Kidd v Kwek (No 2)

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FEDERAL COURT OF AUSTRALIA

Kidd v Kwek (No 2) [2024] FCA 194

File number(s): VID 321 of 2021
Judgment of: MCEVOY J
Date of judgment: 1 March 2024
Date of publication of reasons: 5 March 2024
Catchwords: PRACTICE AND PROCEDURE – application for default judgment pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) – where second, third and fourth respondents have failed to comply with Court orders and failed to appear – where second, third and fourth respondents have failed to file notice of address for service – where second, third and fourth respondents in default of appearance – applicant entitled to relief in relation to oppression and derivative claims for breaches of fiduciary duties and ss 180-183 of the Corporations Act 2001 (Cth) – relief granted
Legislation:

Corporations Act 2001 (Cth) ss 180, 181, 182, 183, 232, 233

Federal Court Rules 2011 (Cth) rr 4.05(2), 5.22, 5.23, 20.21

Cases cited:

BJ International Limited v Asghar (No 2) [2013] FCA 580

Chamberlain Group, Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606

Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Pty Ltd (1997) 75 FCR 230

Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388

Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979

Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165

Yeo v Damos Earthmoving Pty Ltd, in the matter of Beachwood Developments Pty Ltd (in liq) [2011] FCA 1129
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 37
Date of hearing: 1 March 2024
Counsel for the Applicant: Mr S Prendergast
Solicitor for the Applicant: Gordon Legal
Solicitor for the Second, Third and Fourth Respondents: The second, third and fourth respondents did not appear.

ORDERS

VID 321 of 2021
BETWEEN:

MICHAEL DAVID KIDD

Applicant
AND:

JOONG LIANG KWEK

First Respondent

WAI HUANG SECK

Second Respondent

SIEW MUI CHEONG (and another named in the Schedule)

Third Respondent

ORDER MADE BY:

MCEVOY J

DATE OF ORDER:

1 MARCH 2024

THE COURT ORDERS THAT:

1.There be judgment for the applicant in the sum of $100,000 against the second, third and fourth respondents for oppressive conduct pursuant to ss 232 and 233 of the Corporations Act 2001 (Cth).

2.The second, third and fourth respondents pay interest to the applicant on the amount in paragraph 1 in the sum of $16,510.14, as calculated in the attached schedule.

3.There be judgment for the fourth respondent against the second and third respondents for breaches of fiduciary duty and breaches of ss 180 to 183 of the Corporations Act, with the quantum of such damages and, or alternatively, an account of profits to be assessed, following which final judgment may be entered with respect to either of those measures at the election of the applicant.

4.The applicant’s costs of and incidental to the proceeding up to the date of these orders be paid by the second and third…

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Details
Case
[2024] FCA 194
Decision Date

CaseChat Overview and Summary

The case of Kidd v Kwek (No 2) involved an application by the applicant, Kidd, for default judgment against the second, third, and fourth respondents for their non-compliance with court orders and failure to participate in proceedings. The case was heard in the Federal Court of Australia. The applicant's claims against the respondents included allegations of oppressive conduct under sections 232 and 233 of the Corporations Act 2001, breaches of fiduciary duties, and breaches of directors' duties under sections 180 to 183 of the Act. The respondents had failed to comply with discovery orders, file notices of address for service, and attend relevant hearings.

The court had to determine whether default judgment could be entered against the second, third, and fourth respondents for their persistent non-compliance with court orders and failure to engage in the proceedings. The applicant argued that the respondents' continued defaults caused unacceptable delay and expense, making it impossible to proceed in a just, orderly, and proper manner. The applicant also contended that on the face of the statement of claim, they were entitled to the relief claimed concerning the oppression claim and the derivative claims for breaches of fiduciary duties and sections 180 to 183 of the Act.

The court found that the second, third, and fourth respondents had indeed failed to comply with court orders, file notices of address for service, and attend hearings. Their conduct demonstrated a continued non-compliance with discovery orders and other court requirements. The court accepted the applicant's submissions that the respondents' defaults caused significant delays and expenses. The court concluded that it was appropriate to enter judgment in default against the second, third, and fourth respondents concerning the oppression claim and the derivative claims for breaches of fiduciary duties and sections 180 to 183 of the Act.

The court made several orders, including judgment in favour of the applicant for $100,000 against the second, third, and fourth respondents for oppressive conduct, with interest calculated at $16,510.14. Additionally, the court ordered that the fourth respondent pay damages or an account of profits to the second and third respondents for breaches of fiduciary duties and sections 180 to 183 of the Act, with the quantum to be assessed later. The applicant's costs of the proceeding up to the date of the orders were to be paid by the second and third respondents.

Orders

Orders of the court

1. There be judgment for the applicant in the sum of $100,000 against the second, third and fourth respondents for oppressive conduct pursuant to ss 232 and 233 of the Corporations Act 2001 (Cth).

2. The second, third and fourth respondents pay interest to the applicant on the amount in paragraph 1 in the sum of $16,510.14, as calculated in the attached schedule.

3. There be judgment for the fourth respondent against the second and third respondents for breaches of fiduciary duty and breaches of ss 180 to 183 of the Corporations Act, with the quantum of such damages and, or alternatively, an account of profits to be assessed, following which final judgment may be entered with respect to either of those measures at the election of the applicant.

4. The applicant’s costs of and incidental to the proceeding up to the date of these orders be paid by the second and third respondents.

ANNEXURE A

SCHEDULE - CALCULATION OF INTEREST

As per the Federal Court of Australia Interest on Judgments Practice Note (GPN-INT)

Period

Judgment Sum

Rate

Amount per day

Days

Interest

6 April 2021 – 30 June 2022

$100,000

4.1%

$11.23

451

$5,066.03

1 July 2022 – 31 December 2022

$100,000

4.85%

$13.28

184

$2,444.93

1 January 2023 – 30 June 2023

$100,000

7.1%

$19.45

181

$3,520.82

1 July 2023 – 31 December 2023

$100,000

8.1%

$22.19

184

$4,083.29

1 January 2024 – 1 March 2024

$100,000

8.35%

$22.87

61

$1,395.07

Total

$16,510.14

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

Background

Background to the litigation

By statement of claim dated 24 March 2023, the applicant pleads, in summary, that: (a)the first, second and third respondents have engaged in conduct in the affairs of the fourth respondent, Terrawood, which is contrary to the interests of members as a whole, and/or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the applicant, within the meaning of ss 232(d) and 232(e) of the Act; (b)as a consequence: (i)the fourth respondent’s assets have been improperly depleted with the effect that the applicant has not been repaid capital contributions he made when the company was commenced or the money he mistakenly paid to the fourth respondent, and the applicant has not received any dividends which might have been paid by the fourth respondent had its assets not been depleted; and (ii)the applicant has not received a fair value for his shares in the fourth respondent after being excluded from the business; (c)further, or in the alternative, the first, second and third respondents owed fiduciary duties to Terrawood (the fourth respondent) not to use their position to gain a profit or advantage for themselves and not to obtain a benefit by entering into transactions in conflict with their duties and by reason of the matters pleaded they have breached their fiduciary duties to Terrawood; and(d)further, or in the alternative, the first, second and third respondents as directors and/or officers of the fourth respondent owed duties to Terrawood under ss 180-183 of the Act to exercise their powers with reasonable care and diligence, act in good faith in the best interests of the company, not improperly use their position or information to gain an advantage for themselves, someone else or to cause detriment to the company, and that by reason of the matters pleaded they have breached their directors’ and officers’ duties. RELEVANT BACKGROUND On 24 March 2023, the Court made orders that the parties were to each make discovery pursuant to a Redfern Discovery Procedure on or before 4:00pm on 6 April 2023. Mr Currie deposes in his First Affidavit that the parties agreed on 2 May 2023 to exchange lists of documents by 5 May 2023 in relation to various categories of documents. On 8 May 2023 the first respondent swore, filed and served an affidavit and list of documents on behalf of himself and the fourth respondent. The second respondent and the third respondent did not serve any list of documents. On 14 July 2023 the applicant made an application for particular discovery to resolve perceived deficiencies in the first and fourth respondents’ discovery, and to seek discovery of certain documents from the other respondents. Until this point, the second, third and fourth respondents had been participating in the proceeding. On 1 August 2023 the second and third respondent’s lawyer filed notices of ceasing to act, and on 9 August 2023 filed a notice of ceasing to act for the fourth respondent. It appears from company searches dated 3 August 2023 and 29 February 2024 that at all relevant times since 24 May 2022 the third respondent, Ms Cheong, has been recorded on ASIC’s register as the sole director of the fourth respondent, Terrawood. To date, neither the second, third nor the fourth respondent have filed notices of address for service in accordance with r 4.05(2) of the Rules.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The applicant submits that the account of profits and compensation orders sought are common remedies for breaches of fiduciary and directors’ duties that are pleaded in the statement of claim, that they are within the jurisdiction of the Court, and that they should be made pursuant to r 5.23(2)(c) and (d) of the Rules. The applicant also submits that it is appropriate for an order to be made providing that he may make an election between the two measures before final judgment is entered: see Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165; Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Pty Ltd (1997) 75 FCR 230. CONSIDERATION The applicant contends that by sending the 10 August 2023 orders to the Pakenham address, service was properly effected against the third and fourth respondents pursuant to s 109X of the Act. The applicant also submits that it served the second, third, and fourth respondents the 30 August 2023 orders in accordance with the methods in those orders. I am satisfied that the second, third and fourth respondents were served in accordance with the Rules and that they were on notice of each of the hearings before the Registrar and the hearing before me on 1 March 2024. Accordingly, I am satisfied that the second and third respondents have: (a)failed to make any discovery at all in the proceeding and consistently failed to comply with Court orders in relation to discovery (including the orders made on 24 March 2023, 10 August 2023 and 30 August 2023);(b)failed to file notices of address for service in accordance with r 4.05(2); and (c)failed to attend hearings in relation to discovery on 10 August 2023 and 30 August 2023 and hearings in relation to this application. I am also satisfied that the fourth respondent has: (a)failed to comply with Court orders in relation to discovery (including the Orders made on 10 August 2023 and 30 August 2023); (b)failed to file notices of address for service in accordance with r 4.05(2); and (c)failed to attend hearings on 10 August 2023, 30 August 2023, 20 October 2023, and 2 November 2023. It is apparent from the chronology that since their solicitors ceased to act in August 2023, the second, third and fourth respondents have not engaged in these proceedings and have evinced no intention of complying with the orders of the Court. They have proffered no explanation for their continuing defaults. The applicant submits, and I accept, that their conduct demonstrates continued non-compliance with discovery orders, failure to provide addresses for service, and failures to attend hearings. They have been given ample opportunity to remedy their defaults by way of extensions of time for compliance with discovery orders and the adjournment of relevant hearings. In these circumstances, the continuing default by the second, third and fourth respondents is causing unacceptable delay and expense to the applicant such that the Court cannot be satisfied that the proceeding can continue against any of the respondents in a just, orderly and proper manner. I am satisfied that on the face of the statement of claim the applicant is entitled to the relief that is claimed in so far as the oppression claim and derivative claim for breaches of fiduciary duty and ss 180-183 of the Act are concerned. The elements of the oppression claim, the derivative claim for breaches of fiduciary duties and for breaches of ss 180-183 of the Act are pleaded. Although conscious that default judgment should not be entered lightly, in the present circumstances I am satisfied that it is appropriate to enter judgment in default against the second, third and fourth respondents in respect of those claims. Having regard to the fact that the second, third and fourth respondents had previously participated actively in the proceeding, it may be observed that their attitude is inexplicable and unsatisfactory.