance of a scheme to force FRL into administration for thepurpose of acquiring FRL's assets at a fraction of their market value. The plaintiffs contend thatthe directors drove FRL into administration through a course of conduct that included causingFRL in August 2013 to borrow $400,000 through a convertible note procured by Driftwood with aneffective interest rate of 200% per annum, and subsequently to borrow a further $800,000 throughconvertible notes procured by Driftwood at an interest rate of 6%, necessitated by a threat byKember 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



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(1)

(2)

(3)

(4)

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 severalinterested parties; and not seriously pursuing the raising of equity.

By way of relief, the proposed derivative action would claim (1) avoidance of the FRCNconvertible 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 ofprofits derived from its role in proposing the DoCA, on the basis that having been given amandate to raise capital for FRL, it resigned it on 4 December 2013 and then used the knowledgeit had acquired to propose the DoCA on behalf of Iris.

By interlocutory process filed on 17 March 2014, Plaman seeks an order pursuant to UniformCivil Procedure Rules r 13.4, or in the court's inherent jurisdiction, that the proceedings be stayedas an abuse of process; and alternatively an order pursuant to (CTH) Trans-TasmanProceedings Act 2010, s 19, that the proceedings be stayed on the ground that the High Court ofNew 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 derivativeaction in respect of a foreign registered company, and no inherent jurisdiction to permit acontributory to bring an action in the name of a company in liquidation where the liquidation is notunder the supervision of this Court; (b) that the proceedings cannot be brought without the leaveof the High Court of New Zealand, which has not been obtained; and (c) that in any event NewZealand is the more appropriate forum. The other defendants support Plaman's application, savethat some are ambivalent in respect of the application for a stay under the Trans-TasmanProceedings Act.

When the proceedings commenced in December 2013, there were fourteen plaintiffs. Since thattime, four have discontinued, and two have joined. The second and third defendants havecontended that they are entitled to recover their costs of the proceedings from the formerplaintiffs who have discontinued. By interlocutory process filed on 3 April 2014, the plaintiffs seekan order that the discontinuing plaintiffs and relevant defendants bear their own costs of thediscontinued proceedings, or alternatively that those costs be reserved.

If Plaman's application for dismissal or stay succeeds, it would be unnecessary to determine itsapplication for leave to bring derivative proceedings on the merits, and it may well also beunnecessary to consider the plaintiffs' interlocutory process. Accordingly, the court proceeded tohear, first, Plaman's interlocutory application for dismissal or stay, on which four main issuesarise:

Is Corporations Act, Part 2F.1A (which contains ss 236 and 237) available in respect of aregistered foreign company;

Can this Court grant leave in the inherent jurisdiction where the company is not being woundup 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?



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The issue is whether there is no jurisdiction to grant leave to the plaintiffs under ss 236 and 237of 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 maybring proceedings on behalf of a company, or intervene in any proceedings to which thecompany is a party for the purpose of taking responsibility on behalf of the company for thoseproceedings, or for a particular step in those proceedings (for example, compromising orsettling them), if:

(a) the person is:

(i) a member, former member, or person entitled to be registered as a member, of thecompany 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 acompany 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, orintervene in, proceedings on behalf of a company is abolished.

Relevantly, s 236 makes provision for bringing or intervening in proceedings "on behalf of acompany". 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.

In contrast, "registered foreign company" is defined as follows:

registered foreign company means a foreign company that is registered under Division 2 ofPart 5B.2.

While s 5(7) provides that each provision of the Act applies according to its tenor to all bodiescorporate 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) 76NSWLR 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 s236. Ultimately, the question is whether registration under Part 5B.2, Div 2, is registration "underthis 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.2provides for how a company is so registered. The terms of those provisions clearly are notapplicable 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



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the other hand, in Part 5B.2, Div 2, s 601CD provides for registration "under this Division", whichis a different concept from registration "under this Act". Section 601CE provides, differently fromss 117 and 118, for how a foreign company becomes registered as such under Div 2.

Other provisions of the Act that apply to "a company" plainly do not apply to a registered foreigncompany: for example, the provisions of Part 2C.1, are expressed to apply to "all companies" [s167A], but ss 168, 169 and 172 (which deal with the register of members) are not only on theirface inapt for foreign registered companies, but different provision is made in respect ofregistered 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 thekeeping 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 ismade 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 specificextension 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 ofthe 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 nototherwise companies within the meaning of that definition.

The plaintiffs respond to those considerations with the argument that it is because the definitionof "Part 5.7 body" includes bodies which are not registered that it is necessary to make separateprovision 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 andoutside 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 ofmore than 5 members and that is not a registrable body;

However, I do not agree. The purpose of that definition and of Part 5.7 is to deal generically withregistered and unregistered bodies that are not companies as defined. A registrable body underDiv 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 acompany, provides a clear contrast). Nor is a partnership etc referred to para (c). Adoption of theplaintiffs' 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 leaveopen the possibility that, as a company, such an entity could be wound up under the provisions ofChapter 5 that are applicable to companies, rather than under Part 5.7 (which by its headingexpressly provides for the winding up of bodies other than companies). Were a foreign companyregistered under Div 2 of Part 5B.2 a "company", it would already be covered by Chapter 5 of theAct, and making special provision in respect of it under Part 5.7 would be unnecessary. Part 5.7proceeds on the basis that the bodies to which it applies are not "companies" which wouldotherwise be subject to the provisions of Chapter 5.



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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.2.

If a registered foreign company were "a company", the reference in para (b) to Div 2 of Part 5B.2would be surplusage.

The above considerations demonstrate, very plainly in my view, that the concepts of "a companyregistered under this Act" and "a foreign company registered under Division 2 of Part 5B.2" aretwo distinct concepts that do not overlap. Registration of a foreign company under Part 5B.2, Div2 is not registration of a company "under this Act". A foreign company does not become "acompany 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 CoveResort 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 CorporationsAct, "company":

"... means a company registered under this Act and:

(a) in Chapter 2K (other than sections 273A to 273E), includes a registrable body that isregistered 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 itsplace 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 theCorporations Act concerns registering a company. Section 112 describes what types ofcompanies 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 noliability companies.

[9] Part 2A.2 describes how a company is registered. Section 117(1) provides that to register acompany a person must lodge an application with the Australian Securities and InvestmentsCommission ("ASIC"). Section 117(2) sets out what the application must include. The balanceof the subsections in s 117 deal with other machinery requirements for registration. By s 118, ifan application is lodged under s 117, ASIC may give the company an ACN number and registerthe company and issue a company certificate stating, inter alia, that the company is registeredas a company under the Corporations Act and naming the State or Territory within Australia inwhich 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 onwhich 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 theStates referred powers to the Commonwealth to enact corporations legislation as a federal lawof 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 GroupLtd 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 "foreigncompany". Such a "company" must be wound up pursuant to s 583 as a Part 5.7 body.



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That reasoning is not undermined by the fact that, as the plaintiffs point out, the decision of theNew South Wales Court of Appeal in Peninsula Group v Kintsu Co Ltd (1984) 44 NSWLR 534, towhich 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 beincorporated under the Law. Her Honour's reasoning stands independently of that decision. Butwhile I am prepared to accept that, because of the difference in wording, Kintsu may not governthe outcome in the present case, it is far from clear that the current definition was intended toexpand the definition beyond that for which the Corporations Law provided in 1984, to includeregistered 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 presentlegislation 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 statutoryderivative action, the Court has no jurisdiction to grant such leave because FRL is not "acompany", and the proceedings must fail.

If I were wrong in this conclusion, an application for leave to bring a statutory derivative actionwould face the further hurdle that Part 2F.1A does not apply in respect of a company inadministration, 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 thematter 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, ascontributories, to bring proceedings in the name of FRL, because FRL is not the subject of aliquidation that is under its supervision.

In the alternative to leave under s 237, the plaintiffs seek leave in the inherent jurisdiction to bringproceedings in the name of FRL. The jurisdiction in question is the court's inherent jurisdiction topermit 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, whichdoes 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, inAliprandi 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 thecourt to order that a creditor or contributory of a company in liquidation be authorised to usethe company's name as a plaintiff. This is a matter which I discussed in Wenham v GeneralCredits Ltd (16 November 1988, SC(NSW), unreported). Such a procedure is of respectableantiquity and is sanctioned by high authority. Orders of that kind were made in Re Bank ofGibraltar 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 andLloyd-Owen v Bull (1936) 4 DLR 273 (Privy Council). The legitimacy of the procedure was alsorecognised 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 1136-8.It was said by Jessel MR in Cape Breton (at 207) to be based on "the same principle on which aman could always have filed a bill in the old Court of Chancery against his trustee to be allowedto use his name to recover the trust property". ...



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The proper approach of the court in such an application as this has been described by thePrivy Council in Lloyd-Owen at 276 in the following terms: "A judge in winding up is thecustodian of the interests of every class affected by the liquidation. It is his duty... to see to itthat 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 totheir probable success; where... they involve no possible charge on assets, he will neverthelessbe careful to see that any action taken in the company's name under his authority is notvexatious or merely oppressive."

While this jurisdiction is analogous to the "exceptional circumstances" jurisdiction pursuant towhich the court will permit a beneficiary to sue in the right of a trustee where the trustee refusesto do so, or a member to bring a derivative action at general law in exception to the rule in Foss vHarbottle, 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 aright of the beneficiary in circumstances where the trustee is joined as a defendant, whereas inthe jurisdiction presently under consideration, leave to bring proceedings in the name of thecorporation is required.

As appears from the passage cited by McLelland J from the judgment of the Privy Council inLloyd-Owen v Bull (1936) 4 DLR 273, the jurisdiction to permit a contributory or creditor to sue inthe name of a company in liquidation where a liquidator does not do so is an aspect of the court'ssupervisory jurisdiction over liquidators. That is consistent with the view expressed by Rares J inCommissioner for Revenue (ACT) v Slaven [2009] FCA 744; (2009) 178 FCR 334, thatCorporations Act, s 511, is the source of "the Court's undoubted jurisdiction and power to permita person other than the liquidator to commence proceedings in the Company's name when it is involuntary liquidation" [see also Hu v PS Securities Pty Ltd (as trustee of the Joseph FamilyTrust) [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). TheCourt exercises a supervisory jurisdiction with respect to administrators and deed administratorsclosely analogous to that which is has with respect to liquidators [Corporations Act, s 447D, s447E]. An omission by an administrator or a deed administrator to bring proceedings on behalf ofa company might well be prejudicial to the interests of some or all of the company's creditors ormembers; 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 haspower under s 447E(1), if not in its inherent jurisdiction, to authorise a creditor or contributory tobring proceedings where a deed administrator's failure to do so is contrary to the interests of thecreditors or contributories.

However, it is unnecessary to resolve this question, because the jurisdiction to permitproceedings 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. Thatmeans that it must be a function of the court of the administration, which in this case is the HighCourt of New Zealand. This court has no supervisory jurisdiction in respect of a liquidation oradministration under the supervision of the New Zealand court. The question whether permissionto sue in the name of the company should be given is peculiarly a matter for the court of theadministration.

It follows that this court has no jurisdiction to grant leave to the plaintiffs as contributories of FRLto bring proceedings in its name, it being in administration and subject to a DoCA under thesupervision of the High Court of New Zealand.



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If the plaintiffs initiated proceedings in reliance on a general law derivative action (the availability ofwhich is not excluded by s 236(3), as that section applies only to "a company", which for reasonsalready explained FRL is not), it might then be necessary to consider whether (1) the capacity tobring a general law derivative action survives administration and a DoCA, as it does not surviveliquidation; and (2) if so, whether a sufficient basis to support a general law derivative action waspleaded. Those questions do not presently arise, as all that is before the court is an applicationfor 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?

The issue is whether the present proceedings are brought in contravention of (NZ) CompaniesAct 1993, s 239ACU(1), which provides that a person who is bound by a deed of companyarrangement must not, while the deed is in force:

(b) except with the court's permission, begin or continue a proceeding against the company orin relation to any of its property:

Under s 239ACS, a deed of company arrangement binds, inter alia, the company's creditors, thecompany, its directors, officers and shareholders, and the deed administrator. Accordingly, theplaintiffs are bound by the DoCA.

The Court referred to in s 239ACU is the High Court of New Zealand. There is no suggestion thatits permission has been obtained. The question is whether the present proceedings are to becharacterised, for the relevant purpose, as a "proceeding against the company or in relation toany of its property".

The applicants submitted that, as FRL was (properly and necessarily) named as a defendant inthe current proceedings, they were "proceedings against FRL", and that as they pertained to achose of action of FRL (against the directors), they were proceedings with relation to property ofFRL.

The provision (and its equivalent in Corporations Act, s 444E) is similar to Corporations Act, s440D, in respect of which it has been held that the expression "proceedings in a court ... inrelation to any of its property" is not intended to encompass an action by the company where itseeks to enforce, in Court proceedings, a chose in action that it has. As Barker J observed in MGCorrosion 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 insome relevant way its property is the target of a proceeding, then that proceeding may not bebegun or proceeded with, except with the administrator's written consent or with the leave of theCourt. This ensures that, in the first instance, the administrator has the opportunity to view thecontinuance of such proceedings, and the Court has a final say as to whether or not theproceeding may proceed.

Section 444E, and analogous provisions such as s 471B and s 500(2), all place constraints oncommencing and continuing proceedings against a company or its property without the consentof the liquidator or administrator, or the leave of the Court. Those provisions have never beenconsidered to apply to an application for leave itself, as distinct from the substantive proceedingthat is the subject of the application for leave. In my view, those provisions are concerned withproceedings in which relief is sought against the company or its property; not with applications forleave to bring such proceedings to which the company is necessarily joined.



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In my view, an application for leave to bring proceedings in the name and on behalf of thecompany is not a proceeding against the company or its property in the relevant sense. It doesnot seek relief against the company, and it does not target any of its property. Accordingly, theleave 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 andMr Kember), the proceedings are subject to the (CTH) Trans-Tasman Proceedings Act 2010.The issue is whether the proceedings should be stayed pursuant to s 19 on the ground that theHigh Court of New Zealand is the more appropriate court to determine the matter. I approach thisquestion on the assumption that my conclusion that this Court cannot grant leave to sue in thename of the company, either under Part 2F.1A or in the inherent or supervisory jurisdiction, isincorrect. Assuming, contrary to my conclusions, that this court could grant such leave, is theNew 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 orderstaying the proceeding on the grounds that a New Zealand court is the more appropriate courtto determine the matters in issue.

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 itis satisfied that a New Zealand court:

(a) has jurisdiction to determine the matters in issue between the parties to theproceeding; and

(b) is the more appropriate court to determine those matters.

(2) In determining whether a New Zealand court is the more appropriate court todetermine those matters, the Australian court must take into account the followingmatters:

(a) the places of residence of the parties or, if a party is not an individual, its principalplace 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 mattersshould be determined or the proceeding should be commenced (other than an exclusivechoice 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 defendantor another person in a court in New Zealand;

(g) the financial circumstances of the parties, so far as the Australian court is aware ofthem;

(h) any matter that is prescribed by the regulations;

(i) any other matter that the Australian court considers relevant;



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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 courtconsiders are appropriate in order to facilitate, without delay or undue expense, thedetermination 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 aNew Zealand court (a) has jurisdiction to determine the matters in issue between the parties tothe proceeding, and (b) is the more appropriate court to determine those matters, having regardto the factors listed in s 19(2), which is not exhaustive, provided that the Australian court may nottake into account the fact that the proceeding was commenced in Australia. The test provision istherefore a discretionary one, which permits but does not require the court to stay theproceedings if satisfied that the New Zealand court has jurisdiction and is the "more appropriatecourt" (unless there is an exclusive choice of court agreement, in which case s 20 mandates astay of the proceedings). But notwithstanding that the power is discretionary, it would be anexceptional case, if there is one at all, in which being satisfied that the New Zealand court hadjurisdiction and was the more appropriate one, the Court would not stay the Australianproceedings.

As to the first limb, there is no doubt that the New Zealand court has jurisdiction. (NZ) CompaniesAct 1993, s 165, enables it to grant leave for a statutory derivative action, and as the court of theadministration it would have jurisdiction to grant permission to sue in the name of the company inthe inherent or supervisory jurisdiction. Indeed, its jurisdiction is much more plainly establishedthan that of this Court.

As to the second limb, the "more appropriate forum" test mirrors the test provided in respect ofdomestic proceedings by (CTH) Service and Execution of Process Act 1992, s 20 andJurisdiction 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 moreconvenient, court. While convenience is undoubtedly an importance consideration, it is notdeterminative. Notions of the "natural forum" can inform what is the "more appropriate forum", asI observed, in the context of the Cross-Vesting Act, in BioAg Pty Ltd v Hickey [2007] NSWSC296 (at [7]):

[7] In identifying the "more appropriate forum", relevant considerations including the cost andefficiency of proceedings in the respective jurisdictions, and the connecting factors referred toby Lord Goff in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460, 478 - includingmatters of convenience and expense such as availability of witnesses, the places where theparties 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 theplaintiff to establish jurisdiction and this may count in identifying the natural forum [BHP vSchultz, 423 [19]; British American Tobacco Australia Ltd v Gordon & Anor [2007] NSWSC 230,[44]].

In James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357, Spigelman CJ said, also in thecontext of the Cross-Vesting Act (at 361 [7]):

To determine which court is, in the interests of justice, the appropriate court, it is necessary toinquire, in the case of a tort, as to what is the place of the tort. Indeed, in the context ofadministering 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 bedeterminative of the issue of "appropriate court", although other factors may need to beassessed in the process of determining where the interests of justice lie.



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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 ofbusiness. All the plaintiffs are resident variously in New South Wales, Victoria and Tasmania. Ofthe defendants, Ms Weston and Mr Mollison are resident in New South Wales, and Mr Goodacrein Victoria. Of the non-corporate defendants, only Mr Kember is not an Australian resident; helives in New Zealand. The principal place of business of FRCN is in Australia. Although FRL'scorporate headquarters were located in Sydney between April 2008 and at least mid-2013, theyhave now returned to Auckland. The seat of the administration is in Auckland, although one of theadministrators is resident in New South Wales. Adveco's principal place of business appears tobe 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 beascertained from the affidavits which it has been indicated would be read in the proceedings, theoverwhelming majority of the witnesses reside in Australia, and all but one of them in New SouthWales, the exception being in Victoria. Only Mr Kember and a lawyer reside in New Zealand, andit is doubtful that the lawyer would need to attend.

The place where the subject matter of the proceeding is situated. The subject matter of theseproceedings is a cause of action that FRL is said to have against its directors for allegedbreaches 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 itsshareholders are in New Zealand; and its business is in New Zealand. Although its administrativefunctions were located in Sydney until about mid-2013, since then they have returned toAuckland. (The FRL Group 2013 Annual Report states that the administrative functions of FRLwere moved back to New Zealand from Sydney in June 2013). The matters that found the secondpart of the plaintiffs' claim occurred in late 2013, after the administrative functions were movedback to New Zealand. One of the directors (Mr Kember) was resident in New Zealand. Whererelevant meetings of the directors were held; where relevant agreements, arrangements orunderstandings were made; and where the relevant steps that culminated in FRL being put intovoluntary administration were taken, is not pleaded or particularised. It is likely that some of therelevant 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 bedetermined or the proceeding should be commenced (other than an exclusive choice of courtagreement to which subsection 20(1) applies). Save that the general security agreement betweenFRL and FRCN (to which the plaintiffs and the directors are not party) contains a submission tothe non-exclusive jurisdiction of New South Wales, there is no relevant choice of jurisdictionagreement.

The law that it would be most appropriate to apply in the proceeding. Prevailing Australianauthority is that the right of a shareholder to bring a derivative suit is procedural and thusgoverned by the law of the forum [Ebbage v Manthey [2001] QSC 4 (Helman J); Virgtel Limited vZabusky (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 purelydomestic 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 thisCourt would follow the Australian authorities, but they are not binding and the question must beregarded as open. Plainly enough, on an application under ss 236 and 237, Australian law wouldapply. If the application were made in New Zealand, Companies Act, s 165 would apply. It is notapparent that there is any material difference between the law of Australia and that of NewZealand. Accordingly, the law applicable on the application for leave is not a significant factor.



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As to the substantive proceedings, the plaintiffs point to indicia in various of the relevanttransactional documents that the law of New South Wales would apply. In particular, the FRCNConvertible Note Deed provides that it is governed by the laws of New South Wales; the GeneralSecurity Agreement recording FRCN's charge over FRL's assets is expressed to be governed bythe law of New South Wales; the Driftwood note states that "The issue will be governed by andconstrued in accordance with the laws of Australia"; the Plaman mandate provides that it isgoverned by the laws of New South Wales (and Plaman waives any right to object to proceedingsbeing brought in the courts of New South Wales for any reasons); and the Plaman SMDAAgreement states that it is governed by the law of New South Wales and that each party to theagreement waives any right to object to proceedings being brought in those courts for anyreasons. None of those agreements, however, catch the present proceedings, because they arenot proceedings between parties to those agreements under or concerning those agreements,but proceedings with respect to alleged breaches by the directors of their statutory and generallaw duties.

The plaintiffs describe their cause of action as one arising from breaches by Australian-residentdirectors of FRL and alleged accessory third parties also resident in Australia, of duties imposedon directors of corporations by Corporations Act, ss 180, 181, 182 and 183, and by the generallaw. But the requisite territorial nexus is not established simply by reason that FRL is a registeredforeign company, or had located its administrative functions in Australia. No doubt there would bea strong if not overwhelming case for the application of ss 180, 181, 182 and 183 to directorsresident in Australia who discharged their functions in Australia, and perhaps also abroad, if thecompany's seat of management was in Australia. But one of the directors was not resident inAustralia, and, as explained above, the extent to which the subject matter of the proceedings hasthe requisite territorial nexus with Australia, for each cause of action against each defendant, isuncertain. Accordingly, the extent to which Australian law would govern the substantiveproceedings is not clear.

Whether a related or similar proceeding has been commenced against the defendant or anotherperson in a court in New Zealand. No related or similar proceeding has been commenced againstthe defendant or another person in a court in New Zealand.

The financial circumstances of the parties, so far as the Australian court is aware of them. Thereis no relevant evidence of the financial circumstances of the parties, and in those circumstancesthis factor should be treated as neutral.

Any other matter that the Australian court considers relevant. FRL is subject to an administrationunder the Companies Act, Part 15A, in respect of which the High Court of New Zealand is thecourt of the administration. Moreover, FRL is subject to a DoCA, which has been approved by itscreditors in conformity with the law of New Zealand. The DoCA provides for a contribution of a"deed fund" of $4.8 million by Iris, to be applied first to discharge the FRCN debt, redeem theFRCN securities, and thus procure the retirement of the receiver, and the balance to be held bythe deed administrators until Iris elects between proceeding by asset sale or share sale (cl 11.3,11.5). If Iris does not elect to purchase FRL's assets, the transaction will proceed by way of asale to Iris of all the shares in FRL, and the balance of the deed fund will be applied (1) as to$125,000 to establish a shareholder transfer trust, (2) as to $25,000 to establish a shareholderclaim trust, (3) to costs of the administration, and (4) to establish a trust for the benefit ofunsecured creditors. The shareholder claim trust, of which the deed administrators will be theinitial trustees, will - after the sale of shares to Iris - continue to hold, for the benefit of the (former)shareholders, the "shareholder claim", which comprises all potential claims by FRL against itsdirectors and FRCN, but excluding any claim against Iris or Plaman. (If Iris elects to purchase the



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assets, the shareholder claim will be excluded from the sale and retained by FRL, and thebalance of the deed fund after costs of administration distributed to unsecured creditors.) Oncethe conditions of the DoCA are satisfied and Iris pays $4.8m to constitute the deed fund, anyclaim FRL has against Plaman or Iris is released and extinguished. The DoCA therefore has theeffect that (a) Iris will acquire either the assets of FRL (excluding the Shareholder Claim) or all theshares in FRL, for $4.8 million; (b) FRCN will be repaid in full, its security discharged and itsreceiver retired; (c) FRL's potential claims against the directors and against FRCN will bepreserved, for the benefit of FRL's existing shareholders; and (d) any claim FRL may haveagainst Plaman will be released.

Thus the DoCA preserves for the benefit of shareholders the very claims that the plaintiffs seekleave to bring, and (if the transaction proceeds by share sale) vests them in a trust of which thedeed administrators are the initial trustees, with power to investigate the claims, obtain advice ofcounsel, and - subject to such advice and shareholder approval - to commence, prosecute andcompromise the claim. The plaintiffs' application would take this responsibility out of the hands ofthe trustees appointed pursuant to the DoCA. It may be that there are good grounds for doing so -particularly if the matter does not proceed by share sale, in which event the shareholder claimwould remain effectively under the control of the directors - but this points to a very closerelationship between supervision of the DoCA and the plaintiffs' application.

The DoCA provides for the repayment of FRCN, but preserves the right to claim against it and torecover any amount found not properly to have been payable to it. It also provides that FRCNshall take no steps to enforce its security. This overlaps with the relief sought by the plaintiffs.

The plaintiffs have foreshadowed, though the amended originating process does not yet refer toit, that they will seek to have the release of Plaman avoided; indeed, it would seem essential thatthey do so, as otherwise it would extinguish their claim against Plaman. Plaman is Iris' agent forthe purposes of the DoCA, and Iris and Plaman required the release as a condition of theirinvestment, in order to ensure that the funds they contributed would not be used to fund an actionagainst them. By approving the DoCA and its amendment, the creditors apparently accepted thatrelease as part of the price for securing Iris and Plaman's support. A proceeding to set aside thePlaman release would be inextricably interwoven with the DoCA, and avoidance of the releasemight well undermine the DoCA. Assuming jurisdiction - which seems doubtful, given that theHigh Court of New Zealand is the court with supervision of the DoCA - it is difficult to see how thiscourt could consider such an application without considering the interests of all parties bound bythe DoCA, and not just the litigants in these proceedings. Such consideration would much moreappropriately be undertaken by the court with supervision of the DoCA.

The plaintiffs say that, in response to the observations made by Black J and referred to above,they investigated the viability of applying in New Zealand to set aside the DoCA, and obtainedadvice from New Zealand lawyers that was not encouraging, and from Australian counsel whorecommended against taking proceedings in New Zealand. This seems largely to have beenbased on the (unsurprising) view that, in the context of an application to set aside a DoCA, thecourt was unlikely to prefer the interests of a few shareholders to the practically unanimouswishes of the creditors. It was before the DoCA was amended to include the Plaman release.The advice related to a different potential application from that presently under consideration.Given the similarity of the legal regimes, it is not apparent why the plaintiffs' prospects in NewZealand would be inferior to those in New South Wales. But even if the plaintiffs' prospects ofsuccess in New South Wales were greater than in New Zealand, that would not inform selectionof the more appropriate forum: the plaintiffs' choice is expressly made not relevant by theconcluding words of s 19(2).



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The factors that inform a judgment as to whether the New Zealand court is the more appropriateone therefore do not by any means speak unanimously. On the one hand, the inconvenience tothe plaintiffs of litigating these proceedings in New Zealand would undoubtedly considerablyoutweigh the inconvenience to the defendants (in fact, only one of them) of litigating them in NewSouth Wales. In addition, the residence of all but one of the defendants in New South Wales isalso a significant factor, as at common law their presence was the foundation of jurisdiction,though this is of reduced significance now, as the (NZ) Trans-Tasman Proceedings Act permitsprocess of New Zealand courts to be served and enforced in Australia as in New Zealand. On theother hand, the extent to which the causes of action arise in Australia or New Zealand remainsopaque; the probabilities are that they arise, in part at least, under the laws of both countries, butthose pertaining to the second component of the plaintiffs' case occurred after the seat ofadministration returned to New Zealand.

Ultimately, the proceedings pertain to the duties of directors of a New Zealand company, themajority of whose shareholders are in New Zealand, the business of which is in New Zealand,and which is in administration in New Zealand under the laws of New Zealand and under thesupervision of the High Court of New Zealand, which plainly has jurisdiction (under CompaniesAct, s 165), to grant leave to bring a statutory derivative action (if, contrary to my view, such anaction can be brought while a company is in administration), and also to grant leave in theinherent jurisdiction (Companies Act, s 239ADS, gives the Court a supervisory jurisdiction interms practically identical to Corporations Act, s 447E(1)). The relief sought by the plaintiffsoverlaps with and potentially affects or interferes with provisions of the DoCA.

To my mind, while considerations of convenience of the parties favour New South Wales, thenature and subject matter of the claim, the status of the company, and, especially, theinterrelationship of these proceedings with the DoCA, render the High Court of New Zealand themore appropriate court. Accordingly, if this Court had jurisdiction in respect of the plaintiffs'claims for leave to bring proceedings in the name of the company, they would be stayed pursuantTrans-Tasman Proceedings Act, s 19.

Conclusion

My conclusions may be summarised as follows.

The concepts of "a company registered under this Act" and "a foreign company registered underDivision 2 of Part 5B.2" are distinct concepts that do not overlap. Registration of a foreigncompany under Part 5B.2, Div 2 is not registration of a company "under this Act". FRL is not "acompany" within s 236, and in so far as the plaintiffs claim leave under ss 236 and 237 to bring astatutory derivative action, the Court has no jurisdiction to grant such leave and the proceedingsmust fail.

Assuming that the jurisdiction to permit a contributory or creditor to bring proceedings in thename of the company extends not only to companies in liquidation but also to companies inadministration, it is an incident of the court's supervisory jurisdiction and resides in the court ofthe administration, which in this case is the High Court of New Zealand. This court has nojurisdiction to grant leave to the plaintiffs as contributories of FRL to bring proceedings in itsname, as it does not have supervision of the administration. In so far as the plaintiffs claim leavein the inherent jurisdiction, the proceedings must fail.

An application for leave to bring proceedings in the name and on behalf of the company is not aproceeding against the company or in relation to its property in the sense referred to inCompanies Act, s 239ACU (or Corporations Act, s 444E), and does not itself require the leave of



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the New Zealand court under that section. These proceedings are not precluded on that ground.

While considerations of convenience of the parties favour New South Wales, the nature andsubject matter of the claim, the status of the company, and, especially, the interrelationship ofthese proceedings with the DoCA, render the High Court of New Zealand the more appropriatecourt. Accordingly, if (contrary to my conclusions) this Court had jurisdiction in respect of theplaintiffs' claims for leave to bring proceedings in the name of the company, they should bestayed pursuant Trans-Tasman Proceedings Act, s 19.

Accordingly, the proceedings should be dismissed, with costs.

(Counsel addressed)

The ninth defendant Plaman applies for an order that the costs, which I propose to order theplaintiffs pay of the proceedings, should in the case of Plaman be assessed on the indemnitybasis from 18 June 2014, upon which date Plaman's solicitors, by letter marked "withoutprejudice save as to costs", made a so-called Calderbank offer, to the effect that the proceedingsbe dismissed with no order as to costs, each party to bear its own costs - a so-called "walkaway" offer. Self-evidently, it would have provided for the plaintiffs a superior result to that whichthey have obtained, since they will in any event be ordered to pay the defendants' costs of theproceedings.

The offer, while expressly made in accordance with the principles of Calderbank v Calderbank,was not made in the form of an offer of compromise under the Rules. The Rules make specificprovision, provide a mechanism and contain certain protections in connection with the making ofoffers intended to attract costs consequences, and ordinarily I am reluctant to act on Calderbankoffers not made in accordance with the Rules. However, where the offer is a "walk away" offer,that does not involve a costs order, there are difficulties in complying with the requirements of theRules, and in those it may be appropriate, if not necessary, to resort to a Calderbank offer ratherthan invoking the Rules.

The other consideration that might tell against acting on the Calderbank offer is that the argumentit set out was largely focused on the merits of the application for leave and the proposedderivative proceedings, rather than on the legal issues which have been determinative of theoutcome. That said, it in no way involved abandoning those legal issues, and indeed at the outsetreferred to the "forum non conveniens" argument.

Accordingly, it seems to me that the ninth defendant was justified in not resorting to the offer ofcompromise provisions of the Rules, and instead using a Calderbank offer. It has bettered thatoffer at the hearing. The fact that the arguments advanced by the plaintiffs were notunreasonable, and that the plaintiffs have not been shown in any way to have acted unreasonablyin the prosecution of the proceedings, is beside the point. What attracts the special costsconsequence is their failure to accept an offer which the ninth defendant has bettered at thehearing.

In those circumstances, it seems to me that the ninth defendant's costs should be assessed onan indemnity basis from the date of the offer, namely, 18 June 2014.

The plaintiffs submitted that I should defer making a costs order, on the basis that such ordermight more appropriately be considered by the New Zealand Court, if proceedings are institutedthere, or alternatively if no such proceedings are instituted, then after that decision has beenmade.



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(1)

(2)

(3)

(4)

Last updated 27 August 2014

The proceedings in this Court were an application for leave - either under s 236 and alternativelyin the inherent jurisdiction - to bring proceedings in this Court. The proper Court to deal with thecosts of that application is the court that hears and, as has happened here, determines anddismisses that application. It may be that some of the work done in connection with theseproceedings will ultimately be of benefit in any proceedings brought in New Zealand, and it maybe that the plaintiffs if ultimately successful in New Zealand may be able to claim them in someway, but that does not seem to me to be any reason for this Court not to deal with the costs ofthe proceedings before it, which are now at an end. In that respect, it needs to be observed thatthe ratio of my decision is not founded on the forum conveniens point under the Trans-TasmanProceedings Act - in which event it might be arguable that different considerations would apply -but on the want of jurisdiction of this Court under s 236 and in the inherent jurisdiction.

For those reasons, there is no occasion to defer making a costs order.

Costs were reserved by Black J when dealing with aspects of the proceedings on earlieroccasions. I have indicated that, in the absence of any submissions as to why they should not beincluded in the order I propose to make, I propose to treat them as costs of the proceedings anddeal with them accordingly.

Accordingly, the Court orders that:

The proceedings be dismissed.

The plaintiffs pay the defendants' costs of the proceedings, including reserved costs.

The ninth defendant's costs be assessed and payable on the indemnity basis from 18 June2014.

The above orders are without prejudice to any right of the administrators to apply to the Courtin respect of the reserved costs of the occasion on which they appeared before the Court.

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