HNA Irish Nominees Ltd v Kinghorn (No 2) - [2012] FCA 228

FEDERAL COURT OF AUSTRALIA
HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228

Citation: HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228

Parties: HNA IRISH NOMINEE LIMITED and HNA GROUP (HONG KONG) CO LIMITED v GEOFFREY ANDREW KINGHORN, DAVID LLOYD VEAL, KV AVIATION HOLDINGS PTY LIMITED ACN 054 680 376 (FORMERLY CALLED AAHL PTY LIMITED) and OTHERS NAMED IN THE SCHEDULE

File number: NSD 94 of 2010

Judge: EMMETT J

Date of judgment: 15 March 2012

Catchwords:
CORPORATIONS – redeemable preference shares – principles governing construction of corporate constitution – whether and in what circumstances preference shares held by first plaintiff in defendant companies could be redeemed – where defendant companies were special purpose vehicle companies forming part of certain structured financing transactions involving leases of commercial aircraft – where holders of preference shares were investors in those transactions – where controllers of the holder of ordinary shares in the special purpose vehicle companies also controlled the boards of those companies and caused those boards to assert a right of redemption over the preference shares – where constitutions ambiguous as to redemption trigger under s 254A of the Corporations Act 2001 (Cth) – whether preferred dividend could be paid and the preference shares redeemed on the basis of a revaluation of an aircraft, being a company asset the subject of a lease, prior to the expiration of the lease term

CORPORATIONS – misrepresentation and estoppel – whether any defendants, including individuals controlling holder of ordinary shares in special purpose vehicle companies, engaged in misleading and deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) – where impugned acts comprised representations made to various investors who acquired interests in preference shares – whether impugned acts induced investors to acquire those interests based on misapprehension as to rights attaching to preference shares – to whom relevant acts could be imputed – whether defendants should be estopped from asserting that material economic value attaches to ordinary shares by reason of redeemability of preference shares

CORPORATIONS – oppression – whether affairs of special purpose vehicle companies were conducted contrary to interests of their members as a whole or prejudicially to interests of preference shareholders – where impugned conduct included various alleged breaches of directors’ duties – whether directors of special purpose companies under a conflict between duty and interest – whether steps taken to relieve any conflict – whether directors showed preference for interests associated with themselves

CORPORATIONS – relief for oppression – disputed value of ordinary shares in special purpose vehicle companies – whether such value could depend upon a confluence of interests in other associated companies such that the overall activities of the companies could be controlled and co-ordinated to take advantage of market opportunities – whether expropriation or transfer of ordinary shares to charitable trust an appropriate remedy – whether appointment of additional directors an appropriate remedy

PRACTICE AND PROCEDURE – joinder of parties – deficiency in joinder – whether claims of misrepresentation and oppression by plaintiffs were in effect made on behalf of other investors not party to proceeding – where no evidence adduced on behalf of those investors – where certain orders relieving oppression could affect rights of non-party shareholders in the special purpose companies – whether such other shareholders should be joined if orders relieving oppression were contemplated

Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAB, 12DA, 12GD, 12GH, 12GM
Corporations Act 2001 (Cth) ss 124, 140, 181, 182, 183, 195, 202A, 232, 233, 234, 249B, 254A, 254J, 254K, 254L, 256B, 256C, 256D, 292, 319, 763A, 763B, 769B, 1041H, 1324, 1325
Federal Court of Australia Act 1976 (Cth) s 54A

Cases cited: Australian Securities and Investments Commission v Healey (2011) 196 FCR 291
Blisset v Daniel (1853) 10 Hare 493
Byrnes v Kendle (2011) 243 CLR 253
Campbell v Backoffice Investments Pty Limited (2008) 66 ACSR 359
Campbell v Backoffice Investments Pty Limited (2009) 238 CLR 304
Dick v Alan Powell Holdings [2009] QSC 184
Dimbula Valley (Ceylon) Tea Co Limited v Laurie [1961] Ch 353
Dominelli Ford (Hurstville) Pty Limited v Karmot Auto Spares Pty Limited (1992) 38 FCR 471
DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423
Dynasty Pty Limited v Coombs (1995) 59 FCR 122
Gamlestaden Fastigheter AB v Baltic Partners Limited [2007] 4 All ER 164
Gould v Vaggelas (1985) 157 CLR 215
Harlowe’s Nominees Pty Limited v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
HNA Irish Nominee Ltd v Kinghorn [2010] FCA 311
HNA Irish Nominee Ltd v Kinghorn (2010) 78 ACSR 553
In Re Wondoflex Textiles Pty Limited [1951] VLR 458
International Air Transport Association v Ansett Australia Holdings Limited (2008) 234 CLR 151
Industrial Equity Limited v Blackburn (1977) 137 CLR 567
Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539
John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1
John J Starr (Real Estate) Pty Limited v Robert R Andrew (Australasia) Pty Limited (1991) 6 ACSR 63
Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1
Marks v GIO Australia Holdings Limited (1998) 196 CLR 494
Marra Developments Limited v BW Rofe Pty Limited [1977] 2 NSWLR 616
McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579
Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692
National Exchange Pty Limited v Australian Securities and Investments Commission (2004) 49 ACSR 369
News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410
Ngurli Limited v McCann (1953) 90 CLR 425
O’Neill v Phillips [1999] 1 WLR 1092
Potts v Miller (1940) 64 CLR 282
QBE Insurance Group Limited v Australian Securities Commission (1992) 38 FCR 270
Re Cumberland Holdings Limited (1976) 1 ACLR 361
Re Southern Resources Limited (1989) 15 ACLR 770
Reid v Bagot Well Pastoral Co Pty Limited (1993) 12 ACSR 197
SGH Limited v Commissioner of Taxation (2002) 210 CLR 51
Sutherland v National Roads and Motorists’ Association Limited (2003) 47 ACSR 428
Taylor v Johnson (1983) 151 CLR 422
Teck Corporation Limited v Millar (1973) 33 DLR (3^rd) 288
Thomas v HW Thomas Limited [1984] 1 NZLR 686
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165
Tosich v Tosich Construction Pty Limited (1993) 10 ACSR 590
Walker v Wimborne (1976) 137 CLR 1
Wayde v NSW Rugby League Limited (1985) 180 CLR 459
Zhu v Treasurer of New South Wales (2004) 218 CLR 530

Date of hearing: 6, 7, 8, 9, 10, 14, 15, 16, 17, 20, 21, 22, 23, 24, 29 and 30 June 2011

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 752

Counsel for the plaintiffs: M Leeming SC, J Hewitt

Solicitor for the plaintiffs: Clifford Chance

Counsel for the defendants: SD Robb QC, J Clarke

Solicitor for the defendants: DibbsBarker

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 94 of 2010

BETWEEN:
HNA IRISH NOMINEE LIMITED
First Plaintiff

HNA GROUP (HONG KONG) CO LIMITED
Second Plaintiff

AND:
GEOFFREY ANDREW KINGHORN
First Defendant

DAVID LLOYD VEAL
Second Defendant

KV AVIATION HOLDINGS PTY LIMITED (ACN 054 680 376) (FORMERLY CALLED AAHL PTY LIMITED)
Third Defendant

RIL AVIATION VQZ PTY LIMITED (ACN 110 563 007) AND OTHERS
Fourth to Forty-First Defendants
(as set out in the attached schedule)

JUDGE:

EMMETT J

DATE OF ORDER:

15 March 2012

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.Within 14 days, the plaintiffs file and serve proposed short minutes of orders reflecting these reasons.
2.Within 28 days, the defendants notify the plaintiffs and the Court whether they accept that the plaintiffs’ proposed short minutes reflect these reasons, and, if they do not, what amendments they propose to the plaintiffs’ proposed short minutes.
3.The proceeding be listed for further directions at 9.30am on Friday, 20 April 2012.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 94 of 2010

BETWEEN:
HNA IRISH NOMINEE LIMITED
First Plaintiff

HNA GROUP (HONG KONG) CO LIMITED
Second Plaintiff

AND:
GEOFFREY ANDREW KINGHORN
First Defendant

DAVID LLOYD VEAL
Second Defendant

KV AVIATION HOLDINGS PTY LIMITED (ACN 054 680 376) (FORMERLY CALLED AAHL PTY LIMITED)
Third Defendant

RIL AVIATION VQZ PTY LIMITED (ACN 110 563 007) AND OTHERS
Fourth to Forty-First Defendants
(as set out in the attached schedule)

JUDGE:

EMMETT J

DATE:

15 March 2012

PLACE:

SYDNEY

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [1]

ALLCO FINANCE GROUP........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [11]

SALE OF ASSETS OF THE AVIATION DIVISION........ ........ ........ ........ ........ ........ ........ ... [24]

AVIATION TRANSACTIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [32]

Structure of Aviation Transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [36]

The Constitutions of the RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [49]

The Remarketing Agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [58]

The Financing Deed........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [61]

THE PROCEEDING........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [67]

The Originating Process........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [74]

The Defendant RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [83]

The Statement of Claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [99]

A: Parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [102]

B: KV Aviation and the Allco Group........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [103]

C: The Aviation Division Transactions........ ........ ........ ........ ........ ........ ........ ........ ........ .. [105]

D: The RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [106]

E: The Management of the RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [112]

F: The Directors of the RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [118]

G: The Invalid Share Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [124]

H: Delay in registering transfers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [126]

I: Misleading and Deceptive Conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [127]

J: Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [132]

K: Estoppel........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [136]

L: Whole Circumstances........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [143]

Some Issues Arising from the Pleadings........ ........ ........ ........ ........ ........ ........ ........ ........ .... [144]

The Witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [153]

The Plaintiffs’ Witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [158]

The Defendants’ Witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [181]

THE REDEMPTION ISSUE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [202]

Redeemable Preference Shares under the Corporations Act........ ........ ........ ........ ........ ...... [203]

Some Legal Principles as to Construction of Company Constitutions........ ........ ........ ....... [207]

Formulation of the Redemption Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [212]

Prepayment and the Single Purpose Undertakings........ ........ ........ ........ ........ ........ ........ ..... [219]

HNA Irish’s Contentions as to the Redemption Issue........ ........ ........ ........ ........ ........ ........ [235]

KV Aviation’s Contentions as to the Redemption Issue........ ........ ........ ........ ........ ........ .... [265]

HNA Irish’s Response to KV Aviation’s Contentions........ ........ ........ ........ ........ ........ ....... [276]

The Proper Construction of the Constitutions........ ........ ........ ........ ........ ........ ........ ........ .... [282]

Valuation of Aircraft for Purposes of Determining Aircraft Profits........ ........ ........ ........ ... [291]

Conclusion as to the Redemption Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [308]

MISREPRESENTATION ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [319]

Misrepresentation to HNA Irish and HNA Group........ ........ ........ ........ ........ ........ ........ ...... [331]

Initial Investors in Aviation Transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ... [385]

Record........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [386]

Military Super........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [402]

LJCB........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [435]

AMP........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [438]

Allco Managed Investments as trustee of the Allco Aviation Fund........ ........ ........ ....... [441]

SIF........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [446]

Citic........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [458]

Misrepresentation to Initial Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [466]

Conclusion as to Misrepresentation Issues........ ........ ........ ........ ........ ........ ........ ........ ........ . [477]

THE OPPRESSION ISSUE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [482]

Relevant Legal Principles as to Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ [501]

The Alleged Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [512]

Proposals to Redeem the Preference Shares........ ........ ........ ........ ........ ........ ........ ........ ... [513]

Assertion of Significant Residual Value in the Ordinary Shares........ ........ ........ ........ .... [538]

Breach of the Restraint Deed and the Employment Agreement........ ........ ........ ........ ..... [552]

The Comfort Letters........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [562]

Removal of Messrs Kelly, Wilson and Hardge........ ........ ........ ........ ........ ........ ........ ...... [567]

Establishing KV Aviation and Attempting to Remove the Managers........ ........ ........ .... [582]

Payment Direction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [602]

Misleading Statements about Ownership of Aircraft........ ........ ........ ........ ........ ........ ...... [607]

Claims against the RILAs and the Managers........ ........ ........ ........ ........ ........ ........ ........ .. [614]

Withholding Consent to Transfer of Preference Shares........ ........ ........ ........ ........ ........ . [625]

Change of Registered Office........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [630]

Purported Issue of Ordinary Shares........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [633]

Breach of Section 195........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [645]

Improper Use of Information........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [648]

Improper Exercise of Powers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [656]

Breach of Court Orders........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [670]

Conclusion as to the Oppression Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [675]

Relief for Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [681]

Value of the Ordinary Shares in the RILAs........ ........ ........ ........ ........ ........ ........ ........ .... [685]

The Defendants’ Contentions as to the Value of the Ordinary Shares........ ........ ....... [714]

Conclusion as to Value of the Ordinary Shares........ ........ ........ ........ ........ ........ ........ .. [734]

Conclusion as to Relief for Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ .. [736]

Parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [737]

CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [750]

Appendix 1........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......

Tabulation of Historical Directorship of and Shareholding in KV Aviation........ ........ ......

Appendix 2........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......

Relevant Provisions of the Constitution of RILA VQZ........ ........ ........ ........ ........ ........ ......

Appendix 3........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......

Tabulation of Shareholding and Transaction Information for the Defendant RILAs........ .

Schedule........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..

Fourth to Forty-First Defendants........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........

REASONS FOR JUDGMENT
INTRODUCTION

This proceeding is concerned with the internal management of some 38 companies (the defendant RILAs), each of which is the owner of an aircraft. Each of the defendant RILAs is part of a somewhat complex aircraft financing arrangement (together the Aviation Transactions). Each Aviation Transaction involves, amongst other things, the defendant RILA leasing to an airline the aircraft owned by that defendant RILA. At the end of the lease, the aircraft might be sold, or, following a refinancing, it might be re-leased. Each Aviation Transaction also involves the allotment of preference shares in the relevant defendant RILA to investors who lend money as part of the overall arrangements.
As I shall explain further below, each Aviation Transaction involves two companies especially formed for that specific Aviation Transaction. One (the RILA) is the owner of the relevant aircraft. The other (the Financing SPC) is a financing vehicle. The full name of each RILA is RIL Aviation [XXX] Pty Limited. RIL is an acronym, and stands for Record Investments Limited. I shall refer to the company Record Investments Limited (Record) below. The full name of each Financing SPC is Allco [XXX] Financing Pty Limited. For both the RILAs and the Financing SPCs, the registration details of the relevant aircraft appear in place of [XXX]. For example, RIL Aviation VQZ Pty Limited (RILA VQZ), one of the defendant RILAs, is the owner of aircraft VH-VQZ, and the Financing SPC associated with RIL Aviation VQZ Pty Limited is Allco VQZ Financing Pty Limited (VQZ Financing SPC).
The defendant RILAs are the fourth to forty-first defendants in the proceeding. The first plaintiff, HNA Irish Nominee Limited (HNA Irish), is the holder of preference shares in each of the defendant RILAs. HNA Irish is a wholly owned subsidiary of the second plaintiff, HNA Group (Hong Kong) Co Limited (HNA Group).
The first and second defendants, Messrs Geoffrey Kinghorn and David Veal, are the only directors of each of the defendant RILAs. They are also the only directors of the third defendant, KV Aviation Holdings Pty Limited (KV Aviation). KV Aviation holds all of the ordinary shares in the capital of each of the defendant RILAs. The present shareholders of KV Aviation are Mr Veal, Mr Kinghorn and Niab Capital Markets Pty Limited (Niab). Messrs Veal and Kinghorn together hold the majority of the shares in KV Aviation.
In these reasons, references to submissions or contentions advanced on behalf of HNA Irish may be taken to be references to submissions or contentions advanced on behalf of both plaintiffs. Similarly, references to submissions or contentions advanced on behalf of KV Aviation may generally be taken to be references to submissions or contentions advanced on behalf of KV Aviation, Messrs Veal and Kinghorn, and the defendant RILAs. Occasionally, however, it will be appropriate to associate particular defendants more specifically with particular submissions or contentions.
The first broad issue raised in the proceeding (the Redemption Issue) is whether the preference shares held by HNA Irish in the defendant RILAs are redeemable, and, if so, in what circumstances they are redeemable and upon what terms they may be redeemed. The constitutions of the defendant RILAs are generally in similar terms, but are not identical. The constitutions of the RILAs generally provide that the preference shares may ony be redeemed out of Aircraft Profits, as that term is defined in the constitutions (see paragraph [56] below), and that the preference shares are entitled to a preferred dividend payable in cash out of Aircraft Profits. KV Aviation contends that the preferred dividend may be paid, and the preference shares redeemed, at any time, upon the amount of the preferred dividend being determined by the defendant RILA, by the assessment of Aircraft Profits according to proper accounting principles based on a revaluation of the aircraft at that time. HNA Irish, on the other hand, says that Aircraft Profits cannot be determined until the aircraft is sold or otherwise realised by the defendant RILA, and, accordingly, that the preference shares, if they can be redeemed at all, cannot be redeemed without the consent of the holder, until the aircraft is sold or realised.
If the questions as to redemption are decided unfavourably to HNA Irish and HNA Group, further questions arise (the Misrepresentation Issues) as to the availability of estoppels against asserting any rights of redemption and as to the availability of relief, under the Corporations Act 2001 (Cth) (the Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), in respect of alleged misleading and deceptive conduct concerning the rights attached to preference shares. HNA Irish asserts that representations were made that are inconsistent with the construction of the constitutions of the defendant RILAs now contended for by KV Aviation.
The third broad issue raised in the proceeding (the Oppression Issue) is whether the affairs of the defendant RILAs have been conducted, and are likely to be conducted, contrary to the interests of the members of the defendant RILAs as a whole, and in a manner that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against HNA Irish, as the holder of preference shares, within the meaning of s 232 of the Corporations Act, so as to justify the making of orders under s 233 of the Corporations Act. HNA Irish and HNA Group seek orders under s 233 divesting KV Aviation of its ordinary shares in the defendant RILAs, and orders for the appointment of persons nominated by HNA Irish to the board of directors of each defendant RILA. Such orders would effectively deprive Messrs Veal and Kinghorn of any say in the affairs of the defendant RILAs.
Before dealing with the issues I have just described, it is necessary to say something about the background and formation of the defendant RILAs. That will require an examination of the history of the business known as Allco Finance Group, whose Aviation Division Mr Veal headed from late 2002 onwards, as well as the history of KV Aviation and its connection with Allco Finance Group. It will also require an examination of the workings of the Aviation Transactions, which were effected by a series of complex instruments collectively referred to as Transaction Documents.
After saying something about those matters, I shall deal with the Redemption Issue, which will involve a detailed examination of the constitution of one of the defendant RILAs, in the light of the part that the RILA plays in the relevant Aviation Transaction. After that, I shall deal with the Misrepresentation Issues, which will require an examination of the circumstances in which preference shares were issued by the defendant RILAs to various investors, and the circumstances that led to the acquisition of preference shares by HNA Irish. Finally, I shall deal with the Oppression Issue, which will require an examination of events that followed the appointment of receivers to certain companies in Allco Finance Group.
ALLCO FINANCE GROUP
The business known as Allco Finance Group was founded in 1979. Allco is an acronym, and stands for Australian Leveraged Leasing Company. Allco Finance Group specialised in large equity and leveraged leasing of plant and equipment, principally in the government sector. Subsequently, Allco Finance Group diversified its activities and expanded into structured property finance, cross-border finance and specialised vendor finance facilities, including financing within the aviation industry.
The Allco Finance Group business was initially conducted through a series of joint ventures. However, in June 1987, Allco Finance Group Limited (Old AFGL) was incorporated. The relationship between the joint ventures of Allco Finance Group and the members of Old AFGL is not entirely clear. However, I do not understand anything to turn on that. References are frequently made to Allco Finance Group as describing the overall group of entities, without identifying a specific entity such as Old AFGL. References in these reasons to Allco Finance Group are intended to refer to the overall business structure rather than to a specific entity.
Mr Veal joined Allco Finance Group in 1987 and became a senior partner in 1998. The other senior partners at that time included Mr John Kinghorn (Mr Geoffrey Kinghorn’s father), as well as Messrs John Bennett, David Coe and Brian Holmes. Prior to his appointment as a senior partner, Mr Veal reported to Mr John Kinghorn.
In 2001, Record was established to provide a source of equity funding for transactions undertaken by Old AFGL. Record was listed on the Australian Securities Exchange (ASX) and Old AFGL was a major shareholder of Record. In 2006, there was a merger of Old AFGL and Record (the Record Merger), under which Record acquired all the issued shares in Old AFGL. Record then changed its name to Allco Finance Group Limited (Public AFGL), and Old AFGL changed its name to Allco Finance (Australia) Limited. Public AFGL continued to be listed on the ASX. The partners of Allco Finance Group were not directors of Public AFGL.
KV Aviation was incorporated in 1991. It was originally called Allco Australian Holdings Limited, and, subsequently, its name was changed to AAHL Limited. Its present name was adopted in January 2010. A document that purports to tabulate the historical directorship of and shareholding in KV Aviation appears as Appendix 1 to these reasons.
Historically, the respective directorships of KV Aviation and Old AFGL have been closely aligned. When KV Aviation was incorporated in 1991, its directors were Messrs John Kinghorn, Coe, Bennett and Holmes. The directors of Old AFGL at that time were also Messrs John Kinghorn, Coe, Bennett and Holmes. The shareholders of KV Aviation and Old AFGL were at that time the same, being Mr John Kinghorn (as to 57.07 per cent), Mr Coe (as to 18.85 per cent), Mr Bennett (as to 20.94 per cent) and Mr Holmes (as to 3.14 per cent).
That shareholding, as at 1991, reflected the shareholders’ respective interests in the senior joint venture partner in the operating joint ventures of Allco Finance Group. Messrs John Kinghorn, Coe, Bennett and Holmes were the senior partners of Allco Finance Group at that time. Thus, the initial directors and shareholders of KV Aviation and the directors of and shareholders in Old AFGL matched the participation, through joint ventures, of the senior partners of Allco Finance Group.
In 1998, new joint venture arrangements were entered into, as a consequence of which the senior partners of Allco Finance Group were Messrs Coe, Veal and Holmes, along with Messrs Nicholas Bain and Gary Cohen. The position within KV Aviation continued to reflect the position that had existed within Old AFGL prior to the new arrangements. That is to say, the shareholders of KV Aviation consisted of interests associated with Messrs Coe (as to 48 per cent), Bain (as to 12 per cent), Tom Malone (as to 36 per cent) and Holmes (as to 4 per cent).
On 14 January 2002, Mr Veal was appointed as a director of KV Aviation. The directors of KV Aviation were then Messrs Coe, Bain and Veal, the same as Old AFGL. As at 31 January 2004, the shareholders of KV Aviation were companies associated with Messrs Coe (as to 48 per cent), Bain (as to 16 per cent), Veal (as to 16 per cent), Christopher West (as to 16 per cent) and Holmes (4 per cent). At that time, the shareholding in KV Aviation reflected the shareholding in Old AFGL, involving Messrs Coe, Bain, Veal and West, with Mr Holmes also holding 4 per cent of the shares in KV Aviation. The shareholding in KV Aviation then remained unchanged until November 2008.
Following the Record Merger in 2006, 47.8 per cent of the shareholding in Public AFGL was controlled by ten senior executives of Old AFGL, including Messrs Coe, Bain, Veal and West. Mr Veal received 9,602,907 shares, representing approximately 3.3 per cent of Public AFGL.
On 4 November 2008, voluntary administrators were appointed to Public AFGL and certain of its subsidiaries. Later on the same day, Messrs Peter Gothard and Steven Sherman (the Receivers) were appointed as receivers and managers of Public AFGL and certain of its subsidiaries, including Allco Management Limited (Allco Management) and Allco Asset Finance Limited (Allco Asset Finance), which had been appointed as managers of the RILAs under the Transaction Documents (together the Managers). The Receivers were also appointed to Allco Managed Investments Limited (Allco Managed Investments), the trustee of unit trusts established by Allco Finance Group known as the Aircraft Holdings Trust and the Allco Aviation Fund.The investments made by those unit trusts include investments in preference shares in defendant RILAs. More will be said about those entities below. No administrators, and no receivers or managers, were appointed to KV Aviation or to any of the RILAs or the Financing SPCs.
Shortly after the appointment of the Receivers, Mr Veal decided to attempt to acquire the ordinary shares in KV Aviation that he, or a company controlled by him, did not already own. Mr Veal approached Messrs West, Holmes and Coe with a view to acquiring from them, or from companies associated with them, the shares in KV Aviation that they held. By the last week of November 2008, he had obtained executed share transfers from Mr West and Mr Holmes and had made an oral arrangement with Mr Coe for the transfer of the shares controlled by him. Mr Veal and Mr Geoffrey Kinghorn then entered into a series of transactions in relation to KV Aviation shares. Their acquisition of shares in KV Aviation for a price of $1 per share, or very close to $1 per share, took place as follows:
·21 November 2008: Mr Veal acquired one share from Mr Holmes;
·21 November 2008: Mr Veal acquired 399 shares from Mr Holmes’ company;
·21 November 2008: Mr Veal acquired 1,600 shares from Mr West’s company;
·18 March 2009: Mr Kinghorn acquired 1,600 shares from Mr Veal’s company;
·18 March 2009: Mr Kinghorn acquired 2,000 shares from Mr Veal;
·23 March 2009: Mr Veal acquired 4,800 shares from Mr Coe’s company.
Those transfers were approved at meetings of KV Aviation held on 20 March 2009 and 23 March 2009. The total issued share capital at all times was 10,000 shares. After 23 March 2009 the shareholding in KV Aviation was as follows:
·4,800 shares controlled by Mr Veal;
·3,600 shares controlled by Mr Geoffrey Kinghorn;
·1,600 shares controlled by Mr Bain’s company, Niab (see paragraph [4] above).
SALE OF ASSETS OF THE AVIATION DIVISION
During November 2008, the Receivers commenced a sale process in respect of assets of the Aviation Division. Information was provided to prospective buyers in the form of various documents (the Sale Information Documents), which consisted of:
·a document entitled “Allco Aviation Overview” (the Aviation Overview);
·a document dated 19 December 2008 and entitled “Allco Aviation Information Memorandum” (the Sale Information Memorandum);
·a written list of questions from bidders for the Aviation Division (the Q&A Document); and
·a management presentation to shortlisted bidders dated January 2009 (the Management Presentation).
Bravia Capital Partners Inc (Bravia) is an adviser to, and co-investor with, HNA Group. Bravia received a copy of the Sale Information Memorandum and a copy of the Aviation Overview. On 23 January 2009, HNA Group submitted its first bid, and was included on the short list of bidders. It submitted two revised bids on 23 February 2009. One of the revised bids was subject to further due diligence and the other revised bid, a much lower one, was without due diligence. HNA Group submitted its final bid on 26 March 2009, in the sum of US $120 million.
Mr Veal resigned from the Aviation Division on 29 January 2009, with effect on the following day. He immediately held discussions with Mr John Kinghorn and Mr Geoffrey Kinghorn about a joint venture with them. Mr Veal said that discussions about participation in a joint venture with the Kinghorns first occurred in November 2008. The outline of a joint venture was substantially agreed between Mr Veal and the Kinghorns on or around 1 February 2009. As part of the arrangement, KV Aviation granted to Mr John Kinghorn a call option (the Call Option), executed on 23 February 2009, in respect of its ordinary shares in the RILAs. Also on 23 February 2009, the Kinghorns made an offer to the Receivers for assets of the Aviation Division. Although their offer was subsequently increased, the Kinghorns were notified that the Receivers did not wish to proceed with their bid.
During March 2009, Mr Veal and the Kinghorns gave their proposed new aircraft leasing joint venture the working name “KV Aviation”. On 27 May 2009, they arranged for KV Management Pty Limited (KV Management) to be incorporated as an aircraft lease management company.
On 5 May 2009, HNA Group entered into an agreement to acquire certain assets of the Aviation Division for a purchase price of approximately US $116.3 million (the May Sale Agreement). HNA Group had proposed that a component of the purchase price be structured as a control payment, payable in the event that the Receivers could deliver full control over the assets being sold. HNA Group regarded the control payment as an incentive for the Receivers to deal with any potential controversy as to the rights attached to the ordinary shares in the RILAs and the Financing SPCs. That controversy was generally referred to as the David Veal issue. Accordingly, in conjunction with the May Sale Agreement, a further instrument (the Control Payment Deed) was executed, which provided for a control payment of approximately US $24.3 million.
Because of changes in the structure of the proposed transaction and the expiration of the May Sale Agreement, HNA Group renegotiated the purchase with the Receivers in October and November 2009. The negotiations began with a purchase price of US $116.3 million, and involved bargaining over discounts from that figure to take account of a reduction in management fees by reason of the passing of time, an allowance for the costs and risks involved in the new structure, the fact that some assets were not going to be acquired, and an allowance to deal with the David Veal issue. The control payment was dropped in the course of those negotiations, such that HNA Group was to take responsibility for solving and funding the David Veal issue. The purchase price finally agreed was US $85.8 million, subject to adjustment. A final sale and purchase agreement (the Final Sale Agreement) was executed and completed on 6 January 2010.
The Control Payment Deed was terminated as part of the Final Sale Agreement. Instead, HNA Group received an assurance from 24 of the 28 investors involved in Aviation Transactions that they would not take any action to remove or replace the Managers if the relevant RILA sought to exercise a right of removal. On the basis of that assurance, HNA Group and HNA Irish completed the Final Sale Agreement in relation to 64 of the 68 Aviation Transactions that were in the portfolio of the Aviation Division. HNA Group and the investors also agreed to work together to effect a transfer of the ultimate ownership of the RILAs and the Financing SPCs “to independent trustees on behalf of an orphan trust”.
On 6 January 2010, upon completion of the Final Sale Agreement, HNA Irish became the owner of preference shares in the defendant RILAs, and HNA Group became the parent company of the Managers, Allco Management and Allco Asset Finance. The holder of the preference shares immediately prior to the acquisition by HNA Irish was, in most cases, either Allco Managed Investments or Allco Asset Finance. Allco Asset Finance also held units in the Allco Aviation Fund. Those units were transferred to HNA Irish under the Final Sale Agreement.
AVIATION TRANSACTIONS

In 2002, following the events of 11 September 2001 in the United States, the aviation market and aircraft values were depressed. At the same time, financing markets were available for strong airline credit transactions. Mr Veal considered, at that time, that both debt finance and equity finance were available on terms that would allow the generation of significant income by structuring new financing transactions for aircraft. He concluded that it was an ideal time to engage in aircraft leasing transactions, so as to take advantage of the business opportunities that he considered were available.
Mr Veal therefore instigated a transaction analysis process, which included the commissioning of industry experts to assist in his evaluation of the current and future market value of aircraft, the opportunities available for an aircraft at the end of the term of a proposed lease, and the acceptable terms required to govern the ongoing maintenance and return conditions of the aircraft. He worked with solicitors and tax advisors in developing a financial structure for such transactions. That included the creation and development of appropriate tax and accounting structures, obtaining necessary tax and legal advice in relation to the relevant structures, and achieving bankruptcy remoteness for individual transactions.
The first Aviation Transaction was completed in December 2002, and involved Qantas Airways Limited (Qantas). Another Aviation Transaction involving Qantas was completed in February 2003. Mr Veal concluded that, having regard to the state of the market, the availability of similar aircraft on leases that were about to terminate, and the availability of debt and equity finance on acceptable terms, such transactions could be replicated. As a consequence, at about the end of 2002, the Aviation Division of Allco Finance Group was established, with Mr Veal at its head. The Aviation Transactions subsequently effected by the Aviation Division followed similar patterns to the two involving Qantas that I have just mentioned. Mr Veal remained as head of the Aviation Division until he resigned on 29 January 2009.
Allco Management and Allco Asset Finance, two companies to which I have referred above, were generally appointed under the Transaction Documents as Managers of Aviation Transactions. Mr Veal intended that the structures used in the Aviation Transactions would result in bankruptcy remoteness from the Managers, thus ensuring that failure of the Managers would not result in a failure of the security of an investor or financier involved in an Aviation Transaction, and thus of the ability of that investor or financier to continue to receive rental proceeds and full repayment of debt at the conclusion of the relevant aircraft lease. He intended that the separation of each Aviation Transaction from every other Aviation Transaction would ensure that the failure of one would not impact on any other, since there were invariably different investors and financiers involved. Mr Veal also intended, through the Aviation Transaction structures, to achieve a known tax treatment that would deal with payments of rental, principal and interest across the multiple tax jurisdictions of the airlines and other entities involved.
Structure of Aviation Transactions
An important characteristic of the Aviation Transactions is that they involved several layers of financing, each with a different level of risk. The most secure investors were the Senior Financiers. The next most secure were the Mezzanine Financiers. The Junior Financiers were the least secure. However, the Junior Financiers were compensated by an equity interest, which underlies the present dispute, and about which I shall say more shortly. In addition to the distinction between Senior Financiers, Mezzanine Financiers and Junior Financiers, there was also a distinction, within each of the categories of financier, between Asset Financiers and Receivables Financiers. The distinction will be explained below.
While there were some differences between the various Aviation Transactions, the structure that was adopted was generally the same. The features of that common structure, may be summarised as follows:
·On a specified date, usually known as the Delivery Date, Allco Rentals Pty Limited (Allco Rentals), a subsidiary of KV Aviation, acquired legal ownership of the relevant aircraft from the manufacturer or from an airline, under a Master Aircraft Purchase Agreement and a Bill of Sale.
·On the Delivery Date, Allco Rentals entered into an Operating Lease with the airline that was to use the aircraft, usually for a term of between seven and twelve years, under a Master Operating Lease Deed.
·On the Delivery Date, Allco Rentals, under a Residuary Interest Sale Deed and a Bill of Sale, sold the aircraft to the relevant RILA, subject to the Operating Lease. The consideration that the RILA agreed to pay to Allco Rentals was the Residual Purchase Price, which was payable in three instalments. The first instalment was payable on the Delivery Date, the second instalment was payable from the proceeds of the loan by the Junior Financier, and the third instalment was payable from the proceeds of the sale or re-lease of the aircraft at the end of the term of the Operating Lease, or from casualty proceeds.
·On the Delivery Date, under a Terms of Sale Receivables Deed, Allco Rentals sold to the related Financing SPC the right to payments of rental under the Operating Lease, and the right to receive from the RILA the third instalment of the Residual Purchase Price (the Terms of Sale Payment Rights).
·Allco Management or Allco Asset Finance was appointed Manager under a document known as the Financing Deed.
·Preference shares in the RILA were issued to the Junior Asset Financier.
·Under the senior loan agreement, the Senior Receivables Financier agreed to provide the senior receivables facility and the Senior Asset Financier agreed to provide the senior asset facility.
·Under the mezzanine loan agreement, the Mezzanine Receivables Financier agreed to provide the mezzanine receivables facility and the Mezzanine Asset Financier agreed to provide the mezzanine asset facility.
·Under the junior loan agreement, the Junior Receivables Financier agreed to provide the junior receivables facility and the Junior Asset Financier agreed to provide the junior asset facility.
Each of the instruments described above is one of the Transaction Documents in relation to the particular Aviation Transaction.
As I have said, the third instalment of the Residual Purchase Price was payable from the proceeds of the sale or re-lease of the aircraft at the end of the term of the Operating Lease, or from casualty proceeds. The third instalment represented the amount required to repay the Senior Asset Financier and the Mezzanine Asset Financier. The effect of the structure was that the Junior Financiers held the riskiest or lowest-ranking investments in the Aviation Transactions, in the form of the junior loans and the preference shares in the RILA.
Each Aviation Transaction entered into along those lines resulted in a profit for Allco Rentals equal to:
·the proceeds received from the first instalment of the Residual Purchase Price;
·plus the proceeds received from the sale of the right to receive rental payments under the Operating Lease and the right to receive the third instalment of the Residual Purchase Price;
·less the price paid for the acquisition of the aircraft.
From that profit, Allco Rentals paid an arrangement fee to a subsidiary of Old AFGL or Public AFGL, as relevant. The fee was typically an amount equal to the profit, less $10,000. Thus, Allco Rentals derived a fee of $10,000 from each Aviation Transaction.
Aviation Transactions were structured so that term of the loans under the receivables facilities matched the term of the Operating Lease. The Receivables Financiers received monthly or quarterly payments of principal and interest sourced from the rental payments under the Operating Lease. The terms of the loans under the asset facilities also matched the term of the Operating Lease. However, the Asset Financiers typically received no payments of principal or interest until the final maturity date. Thus, the asset loans were future value or zero coupon loans. A future value loan or zero coupon loan is one under which no interest payments are made during the term of the loan. Rather, interest accrues and capitalises during the term of the loan, and is payable at the end of the term from (in the case of an Aviation Transaction) the proceeds of realisation of the relevant aircraft.
The source of funds for repayment of the asset loans was intended to be the proceeds from the sale or re-lease of the aircraft, or casualty proceeds. That is to say, the Asset Financiers typically lent to the relevant RILAs and were repaid from the realisation or refinancing of the relevant aircraft, while the Receivables Financiers typically lent to the Financing SPCs and were repaid from rental payments under the Operating Lease. The term of the loans under the asset facilities could be extended at the option of the preference shareholders, in certain circumstances.
The Junior Receivables Financier and the Junior Asset Financier were typically Allco Finance Group entities, most commonly Allco Managed Investments, as trustee of the Aircraft Holdings Trust. Allco Managed Investments was also usually the initial holder of some or all of the preference shares in the RILA. The surplus, if any, that remained from the proceeds of sale or re-lease of the aircraft, after payment of the loans under the receivables facilities and the loans under the asset facilities, was paid to the preference shareholders of the RILA. That surplus is generally referred to as the Upside. Thus, Old AFGL or Public AFGL, as relevant, as the holder of interests in the Aviation Holdings Trust, had an incentive to ensure that all loans were repaid in full and to maximise the proceeds from the sale or re-lease of the aircraft at the end of the term of the Operating Lease.
Allco Management or Allco Asset Finance, as the Managers, were paid a monthly or quarterly fee. That fee was also sourced from the rental payments under the relevant Operating Leases.
Thus, the Aviation Division had three sources of revenue from a given Aviation Transaction, as follows:
·the arrangement fee earned when the Aviation Transaction was entered into, funded from the debt raised to finance the purchase of the aircraft;
·management fees paid to the Managers, funded from the rental payments under the Operating Lease; and
·the Upside, if any, at the end of the Operating Lease, which was payable to the preference shareholders of the RILA.
Except in two Aviation Transactions, where there was no junior loan, the borrower of the junior loans was the RILA. The borrower of the senior loans and the mezzanine loans was the Financing SPC. In all cases, the RILA and the Financing SPC each guaranteed the liabilities of the other and provided indemnities in respect of the obligations of the other. All relevant assets, including everything owned by the RILA and everything owned by the Financing SPC, were charged as security for the performance of the obligations arising under the various guarantees and indemnities. The assets included the aircraft and the rental payable under the Operating Lease. The charges were given to the Security Trustee. The role of the Security Trustee in the transactions is largely set out in cl 3 of a document known as the Master Financing Deed. In the case of RILA VQZ, JP Morgan Institutional Services Australia Limited was the Security Trustee.
In the course of negotiations with an airline or a bank in relation to an Aviation Transaction, the airline or the bank would usually be provided by Allco Finance Group with a written assurance (Comfort Letter). The Comfort Letters confirmed that KV Aviation (in its earlier guise as Allco Australian Holdings Limited) was the owner of the ordinary shares in the relevant RILA and Financing SPC. The Comfort Letters typically also contained an undertaking, from Old AFGL or Public AFGL, as relevant, to procure that either it or KV Aviation would continue to be the owner of those ordinary shares throughout the term of the Operating Lease. The assurances given in the Comfort Letters may have some significance, as will appear below.
Mr Benjamin Wilson, who was “Director – Aviation” with Public AFGL, was told by Mr Veal how to respond when asked by banks and airlines about the shareholding of KV Aviation in the RILAs. Mr Veal told Mr Wilson to tell those enquirers that KV Aviation was owned by the family trusts of executives of Old AFGL or Public AFGL, as relevant, which could always get the consent of KV Aviation and could procure any consents needed at the level of the RILAs and the Finance SPCs, because KV Aviation was controlled by Mr Coe and two other senior executives.
The constitutions of the RILAs, together with two of the Transaction Documents, the Remarketing Agreement and the Financing Deed, are of particular significance to the issues raised in this proceeding. The Remarketing Agreement provides for the realisation and application of proceeds from the sale or re-lease of the aircraft. The Managers are appointed under the Financing Deed. I shall describe the constitutions of the RILAs, the Financing Deed and the Remarketing Agreement in more detail.
The Constitutions of the RILAs
The constitutions of many of the defendant RILAs are in terms that are the same in relevant respects. Accordingly, the argument has, with a limited number of exceptions, been conducted on the basis that the constitutions of certain defendant RILAs exemplify others in the same form. The example that has been taken to represent the standard structure that applied in relation to the Aviation Transactions is the constitution of RILA VQZ. The Financing SPC associated with RILA VQZ was VQZ Financing SPC (see paragraph [2] above).
RILA VQZ was incorporated on 18 August 2004. Its constitution consisted of 66 clauses and 16 schedules. On 3 November 2004, the constitution of RILA VQZ was amended in a number of respects by a resolution passed in accordance with s 249B(1) of the Corporations Act by KV Aviation, which at that time was the only member of RILA VQZ. The original constitution and the resolution are set out in Appendix 2 to these reasons.
Clauses 60 to 66 of the constitution of RILA VQZ deal with capital, and Schedules 14 to 16 deal with share classes. Clause 60.1 provides that shares in RILA VQZ may be issued by the directors, and may be issued with such preferred, deferred, or other special rights, or with such restrictions, as the directors by resolution determine. Clause 64.1 provides that the directors may issue shares in the capital of RILA VQZ from the classes set out in Part A of Schedule 14. Clause 65.1, as amended, provides that the rights and conditions of the shares and the classes set out in Part A of Schedule 14 are summarised in Parts B and C of Schedule 14. Part C of Schedule 14 was added to the constitution of RILA VQZ by the resolution of 3 November 2004.
Part B of Schedule 14, as amended, consists of a table with eight columns. The headings of the eight columns may be seen in Appendix 2. The first column consists of abbreviated references to each class of share. A note to cl 65.1 states that the rights and conditions attached to a class of share in the table are to be determined by reading the row for each class horizontally, and reading the headings of the remaining vertical columns in accordance with the definitions supplied in cl 65.2. The effect is that Schedule 14 specifies, in relation to each class of share:
·whether there is an entitlement to share in surplus assets on a winding up;
·the number of votes per share;
·whether there is a right to share equally with other holders of shares in the class in dividends;
·whether there is a right to share in dividends;
·whether the shares in the class are redeemable, in accordance with the general rights specified in cl 65.2(e);
·the priority and ranking of the class, on a winding up, in respect of repayment of capital and the distribution of surplus assets and profits; and
·whether other rights, referred to in Schedule 15, are attached to the class.
The general rights of redeemable preference shares set out in cl 65.2(e) are as follows:
(i)they are issued on the terms that they are liable to be redeemed;
(ii)the directors in their absolute discretion may redeem any one or more redeemable preference shares of this class to the exclusion of other shares;
(iii)they may be redeemed without notice to the holders;
(iv)the directors may set any redemption price before issue, and, if none is set, the redemption price is to be the issue price, excluding any amounts due;
(v)an issue of shares made for the purpose of raising capital from which to redeem any redeemable preference share does not need to be first offered to the holders of the shares to be redeemed, except to the extent that they may hold shares other than the shares to be redeemed;
(vi)dividend rights, if any, are to be cumulative and non-preferential;
(vii)on a winding up of the company, all shares are entitled to a pro-rata repayment of capital contributed.
The amendment made to Part A of Schedule 14 by the resolution of 3 November 2004 inserted two additional classes of shares, being A class preference shares and B class preference shares. The amendment made by the resolution to Part B of Schedule 14 was to insert two additional rows, one for each of those two additional classes of shares. However, whereas the table in Part B contains an entry for each of the original eight classes under each of the other seven column headings, the material inserted under all seven column headings in the row for each of the A class preference shares and B class preference shares simply refers to Part C of Schedule 14. Part C of Schedule 14 is set out in Appendix 2.
The summary of rights in relation to preference shares set out in Part C of Schedule 14 deals with the rights under the following headings:
1.Issue price
2.Voting
3.Dividends and Redemption
(a)A Class Preference Shares
(b)B Class Preference Shares
4.Dividend lock-up
5.Variation of rights
6.Conversion
7.Ranking of Preference Shares
8.Transfer
9.Registration
10.Definitions
Where necessary, I shall refer to the precise language of the constitution of RILA VQZ in dealing with the contentions of the parties as to its proper construction. For present purposes, it will suffice to summarise the rights of the holders of preference shares, as follows:
·The holder is not entitled to vote at any general meeting, except in relation to certain specified matters, which include a proposal affecting rights attached to either class of preference share.
·The A class preference shares may only be redeemed out of Aircraft Profits in an amount equal to the subscription amount as at the date of redemption of the shares. The term Aircraft Profits is defined to mean all profit derived by RILA VQZ from:
(i)the sale or use of the aircraft;
(ii)any casualty or termination value, as defined in the relevant Operating Lease; and
(iii)any insurance proceeds received in relation to the aircraft.
·The A class preference shares may only be redeemed simultaneously with the repayment of the Mezzanine Asset Facility, or upon a sale of the aircraft.
·Each holder of A class preference shares is entitled to a preferred dividend, payable in cash out of Aircraft Profits, in an amount equal to the A Class Profit Share, as reduced by:
(i)the amount of any tax paid or payable by the RILA in respect of that portion of its profits; and
(ii)the amount paid or to be paid to the holders of A class preference shares in redemption of the A class preference shares.
·The B class preference shares may only be redeemed out of Aircraft Profits in an amount equal to the subscription amount as at the date of redemption of the shares.
·Each holder of B class preference shares is entitled to a preferred dividend, payable in cash out of Aircraft Profits, in an amount equal to the B Class Profit Share, as reduced by:
(i)the amount of any tax paid or payable by RILA VQZ in respect of that portion of its profits; and
(ii)the amount paid or to be paid to the holders of B class preference shares in redemption of the B class preference shares.
·So long as there are unredeemed preference shares on issue, RILA VQZ may not declare or pay any dividend or make any distribution in respect of shares or any class of shares other than preference shares.
·RILA VQZ must not vary any of the rights attached to the preference shares without the consent or sanction of the holders of the preference shares in accordance with the constitution. The issue of preference shares, or the conversion of existing shares into preference shares which rank pari passu or in priority to the preference shares, constitutes a variation of the rights of the preference shares.
·The preference shares cannot be converted into ordinary shares.
·The preference shares rank in priority to ordinary shares in all respects. If there is a return or distribution of capital, the holders of the preference shares will be entitled to receive, in respect of each preference share held, a sum equal to the aggregate of:
(i)the amount of any dividend, whether declared or not, that is due and payable on the preference shares up to but excluding the date of the winding up;
(ii)all arrears of dividends described in (i) above; and
(iii)all surplus assets and capital of RILA VQZ;
divided by the number of preference shares on issue. The holders of the ordinary shares will be entitled to receive, in respect of each ordinary share, the return of their initial contribution.
·The preference shares are transferable at the holder’s option with the prior consent of RILA VQZ, which consent must not be unreasonably withheld, delayed or conditional.

Schedules 1 and 2 to Part C of Schedule 14 specify the method by which the A Class Profit Share and B Class Profit Share are to be calculated. Where the Lease Termination Date is on or before the Scheduled Termination Date, the A Class Profit Share is 35 per cent of Remaining Aircraft Profits, up to a fixed amount that varies according to the payment date from 5 November 2004 to 5 August 2015. The B Class Profit Share is the Remaining Aircraft Profits less the A Class Profit Share. The Lease Termination Date is the date on which the Operating Lease is terminated. The Scheduled Termination Date is the expiry date of the Operating Lease. The term Remaining Aircraft Profits is defined as the remainder of Aircraft Profits following satisfaction of the RILA’s obligations under the Transaction Documents. Thus, the amount of the preferred dividend is determined by reference to the amount of Aircraft Profits.
The Remarketing Agreement
The Remarketing Agreement relating to aircraft VH-VQZ is dated 3 November 2004. It may be summarised as follows:
·The parties to the Remarketing Agreement include the Senior, Mezzanine and Junior Financiers, the holders of A class preference shares and B class preference shares, Allco Management (which is described as the Remarketing Agent) and RILA VQZ.
·By cl 1.1(a), RILA VQZ irrevocably appoints the Remarketing Agent to act as agent for RILA VQZ during the remarketing period, which, ordinarily, is the last 18 months of the term of the Operating Lease. The appointment under cl 1.1(a) does not define the extent of the authority given to the Remarketing Agent.
·By cl 1.2(a), the Remarketing Agent must, in the exercise of all rights, powers and discretions on behalf of RILA VQZ under the Remarketing Agreement, act in accordance with any instructions from the Instructing Group. The rights, powers and discretions that may be exercised are not set out.
·By the operation of cl 1.2(d), any action taken by the Remarketing Agent in accordance with the Remarketing Agreement binds RILA VQZ.
·Assuming that there has been no default, the Instructing Group is the B class preference shareholder. However, where the Junior Financier will not be repaid in full, the A class preference shareholder is the Instructing Group.
·Under cl 3.1, the Remarketing Agent must appoint an aircraft agent in relation to the remarketing of the aircraft, and, under cl 3.3, must instruct the aircraft agent to prepare a market value of the aircraft and a lease value of the aircraft. The market value is a prediction of the net proceeds from sale of the aircraft and is to reflect the likely price to be obtainable for the aircraft on a sale. The lease value is a prediction of the proceeds to be received from a lease of the aircraft and is to reflect the market rent or other amount payable for a lease of the aircraft.
·Under cl 3.3(c)(i), upon receipt of the report on the market value and the lease value, the Remarketing Agent must instruct the aircraft agent to solicit offers from responsible parties for the purchase or lease of the aircraft. A responsible party is an offeror with sufficient financial resources to be in a position either to complete the purchase or lease transaction pursuant to the offer, or to arrange for all financing within the terms of the offer. Thus, it is the duty of the Remarketing Agent to solicit offers from parties that are in a position to provide the necessary financing associated with their offers.
·Under cl 3.3(d), the Remarketing Agent must use all reasonable endeavours either to sell the aircraft for the highest possible price or to lease the aircraft for the highest rent or other amount payable. While that provision stipulates what the Remarketing Agent is required to do, it is arguable that it is not a grant of authority to sell or lease the aircraft on behalf of RILA VQZ.
·Under cl 3.4, each of the Financiers, RILA VQZ and the preference shareholders may, though none is obliged to, introduce responsible parties to the Remarketing Agent. There is no mention of RILA VQZ obtaining a fee or any other remuneration for introducing a responsible party.
·Under cl 4, if the Remarketing Agent receives an offer from a responsible party, it must, within three days of receipt of the offer, notify each of the Financiers, RILA VQZ and the preference shareholders, stating the offered price.
·Clause 5 deals with decision-making procedures during the remarketing period. Clause 5.3 provides a cascading regime for approving the acceptance of offers for the purchase or lease of the aircraft, as follows:
(a)if an offer will result in Net Sale Proceeds, a term defined in the Financing Deed, of less than or equal to the Senior Financier Threshold Amount, RILA VQZ may not direct the Remarketing Agent to accept that offer without the consent of the Senior Asset Financier, the Mezzanine Asset Financier and the Junior Asset Financier;
(b)if an offer will result in net sale proceeds of greater than the Senior Financier Threshold Amount, but less than or equal to the Mezzanine Financier Threshold Amount, RILA VQZ may not direct the Remarketing Agent to accept that offer without the consent of each of the Mezzanine Asset Financier and the Junior Asset Financier, but the consent of the Senior Asset Financier is not required;
(c)if an offer will result in net sale proceeds of greater than the Mezzanine Financier Threshold Amount, but less than or equal to the Junior Financier Threshold Amount, RILA VQZ may not direct the Remarketing Agent to accept that offer without the consent of the Junior Asset Financier, but the consents of the Senior Asset Financier and the Mezzanine Asset Financier are not required;
(d)if an offer will result in the net sale proceeds of greater than the Junior Financier Threshold Amount, RILA VQZ may direct the Remarketing Agent to accept that offer without the consent of any of the Asset Financiers.
The Threshold Amounts are the amounts necessary to discharge all amounts payable to the relevant Financier.
·Clause 4 gives power to the Instructing Group to instruct the Remarketing Agent to accept or not accept an offer. That power is expressed to be subject to cl 5. Under cl 5.4, the preference shareholders may request a six month extension of the remarketing period. The remarketing period may be further extended with the consent of the Asset Financiers. However, under cl 5.4(c), certain conditions must be met before any extension is effective. The conditions are that RILA VQZ or the associated Financing SPC has provided satisfactory additional security to the Security Trustee and has made appropriate arrangements to preserve the value of the aircraft. That provision gives RILA VQZ a separate role in the process.
·Under cl 5.6, RILA VQZ must not enter into leasing arrangements in respect of the aircraft during the remarketing period without the prior written consent of all of the Asset Financiers. If the lease value of the aircraft exceeds the market value of the aircraft, the parties agree to enter into discussions in good faith in relation to the most appropriate and beneficial way to remarket the aircraft.
·Under cl 1.2(a), the entry into a new lease by RILA VQZ can only occur on instructions from the Instructing Group. That is confirmed by cl 9(c), which provides that the Remarketing Agent must not execute any documents on behalf of RILA VQZ unless so instructed by the Instructing Group.
·Under cl 6, the preference shareholders must share additional costs during any extended remarketing period.
·Clause 7 deals with the circumstances in which the Senior Asset Financier and the Mezzanine Asset Financier may be paid out. Thus, RILA VQZ is granted a right to acquire the interest of the Senior Asset Financier and the interest of the Mezzanine Asset Financier by paying all of the amounts owing to them. That right does not involve any prepayment fee, as RILA VQZ’s entitlement only arises at the end of the term of the Operating Lease. The entitlement of RILA VQZ to acquire those interests does not exclude the right of the Financing SPC, as the borrower from those Financiers, to prepay the loans. RILA VQZ is not given a right to acquire the interest of the Junior Asset Financier in that way. However, RILA VQZ, as the borrower from the Junior Asset Financier, can exercise the right to prepay that loan.
·Under cl 7.2, RILA VQZ may only acquire all of the Mezzanine Asset Financier’s interest in the way just described if RILA VQZ simultaneously procures a purchase by a third party of all A class preference shares held by the Mezzanine Asset Financier for a purchase price equal to the amount that the Mezzanine Asset Financier would be entitled to receive by way of dividend and redemption proceeds if the aircraft were sold for a price equal to the best offer actually received for the aircraft that the Mezzanine Asset Financier is prepared to accept. If the Mezzanine Asset Financier is not prepared to accept any offer actually received for the aircraft, it must co-operate with RILA VQZ and use reasonable endeavours to assist RILA VQZ to enter into a refinancing of the aircraft, or other arrangement in respect of the aircraft, in a manner acceptable to RILA VQZ, so as to maximise the value of the aircraft for the A class preference shareholders and the B class preference shareholders.
KV Aviation claims that it has, through its holding of the ordinary shares in the defendant RILAs, valuable control rights in relation to the restructuring of Aviation Transactions at the end of the terms of the relevant Operating Leases. HNA Irish relies on the Remarketing Agreement as demonstrating that that claim lacks foundation. It contends that the control rights that exist at the end of the term of the Operating Lease are vested in the preference shareholders, and that there is no potentially profitable business opportunity available to be exploited by the ordinary shareholders of the defendant RILAs. It says that the vesting of control rights in the preference shareholders is consistent with their interest being the lowest ranking, or highest risk, investment in an Aviation Transaction. It says that vesting control rights in the preference shareholders creates an incentive for the proceeds from the sale or re-leasing of the aircraft to be maximised.
HNA Irish contends that the function of the Remarketing Agent is important, because it allows the party empowered to give instructions to the Remarketing Agent to control the sale or re-lease of the aircraft and thereby keep within its control the efforts to maximise the proceeds. That party, it says, was the holder of the preference shares, not RILA VQZ. Thus, HNA Irish contends that the provisions of the Remarketing Agreement reflect a clear intention that the holder of preference shares, and not the board of RILA VQZ, is to control the remarketing of the aircraft. KV Aviation, however, contends that that overstates the effect of the Remarketing Agreement. I shall return to that question below.
The Financing Deed
The parties to the Financing Deed of 2 November 2004, relating to aircraft VH-VQZ, apart from RILA VQZ and VQZ Financing SPC, are the Security Trustee, the Senior, Mezzanine and Junior Financiers and Facility Agents, and Allco Management as the Manager. By Part A, the Security Trustee declares that, at any time, it holds the trust fund, as defined, on trust for itself, the Facility Agents and the persons who are Financiers at that time. Under cl 1.3, the trust ends on the day before the 80th anniversary of the date of the Financing Deed, unless ended earlier. The trust fund consisted of the sum of $10, together with any other property that the Security Trustee acquired on the trusts of the Financing Deed, including any security for the payment of money or performance of obligations.
Clause 10.1 of the Financing Deed provides that the liability of each of RILA VQZ and VQZ Financing SPC is limited to the lesser of the amount owing by it and the proceeds of sale of the aircraft. The recourse of the Financiers is limited to the property charged under the charges given to the Security Trustee by RILA VQZ and VQZ Financing SPC.
Clause 14.1(i) of the Financing Deed contains undertakings about RILA VQZ and VQZ Financing SPC. The relevant undertakings (the Single Purpose Undertakings) are that each of RILA VQZ and VQZ Financing SPC will not:
(i)engage in any business or other activity other than as contemplated in the Transaction Documents;
(ii)have any liabilities, other than its liabilities under the Transaction Documents, liability to its shareholders in accordance with its constitution, and other liabilities required to maintain its existence or comply with any law relating to companies generally;
(iii)have any assets other than those under, or derived from, the Transaction Documents, and its share capital;
(iv)have any employees; or
(v)enter into any agreements other than the Transaction Documents or agreements in connection with any issue of ordinary or preference shares and agreements with the holders of such shares.
There is no provision for the termination of the provisions of the Financing Deed or the Single Purpose Undertakings before the end of the trust established by the Financing Deed. Specifically, there is no express provision in the Financing Deed that the Single Purpose Undertakings are to come to an end upon the repayment of the loans that are the subject of the financing documents. That is of some significance, and I shall return to that question below.
Clause 8.6 of the Financing Deed provides that the Manager may, with the prior written consent of all of the parties, terminate its appointment. Clause 8.7 of the Financing Deed provides that RILA VQZ, VQZ Financing SPC and Allco Rentals may remove the Manager from office if:
·the Manager is insolvent; or
·the Manager breaches its obligations under the Financing Deed.
The Security Trustee, acting on instructions of the Financiers, may also remove the Manager in those circumstances. Each of RILA VQZ, VQZ Financing SPC and Allco Rentals may also remove the Manager at the expiration of three months after it gives notice to the Manager that it requires the Manager to cease acting as the Manager.
However, cl 8.9 of the Financing Deed provides that neither the termination of the Manager under cl 8.6 nor the removal of the Manager under cl 8.7 is effective unless certain prerequisites are satisfied. First, a replacement Manager must have been identified and approved by both the Security Trustee and entities associated with the Financiers. Secondly, that replacement Manager must have executed documents reasonably satisfactory to the Security Trustee to become the replacement Manager for the purposes of the Transaction Documents.
THE PROCEEDING
The proceeding was commenced by way of originating process. A fourth further amended originating process was filed on 25 March 2011 (the Originating Process). The amended statement of claim, filed on 20 October 2010 (the Statement of Claim), runs to 168 paragraphs. An amended defence (the Defence) was filed on 21 June 2011. I shall first say something about the Originating Process and the defendant RILAs. I shall then say something about the Statement of Claim, the Defence, and the witnesses.
Some of the factual background to the proceeding is set out in the Statement of Claim. However, it is appropriate at this stage to provide a brief summary of certain aspects of the procedural history.
The proceeding was commenced during the afternoon of 3 February 2010. The timing is significant, as the commencement of the proceeding formed part of a broader struggle for control of the defendant RILAs that was taking place at that time. On the morning of 3 February 2010, HNA Irish arranged to hold general meetings of certain defendant RILAs. The meetings for ten of the defendant RILAs were to be held that day, and the meetings for another 24 defendant RILAs were to be held on 25 February 2010. Those meetings were arranged with the aim of passing resolutions to amend the constitutions of those defendant RILAs to strengthen the position of preference shareholders, and resolutions to appoint new directors to represent the interests of preference shareholders. At approximately 11.12am on 3 February 2010, the solicitors for HNA Irish sought undertakings from KV Aviation and Messrs Veal and Kinghorn that they would not take any steps to change the share capital of the defendant RILAs without first giving five business days’ notice.
The undertakings sought were not provided. Rather, Messrs Kinghorn and Veal responded by immediately convening meetings of the defendant RILAs, at which resolutions were passed to issue further ordinary shares in each of the defendant RILAs to KV Aviation. However, the passing of those resolutions was not disclosed to HNA Irish and HNA Group until 11 February 2010.
On the afternoon of 3 February 2010, HNA Irish sought and obtained urgent interlocutory relief. The orders made by the Court included an order that KV Aviation and Messrs Veal and Kinghorn be restrained from taking any action directed to the issue of further shares or securities in the 24 RILAs that were at that time named as defendants, without providing five business days’ notice in writing to HNA Irish and HNA Group. On 5 February 2010, the Court made further orders continuing that restraint until further order.
The Court was not told, on 5 February 2010, about the purported issue of ordinary shares in the defendant RILAs on 3 February 2010. On 23 March 2010, after it was accepted on behalf of KV Aviation and Messrs Veal and Kinghorn that that purported issue of ordinary shares was not valid, the Court made declarations to that effect.
The Court also ordered that certain questions relating to the resolutions that had been proposed on behalf of HNA Irish be determined separately. On 31 March 2010, the Court answered those questions, determining that the constitutions of the defendant RILAs did not entitle a holder of preference shares to vote on a resolution to insert a provision permitting the preference shareholders to appoint directors (see HNA Irish Nominee Limited v Kinghorn [2010] FCA 311). An appeal from that determination was dismissed (see HNA Irish Nominee Limited v Kinghorn (2010) 78 ACSR 553). Thus, the resolution purporting to insert such a provision and the resolution purporting to appoint new directors were each invalid. The consequence is that, other than for RILA 9V-SLE, about which I shall say something below, the preference shareholders do not have any right under the constitutions of the defendant RILAs to vote at a general meeting on resolutions to appoint directors. Only the holders of ordinary shares are entitled to vote on those questions.
The Originating Process
By the Originating Process, HNA Irish and HNA Group seek:
· declaratory relief in relation to the proper construction of the constitutions of the defendant RILAs;
· final injunctive relief with respect to conduct or proposed conduct of Messrs Veal and Geoffrey Kinghorn on behalf of the defendant RILAs that affects the interests of HNA Irish as holder of preference shares;
· relief under ss 232 and 233 of the Corporations Act with respect to the conduct of the affairs of the defendant RILAs; and
· relief under ss 1324 and 1325 of the Corporations Act, and s 12GD and s 12GM of the ASIC Act, with respect to alleged contraventions of s 1041H of the Corporations Act and s 12DA of the ASIC Act.
Section 233 of the Corporations Act relevantly provides that the Court may make such order in relation to a company as it considers appropriate, including an order:
·     that the company’s existing constitution be modified or repealed;
·     regulating the conduct of the company’s affairs in the future;
·     for the purchase of any shares by any member;
·     restraining a person from engaging in specified conduct; or
·     requiring a person to do a specified act.
Under s 234, an application for an order under s 233 in relation to a company may be made by a member of the company. Under s 232, the Court may make an order under s 233 if, relevantly, the conduct of the company’s affairs is either:
·     contrary to the interests of the members as a whole; or
·     oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members, whether in that capacity or in any other capacity.

KV Aviation responds that the letter from the Financiers did no more than assert that the transactions were structured so that the owner of the ordinary shares would have no economic interest in the relevant underlying Aviation Transaction. It accepts that that assertion as correct insofar as it relates to the Aviation Transactions, as defined in the Transaction Documents. KV Aviation does not now suggest that, as an ordinary shareholder, it is entitled to receive proceeds from the Aviation Transactions. However, they say, the fact that the ordinary shareholders do not have an entitlement to receive proceeds from the Aviation Transactions, which are necessarily limited to the period of the current Operating Leases, need not lead to the conclusion that the ordinary shares have no value. I have already given some attention to that argument.
HNA Irish contends that the overwhelming weight of evidence is that there is not, and never has been, any economic value in the ordinary shares in the defendant RILAs. They rely on the evidence summarised above in support of that proposition. The arguments as to why there is value in the ordinary shares in the defendant RILAs, by contrast, may be summarised as follows:
·the preference shares may be redeemed by a defendant RILA prior to the sale of the aircraft, notwithstanding the objection or absence of consent of the preference shareholder, provided that, at the time of redemption, the preference shareholder receives a preferred dividend calculated by reference to the value of Aircraft Profits as at the date of redemption, determined on a basis chosen by the directors of the RILA;
·the preference shareholder’s entitlement to a preferred dividend does not extend to profits that might be derived by the RILA after the expiration of the initial Operating Lease of the aircraft;
·while the preference shareholder is entitled to all Aircraft Profits, the ordinary shareholder is entitled to profits other than Aircraft Profits;
·the right of the ordinary shareholder to control the defendant RILA is a valuable right, having regard to, first, the right of the defendant RILA to prepay the Financiers and liberate the defendant RILA from the Single Purpose Undertakings in the Financing Deed, and, secondly, the right of the defendant RILA to remove the Managers, since, through the control rights, the defendant RILA may be caused to enter into transactions with KV Aviation or its subsidiaries, which would entitle KV Aviation or those subsidiaries to earn a fee from their co-operation with the defendant RILA;
·the exercise of control rights in that manner is not inconsistent with the purpose of the shareholding of KV Aviation in the defendant RILA because, while there was a confluence of interest between KV Aviation and either Old AFGL or Public AFGL, KV Aviation was prepared to forgo the control rights in favour of Old AFGL or Public AFGL; however, upon the receivership of Public AFGL, KV Aviation was no longer minded to forgo those control rights.
HNA Irish contends that each of those propositions should be rejected, as they are all inconsistent with the evidence that the ordinary shares in the defendant RILAs were never intended to have, and do not have, material economic value. They point out that no evidence has been adduced that the theories advanced by Mr Veal result in the subsistence of material economic value in the ordinary shares, being evidence that could be subjected to criticism or critical analysis. That is so, they say, even though Mr Veal’s solicitors indicated, some considerable time before the commencement of the hearing, when they declined to provide particulars of the allegation that the ordinary shares had significant residual value, that it was a matter of evidence. Mr Veal accepted that there is nothing in his affidavit that would constitute a precise proposition that could be subjected to criticism or critical analysis as to why the ordinary shares in the RILA are worth a certain amount of money (see paragraph [187] above).
KV Aviation contends that the ordinary shares in RILA OJJ, RILA OJG and/or RILA OJH also have value, notwithstanding that the preference shares in those defendant RILAs are expressly non-redeemable. Mr Veal said that he would value the ordinary shares by identifying opportunities for those defendant RILAs to work in tandem with other companies to create refinancing or restructuring opportunities. HNA Irish contends that Mr Veal’s proposition that the ordinary shareholders’ right to control the defendant RILAs is valuable, having regard to the right of the defendant RILAs to prepay the Financiers and thereby liberate the defendant RILAs from the Single Purpose Undertakings, and having regard to the rights of the defendant RILAs to remove the Managers, should be rejected for several reasons.
The Defendants’ Contentions as to the Value of the Ordinary Shares
KV Aviation places emphasis on what it says are the possible commercial outcomes from the Aviation Transactions, according to whether the defendant RILAs act separately, on the one hand, or act co-operatively with the associated Financing SPCs, on the other. It says that the potential commercial outcome from any Aviation Transaction, for any party whose circumstances confined it to the commercial perspective of an individual RILA, was highly constrained. It points to the following matters:
·the RILA could not sell its interests in the aircraft outright during the term of the Operating Lease because the RILA did not acquire any entitlement to the rent; moreover, its assets were charged to the Security Trustee to secure all of the debts and other obligations of the RILA and its associated Financing SPC under the Transaction Documents;
·the RILA could not revalue the aircraft and refinance its obligations to the Junior Financiers, for the same reasons;
·accordingly, it would be inevitable that the remarketing period would commence and the Remarketing Agreement would take effect;
·efforts would be made by the Remarketing Agent to sell or re-lease the aircraft, and, if the requisite consents were obtained, net proceeds would be generated from the sale or re-lease;
·if the net proceeds under a offer for the aircraft were sufficient to repay all of the Asset Financiers, a profit would be generated, in which case the RILA had the right to direct the Remarketing Agent to accept the offer;
·the profit would be the difference between the net proceeds, on the one hand, and the accrued liability of the RILA to the Junior Asset Financier plus the amount of the second instalment that the RILA was obliged to pay to the Financing SPC, which would be used to repay the Senior and Mezzanine Asset Lenders, on the other hand;
·alternatively, the RILA could exercise its right to acquire the Senior and Mezzanine Asset Lenders’ loans to the associated Financing SPC, and repay its own debt to the Junior Asset Lender, and, having refinanced those obligations, the RILA could continue to put the aircraft to commercial account; and
·the RILA would be protected by the non-recourse provisions in all of the Transaction Documents, such that it could not incur a loss.
Any profit that the RILA made, KV Aviation says, would have to come from the sale or re-lease of the aircraft at the end of the term of the Operating Lease. Refinancing of the Asset Financiers would be necessary if the aircraft was to be re-leased rather than sold, because the RILA would otherwise be unable to pay the final instalment, with the consequence that the lenders to the Financing SPC would be expected to exercise the security rights upon non-payment. Any refinancing that the RILA elected to undertake to permit the acquisition of the Asset Financier’s loans to the Financing SPC would involve borrowing, it says, that was not made under any Transaction Document.
Any decision by the RILA to refinance would be at its election, since no party has any right under the Transaction Documents to require the RILA to do so. Refinancing of all of the assets loans in that way could not be prohibited by the Single Purpose Undertakings, since it is unthinkable, KV Aviation says, that the Financiers under the Transaction Documents would impose any restriction that prevented the RILA from repaying the debts owed to them upon maturity.
KV Aviation says that, while the commercial opportunities available to a RILA acting unilaterally might be limited to the outcomes described above, the opportunities may be expanded by the RILA and its associated Financing SPC acting co-operatively. Provided that they pool their respective interests in the aircraft and the Operating Lease, those entities would be in a position to sell the aircraft on the open market with the benefit of the Operating Lease. Such a sale could take place at any time, including at a time before the inception of the remarketing period. Both the RILA and the associated Financing SPC could exercise their prepayment rights at the time of sale.
Instead of selling the aircraft and its Operating Lease for market value, the RILA and the associated Financing SPC could, KV Aviation says, revalue their respective interests in the assets, at their market value, and borrow to prepay the Financiers at that time. A revaluation to market value would generate an identical profit to that which the sale of the aircraft and the Operating Lease would yield. Any profit could be paid from refinancing. Any profit that was earned in that way would not be wholly to the account of the RILA, since the opportunity to earn the profit would arise out of the co-operation between the RILA and its associated Financing SPC, and the contribution by the associated Financing SPC of the right to the rent payable under the Operating Lease. The profit would therefore have to be apportioned on some fair basis between the RILA and its associated Financing SPC.
KV Aviation says that the question of whether it would be commercially sensible for a RILA and its associated Financing SPC to adopt the course outlined above, in any particular case, would depend upon many variables, including:
·movements in interest rates relative to the interest rates payable to the Financiers under the Transaction Documents;
·changing perceptions as to the strength and likely future course of the aircraft markets;
·the possible premium on the market value of the aircraft, if sold at a time when the balance of the Operating Lease may be attractive to the purchaser, rather than the sale of the aircraft alone after termination of the lease; and
·the market value of the aircraft at that time.
The directors of the RILA would also have to consider whether the participation of the RILA in a transaction of the nature described above might disadvantage preference shareholders in a manner that would be oppressive or unfair to them and not in the interests of the members of the RILA as a whole. However, KV Aviation says, such a hypothetical question cannot be given a general answer. The issue of whether and in what circumstances the directors of the RILA may properly cause the RILA to participate in transactions of the type described above is, in practical terms, simply not justiciable without an actual proposal being put before the Court.
However, KV Aviation contends, if any proposition is likely to be commercially unsound, it is one to the effect that the directors of the RILA should never entertain the possibility that an early unwinding of the Aviation Transaction may be in the best interests of all interested parties, and that the directors should always allow the transaction effected by a given set of Transaction Documents to proceed to its inevitable conclusion at the end of the term of the Operating Lease, which might be many years later. KV Aviation says that many commercial possibilities could be imagined in a falling market where the only commercially sound course would be for the directors of the RILAs to unwind the Aviation Transaction prematurely in order to avoid the risks identified in remaining committed to it, and in order to salvage the best outcome that may be available to all interested parties.
While Mr Veal asserted that there was material economic value in the ordinary shares of the RILAs, including those RILAs whose preference shares are expressly non-redeemable, he was unable to estimate that value. He said, as I have already described, that the material economic value of the ordinary shares could be valued by identifying opportunities for the RILAs to work in tandem with other companies to create refinancing or restructuring opportunities. The value, Mr Veal said, would be a function of the opportunity identified.
Mr Veal also said that, even if no opportunities were identified at any given point, the shares are still not worthless, because the lack of opportunities at a particular point need not preclude opportunities from arising in the future. He said that the ordinary shares have value because he could identify opportunities, and he was able to describe the general nature of those opportunities. He gave an example of the opportunities open to the RILAs, including RILA OJG, RILA OJJ and RILA OJH. He said that it was entirely feasible, in conjunction with KV Aviation and its subsidiaries, to create a cross-collateralised debt instrument, the result of which would be that the overall cost of the debt to the KV Aviation and its subsidiaries would be reduced, compared with its present state. That would give rise, he said, to refinancing profit arising to various companies in the group. Mr Veal said that that was not an opportunity of which an individual RILA could take advantage, since it would need to act co-operatively with some other company.
KV Aviation contends that the commercial opportunities thus identified by Mr Veal are consistent with evidence adduced on behalf of HNA Irish and HNA Group. For example, on 5 March 2009, Mr Robin Yan, a vice-president of Bravia who was responsible on behalf of HNA Irish for modelling and structuring the purchase from the Receivers, sent an email to Mr Bharat Bhise and Mr Stewart Smith, copied to Mr Rasik Chopra, all of whom were senior executives of Bravia acting for HNA Irish. Mr Yan referred in his email to the strategy of negotiating with Senior Financiers to refinance, and to opportunities to enhance returns in the future. When asked about that email in cross-examination, Mr Smith said that a possible commercial benefit of acquiring assets of the Aviation Division would flow from the ability to renegotiate lending arrangements with the Financiers involved in the existing Aviation Transactions. Mr Smith that that was an option under consideration. He said that refinancing would have been a very difficult process, if not impossible, because of the deal structures, which were extremely complicated.
On 5 March 2009, Mr Chopra sent an email to Messrs Bhise and Yan saying that there was “potential upside from restructuring the debt”. KV Aviation says that that was consistent with the commercial opportunity identified by HNA Irish and HNA Group in the Due Diligence Report (see paragraph [359] above). The email referred to various commercial opportunities.
KV Aviation says that, once consideration is given to the possible commercial outcomes described above, it should be remembered that Public AFGL was essentially a trading company, albeit that the deals that were implemented involved highly sophisticated legal and commercial models. Assets such as aircraft are essentially trading stock. Where the commercial opportunities and legal obligations of the RILAs permit the unwinding of any particular Aviation Transaction, that will release the aircraft as a trading opportunity. Public AFGL made its profits, in part, out of charging fees for initiating and implementing Aviation Transactions. Many of the former employees of the Aviation Division, including Mr Veal, are now employed by KV Management, which is in the business of initiating and, through related companies, managing Aviation Transactions. KV Management is the manager of KV Aviation. Part of the economic value that ownership of ordinary shares in the RILAs and the associated Financing SPCs afford to KV Aviation, KV Aviation says, springs from its ability to cause the RILAs and associated Financing SPCs to engage in future transactions that will generate fee income for KV Aviation or related companies.
KV Aviation accepts that there are constraints on the manner in which it may be entitled to use the opportunities created by its ownership of the ordinary shares in the RILAs and associated Financing SPCs to initiate and complete Avietion Transactions. One such constraint is that, in any particular case, the directors of the RILA must properly exercise their duties in relation to the company as a whole. That will involve having proper regard to the interests of all of the preference shareholders, including HNA Irish.
KV Aviation accepts that there may be circumstances in which those constraints prevent a particular RILA from engaging in the form of transaction suggested above, because that would improperly damage the interests of preference shareholders. Nevertheless, it says, there will be many circumstances in which the RILA will not be so constrained, and circumstances in which it is possibly in the interests of preference shareholders that the RILA participate in such a transaction. Clearly enough, it is virtually impossible to forecast in advance what opportunities may become available to all the RILAs, and how the directors may be required to act in the particular circumstances that arise.
KV Aviation says that the economic value available to it from owning the ordinary shares in the RILAs is not confined to the commercial benefit that may flow from the activities of individual RILAs, but extends to the opportunities that may be available to numerous RILAs acting in concert. The Aviation Transaction paradigm that has historically been utilised by Allco Finance Group has involved RILAs and their associated Financing SPCs, which were established to implement each separate transaction, non-recourse restrictions on Financiers, and bankruptcy remote structures. That arrangement has succeeded, KV Aviation says, because the economic conditions that prevailed made the structure commercially effective. For example, aircraft have been available at prices, and aircraft leases have been available for terms and at rents, lenders have been available who were prepared to lend on a receivables basis or an asset basis, at rates of interest that made the transactions commercially viable.
KV Aviation says that it should not be assumed that commercial circumstances are now, or will in future be, conducive to the continuing commercial viability of the historical arrangements. The economic value of the ordinary shares in the RILAs to KV Aviation may flow from the rights of control that KV Aviation has over the RILAs, and that may, KV Aviation says, if circumstances justify the course, enable KV Aviation to pool the opportunities available to numerous RILAs in a manner that will generate an economic return to KV Aviation.
KV Aviation says that that aspect of the control value was one that induced HNA Group to agree to pay US $24.3 million for the transfer of control rights of the RILAs and Financing SPCs. It says that, were the Court to grant the expropriation orders or control orders sought by HNA Irish and HNA Group, that would neutralise the control opportunities available to it, and HNA Irish and HNA Group “would gain a blocking power which they have not paid for”.
KV Aviation says that one advantage that HNA Irish would gain for no proper consideration would be the power to neutralise the rights granted to the RILAs in the Financing Deeds to terminate the appointment of the Manager, either upon insolvency, upon breach or upon three months’ notice. While KV Aviation accepts that a RILA cannot exercise that right without the agreement of the Security Trustee and the Financiers, it says that under the terms of the Financing Deeds, the RILAs have the opportunity to try to persuade the Security Trustee and the Financiers to accept an alternative Manager, if the RILA is unsatisfied with the performance of the Manager, or believes that the fees payable to the Manager are excessive.

In December 2009, HNA Group made a payment to Financiers to persuade them to enter into deeds of confirmation, under which the Financiers confirmed the appointments of the Managers of the RILAs and the associated Financing SPCs, notwithstanding that they were insolvent. The Financiers agreed to limit their rights to replace the Managers, or to approve any step taken by the RILAs and the Financing SPCs to replace the Managers. KV Aviation contends that HNA Group procured the deeds of confirmation because it proposed to acquire the shares in the Managers from the Receivers as part of the assets acquired under the agreement for the purchase of the Aviation Division assets. KV Aviation says that the existence of the deeds of confirmation reduces the value to the RILAs of their rights under the Financing Deeds to gain value by replacing the Managers with the approval of the Security Trustee and the Financiers. That, it says, supports the conclusion that, in the absence of the deeds of confirmation, the replacement rights to which the RILAs are entitled under the Financing Deeds would be valuable. It says that HNA Irish is not entitled to gain the collateral benefit inherent in the neutralisation of the RILAs’ ability to seek to replace their Managers, either by means of an expropriation order against KV Aviation’s ordinary shares, or by the appointment of a controlling majority of their directors.
Conclusion as to Value of the Ordinary Shares
Despite the forewarning that was given to KV Aviation and Messrs Veal and Kinghorn on behalf of HNA Irish and HNA Group, no attempt was made to adduce specific evidence as to the value to KV Aviation of the ordinary shares in the defendant RILAs. On the basis of the evidence presently before me, I am not persuaded that the ordinary shares in the defendant RILAs have a value in excess of $1 per share. However, as I have indicated, the position of KV Aviation is that the ordinary shares in the defendant RILAs have special value for it because of its ownership of the shares in the associated Financing SPCs. On the basis of the evidence presently before me, it is not possible to quantify any such special value. Further, any such special value very much depends upon the construction to be attributed to the constitutions of the defendant RILAs. That is to say, any special value is dependent upon the preference shares being redeemable prior to the disposition of the aircraft. The conclusion that I have reached as to the construction of the constitutions, which was favourable to KV Aviation, therefore has a considerable bearing on any special value that the ordinary shares in the defendant RILAs may have to KV Aviation.
In the circumstances, I consider that it would be appropriate for KV Aviation to be afforded a final opportunity to establish that the ordinary shares in the defendant RILAs have some special value to KV Aviation. That would not be an invitation to reopen the evidence as to the issues that have now been resolved. However, I would be disposed to consider a mechanism involving the appointment of a referee under s 54A of the Federal Court of Australia Act 1976 (Cth) and Division 28.6 of the Federal Court Rules 2011, for the purposes of reporting to the Court as to any special value that the ordinary shares have to KV Aviation. The terms of reference for the referee would require careful attention, and I would hear the parties as to the formulation of those terms of reference.
Conclusion as to Relief for Oppression
I would be disposed to order the transfer of the ordinary shares in the defendant RILAs to a disinterested, but responsible, party, such as a charitable trust, as has been proposed by HNA Irish. However, before considering the appropriate orders that should be made under s 233 of the Corporations Act, for the transfer of ordinary shares in defendant RILAs or the removal of directors of the defendant RILAs, it would be necessary to have evidence as to the identity and standing of any proposed transferee or director. For example, it may be desirable to determine whether they should be disinterested, and independent of both the preference shareholders and KV Aviation, and to assess whether they are disinterested and inependent. Further, I would require that the other shareholders be notified, and given an opportunity to be heard, prior to the making of any such orders. The question of any consideration to be paid for the transfer should be the subject of a report by a referee.
Parties
KV Aviation says that, insofar as HNA Irish asserts that any proposed conduct on its part, or by the defendant RILAs, would be oppressive to the holders of preference shares, it is, in effect, making a claim on behalf of the other investors identified in paragraphs 149, 150, 151 and 152 of the Statement of Claim, namely Record, LJCB, AMP, Allco Managed Investments, Citic, SIF, and Military Super. None of those investors is a party to the proceeding. KV Aviation says that HNA Irish and HNA Group have no standing to seek relief on the basis of any alleged oppression of other investors who acquired preference shares, if those investors make no claim themselves. KV Aviation says that the Court should not make findings as to the basis upon which those investors acquired interests, directly or indirectly, in preference shares in the RILAs, when they are not parties to the proceeding. It says that it would not be proper for the Court to make findings that the other investors had made substantial investments, in circumstances where they had been misled and deceived, when they are not parties. It points out that no evidence has been proffered on behalf of any of the other investors that any investor was misled or deceived in acquiring its interest, directly or indirectly, in the preference shares in the RILAs.
KV Aviation says that HNA Irish and HNA Group claim that the other investors were induced to acquire their interests in preference shares on the basis of the documents particularised in paragraph 152 of the Statement of Claim. Those documents appear, KV Aviation says, to be records obtained by HNA Irish and HNA Group in conjunction with their acquisition of assets of the Aviation Division from the Receivers. KV Aviation says that there is no reason to infer that the documents particularised constitute all of the documents given to and relied upon by the investors in making decisions to invest in preference shares in the RILAs. KV Aviation says that the case advanced on behalf of HNA Irish and HNA Group is defective, insofar as no attempt has been made to put before the Court all of the evidence of the type that the Court would expect to receive if any of the other investors had mounted its own case against KV Aviation and Messrs Veal and Kinghorn.
KV Aviation and Messrs Veal and Kinghorn invite the Court to draw the inference, in the absence of the other investors as parties and protagonists, that those investors do not regard their legal rights as having been violated by any conduct on the part of KV Aviation or Messrs Veal and Kinghorn. They contend that any determination made by the Court concerning ownership, control and redemption, insofar as it is based upon the alleged misleading and deception of other investors, is likely to have ramifications upon the other investors’ enjoyment of their rights in relation to preference shares, and that that is a reason why no such determination should be made.
The test for determining whether a person is a necessary party to a proceeding in which an order is made is whether the order directly affects a third party’s rights against or liabilities to a party to the proceeding. Such an order should not be made unless the third person is also joined as a party (see News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 at 523-525 and John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at 46).
KV Aviation and Messrs Veal and Kinghorn assert that, in a case in which relief is sought in respect of oppressive conduct in relation to the affairs of a company, and where the relief may impact upon the rights of other shareholders of the company, every shareholder should be joined as a party to the proceeding. An order that affects the shares of a non-party to the proceeding should not be made without joinder of that party.
The initiating process of 25 March 2011 claims orders that the ordinary shares in the defendant RILAs be transferred to a party nominated by HNA Irish, or to a charitable trust, and orders that named representatives of HNA Irish, or a minimum of three persons nominated by HNA Irish, be appointed as directors of the RILAs. The effect of cl 8 of the constitution of RILA VQZ is to give the holder of the ordinary shares exclusive power to appoint the directors, and thereby to control the affairs of the RILA. An order that the preference shareholders nominate directors would expressly affect the rights of the other preference shareholders, as between those shareholders and HNA Irish, on the one hand, and as between those other shareholders and the RILA, on the other hand.
The originating process also seeks declaratory relief in respect of the construction of the constitutions. The declaratory relief, which is framed only in respect of the rights of HNA Irish, does not in terms directly affect the rights of other preference shareholders against a party to the proceedings. However, KV Aviation says, by operating to limit the right to redeem preference shares owned by HNA Irish, the ability of other shareholders, in those RILAs where there are other preference shareholders, to exit the transaction may be dependent upon the position taken by HNA Irish, if the relief sought were to be granted.
There are seven defendant RILAs in which HNA Irish and KV Aviation are the only members, being RILA VQX, RILA VQJ, RILA VQI, RILA VQH, RILA HL 7744, RILA HL 7745 and RILA EI-DPO. No question of parties arises in relation to those defendant RILAs.
HNA Irish contends that there is no requirement that additional parties be joined in the present proceeding. It submits that there is no established practice that majority shareholders should be joined to an action claiming oppression, and that there are sound policy reasons why there should be no such established practice. It contends that the primary relief sought, being compulsory purchase of the ordinary shares held by KV Aviation, does not affect the legal rights of any other shareholder. It also says that the declaratory and injunctive relief sought in the Originating Process is expressed to apply only to shares owned by HNA Irish.
HNA Irish accepts that, if the Court is minded to make orders directed to the composition of the boards of the RILAs, it is appropriate for the other shareholders to be heard prior to the making of those orders. There is evidence as to Military Super and SIF and their trustee, BNY, that suggests that the making of such orders is unlikely to be controversial. The position of Citic, a preference shareholder in three of the defendant RILAs, is unknown. HNA Irish says that the position of Citic is unlikely to differ.
HNA Irish submits that AMP, whose A class preference shares in six of the defendant RILAs reflect a capped Upside issued at the same time that mezzanine loans were made, is not a necessary party. Still less, it says, is APIPL, whose A class preference shares in four defendant RILAs do not entitle it to any Upside.
KV Aviation says that, even if the Court took the view that the other preference shareholders were not necessary parties, but were proper parties, then those shareholders should be joined. It says that the rules of natural justice would require that before an order that may affect the rights or interests of a person is made, that person should be given an opportunity to contest the making of that order. Accordingly, it is the invariable practice of courts to require such a person to be joined as a party, if there is an arguable possibility that that person may be affected by the making of an order sought in the proceeding.
KV Aviation says that, in a case in which relief is sought in respect of oppressive conduct in relation to the affairs of a company, there will be cases where other shareholders should be joined because their interests are affected, such as where the relief would affect the balance of voting rights, even if there is no inviolable rule that all shareholders be joined in the action. Therefore, KV Aviation says, if the Court were minded to grant any of the orders sought in the proceeding, the other shareholders should be notified, and should be given an opportunity to be heard prior to the making of any such orders.
CONCLUSION
I consider that the nature of the Aircraft Transaction leads to the conclusion that the preference shares can be redeemed, at the option of RILA VQZ, at any time after the satisfaction of all of the obligations of RILA VQZ under the Transaction Documents, subject, of course, to the payment of the relevant preferred dividend. The amount of the preferred dividend may be determined prior to the realisation of the aircraft on the basis of a proper valuation, after all obligations of RILA VQZ have been satisfied in full, either at the end of the initial Operating Lease or upon prepayment in full, in accordance with their terms, of all of the financing facilites. I do not consider that there has been any relevant misrepresentation or misleading or deceptive conduct that would lead to any estoppel against maintaining such a construction or that would justify any remedy under ss 1324 and 1325 of the Corporations Act or ss 12GD and 12GM of the ASIC Act.
Further, I would be disposed to order the transfer of the ordinary shares in the defendant RILAs to a disinterested, but responsible, party, such as a charitable trust, as has been proposed by HNA Irish. The question of the consideration to be paid for the transfer should be the subject of reference to a referee for the purposes of consideration and report to the Court. The question of the constitution of the board of directors of the defendant RILAs may be a matter for the new holder of ordinary shares. However, I would require that the other holders of preference shares in the defendant RILAs be notified, and given the opportunity to be heard, before making any orders under s 233 of the Corporations Act.
HNA Irish and HNA Group should be directed to bring in short minutes of the orders that they say are appropriate to give effect to my conclusions as to the construction of the constitutions of the defendant RILAs, as well as orders necessary to progress the question of relief under s 233, including the notification of other holders of preference shares and the identity of proposed transferees and directors. It is premature, at this stage, to consider any questions as to the costs of the proceeding.
Appendix 1
Tabulation of Historical Directorship of and Shareholding in KV Aviation
Appendix 2
Relevant Provisions of the Constitution of RILA VQZ
Appendix 3
Tabulation of Shareholding and Transaction Information for the Defendant RILAs

I certify that the preceding seven hundred and fifty-two (752) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Associate:
Dated: 15 March 2012
Schedule
Fourth to Forty-First Defendants

Fourth Defendant

RIL Aviation VQZ Pty Limited

ACN 110 563 007

Fifth Defendant

RIL Aviation VQW Pty Limited

ACN 110 562 831

Sixth Defendant

RIL Aviation MSN 163 Pty Limited

ACN 111 127 087

Seventh Defendant

RIL Aviation MSN 185 Pty Limited

ACN 111 127 130

Eighth Defendant

RIL Aviation VQU Pty Limited

ACN 114 265 833

Ninth Defendant

RIL Aviation VQT Pty Limited

ACN 114 265 842

Tenth Defendant

RIL Aviation VQS Pty Limited

ACN 114 265 860

Eleventh Defendant

RIL Aviation VQR Pty Limited

ACN 114 265 922

Twelfth Defendant

RIL Aviation VQQ Pty Limited

ACN 114 265 940

Thirteenth Defendant

RIL Aviation VQP Pty Limited

ACN 114 265 968

Fourteenth Defendant

RIL Aviation 9V-SFG Pty Limited

ACN 116 838 905

Fifteenth Defendant

RIL Aviation 9V-SLE Pty Limited

ACN 115 858 298

Sixteenth Defendant

RIL Aviation El-DLN Pty Limited

ACN 115 857 488

Seventeenth Defendant

RIL Aviation El-DLO Pty Limited

ACN 115 857 684

Eighteenth Defendant

RIL Aviation VQG Pty Limited

ACN 115 079 751

Nineteenth Defendant

RIL Aviation EI-DLR Pty Limited

ACN 121 180 470

Twentieth Defendant

RIL Aviation EI-DPB Pty Limited

ACN 122 128 830

Twenty-First Defendant

RIL Aviation EI-DPD Pty Limited

ACN 122 642 031

Twenty-Second Defendant

RIL Aviation EI-DPC Pty Limited

ACN 122 641 963

Twenty-Third Defendant

RIL Aviation EI-DPT Pty Limited

ACN 124 271 236

Twenty-Fourth Defendant

RIL Aviation EI-DPW Pty Limited

ACN 124 850 255

Twenty-Fifth Defendant

RIL Aviation El-DPX Pty Limited

ACN 124 850 317

Twenty-Sixth Defendant

RIL Aviation OJJ Pty Limited

ACN 102 697 709

Twenty-Seventh Defendant

RIL Aviation OJG Pty Limited

ACN 102 697 914

Twenty-Eighth Defendant

RIL Aviation OJH Pty Limited

ACN 102 697 549

Twenty-Ninth Defendant

RIL Aviation VQY Pty Limited

ACN 110 562 957

Thirtieth Defendant

RIL Aviation VQX Pty Limited

ACN 110 562 902

Thirty-First Defendant

RIL Aviation VQV Pty Limited

ACN 110 562 699

Thirty-Second Defendant

RIL Aviation VQJ Pty Limited

ACN 115 079 171

Thirty-Third Defendant

RIL Aviation VQI Pty Limited

ACN 115 079 322

Thirty-Fourth Defendant

RIL Aviation 9V-SLD Pty Limited

ACN 115 857 899

Thirty-Fifth Defendant

RIL Aviation VQH Pty Limited

ACN 115 079 635

Thirty-Sixth Defendant

RIL Aviation HL 7744 Pty Limited

ACN 119 743 627

Thirty-Seventh Defendant

RIL Aviation HL 7745 Pty Limited

ACN 114 467 364

Thirty-Eighth Defendant

RIL Aviation EI-DPO Pty Limited

ACN 123 795 997

Thirty-Ninth Defendant

RIL Aviation 32643 Pty Limited

ACN 119 336 168

Fortieth Defendant

RIL Aviation CEA No. 1 Pty Limited

ACN 120 875 372

Forty-First Defendant

RIL Aviation CEA No. 2 Pty Limited

ACN 120 875 710

Citation:	HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228
Parties:	HNA IRISH NOMINEE LIMITED and HNA GROUP (HONG KONG) CO LIMITED v GEOFFREY ANDREW KINGHORN, DAVID LLOYD VEAL, KV AVIATION HOLDINGS PTY LIMITED ACN 054 680 376 (FORMERLY CALLED AAHL PTY LIMITED) and OTHERS NAMED IN THE SCHEDULE
File number:	NSD 94 of 2010
Judge:	EMMETT J
Date of judgment:	15 March 2012
Catchwords:	CORPORATIONS – redeemable preference shares – principles governing construction of corporate constitution – whether and in what circumstances preference shares held by first plaintiff in defendant companies could be redeemed – where defendant companies were special purpose vehicle companies forming part of certain structured financing transactions involving leases of commercial aircraft – where holders of preference shares were investors in those transactions – where controllers of the holder of ordinary shares in the special purpose vehicle companies also controlled the boards of those companies and caused those boards to assert a right of redemption over the preference shares – where constitutions ambiguous as to redemption trigger under s 254A of the Corporations Act 2001 (Cth) – whether preferred dividend could be paid and the preference shares redeemed on the basis of a revaluation of an aircraft, being a company asset the subject of a lease, prior to the expiration of the lease term CORPORATIONS – misrepresentation and estoppel – whether any defendants, including individuals controlling holder of ordinary shares in special purpose vehicle companies, engaged in misleading and deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) – where impugned acts comprised representations made to various investors who acquired interests in preference shares – whether impugned acts induced investors to acquire those interests based on misapprehension as to rights attaching to preference shares – to whom relevant acts could be imputed – whether defendants should be estopped from asserting that material economic value attaches to ordinary shares by reason of redeemability of preference shares CORPORATIONS – oppression – whether affairs of special purpose vehicle companies were conducted contrary to interests of their members as a whole or prejudicially to interests of preference shareholders – where impugned conduct included various alleged breaches of directors’ duties – whether directors of special purpose companies under a conflict between duty and interest – whether steps taken to relieve any conflict – whether directors showed preference for interests associated with themselves CORPORATIONS – relief for oppression – disputed value of ordinary shares in special purpose vehicle companies – whether such value could depend upon a confluence of interests in other associated companies such that the overall activities of the companies could be controlled and co-ordinated to take advantage of market opportunities – whether expropriation or transfer of ordinary shares to charitable trust an appropriate remedy – whether appointment of additional directors an appropriate remedy PRACTICE AND PROCEDURE – joinder of parties – deficiency in joinder – whether claims of misrepresentation and oppression by plaintiffs were in effect made on behalf of other investors not party to proceeding – where no evidence adduced on behalf of those investors – where certain orders relieving oppression could affect rights of non-party shareholders in the special purpose companies – whether such other shareholders should be joined if orders relieving oppression were contemplated
Legislation:	Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAB, 12DA, 12GD, 12GH, 12GM Corporations Act 2001 (Cth) ss 124, 140, 181, 182, 183, 195, 202A, 232, 233, 234, 249B, 254A, 254J, 254K, 254L, 256B, 256C, 256D, 292, 319, 763A, 763B, 769B, 1041H, 1324, 1325 Federal Court of Australia Act 1976 (Cth) s 54A
Cases cited:	Australian Securities and Investments Commission v Healey (2011) 196 FCR 291 Blisset v Daniel (1853) 10 Hare 493 Byrnes v Kendle (2011) 243 CLR 253 Campbell v Backoffice Investments Pty Limited (2008) 66 ACSR 359 Campbell v Backoffice Investments Pty Limited (2009) 238 CLR 304 Dick v Alan Powell Holdings [2009] QSC 184 Dimbula Valley (Ceylon) Tea Co Limited v Laurie [1961] Ch 353 Dominelli Ford (Hurstville) Pty Limited v Karmot Auto Spares Pty Limited (1992) 38 FCR 471 DTR Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423 Dynasty Pty Limited v Coombs (1995) 59 FCR 122 Gamlestaden Fastigheter AB v Baltic Partners Limited [2007] 4 All ER 164 Gould v Vaggelas (1985) 157 CLR 215 Harlowe’s Nominees Pty Limited v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 HNA Irish Nominee Ltd v Kinghorn [2010] FCA 311 HNA Irish Nominee Ltd v Kinghorn (2010) 78 ACSR 553 In Re Wondoflex Textiles Pty Limited [1951] VLR 458 International Air Transport Association v Ansett Australia Holdings Limited (2008) 234 CLR 151 Industrial Equity Limited v Blackburn (1977) 137 CLR 567 Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539 John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 John J Starr (Real Estate) Pty Limited v Robert R Andrew (Australasia) Pty Limited (1991) 6 ACSR 63 Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1 Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 Marra Developments Limited v BW Rofe Pty Limited [1977] 2 NSWLR 616 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692 National Exchange Pty Limited v Australian Securities and Investments Commission (2004) 49 ACSR 369 News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 Ngurli Limited v McCann (1953) 90 CLR 425 O’Neill v Phillips [1999] 1 WLR 1092 Potts v Miller (1940) 64 CLR 282 QBE Insurance Group Limited v Australian Securities Commission (1992) 38 FCR 270 Re Cumberland Holdings Limited (1976) 1 ACLR 361 Re Southern Resources Limited (1989) 15 ACLR 770 Reid v Bagot Well Pastoral Co Pty Limited (1993) 12 ACSR 197 SGH Limited v Commissioner of Taxation (2002) 210 CLR 51 Sutherland v National Roads and Motorists’ Association Limited (2003) 47 ACSR 428 Taylor v Johnson (1983) 151 CLR 422 Teck Corporation Limited v Millar (1973) 33 DLR (3^rd) 288 Thomas v HW Thomas Limited [1984] 1 NZLR 686 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 Tosich v Tosich Construction Pty Limited (1993) 10 ACSR 590 Walker v Wimborne (1976) 137 CLR 1 Wayde v NSW Rugby League Limited (1985) 180 CLR 459 Zhu v Treasurer of New South Wales (2004) 218 CLR 530
Date of hearing:	6, 7, 8, 9, 10, 14, 15, 16, 17, 20, 21, 22, 23, 24, 29 and 30 June 2011
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	752
Counsel for the plaintiffs:	M Leeming SC, J Hewitt
Solicitor for the plaintiffs:	Clifford Chance
Counsel for the defendants:	SD Robb QC, J Clarke
Solicitor for the defendants:	DibbsBarker

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 94 of 2010

JUDGE:	EMMETT J
DATE OF ORDER:	15 March 2012
WHERE MADE:	SYDNEY

JUDGE:	EMMETT J
DATE:	15 March 2012
PLACE:	SYDNEY

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1]
ALLCO FINANCE GROUP........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[11]
SALE OF ASSETS OF THE AVIATION DIVISION........ ........ ........ ........ ........ ........ ........ ...	[24]
AVIATION TRANSACTIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[32]
Structure of Aviation Transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[36]
The Constitutions of the RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[49]
The Remarketing Agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[58]
The Financing Deed........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[61]
THE PROCEEDING........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[67]
The Originating Process........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[74]
The Defendant RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[83]
The Statement of Claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[99]
A: Parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[102]
B: KV Aviation and the Allco Group........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[103]
C: The Aviation Division Transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[105]
D: The RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[106]
E: The Management of the RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[112]
F: The Directors of the RILAs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[118]
G: The Invalid Share Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[124]
H: Delay in registering transfers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[126]
I: Misleading and Deceptive Conduct........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[127]
J: Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[132]
K: Estoppel........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[136]
L: Whole Circumstances........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[143]
Some Issues Arising from the Pleadings........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[144]
The Witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[153]
The Plaintiffs’ Witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[158]
The Defendants’ Witnesses........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[181]
THE REDEMPTION ISSUE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[202]
Redeemable Preference Shares under the Corporations Act........ ........ ........ ........ ........ ......	[203]
Some Legal Principles as to Construction of Company Constitutions........ ........ ........ .......	[207]
Formulation of the Redemption Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[212]
Prepayment and the Single Purpose Undertakings........ ........ ........ ........ ........ ........ ........ .....	[219]
HNA Irish’s Contentions as to the Redemption Issue........ ........ ........ ........ ........ ........ ........	[235]
KV Aviation’s Contentions as to the Redemption Issue........ ........ ........ ........ ........ ........ ....	[265]
HNA Irish’s Response to KV Aviation’s Contentions........ ........ ........ ........ ........ ........ .......	[276]
The Proper Construction of the Constitutions........ ........ ........ ........ ........ ........ ........ ........ ....	[282]
Valuation of Aircraft for Purposes of Determining Aircraft Profits........ ........ ........ ........ ...	[291]
Conclusion as to the Redemption Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[308]
MISREPRESENTATION ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[319]
Misrepresentation to HNA Irish and HNA Group........ ........ ........ ........ ........ ........ ........ ......	[331]
Initial Investors in Aviation Transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[385]
Record........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[386]
Military Super........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[402]
LJCB........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[435]
AMP........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[438]
Allco Managed Investments as trustee of the Allco Aviation Fund........ ........ ........ .......	[441]
SIF........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[446]
Citic........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[458]
Misrepresentation to Initial Investors........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[466]
Conclusion as to Misrepresentation Issues........ ........ ........ ........ ........ ........ ........ ........ ........ .	[477]
THE OPPRESSION ISSUE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[482]
Relevant Legal Principles as to Oppression........ ........ ........ ........ ........ ........ ........ ........ ........	[501]
The Alleged Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[512]
Proposals to Redeem the Preference Shares........ ........ ........ ........ ........ ........ ........ ........ ...	[513]
Assertion of Significant Residual Value in the Ordinary Shares........ ........ ........ ........ ....	[538]
Breach of the Restraint Deed and the Employment Agreement........ ........ ........ ........ .....	[552]
The Comfort Letters........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[562]
Removal of Messrs Kelly, Wilson and Hardge........ ........ ........ ........ ........ ........ ........ ......	[567]
Establishing KV Aviation and Attempting to Remove the Managers........ ........ ........ ....	[582]
Payment Direction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[602]
Misleading Statements about Ownership of Aircraft........ ........ ........ ........ ........ ........ ......	[607]
Claims against the RILAs and the Managers........ ........ ........ ........ ........ ........ ........ ........ ..	[614]
Withholding Consent to Transfer of Preference Shares........ ........ ........ ........ ........ ........ .	[625]
Change of Registered Office........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[630]
Purported Issue of Ordinary Shares........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[633]
Breach of Section 195........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[645]
Improper Use of Information........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[648]
Improper Exercise of Powers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[656]
Breach of Court Orders........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[670]
Conclusion as to the Oppression Issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[675]
Relief for Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[681]
Value of the Ordinary Shares in the RILAs........ ........ ........ ........ ........ ........ ........ ........ ....	[685]
The Defendants’ Contentions as to the Value of the Ordinary Shares........ ........ .......	[714]
Conclusion as to Value of the Ordinary Shares........ ........ ........ ........ ........ ........ ........ ..	[734]
Conclusion as to Relief for Oppression........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[736]
Parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[737]
CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[750]
Appendix 1........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
Tabulation of Historical Directorship of and Shareholding in KV Aviation........ ........ ......
Appendix 2........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
Relevant Provisions of the Constitution of RILA VQZ........ ........ ........ ........ ........ ........ ......
Appendix 3........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
Tabulation of Shareholding and Transaction Information for the Defendant RILAs........ .
Schedule........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
Fourth to Forty-First Defendants........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........

Fourth Defendant	RIL Aviation VQZ Pty Limited ACN 110 563 007
Fifth Defendant	RIL Aviation VQW Pty Limited ACN 110 562 831
Sixth Defendant	RIL Aviation MSN 163 Pty Limited ACN 111 127 087
Seventh Defendant	RIL Aviation MSN 185 Pty Limited ACN 111 127 130
Eighth Defendant	RIL Aviation VQU Pty Limited ACN 114 265 833
Ninth Defendant	RIL Aviation VQT Pty Limited ACN 114 265 842
Tenth Defendant	RIL Aviation VQS Pty Limited ACN 114 265 860
Eleventh Defendant	RIL Aviation VQR Pty Limited ACN 114 265 922
Twelfth Defendant	RIL Aviation VQQ Pty Limited ACN 114 265 940
Thirteenth Defendant	RIL Aviation VQP Pty Limited ACN 114 265 968
Fourteenth Defendant	RIL Aviation 9V-SFG Pty Limited ACN 116 838 905
Fifteenth Defendant	RIL Aviation 9V-SLE Pty Limited ACN 115 858 298
Sixteenth Defendant	RIL Aviation El-DLN Pty Limited ACN 115 857 488
Seventeenth Defendant	RIL Aviation El-DLO Pty Limited ACN 115 857 684
Eighteenth Defendant	RIL Aviation VQG Pty Limited ACN 115 079 751
Nineteenth Defendant	RIL Aviation EI-DLR Pty Limited ACN 121 180 470
Twentieth Defendant	RIL Aviation EI-DPB Pty Limited ACN 122 128 830
Twenty-First Defendant	RIL Aviation EI-DPD Pty Limited ACN 122 642 031
Twenty-Second Defendant	RIL Aviation EI-DPC Pty Limited ACN 122 641 963
Twenty-Third Defendant	RIL Aviation EI-DPT Pty Limited ACN 124 271 236
Twenty-Fourth Defendant	RIL Aviation EI-DPW Pty Limited ACN 124 850 255
Twenty-Fifth Defendant	RIL Aviation El-DPX Pty Limited ACN 124 850 317
Twenty-Sixth Defendant	RIL Aviation OJJ Pty Limited ACN 102 697 709
Twenty-Seventh Defendant	RIL Aviation OJG Pty Limited ACN 102 697 914
Twenty-Eighth Defendant	RIL Aviation OJH Pty Limited ACN 102 697 549
Twenty-Ninth Defendant	RIL Aviation VQY Pty Limited ACN 110 562 957
Thirtieth Defendant	RIL Aviation VQX Pty Limited ACN 110 562 902
Thirty-First Defendant	RIL Aviation VQV Pty Limited ACN 110 562 699
Thirty-Second Defendant	RIL Aviation VQJ Pty Limited ACN 115 079 171
Thirty-Third Defendant	RIL Aviation VQI Pty Limited ACN 115 079 322
Thirty-Fourth Defendant	RIL Aviation 9V-SLD Pty Limited ACN 115 857 899
Thirty-Fifth Defendant	RIL Aviation VQH Pty Limited ACN 115 079 635
Thirty-Sixth Defendant	RIL Aviation HL 7744 Pty Limited ACN 119 743 627
Thirty-Seventh Defendant	RIL Aviation HL 7745 Pty Limited ACN 114 467 364
Thirty-Eighth Defendant	RIL Aviation EI-DPO Pty Limited ACN 123 795 997
Thirty-Ninth Defendant	RIL Aviation 32643 Pty Limited ACN 119 336 168
Fortieth Defendant	RIL Aviation CEA No. 1 Pty Limited ACN 120 875 372
Forty-First Defendant	RIL Aviation CEA No. 2 Pty Limited ACN 120 875 710