Balabala Laser Clinic (SA) Pty Ltd v Zi Zheng - [2023] SADC 168

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
BALABALA LASER CLINIC (SA) PTY LTD v ZI ZHENG & ANOR
[2023] SADC 168
Reasons of his Honour Judge Burnett
7 December 2023
COURTS AND JUDGES - COURTS - JURISDICTION AND POWERS - TRANSFER OF PROCEEDINGS TO OR FROM HIGHER COURT AND BETWEEN COURTS
The respondents/cross applicants have brought an application to transfer the proceedings from the District Court to the Supreme Court. The cross claim brings claims against the applicant and the other cross respondents that they had conducted the affairs of the company in an oppressive manner contrary to s 232 of the Corporations Act 2001 (Cth).
Held:
(1) Section 24 (2) of the District Court Act provides a broad discretion as to the circumstances in which a matter may be transferred from the District Court to the Supreme Court: Liddell & Anor v Southern Area Health Service [2010] SASC 11 applied.
(2) Matters relevant to the exercise of the discretion included the jurisdiction of the court to try the action, the choice of venue by the applicant, whether the matter was an appropriate matter to be heard in the Supreme Court, whether there was good reason to transfer the action and whether there was any prejudice in transferring the action: Liddell v Southern Area Health Service applied.
(3) Discretionary matters favoured transfer. There would be a multiplicity of proceedings if the respondents/cross applicants were required to institute fresh proceedings in the Supreme Court. There would be a possibility of inconsistent findings including as to the credit of witnesses on the same or similar evidence, overlapping issues, repetitive evidence and delay and the expense of separate trials.
(4) Order that the proceedings be transferred to the Supreme Court.
Corporations Act 2001 (Cth) s 232, s 233, s 236, s 237 and s 58AA; District Court Act 1991 (SA) s 24; Supreme Court Civil Rules 2006 (SA) r 199 - 201, referred to.
Liddell & Anor v Southern Area Health Service [2010] SASC 11; Rana v University of Adelaide [2013] SASC 85; St George Bank Ltd v MJK Pty Ltd [1999] FCA 1752; Mandeville v Better Lending Pty Ltd (No 3) [2017] SADC 124, considered.

BALABALA LASER CLINIC (SA) PTY LTD v ZI ZHENG & ANOR
[2023] SADC 168

By an interlocutory application dated 29 June 2023, the respondents seek an order that the proceedings be transferred to the Supreme Court. The first and third respondents, Ms Zi Zheng and Mr Ruomiao Xu (who I will also refer to as the cross applicants), have brought a cross claim against the applicant, Balabala Laser Clinic (SA) Pty Ltd (the Company), and also a Mr Zipeng Pi and Ms Yu Zhang (the second and third cross respondents).
The basis of the application is that the cross applicants seek orders in the cross claim that Mr Pi and Ms Zhang have conducted the affairs of the Company in a manner which is oppressive to, unfairly prejudicial to and unfairly discriminatory against Ms Zheng and Mr Xu contrary to s 232 of the Corporations Act (the oppression claims). The cross applicants seek, inter alia, orders pursuant to s 233 of the Corporations Act 2001 (Cth) including orders for compensation and orders for the purchase of shares by Ms Zhang and Mr Pi and in the alternative an order that the Company be wound up.
Orders granting relief under s 233 of the Corporations Act in respect of oppressive conduct can be made by the Supreme Court or the Federal Court. The District Court has no power to make such an order. Under s 58AA of the Act, “Court” is defined as including the Federal Court or Supreme Court, but not the District Court.
The cross applicants also intend to bring a derivative action pursuant to s 236 of the Corporations Act in the name of the Company against Mr Pi and Ms Zhang. Under s 237 of the Act leave must be granted by the Supreme Court or the Federal Court before such an action can be brought. The District Court has no power to grant leave.
In their cross claim, the cross applicants have formulated their claim for oppression, but not their claim for a derivative action.
The Company and the second and third cross respondents oppose the application for transfer and also say that it is premature.
The Company has taken out an interlocutory application in which it seeks to strike out paragraphs 24 to 91 and 95 to 100 of the cross claim. The basis of the application is that the Court has no jurisdiction to grant relief in respect of the claims made in those paragraphs. Paragraphs 21 to 91 and paragraphs 95, 98, 99 and 100 of the cross claim set out the oppression claims. Paragraphs 96 and 97 seeks orders that could only be made on a derivative action.
The success of the strike out application is dependent on the determination of the application to transfer the proceedings. The strike out application becomes otiose, except for the limited extent that the cross claim might seek relief relating to the derivative action, if an order for transfer is made as the Supreme Court has jurisdiction to hear the oppression claims. The strike out application will succeed if the transfer application is dismissed as there is no jurisdiction in the District Court to hear the oppression claims.
The Pleadings
The Company operated a medical beauty clinic. The first respondent, Ms Zi Zheng, was employed first as the custom relationships manager and later as the general manager of the Company. The second and third cross respondents, Ms Zhang and Mr Pi, were directors or it is alleged acted as directors at all relevant times.
The Company claims against Ms Zheng that at specified times between July 2019 and September 2022:
1.she received payments from customers into her personal bank account or her joint account with her husband and did not account to the Company for those payments;
2.she received payments from customers into her We Chat bank account and did not account to the Company for those payments;
3.she received cash from customers and did not account to the Company for that cash;
4.she gave credits to a customer in exchange for receiving wine from that customer and has not accounted to the Company for the value of that wine or the loss suffered by the Company in relation to that credit;
5.she improperly transferred funds of the Company to herself where she had falsely claimed to have paid refunds to customers;
7.she improperly transferred funds to herself from the Company and had not properly accounted for the funds;
8.she received unpaid services from the Company for which she has not paid or accounted for;
9. she stole or failed to account for monies that had been received by the Company as cash or into its business bank account.
The Company alleges that Ms Zheng breached her fiduciary duty as an employee of the Company. The Company also brings monetary claims against Ms Zheng for unjust enrichment and money had and received.
The claim made by the Company against the second and third respondents, Mr Zheng and Mr Xu, are claims for unjust enrichment and relate to the payment made by customers of the Company, at the direction of Ms Zheng, into the bank account of Mr Zheng and Mr Xu.
The respondents deny the claims. The respondents plead that it was the practice of the Company that payments would be received into the personal bank accounts of its directors and officers, including Ms Zheng (as well as Ms Zhang and Mr Pi). The respondents further plead that Ms Zheng paid company expenses from her personal account and was entitled to reimburse herself from the funds that she received from customers on behalf of the Company. She alleges that the Company, Mr Pi and Ms Zhang knew about and acquiesced to this practice. As to the wine credit, Ms Zheng says that she purchased the wine partly through her own money and partly by way of the credit given by the Company, but that she gave $6000 to Mr Pi who in turn gave her $5000 as her bonus for the 2021 year. Ms Zheng alleges that she was entitled to receive (as were the other shareholders) treatments from the Company that were unlimited in value.
From this summary, there are a number of potential or likely witnesses who will give evidence on the issues raised in the claim. They are:
a.The first and second cross respondents, Mr Pi and Ms Zhang, as to the operations of the Company, its practices as to payment of expenses and the receipt of payments from customers, the authorisation, if at all, of Ms Zheng receiving payments from customers directly and services from the Company;
b.Accounting evidence reconciling the amounts received by Ms Zheng and expenses paid by her;
c.Evidence from Ms Zheng as to the receipt of money into her accounts, the payment of expenses of the Company by her, the practices of the Company and the authorisation by Ms Zhang and Mr Pi of the services received by Ms Zheng and the wine credit;
d.Evidence from the second and third respondents, Mr Zheng and Mr Xu as to the circumstances of the payment of monies into their accounts and their knowledge of the alleged conduct of Ms Zheng that is said to be in breach of her fiduciary duty.
The cross claim is made against the Company (the first cross respondent) and Mr Pi and Ms Zhang (the second and third cross respondents) as directors or officers of the Company. The cross claim makes first a claim for restitution against the Company; secondly, a claim against Ms Zhang for damages including damages under the Australian Consumer Law. The cross claim also seeks declarations for oppressive conduct and orders under s 233(1)(j) of the Corporations Act, a declaration that Mr Pi and Ms Zhang, hold as a constructive trustee, the amount of the benefits they received on behalf of the Company. The cross claimants also seek alternative relief under s 233 of the Corporations Act for the alleged oppressive conduct including that Mr Pi and Ms Zhang pay compensation to Ms Zheng and Mr Xu, an order for the purchase of shares and an order that Ms Zheng and Mr Xu be given leave pursuant to s 233(1)(g) to bring the claim in the name of the Company. In the further alternative, they seek an order that the Company be wound up pursuant to s 233(2) of the Corporations Act.
The statement of cross claim makes the following claims:
1.Ms Zhang, the third cross respondent, breached the terms of a share sale agreement that she entered into with Ms Zheng, the first cross applicant, by failing to transfer to Ms Zheng 15% of the shares in the Company and a related company by 3 November 2018. Ms Zheng further claims that Ms Zhang engaged in misleading and deceptive conduct in relation to the share sale agreement.
2.Ms Zheng claims against the Company for unjust enrichment in relation to amounts paid by Ms Zheng on behalf of the Company, for goods and services required by the Company (which monies were not reimbursed by the Company).
3.Ms Zheng and Mr Xu claim that Mr Pi and Ms Zhang as directors and officers of the company engaged in conduct which was oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Zheng and Mr Xu by (1) directing payment of income that was properly payable to the Company to themselves and their associates; (2) using the credit card account of the Company for their own personal use; (3) retaining for themselves the profit on the sale of some equipment owned by the Company; (4) retaining for themselves the proceeds of a loan made to the Company by the National Australia Bank; (5) causing the Company to make payments on a loan taken out by Mr Pi and Ms Zhang; (6) causing the Company to make payments of health premiums to Mr Pi; (7) causing the Company to reduce its share capital in contravention of the Corporations Act; (8) causing the Company to enter into an arrangement with a third party, Triple Happiness Pty Ltd, of which Mr Pi was the sole director and shareholder, to pay a fee for a service rendered by that company which was not required; (9) causing the Company to enter into an arrangement with a further company of which Mr Pi was the sole director and shareholder, MAG Pty Ltd, to pay a fee for a service rendered by that company which was not required.
In relation to these claims, the potential or likely witnesses will include:
a.Ms Zheng and Ms Zhang in relation to the share sale agreement claim;
b.The witnesses referred to in paragraph 14 (with the exception of Mr Zheng and Mr Xu) in relation to the claim against the Company for reimbursement. These witnesses would likely give evidence on similar topics to those set out in paragraph 14;
c.In relation to the oppression claims, the witnesses referred to in paragraph 14 (with the possible exception of Mr Zheng) as to the operations of the Company, its practices as to payment of expenses and the receipt of payments from customers and the authorisation, if at all, of Ms Zhang and Mr Pi receiving payments from customers directly. Mr Pi would also likely give evidence about any services rendered by his companies to the Company and the value of those services. There would likely be accounting evidence reconciling the amounts received by Ms Zhang and Mr Pi and the amounts they paid.
Legal principles
Pursuant to s 24(2) of the District Court Act 1991 (SA), a judge of the District Court may order proceedings in the District Court be transferred to the Supreme Court.
Section 24 of the District Court Act provides a broad discretion as to the circumstances in which a matter may be transferred from the District Court to the Supreme Court. Bleby J in Liddell & Anor v Southern Area Health Service[1] considered a number of matters that were relevant to the exercise of the discretion. These matter included: first, the jurisdiction of the Court to try the action; secondly, the choice, by the plaintiff in that case, to commence the action in the District Court when they could have chosen to commence in the Supreme Court; thirdly, whether it was an appropriate matter to be heard in the Supreme Court; fourthly, whether there is some good reason to transfer the action and fifthly, whether there is any prejudice to the defendant in that case (or the applicant and/or second and third cross respondents in this case) in transferring the action.
[1] [2010] SASC 11.
The Company referred to the decision in Rana v University of Adelaide[2] where an appeal from a refusal to transfer proceedings was dismissed on the ground that to permit the transfer and enable the claims for judicial review would be to invoke the jurisdiction of the Supreme Court through the back door of the District Court.[3] Rana was a very different case from the present case. Rana was a case where the plaintiff did not comply with the requirements set out in rules 199-201 of the Supreme Court Civil Rules 2006 (SA) and sought to avoid compliance by instituting the proceedings in the District Court and then transferring the proceedings to the Supreme Court. There is no such conduct in the present case by the respondents/cross applicants. They have not attempted to avoid any of the procedural requirements imposed under the Uniform Civil Rules 2020.
[2] [2013] SASC 85.
[3] Ibid at [28] and [35].
Exercise of the discretion
The respondents submitted that in the exercise of the Court’s discretion the matter should be transferred to the Supreme Court. They rely on the following factors. First, there is no jurisdiction in this Court to deal with the oppression claim. Secondly, there would be a multiplicity of proceedings if they were required to issue separate proceedings in the Supreme Court in relation to the claim for oppression. The respondents further submitted that the proceedings were interrelated and there would be a significant overlap of evidence and findings if separate proceedings were to be brought.
The cross respondents oppose the transfer. They did so on a number of bases, including: (1) the application was premature; (2) the claim for a derivative action could not proceed as leave had not yet been obtained; (3) the actions were discrete and there was no significant overlap between them and (4) the applicant had chosen, as was its right, to institute proceedings in the District Court.
As to the exercise of the discretion, clearly only the Supreme Court has jurisdiction to hear the oppression claims. If the transfer were not ordered, the oppression claims would have to be made in separate and fresh proceedings in the Supreme Court. This would involve a multiplicity of proceedings and the possibility of inconsistent findings, including as to the credit of witnesses, on the same or similar evidence, overlapping issues, repetition of evidence and the delay and expense of separate trials.[4] These matters are evident from the analysis of the claim and cross claim that has been undertaken.
[4] St George Bank Ltd v MJK Pty Ltd [1999] FCA 1752 at [24].
This possibility of inconsistent findings arises directly in relation to the defence that the first respondent, Ms Zheng, paid for expenses of the Company out of her own funds and was entitled to reimbursement by the Company for those expenses and is entitled to set off amounts that she received on behalf of the Company. That same matter is raised in the cross claim brought by Ms Zheng against the Company. Separate proceedings would require, in each set of proceedings, a similar examination of the procedures of the Company, including the payment, at first instance of expenses of the Company by the officers of the Company and the reimbursement of those expenses. The question of jurisdiction and the possibility of multiplicity of proceedings is therefore a matter in favour of transfer.
The Company submitted that the respondents/cross applicants could bring the monetary claim against the Company in the District Court and therefore the Company would not need to be part of any oppression proceedings brought in the Supreme Court. It is undoubtedly the case that the monetary claim could be made against the Company by way of cross claim in the District Court but the alternative relief sought in relation to winding up the Company because of the oppressive conduct of the second and third cross respondents could only be granted in the Supreme Court. Therefore, while it may normally be the case that the Company does not play an active role in oppression proceedings, it could be expected that the Company would actively oppose an order that it be wound up.
The second cross respondent, Ms Zhang, might remain as a cross respondent in the District Court proceedings (at the very least in relation to the transaction involving the Share Sale Agreement and the claim for misleading conduct) even if the oppression action is instituted in the Supreme Court.
Further, both the claim and the oppressive claims relate to the operations of the Company and how expenses were paid and how directors and officers of the Company made payments for goods and services required by the Company from their personal bank accounts and received money directly from the customers into that bank account. Therefore, in each case it will be necessary for the Court to consider the practices of the company and in particular how payments were made for goods and services. I accept the submission of the cross applicants that the same substratum of facts underlies the allegations made in the claim and oppression claims. There will be in issue when the practice of the Company to permit payments into bank accounts of directors or officers ceased. I do not accept the submission of the second and third cross respondents that there is no overlap between the claim and the cross claim and that the cross claim raises entirely unrelated issues and that there is no question of inconsistent findings.

As I have outlined, a number of witnesses would have to give evidence in each proceeding (if the proceedings were not transferred and the claim (including the cross claim against the Company) and cross claim for oppression were heard in separate proceedings). There is likely to be credit findings against some of those witnesses in both sets of proceedings. There is a clear benefit in having all disputes between the parties heard in the one set of proceedings and a prejudice arises in that not occurring.
I do not consider the fact that the applicant has chosen to institute proceedings in the District Court to be of great weight in the present case. Unlike Liddell, in this case it is the respondents/cross applicants who are seeking the transfer of proceedings. They do so on the basis of an issue of jurisdiction that arose on the cross claim. The respondents/cross applicants did not elect to proceed in the District Court. Therefore, while the applicant has legitimately elected to commence proceedings in this Court, that fact does not forestall a transfer of the proceedings to the Supreme Court if there is good reason for the transfer and other discretionary factors favour the transfer.
I also do not consider to be of great weight the fact that the cross applicants may bring a case that is yet to be pleaded or articulated in relation to a derivative action. Although I accept that they have expressed an intention to bring such an action, as yet they have not done so or sought leave from the Supreme Court to do so. Therefore, the transfer application must be assessed on the current state of the pleadings which includes the claim for oppression which must be brought in the Supreme Court or Federal Court. The unarticulated claim for a derivative action, may provide a further basis for a transfer application, but that is only a matter for speculation. If leave is sought and granted to bring a derivative claim, then at that time there may be an application to join those proceedings with the current proceedings.
I accept the submission of counsel for the cross respondents that there may be practical difficulties with the cross applicants pursuing their claim for a derivative action in the same proceedings as the current action. The written submissions of the second and third cross respondents referred to those difficulties. However, this application is not based on the inclusion of the derivative action in the cross claim but only on the inclusion of the action for oppression. The procedural difficulties associated with the action for oppression will be required to be determined at a later time.
I consider that the proceedings, if transferred, are an appropriate matter to be heard in the Supreme Court. It follows from the fact that the Supreme Court and not the District Court has jurisdiction to hear the whole of the matter, including all aspects of the claim and the cross claim, that it is an appropriate matter to be heard in the Supreme Court.
The next factor to consider is whether there is good reason to transfer the action to the Supreme Court. I consider that there is good reason to transfer the matter so as to prevent multiplicity of proceedings and the consequences of there being two sets of proceedings. I have set out earlier in these reasons how the cross claim and the claim overlap factually and the consequences of there being two sets of proceedings. It is not desirable to divorce the claim and cross claim against the applicant from the cross claims against the other cross respondents.
This case can be distinguished from the decision in Mandeville v Better Lending Pty Ltd (No 3)[5] where it was held that the District Court had jurisdiction to hear all aspects of the dispute and therefore there was no good reason to transfer the proceedings to the Supreme Court.
[5] [2017] SADC 124 at [14] and [19].
The applicant further submitted that it was premature to determine the application for transfer until the question of leave to bring the derivative action had been determined. In my view, the application must be determined on the material presently available and therefore any derivative action is not taken into account except that the cross applicants have expressed an intention to bring such an action. It does not provide a reason to refuse the current application for transfer.
The Company submitted that there might be some aspects of the claim and cross claim that seem to overlap and that a court might ultimately take the view that they should run together but the starting point should be that the whole of the oppression proceedings and any derivative action be brought in separate proceedings in the Supreme Court. Given the overlapping issues, I do not consider that it can be said that the starting point is that there be separate proceedings. The application for transfer requires the Court to exercise a discretion which requires consideration as a relevant factor, whether there is good reason to transfer the proceedings. It is not otherwise approached with a predisposition against transfer.
The second and third cross respondents submitted that there was good reason for the Court to determine that the claim and the cross claim should not be heard in the same proceeding. That submission is based on the contention that the claim and cross claim raise unrelated issues. Under Uniform Civil Rules 2020 (UCR) 65.2(1)(a) a respondent may bring an action by cross claim against an applicant without leave and may, pursuant to UCR 65.2(3)(a) bring a cross claim against a new party to the proceeding for a claim that may have been brought in a separate proceeding that is related to the subject matter of the proceeding. The cross respondents submit that the cross claim insofar as it related to the claims against the second and third cross respondent did not relate to the subject matter of the proceeding.
For the reasons that I have already expressed, I consider the cross claim (including the oppression claims) relate to the subject matter of the claim. They both concern the operation of the Company, the practice of payment for Company expenses being made by the directors and officers of the Company and the receipt by the directors and officers into their personal bank account of payments made by customers.
The second and third cross respondents, if advised to do so, could bring an application pursuant to UCR 22.3(a) that they were not a necessary or proper party to the proceedings.
Such an application, if made, is properly dealt with by the Supreme Court, after any transfer of the proceedings has occurred. In Liddell, Bleby J held that it was inappropriate for the Master to become involved in a dispute about pleading issues when an application had been made for the transfer of the proceedings.[6] Bleby J held that the application to transfer stood on the material then before the Master.[7] In these circumstances, I do not consider it at this point appropriate to determine issues of whether an application for disjoinder is likely to succeed. That is a matter for determination by the Supreme Court. Similarly, questions of the adequacy of the pleadings should also be dealt with by the Supreme Court.
[6] [2010] SASC 11 at [9].
[7] Ibid.
As to prejudice, the cross applicants say they will suffer prejudice if the application is not granted in that they will then have to issue separate proceedings in the Supreme Court making the oppression claims then apply for the transfer of the District Court proceedings to join that proceeding. That will cause obvious delay in the prosecution of the proceedings and until the application is granted, multiplicity of proceedings and the possibility of inconsistent findings.
On the other hand, the prejudice that would be suffered by the applicant and cross respondents is that if the proceedings are transferred to the Supreme Court, they would have to apply, if so advised, for the disjoinder of those proceedings. The Company would potentially have to proceed with its claim in the Supreme Court rather than continue with that claim. There is no evidence that it would suffer any prejudice from that occurring by there being increased costs or delay in the ultimate hearing of the matter. In fact, there is likely to be a saving of costs and time if the claim and cross claim are heard together.
The Company also submits that if the proceedings are transferred, then it will be prejudiced by being impacted by issues relating to the cross claim made by the cross applicants against the second and third cross respondents. I accept that there is some impact but, given the overlap in the proceedings, consider this to be minimal and outweighed by the other considerations that I have referred to.
I consider that the prejudice that the cross applicants will suffer if a transfer of proceedings is not ordered, outweighs the prejudice that the Company and other cross respondents will suffer if an order for transfer of the proceedings is made.
Taking into account all of the matters that have been discussed, I consider that the exercise of my discretion favours the transfer of the matter to the Supreme Court.
Conclusion
The application of the respondents is granted and I order the transfer of the proceedings to the Supreme Court.
I will hear the parties as to costs.