In the matter of VE Group Pty Limited ACN 137 596 117

[2014] NSWSC 159

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of VE Group Pty Limited ACN 137 596 117 [2014] NSWSC 159

Hearing dates:

27 February 2014

Decision date:

27 February 2014

Jurisdiction:

Equity Division - Corporations List

Before:

Brereton J

Decision:

The statement of claim be struck out with leave to replead.

The proceedings be stayed until: the proceedings presently pending in the Federal Circuit Court of Australia numbered (P)SYC4008/2012 are transferred to this Court to be heard with these proceedings; or an application is made to this Court for the transfer of these proceedings to the Family Court of Australia; or further order of the Court.

The balance of the interlocutory process be dismissed.

Catchwords:

CORPORATIONS - examination - relating to insolvency - who may apply -
PROCEDURE - courts and judges - where related proceedings in Federal Circuit court - forum conveniens - transfer of proceedings - stay of proceedings

Legislation Cited:

(Cth) Corporations Act 2001, s 232, s 237, s 596B, s 598, s 1317H
(Cth) Family Law Act 1975
(Cth) Federal Circuit Court Act 1999, s 39
(Cth) Jurisdiction of Courts (Cross-Vesting) Act 1987
(Cth) Service and Execution of Process Act 1992
(NSW) Uniform Civil Procedure Rules 2005 r 42.21(1)(e)

Cases Cited:

Ariff v Fong (2010) 79 NSWLR 392
Valceski v Valceski (2007) 70 NSWLR 36

Category:

Interlocutory applications

Parties:

VE Group Pty Ltd (plaintiff)
Wei Xu (defendant)

Representation:

Counsel:
TJ Morahan (plaintiff)
R Kouchoo (solicitor) (defendant)
Solicitors:
Chen Shan Lawyers (plaintiff)
Maxim Legal (defendant)

File Number(s):

2013/256742

Judgment - EX TEMPORE

1. HIS HONOUR: On 14 August 2013, Black J in proceedings 2013/125511 made orders granting leave pursuant to (Cth) Corporations Act 2001, s 237, to the first plaintiff in those proceedings, Xiao Wei Wang, to commence proceedings in the name of the plaintiff in these proceedings, VE Group Pty Ltd, against Wei Xu in the form of a draft statement of claim which was exhibit A in those proceedings. That order was made upon certain undertakings in respect of costs. His Honour also pronounced an injunction restraining Mr Xu from dealing with assets of the company.

1. Although those proceedings were at some stage amended to name Wei Xu as second defendant in them, it does not appear as if he was ever properly served with notice of those proceedings. The only evidence of notice was a letter addressed to him at an address in Melbourne. There does not appear to have been evidence of personal service or of compliance with the (Cth) Service and Execution of Process Act 1992 for interstate service. Nonetheless, no point appears to be taken about any of that at this stage.

1. Pursuant to the leave his Honour granted, VE Group Pty Ltd commenced these proceedings by statement of claim filed on 23 August 2013 claiming the following relief:

1. An order pursuant to s 241(1) of the Corporations Act that:

(a) the defendant produce to the Court all books and records, memoranda, file notes, attendance records, enrolment forms, enrolment fee records, bank records, bank transfer forms relating to the operation of the business of the company in Melbourne and Sydney from June 2009 to December 2012.

(b) the defendant be examined pursuant to s 596B of the Corporations Act in relation to his dealing with the funds of the company.

2. An order that pursuant to s 598 of the Corporations Act that the defendant repay to the company the sum of $80,000 or any other amount that the Court finds the defendant is indebted to the company.

3. An order purusant to s 598 of the Corporations Act that the defendant be removed as a director of the company.

4 An order that the defendant pay the costs of this application and the application of Xiaowei Wang for leave of this Court to bring this application on behalf of the company.

1. A defence was filed on 31 October 2013. The statement of claim was subsequently amended on 20 December 2013 but the amendments relate to the contents of the pleading and not the relief claimed.

1. An amended defence was filed on 30 January 2014.

1. Before the Court today is an interlocutory process filed on 16 October 2013, whereby the defendant claims an order summarily dismissing or permanently staying the proceedings, or striking out the statement of claim in whole or in part and, alternatively, security for costs.

1. In substance, there are three issues on the application. The first is whether, given the nature of the relief claimed, the proceedings should be dismissed or stayed on the basis that they are doomed to fail; the second is really a forum conveniens question as to where these proceedings should in the interests of justice be heard, and the third is the question of security for costs.

1. I have set out above the relief claimed in the amended statement of claim. The pleading said to support that relief pleads that the defendant was a director of the plaintiff; that the defendant owed the plaintiff certain duties of care and of a fiduciary character; being the familiar directors' duties, that in breach of those duties; the defendant appropriated for his own purposes moneys from the company without its knowledge, acquiescence or ratification and thereby caused loss to the company.

1. It may be that that pleading would support a claim for compensation under Corporations Act, s 1317H, but that is not the relief claimed and relevant elements of the cause of action necessary to sustain the relief that is claimed are not pleaded. In particular, the pleading does not allege that the plaintiff is an "eligible applicant" as defined in the Corporations Act. Only an "eligible applicant" has standing to apply for an examination pursuant to Corporations Act, s 596B, or for relief under Corporations Act, s 598, which is the only substantive relief presently claimed.

1. "Eligible applicant" is defined as follows:

(a)   ASIC; or

(b)   a liquidator or provisional liquidator of the corporation; or

(c)   an administrator of the corporation; or

(d)   an administrator of a deed of company arrangement executed by the corporation; or

(e)   a person authorised in writing by ASIC to make:

(i)   applications under the Division of Part 5.9 in which the expression occurs; or

(ii)   such an application in relation to the corporation.

1. The plaintiff is none of them. Moreover, there is authority that indicates that the constitutional basis of s 596B is that it is ancillary to the Court's jurisdiction in connection with the supervision of the administration of corporations, and that it cannot be availed of for the purposes of corporations that are not in some form of administration: see Ariff v Fong (2010) 79 NSWLR 392. It seems to me that the context of Corporations Act, s 598, would lead to a similar conclusion so far as that section is concerned, but, even if it did not, it still requires that the applicant be an eligible applicant, which the plaintiff is not.

1. In those circumstances, it seems to me that it is beyond argument that the plaintiff cannot obtain the substantive relief it currently claims in these proceedings, and that on that basis the statement of claim should be struck out.

1. As the plaintiff has sought an opportunity to reformulate its claim for relief, and as it is not unarguable on the face of the pleading and the evidence read in the case that a claim for compensation under s 1317H founded on breach of the directors' duties could be sustained, the appropriate course is to strike out the statement of claim with leave to replead.

1. The next issue is that of forum. There is no doubt, and the contrary is not suggested, that this Court has jurisdiction in corporations matters, and has jurisdiction to deal with the present proceedings. Moreover, this is effectively a specialist corporations court, and highly appropriate to deal with those proceedings. However, the company is a family company in which the two shareholders are the present defendant and his wife, who was the plaintiff in the proceedings for leave to bring the derivative action and at whose instance the proceedings are brought by the plaintiff.

1. Those parties - that is to say, the husband and the wife - are engaged in matrimonial property proceedings in the family law jurisdiction. Those proceedings were initially instituted in the Family Court of Australia, but were transferred by that Court to the Federal Circuit Court of Australia. While the Family Court has the jurisdiction of a superior court in corporations matters pursuant to the Corporations Act, the Federal Circuit Court does not have that jurisdiction.

1. The value of the family company is no doubt relevant to determining the pool of assets available for division in the matrimonial property proceedings. Whether the husband is liable to restore money to the family company, as is effectively alleged in the corporations proceedings, is a matter which will impact on the value of the family company. It seems to me inevitable that the issues in the proceedings will overlap, and that the corporations proceedings are in effect, a subset of the family law proceedings. The larger dispute, which has a wider scope, is the matrimonial property dispute. Within it sits the corporations dispute.

1. It is not a sensible use of the time and resources of the parties, their lawyers or the courts for those disputes to be determined separately in two different courts. It is plain, so it seems to me, that they ought to be determined together in the one court. Ordinarily, the circumstance that the larger dispute is the matrimonial property dispute of which the corporations dispute forms a smaller part would tend in favour of the view that all the proceedings should be resolved in the family law jurisdiction: see Valceski v Valceski (2007) 70 NSWLR 36, in which in similar circumstances an order was made transferring proceedings from this Court to the Family Court of Australia.

1. However, there are differences in this case because this Court cannot, by making a transfer order, bring about the result that all the proceedings would be heard in the Family Court. That is because under the (Cth) Jurisdiction of Courts (Cross-Vesting) Act 1987 this Court, if it can transfer the corporations proceedings at all, could do so only to the Family Court of Australia, and not to the Federal Circuit Court. The Federal Circuit Court does not have corporations jurisdiction and, although it might well be able to hear the aspects of the corporations claim in its accrued jurisdiction, that remains to a degree uncertain.

1. It is preferable that the cases be resolved in a court which unquestionably has jurisdiction to resolve all of the issues. Two courts only meet that description, the Family Court of Australia, which has jurisdiction in family law matters under the (Cth) Family Law Act 1975, and in corporations matters under the Corporations Act; and this Court, which has jurisdiction in corporations matters under the Corporations Act and in family law matters pursuant to the Jurisdiction of Courts (Cross-Vesting) Act.

1. The difficulty with the Family Court, at least at this stage, is that it is a court in which none of the proceedings presently are pending. Both parties have indicated that an outcome which saw the proceedings being consolidated in this Court would be acceptable, if not attractive, to them. However, I cannot make an order that directly has that effect, because this Court cannot make an order removing proceedings from the Federal Circuit Court.

1. It seems to me that the best course is to stay these proceedings for the time being, on the basis that the stay would be lifted on the proceedings presently in the Federal Circuit Court being transferred to this Court to be consolidated with the Corporations Act proceedings or, if the parties were to decide to pursue both matters in the Family Court of Australia, on an application being made to transfer these proceedings to the Family Court.

1. As it seems to me, the parties can bring about a transfer of the family law proceedings to this Court by applying, pursuant to (Cth) Federal Circuit Court Act 1999, s 39, to that Court to have the proceedings transferred back to the Family Court. Such an order would not likely be made other than by consent, since there has already been an order of the Family Court remitting them to the Federal Circuit Court. However, if the Federal Circuit Court were apprised of the intention then to have the proceedings transferred by the Family Court to this Court, it would probably accede to the application. Once the proceedings are transferred to the Family Court, that Court could be asked to transfer them, pursuant to the Jurisdiction of Courts (Cross-Vesting) Act, to this Court, to be joined with the corporations proceedings so as to enable all the proceedings to be dealt with together in the one court which undoubtedly would have jurisdiction to hear all of them.

1. For those reasons, I propose to stay the present proceedings, at least on an interim basis, to enable those steps to be taken.

1. As to the question of security for costs, it is really unnecessary to deal with it in light of the course which is now proposed to be taken. It suffices to say that the only ground invoked was that referred to in UCPR r 42.21(1)(e), namely, that the plaintiff was suing, not for its own benefit, but for the benefit of another and there was reason to suppose that it would be unable to pay an adverse costs order. Absolutely nothing was adduced to provide reason to suppose that the plaintiff would be unable to pay an adverse costs order. There was a void of evidence on the topic. In those circumstances, the application could not have succeeded.

1. The Court orders that:

(1)   The statement of claim be struck out with leave to replead.

(2)   The proceedings be stayed until:

(a)   the proceedings presently pending in the Federal Circuit Court of Australia numbered (P)SYC4008/2012 are transferred to this Court to be heard with these proceedings or;

(b)   an application is made to this Court for the transfer of these proceedings to the Family Court of Australia; or

(c)   further order of the Court.

(3)   The balance of the interlocutory process be dismissed.

1. The defendant/applicant has substantially succeeded on the strike-out application. It has totally failed on the security for costs application. In respect of the forum question, a mid point has been reached, it being remembered that the applicant's position was that the proceedings in this Court should be permanently stayed so that all proceedings would be in the family law jurisdiction, and the ultimate outcome seems more likely to be that all the proceedings will come to this jurisdiction.

1. Weighing all those matters, I think the proper costs order is that the costs of the interlocutory process be the defendant's costs in the proceedings.

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Decision last updated: 07 July 2014