Huber V CellOS Software Ltd (in liq)

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FEDERAL COURT OF AUSTRALIA

Huber V CellOS Software Ltd (in liq) [2022] FCA 744  

File number(s): VID 338 of 2020
Judgment of: MCELWAINE J
Date of judgment: 29 June 2022
Catchwords:

 PRACTICE AND PROCEDURE – application for extension of time and for leave to appeal from a decision of the Federal Court pursuant to r 36.05 of the Federal Court Rules 2011 (Cth) – where respondent company is in liquidation – where proceeding stayed under s 500(2) of the Corporations Act 2001 (Cth) – where no application for leave to proceed pursuant to s 500(2) has been made

CORPORATIONS – whether an appeal is an “other civil proceeding” within the meaning of s 500(2) of the Corporations Act 2001 (Cth)
Legislation:

Corporations Act 2001 (Cth) ss 439C(c), 440D, 500(2)

Federal Court of Australia Act 1976 (Cth) s 24

Federal Court (Corporations) Rules 2000 (Cth) rr 2.2, 2.4

Federal Court Rules 2011 (Cth) rr 36.03, 36.05

Cases cited:

Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485; [1993] HCA 15

Barnes v Addy (1874) 9 LR Ch App 244

BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339

Buurabalayji Thalanyji Aboriginal Corporation v Onslow Salt Pty Ltd (No 7) (2020) 144 ACSR 621; [2020] FCA 572

Caruso v Built IT Pty Ltd (No 2) (2019) 134 SASR 280; [2019] SASC 125

CellOS Software Ltd v Huber and Others (2018) 132 ACSR 468; [2018] FCA 2069

CellOS Software Ltd v Huber and Others (No 2) (2020) 144 ACSR 267; [2020] FCA 505

Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 130

Huang v Hua Cheng International Group Pty Ltd [2019] NSWCA 155

Humber & Co v John Griffiths Cycle Co (1901) 85 LT 141

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2007] NSWCA 338

King v Yurisich (2006) 59 ACSR 598

MG Corrosion Consultants Pty Ltd v Gilmour [2012] 202 FCR 354; [2012] FCA 383

Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314

Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106; [2001] NSWCA 15

Zervas v Burkitt [2019] NSWCA 112
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 20
Date of last submission/s: Applicant: 30 May 2022
Respondent: 13 May 2022
Date of hearing: Determined on the papers
Solicitor for the Applicant: The Applicant was self-represented
Solicitor for the Respondent: Mills Oakley

ORDERS

VID 338 of 2020
BETWEEN:

JASON JOSEPH EMMANUEL HUBER

Applicant
AND:

CELLOS SOFTWARE LTD (IN LIQUIDATION)

Respondent

ORDER MADE BY:

MCELWAINE J

DATE OF ORDER:

29 JUNE 2022

THE COURT ORDERS THAT:

1.The separate question, the subject of the order made on 13 April 2022, namely whether the Applicant may proceed with his application for leave to appeal filed 25 May 2020

be answered: no, in the absence of a grant of leave to proceed pursuant to s 500(2) of the Corporations Act 2001

2.Within…

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Details
Case
[2022] FCA 744
Decision Date

CaseChat Overview and Summary

The case of Huber V CellOS Software Ltd (in liq) involved a dispute between Jason Huber and CellOS Software Ltd, an Australian software development company. The primary issue before the court was whether an appeal from a decision of the Federal Court was an "other civil proceeding" as defined in section 500(2) of the Corporations Act 2001 (Cth). CellOS was placed into administration and subsequently wound up, and Mr Huber filed an application for an extension of time and leave to appeal the Federal Court's decision. The court had to determine whether Mr Huber could proceed with his application for an extension of time and leave to appeal without obtaining leave under section 500(2) of the Corporations Act. The court found that Mr Huber could not proceed with his application for an extension of time and leave to appeal unless he first obtained leave pursuant to section 500(2) of the Corporations Act. The court held that an appeal from a decision of the Federal Court was an "other civil proceeding" within the meaning of section 500(2) of the Corporations Act. The court also found that Mr Huber's arguments that the extension application was not a fresh proceeding and was not therefore subject to the statutory stay were incorrect. The court held that the extension application was a fresh proceeding and was subject to the statutory stay. The court ordered that the separate question, whether Mr Huber may proceed with his application for leave to appeal, be answered: no, in the absence of a grant of leave to proceed pursuant to s 500(2) of the Corporations Act 2001. The court further ordered that within seven days, the parties were to file short submissions limited to two pages as to any consequential orders, including costs.

Orders

Orders of the court

1. The separate question, the subject of the order made on 13 April 2022, namely whether the Applicant may proceed with his application for leave to appeal filed 25 May 2020

be answered: no, in the absence of a grant of leave to proceed pursuant to s 500(2) of the Corporations Act 2001

2. Within 7 days the parties are to file short submissions, limited to two pages as to any consequential orders, including costs.

3. Any necessary further orders be determined on the papers, unless the Court otherwise orders.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The hearing of the proceeding resumed in October 2019 and on 17 April 2020, his Honour published further reasons for the making of various orders, including that Mr Huber and his related corporations must account to CellOS in the amount of $42 million: CellOS Software Ltd v Huber and Others (No 2) (2020) 144 ACSR 267; [2020] FCA 505 (relief judgment). Initially, Mr Huber and the fifteenth respondent, Blue Delorite Pty Ltd, were legally represented at the trial that resulted in the liability judgment. That representation ceased partway through the hearing and Mr Huber appeared for himself and for the fifteenth respondent. None of the other respondent corporations associated with Mr Huber appeared upon the trial. On 25 May 2020, Mr Huber, as the only named applicant, filed an application for an extension of time, an affidavit in support and a proposed notice of appeal from the “whole of the judgment of the Federal Court against the appellant given on 20 December 2018 and 17 April 2020” pursuant to rule 36.05 of the Federal Court Rules 2011 (Cth) (Federal Court Rules). It is convenient that I refer to this as the extension application. It is common ground that CellOS was placed into administration on 10 January 2022, and following the second meeting of creditors, was voluntarily wound up pursuant to s 439C(c) of the Corporations Act 2001 (Corporations Act) on 19 April 2022. Mr Huber does not accept that the extension application is now the subject of the stay that is provided for at section 500(2) of the Corporations Act which relevantly provides:Execution and civil proceedings…(2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes. In somewhat prolix affidavits and supporting submissions, Mr Huber has set out in considerable detail the reasons why he did not file a notice of appeal from the final orders made by Beach J on 17 April 2020 as required by rule 36.03 of the Federal Court Rules. Mr Huber has not made an application for leave to proceed pursuant to s 500(2) of the Corporations Act. On 13 April 2022, I made orders by consent for determination as a preliminary issue, the separate question of whether Mr Huber may proceed with the extension application absent a grant of leave and that it be determined on the papers following receipt of written submissions. I have now received those submissions from Mr Huber and from the legal practitioners for CellOS. For the following reasons, I have decided that it is not open to Mr Huber to continue with the extension application unless he first obtains leave pursuant to s 500(2) of the Corporations Act. Some understanding of the proceeding is necessary in order to explain why that is so and why Mr Huber’s arguments, to the effect that the extension application is not a fresh proceeding and is not therefore subject to the statutory stay, are incorrect..

Ratio Decidendi

Legal Principle Established

It is common ground that CellOS was placed into administration on 10 January 2022, and following the second meeting of creditors, was voluntarily wound up pursuant to s 439C(c) of the Corporations Act 2001 (Corporations Act) on 19 April 2022. Mr Huber does not accept that the extension application is now the subject of the stay that is provided for at section 500(2) of the Corporations Act which relevantly provides:Execution and civil proceedings…(2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes. In somewhat prolix affidavits and supporting submissions, Mr Huber has set out in considerable detail the reasons why he did not file a notice of appeal from the final orders made by Beach J on 17 April 2020 as required by rule 36.03 of the Federal Court Rules. Mr Huber has not made an application for leave to proceed pursuant to s 500(2) of the Corporations Act. On 13 April 2022, I made orders by consent for determination as a preliminary issue, the separate question of whether Mr Huber may proceed with the extension application absent a grant of leave and that it be determined on the papers following receipt of written submissions. I have now received those submissions from Mr Huber and from the legal practitioners for CellOS. For the following reasons, I have decided that it is not open to Mr Huber to continue with the extension application unless he first obtains leave pursuant to s 500(2) of the Corporations Act. Some understanding of the proceeding is necessary in order to explain why that is so and why Mr Huber’s arguments, to the effect that the extension application is not a fresh proceeding and is not therefore subject to the statutory stay, are incorrect.. In an admirably clear summary of the principal issues in the complex litigation that was before his Honour, Beach J set out the following in his liability judgment at [1] – [15]:The applicant, CellOS Software Limited (CellOS), an Australian unlisted public company, is a software development company in the field of data analytics. CellOS has brought these proceedings against numerous respondents. Primarily it has brought these proceedings against its former chief executive officer and director, Mr Jason Huber, the first respondent. Mr Huber was CEO of CellOS from 19 December 2005 to 3 September 2015. He was a director from 19 December 2005 to 12 May 2010 and from 1 March 2012 to 3 September 2015.CellOS alleges that Mr Huber carried out a scheme against it, and in carrying out this scheme breached various statutory and fiduciary duties owed to CellOS, particularly under ss 181, 182 and 183 of the Corporations Act 2001 (Cth). Broadly, CellOS alleges that the scheme carried out by Mr Huber consisted of the following steps.At all relevant times CellOS was not generating sufficient revenue and was reliant upon new equity capital or debt funding to continue its operations and its business of software development. Mr Huber was personally responsible for securing this funding.From late 2012, Mr Huber instructed a corporate secretarial services provider to establish a web of offshore companies registered in Belize, Panama, Anguilla, British Virgin Islands and Samoa, which Mr Huber was to control, and which were designed to disguise Mr Huber’s involvement in his planned scheme and in those vehicles. Mr Huber established a web of offshore companies to hold his CellOS shares (Huber controlled entities) with the corporate secretarial assistance of Mr Chua Min Wee and his company Grandeza Corporate Services Pte Ltd (Grandeza), a Singaporean company, and Mr Harveen Singh Narulla. The Huber controlled entities disguised Mr Huber’s involvement in what later occurred.From at least late 2012, Mr Huber procured through these Huber controlled entities at least 47,872,063 CellOS shares from early investors in CellOS, without disclosing his involvement to the vendors or to CellOS; it is said that these transactions were entered into without CellOS’ knowledge. It is known that Huber controlled entities purchased 19,059,834 shares (out of 47,872,063 shares transferred from private investors) for AU$4,848,094. The price for the remainder is not known.From at least late 2012, Mr Huber sought out potential investors for CellOS, ostensibly to raise funds for CellOS’ ongoing operations. But instead of CellOS issuing shares directly to new investors, Mr Huber procured investors to purchase shares from Huber controlled entities at prices between US$2 and US$10. Between late 2012 and mid-2015, the Huber controlled entities sold 51,945,132 shares in CellOS to 355 private investors. It is known that Huber controlled entities sold 22,832,921 shares out of 51,945,132 shares transferred to private investors for AU$50,353,076. The price for the remainder is not known.Mr Huber directly or indirectly lent part of the proceeds from these share sales back to CellOS in order to fund its operations.In or around May 2013, Mr Huber arranged for CellOS to enter into a loan agreement with one of his offshore companies, LGA Energy Investments Ltd based in Belize (LGA) to loan CellOS up to SG$25 million (LGA loan) without disclosing his interest in LGA or the LGA loan to either CellOS’ board or its shareholders, on terms that the loan could be converted to shares at SG$1.80. Mr Huber wearing his CellOS hat would call for loans from LGA and then convert those loans to shares. At the time, CellOS was able to issue new shares at US$5 per share and CellOS shares were on the secondary market at up to US$5 per share.LGA is not a party to the proceedings. The LGA loan operated such that:(a)The loan operated retrospectively to cover money advanced since 1 March 2012, that is, over a year earlier and included advances by third parties nominated by LGA;(b)LGA or third parties would loan money to CellOS; and(c)LGA had an option to convert the loan amount into CellOS shares at the price of SG$1.80 per share, which was favourable to Mr Huber and LGA but disadvantageous to CellOS and the other shareholders.The effect of the LGA loan allowed:(a)Mr Huber to immediately benefit from the funds he had been lending CellOS since March 2012 by converting them into new CellOS shares at the favourable strike price of SG$1.80 per share; and(b)Mr Huber to, first, prospectively sell CellOS shares held by the Huber controlled entities, second, then lend the funds to CellOS under the LGA loan and, third, obtain more shares at SG$1.80 per share by exercising the conversion option.Significant proceeds from the sale of shares by the Huber controlled entities were paid to CellOS and attributed to the LGA loan. In all, Mr Huber procured payments into CellOS of SG$29,143,387.90 and AU$1,228,786.85, which were attributed to the LGA loan, and through LGA converted those loan funds into 17,477,204 shares in CellOS at SG$1.80 per share.Mr Huber directed LGA to transfer 16,815,157 of those shares to Huber controlled entities for no consideration and then procured the on-sale of 4,265,157 of those shares, of which 2 million were sold at US$2 per share, 399,000 at US$10 per share, and the remainder at unknown prices.As I say, between 28 June 2013 and 27 March 2014, LGA came to hold almost 17 million CellOS shares by way of its conversion option under the LGA loan. In May 2014, LGA transferred these shares to seven of the Huber controlled entities.On 1 July 2014 Mr Huber arranged for CellOS to enter into another loan arrangement with another associated company, Pized Management Ltd (Pized) (Pized loan). Pized is the fourteenth respondent. The Pized loan was similar to the LGA loan, and Mr Huber again failed to disclose his interest. Significant proceeds from the sale of shares by the Huber controlled entities were advanced to CellOS and attributed to the Pized loan. When Mr Huber was removed from his position in September 2015, amounts under the Pized loan in the order of SG$2.5 million and US$8.3 million had not been converted and still remain a liability owing to Pized on CellOS’ books.CellOS alleges that Mr Huber’s scheme, which it characterises as fraudulent, generated significant profits for him.