Decon Australia Pty Ltd v TFM Epping Land Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54

Appeal from: Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32
File number(s): NSD 110 of 2021
Judgment of: YATES, O'CALLAGHAN AND HALLEY JJ
Date of judgment: 6 April 2022
Catchwords: CORPORATIONS – appeal from decision of primary judge refusing to terminate deeds of company arrangement pursuant to s 445D(1) of the Corporations Act 2001 (Cth) – where primary judge made evaluative determinations in relation to ss 445D(1)(c), 445D(1)(e), 445D(1)(f)(i), 445D(1)(f)(ii) and 445D(1)(g) of the Corporations Act 2001 (Cth) – whether House v The King (1936) 55 CLR 499 error established – appeal dismissed
Legislation:

Corporations Act 2001 (Cth) ss 256B(1), 257A, 440D, 445D, 445D(1), 445D(1)(a), 445D(1)(c), 445D(1)(e), 445D(1)(f), 455D(1)(f)(i), 445D(1)(f)(ii), 445D(1)(g), 553C, 588FB, 588FC, 588FDA, 588FE(3), 588FE(4), 588FE(6A), 588FF, Schedule 2 s 75‑41

Federal Court of Australia Act 1976 (Cth) s 27

Cases cited:

Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510

Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322

Coulton v Holcombe (1986) 162 CLR 1

Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2020] FCA 1085

DSHE Holdings Limited (in liq) v Abboud (No 3) [2021] NSWSC 673; (2021) 155 ACSR 1

Golosky v Golosky [1993] NSWCA 111

House v The King (1936) 55 CLR 499

Shafston Avenue Construction Pty Ltd v McCann [2019] FCA 1426; (2019) 138 ACSR 299

Shafston Avenue Construction Pty Ltd v McCann [2020] FCAFC 85

Singer v Berghouse (1994) 181 CLR 201

University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481

Vannella Pty Ltd v TFM Epping Land Pty Ltd [2020] NSWSC 659

Walker v Wimborne (1976) 137 CLR 1

Wilmar Sugar Australia Ltd v Mackay Sugar Ltd [2017] FCAFC 40; (2017) 345 ALR 174

Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub‑area: Corporations and Corporate Insolvency
Number of paragraphs: 206
Date of hearing: 10 November 2021
Counsel for the Appellant: Mr J Giles SC with Dr E Ball and Mr R Size
Solicitor for the Appellant: Piper Alderman
Counsel for the First and Second Respondents: The First and Second Respondents did not appear
Counsel for the Third and Fourth Respondents: Mr DL Cook SC
Solicitor for the Third and Fourth Respondents: Henry Williams Lawyers

ORDERS

NSD 110 of 2021
BETWEEN:

DECON AUSTRALIA PTY LTD ACN 078 021 333

Appellant
AND:

TFM EPPING LAND PTY LTD ACN 605 600 253

First Respondent

KATOOMBA RESIDENCE INVESTMENT PTY LTD ACN 606 106 405

Second Respondent

STEPHEN JOHN MICHELL (and another named in the Schedule)

Third Respondent

ORDER MADE BY:

YATES, O'CALLAGHAN AND HALLEY JJ

DATE OF ORDER:

6 APRIL 2022

THE COURT ORDERS THAT:

1.The appellant has leave to amend paragraph 5 of its notice of appeal dated 19 February 2021 by removing the words…

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Details
Case
[2022] FCAFC 54
Decision Date

CaseChat Overview and Summary

Decon Australia Pty Ltd sought to appeal against a decision of Stevenson J in the Federal Court of Australia, who refused to terminate the Deeds of Company Arrangement (DOCA) entered into by TFM Epping Land Pty Ltd and KRI Epping Land Pty Ltd. Decon argued that the primary judge erred in making a series of evaluative determinations regarding various provisions of the Corporations Act 2001 (Cth). The legal issues before the court were whether the primary judge's evaluative determinations constituted a House v The King error, and if so, whether this warranted the termination of the DOCA. The court found that Stevenson J did not commit a House v The King error in his evaluative determinations. The court held that the primary judge's determinations were not so unreasonable as to amount to a jurisdictional error, and therefore, the appeal was dismissed. The court also dismissed Decon's interlocutory application to amend its notice of appeal and ordered Decon to pay the respondents' costs.

Orders

Orders of the court

1. The appellant has leave to amend paragraph 5 of its notice of appeal dated 19 February 2021 by removing the words “the matters listed in Grounds 1(b) and 2(b) above;”, adding a new paragraph 5(c)(i) containing those same words, and substituting “3(b)” for “2(b)” in paragraph 5(c)(i).

2. The appellant has leave to amend paragraph 5 of its notice of appeal dated 19 February 2021 by adding a new paragraph 5(c)(ii) as follows: “the manner in which the business, property, affairs and financial circumstances of each of TFM and KRI were treated as interchangeable and the same as one another and with those of their parent company, Tasman Development Holdings Pty Limited and other related entities,”.

3. The appellant’s interlocutory application dated 1 November 2021 to amend its notice of appeal otherwise be dismissed.

4. The appeal be dismissed.

5. The appellant pay the respondents’ costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

It is, regrettably, necessary later in these reasons to set out lengthy portions of the reasons of the learned primary judge, because Decon’s case is that his Honour erred in making a series of evaluative judgments, in which he weighed in the balance various competing considerations about a wide range of different matters which are not easily summarised. THE FACTSBackground TFM and KRI were incorporated in May 2015. They formed part of a group of companies referred to below as the Tasman Group. At all relevant times, TDH held 62 of 100 of the ordinary shares in TFM. The remaining ordinary shares were held by Sino‑AU Property Investments Pty Ltd (Sino‑AU). TDH in turn held all the ordinary shares in Sino‑AU. Mr Yihao Zhang (also known as Mr Eric Zhang):(a)was a director of TFM and KRI until 19 June 2020 (the now sole director of the companies is Mr Guoqiang Zhang); (b)has been the sole director of TDH since March 2014 and its sole shareholder since 18 September 2018; and(c)has been the sole director of Sino‑AU since August 2016. The principal activity of TFM and KRI was the development of a complex in Epping, New South Wales comprising 99 residential apartments (the Epping Development). Decon was engaged by TFM and KRI to design and build the Epping Development, which was completed in September 2018. TFM and KRI acquired the land located at Hazelwood Place, Epping in May 2016 for the purpose of the Epping Development. The total purchase price was $16,650,000. According to the deed administrators, a further $6,961,669 was spent in connection with the purchase of the land between May 2015 and January 2018. In December 2016, TFM and KRI (as principals) entered into a construction contract with Decon (as contractor) for the design and construction of the Epping Development. In January 2017, TFM also entered into a construction contract with a company related to Decon called Vannella Pty Ltd (Vannella) (often also spelt “Vanella”) for Vannella to provide project management services for the Epping Development. Vannella is also a judgment creditor of TFM and KRI. It was not a party to the proceeding below. Work progressed on the Epping Development during 2017 and 2018. The work was financed primarily by a loan facility obtained by TFM and KRI from National Australia Bank Limited in March 2017. Decon was paid $19.5 million from this facility. Decon has also received some payments from Tasman Funds Management Pty Ltd (Tasman Funds) (another company in the Tasman Group and of which Mr Eric Zhang is the sole director and shareholder) for construction work. Each payment to Decon was in partial discharge of the obligations owed by TFM and KRI to Decon under its contract with the companies. To date, Vannella has not been paid under its contract with TFM. In August 2018, an interim occupation certificate was issued for the Epping Development, and in September 2018 the strata plan was registered. The Epping Development was, at that time, completed.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

On 11 October 2019, Decon obtained a judgment in the New South Wales Supreme Court against TFM and KRI under the SOP Act in the amount of $6,355,352 with costs (the judgment debt). On 14 May 2020, the New South Wales Court of Appeal dismissed with costs an appeal by TFM and KRI against the judgment debt. On 29 May 2020, the New South Wales Supreme Court dismissed with costs an application by TFM and KRI to stay the judgment debt pending the determination of a cross‑claim against Decon in separate proceedings. In his reasons, Stevenson J made the following observations (see Vannella Pty Ltd v TFM Epping Land Pty Ltd [2020] NSWSC 659 at [43]–[46]):First, as long ago as 11 October 2018, the Developers acknowledged that the “total outstanding amount” to the builder was some $5.7 million. Henry J noted that in her judgment of 11 October 2019 …Nonetheless, despite that acknowledgment, the Developers have since then taken every step available to them to resist paying anything to the Builder on account of that acknowledged debt.The Developers did not pay the amount in the payment claim, did not serve a payment schedule, resisted summary judgment before Henry J and sought to overturn the Judgment on appeal.Further, although subject to a direction to do so last year, the Developers did not seek to bring a Cross Claim in these proceedings until they had failed to resist the Builder’s claims in the SOP Proceedings.(Footnotes omitted.) On 16 June 2020, the New South Wales Court of Appeal dismissed with costs an appeal by TFM and KRI against that judgment. On 19 June 2020, Mr Eric Zhang ceased to be a director of each of TFM and KRI. On 22 June 2020, Decon filed a winding up application in this court (proceeding NSD 684 of 2020), in which it sought orders that each of TFM and KRI be wound up under ss 459A, 459P, and 459T of the Act. No issue arises on this appeal in relation to that application. On 30 June 2020, the remaining (and sole) director of each of TFM and KRI, Mr Guoqiang Zhang, resolved to place the companies into voluntary administration and appointed the deed administrators. Decon (and Vannella) and the companies are still engaged in ongoing litigation in the New South Wales Supreme Court. Decon (and Vannella) claim outstanding amounts from TFM and KRI under construction and joint venture contracts relating to 50 apartments in the Epping Development that remained unsold at the date of the appointment of the deed administrators. At the time of the judgment debt there were extant Construction List proceedings commenced by Decon and Vannella, seeking at least the amount of the judgment debt. TFM and KRI filed a cross‑claim, which included a claim for damages arising from the failure to achieve practical completion and certificates, the use of inappropriate cladding and rectification of defects. TFM and KRI asserted that the value of their cross‑claim exceeds the quantum of the total claims by Decon and Vannella. Between February 2018 and November 2019, TFM and KRI entered into a number of transactions. Decon contended below that these should have been investigated by the deed administrators, or alternatively should be investigated by a liquidator, including in circumstances where the Epping Development was completed in September 2018, and where it said there was a possibility that the companies were insolvent by October 2018 and not between June and September 2019, which was the deed administrators’ view. It was contended below and on appeal that there was “a not unrealistic prospect” that if one or more of the transactions were to be unwound, creditors would enjoy a better return in a liquidation than under the DOCAs.

Ratio Decidendi

Legal Principle Established

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