Irons v Nev House Pty Limited
[2018] FCA 1010
•25 June 2018
FEDERAL COURT OF AUSTRALIA
Irons v Nev House Pty Limited
[2018] FCA 1010
File number: NSD 918 of 2018 Judge: RARES J Date of judgment: 25 June 2018 Legislation: Competition and Consumer Act 2010 (Cth) Sch 2, Australian Consumer Law s 18
Corporations Act 2001 (Cth)
Federal Court Rules 2011 Div 10.4, rr 10.42, 10.43
Hague Convention (Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters)
Cases cited: BY Winddown Inc v Vautin (2016) 249 FCR 262
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Ho v Akai Pty Ltd (In Liq) (2006) 247 FCR 205
Date of hearing: 25 June 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: No Catchwords Number of paragraphs: 21 Solicitor for the Applicant: Mr B J Miller of Garland Hawthorn Brahe Solicitors ORDERS
NSD 918 of 2018 BETWEEN: GORDON IRONS
Applicant
AND: NEV HOUSE PTY LIMITED (ACN 610 251 968)
First Respondent
NEV HOUSE HOLDING LIMITED (ACN 611 388 679)
Second Respondent
NEV EARTHFUND S.C.A. SICAV-RAIF (and another named in the Schedule)
Third Respondent
JUDGE:
RARES J
DATE OF ORDER:
25 JUNE 2018
THE COURT ORDERS THAT:
1.Pursuant to r 10.43 of the Federal Court Rules 2011, the applicant have leave to serve the originating application and statement of claim on the third respondent Nev Earthfund S.C.A. SICAV-RAIF at its registered office, 6C rue Gabriel Lipmann, L‑5365 Munsbach, Grand Duchy of Luxemburg, pursuant to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)RARES J:
This is an application by Gordon Irons for leave to serve the third respondent, Nev Earthfund S.C.A. Sicav-Raif, in the Grand Duchy of Luxembourg, with his originating application and statement of claim.
Background
On 18 January 2016, the first respondent, Nev House Pty Limited, through its founder and chairman, Neville Hyman, wrote to Mr Irons, offering him employment, which he accepted. The terms included a success fee equal to 5% of any equity capital raised by Nev House within a specified 12-month period.
Mr Irons became a director and shareholder of Nev House, holding one of its four issued shares, the others being held by a company called Surf Management Systems Pty Ltd and two co‑directors of Nev House, Hayden Filer and Kacey Bridge.
On 18 March 2016, Nev House Holdings Limited was incorporated under the Corporations Act 2001 (Cth). It came to have 96,365,898 ordinary shares on issue, together with over 10,000 cumulative preference shares. Mr Hyman is one of Holdings’ directors and its secretary, and both Mr Bridge and Mr Filer are currently its directors.
A meeting of directors of what its minutes described as “Nevhouse – an Australian unlisted public company” took place on 8 April 2016. I infer that that description, on the material before me, is a reference to Holdings. Item 3 of the minutes recorded that shares were to be allocated in “Newco (an Australian unlisted company)”. The item had the heading “Approval of Newco shares to be allocated to senior management”. The minutes have a degree of ambiguity as to how the allocation was to occur, but reflect that it had been decided in principle, subject to further modelling, to increase the total share pool of Holdings to 12 million shares which would involve diluting the interest of all shareholders other than those who had paid for their shares.
Also on 8 April 2016, Mr Hyman, in his capacity as founder and chairman, wrote a letter to Mr Irons on the letterhead of simply “Nev House”, copying Mr Filer and Mr Bridge. The letter was headed “Approved share allocations and the way forward”. The letter referred to Mr Hyman’s understanding from the board meeting of the same day that the directors needed to increase the number of issued shares from 10 to 12 million, and that the new investors would be entitled to 14.4% of “Nevhouse” (which appears to be a reference to Holdings), assuming that $3 million could be raised. It stated that:
As the CEO and MD, the ordinary shares you have been issued with are [sic; scil “a share”] in the parent company – an unlisted Australian public company. This company will be established by PwC and include you, me, Hayden and Kacey as its Directors.
Approved allocation of Nevhouse shares
•Number of authorised ordinary fully paid Nevhouse shares: 12,000,000
•Number of ordinary fully paid Nevhouse shares registered against your name on the register of members: 1,160,063 (One Million One Hundred and Sixty Thousand and Sixty-Three)
•Number of shares as a % of authorised shares of Nevhouse: 9.7% (bold emphasis in original, bold and italic emphasis added)
On the material presently in evidence, the above passage appears to refer to a decision by the directors of Holdings to allot 1,160,063 shares to Mr Irons as part of a more extensive allotment to its existing and prospective shareholders. Mr Hyman wrote that he understood that Mr Irons would like the shares to be issued in the name of Mr Irons’ family trust, and had asked Mr Filer to ensure that occurred, in coordination with the accounting firm PwC, or PricewaterhouseCoopers, when the shares came later to be issued.
In the event, relations appear to have soured, and Mr Hyman wrote to Mr Irons on 18 August 2016, summarily dismissing him from his position.
At some time in 2017, Holdings and Earthfund appear to have agreed that Earthfund would offer the opportunity to shareholders in Holdings to convert their shares into convertible bonds in Earthfund. Holdings sent to its shareholders a cover page of a document entitled “Explanatory Cover Page” and a draft deed. The cover page attached a draft between Holdings and a “bondholder” who was intended to be the shareholder to whom the correspondence had been sent. The recipient had to complete and return the deed by 30 November 2017. The cover page recorded that Holdings had approved unanimously, at its annual general meeting, that registered shareholders would “vote to roll my shareholding into the entity [Earthfund].”
Mr Irons complained that at no time did he receive a share certificate evidencing the allotment to him of 1,160,063 shares, or 9.7% of the then issued capital of Holdings, and that it and Earthfund had refused to recognise that he has such an interest at all. This is reflected in a letter dated 13 September 2017, from solicitors for Holdings and Nev House, in which, on behalf of their clients, they rejected Mr Irons’ demand to be issued the shares the subject of the letter dated 8 April 2016. The solicitors wrote that Mr Irons was “never the CEO of Holdings, as you incorrectly assert in your correspondence dated 11 September 2017”. They asserted that his claim that the board of Holdings had resolved to allot him 9.7% of its issued ordinary shares was “significantly misguided and completely false”, because Mr Irons’ employment was with Nev House and not Holdings, and that Holdings did not exist on 18 January 2016, when the employment agreement was made.
The letter went on to make a number of dismissive statements as to the merits of Mr Irons’ claims of there being a resolution to allot him shares. The solicitors enclosed a copy of the 8 April 2016 minutes, noting that at no point in those minutes was there a record confirming his entitlement or approving unanimously an allotment to him of 9.7% of the issued shares in Holdings. The letter asserted that the minutes “clearly state that there was a decision reached only in principal [sic] to increase the total share pool of Holdings to 12 million shares however, such decision was subject to further modelling” which was then later to be undertaken. The letter asserted that Mr Irons was entitled to one share alone in Holdings and that that holding arose “solely as a result of you being noted as director and shareholder of Holdings when it was first incorporated on 18 March 2016 along with three other directors and shareholders”. The letter recorded that Mr Irons had been removed as a director of Holdings on 3 October 2016, following the termination of his employment by Nev House.
Consideration
Obviously, on an application such as this, any statement that a court must make about “facts” is necessarily based on the limited material before it. I have not formed any concluded view as to what may be the actual facts that will appear if a fully-contested hearing with admissible evidence occurs.
The requirements to authorise service out of the jurisdiction and in Luxembourg are set out in Div 10.4 of the Federal Court Rules 2011, and in particular in r 10.43(4). That requires that Mr Irons satisfy me that the Court has jurisdiction in the proceeding, it is of a kind mentioned in r 10.42 and he has a prima facie case for all or any of the relief claimed in the proceeding. The principles applicable on an application to serve a person out of the jurisdiction under r 10.43 are those that Finn, Weinberg and Rares JJ stated in Ho v Akai Pty Ltd (In Liq) (2006) 247 FCR 205 at 208 [10] and 215-216 [45]-[47].
Relevantly, Mr Irons seeks relief based on the obligation of Holdings and or Mr Hyman to issue, or cause to be issued, to Mr Irons (or his nominee) what are now 9,315,866 shares in Holdings. Mr Irons seeks an order that Holdings and Earthfund take all steps necessary to convert those shares, when issued, in accordance with the explanatory cover page and the draft deed to which I have referred, or, alternatively, damages against Nev House and Mr Hyman for breach of contract and or under the Australian Consumer Law, and against Holdings for inducing a breach of that contract to allot the shares, by its failure to do so.
It appears from the statement of claim, but there is no evidence of this, that in about January 2017, Holdings increased the number of its ordinary shares from 12 million to the current issued figure of a little over 96 million shares.
Despite the strident assertions of the solicitors acting for Nev House and Holdings, in my opinion, in the circumstances, Mr Irons has established a sufficient prima facie case, based on Mr Hyman’s letter of 8 April 2016. That letter appears, prima facie to record a resolution by the directors for an allotment of 9.7% of its issued shares, or promise to allot those shares, by Holdings, to Mr Irons based on a proposed issue of, at that time, 12 million shares, in consideration of his being, and agreeing to continue as, the chief executive officer and managing director of Nev House, which was Holdings’ subsidiary.
I am satisfied that the letter sufficiently evinces a prima facie case of either a contract for the issue of shares, although there may be issues as to whether Mr Irons gave consideration for that issue, or a representation, in trade or commerce, to the effect that Holdings would allot Mr Irons the promised shares. Again, there may be issues as to whether the representation was made in trade or commerce, despite its apparent trading or commercial character: see for example Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602 per Mason CJ, Deane, Dawson and Gaudron JJ.
On the material before me, Earthfund does not appear to be involved in any conduct directly with Mr Irons other than its recognition that he is a shareholder in Holdings and entitled to have whatever shares he held (or was entitled to be allotted) in Holdings converted into Earthfund’s securities. However, Earthfund is a proper and necessary party to the controversy because, if Mr Irons’ claim for the allotment succeeds, and he is entitled to be issued the shares he claims, Earthfund must convert them into its securities and issue them to him (or his nominee).
For these reasons, the proceeding appears to fall within one or more or all of the following items in the table in r 10.42, being a proceeding:
·based on a cause of action arising in Australia (item 1);
·based on a breach of contract in Australia (item 2);
·that affects Mr Irons in relation to his membership of Holdings, which carries on business in Australia (item 8);
·based on a contravention of s 18 of the Australian Consumer Law in Sch 2 of the Competition and Consumer Act 2010 (Cth) committed in Australia (item 12); and
·brought against Nev House and Holdings, which have been served in Australia, and Earthfund, which has been properly joined as a party (item 20): see BY Winddown Inc v Vautin (2016) 249 FCR 262.
I am satisfied, by the affidavits of Brenden John Miller of 29 May 2018 and 22 June 2018 and a publication of the Hague Conference, that Luxembourg is a party to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965, and permits service under its provisions.
Conclusion
For these reasons, I will order that Mr Irons have leave to serve Earthfund in Luxembourg.
I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate:
Dated: 4 July 2018
SCHEDULE OF PARTIES
NSD 918 of 2018 Respondents
Fourth Respondent:
NEVILLE CHARLES HYMAN
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