Morris v McConaghy Australia Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Morris v McConaghy Australia Pty Ltd

[2018] FCA 435

File number: NSD 1195 of 2017
Judge: RARES J
Date of judgment: 15 February 2018
Catchwords:

PRIVATE INTERNATIONAL LAW – shareholders’ dispute involving individual and companies incorporated outside Australia - application for leave to serve originating application out of jurisdiction on foreign shareholder under Federal Court Rules 2011 r 10.43 – application seeking relief including winding up of foreign company that carries on business in Australia as Part 5.7 body on just and equitable ground under Corporations Act 2001 (Cth) s 583(c)(ii) – whether foreign shareholders in Cayman Islands and Hong Kong properly joined as parties under item 20 of r 10.42 in proceeding against Australian company – where applicant managing director and shareholder alleged shareholders’ agreement provided that Part 5.7 body operate as quasi-partnership, exclusion from management of Part 5.7 body and claims under Fair Work Act 2009 (Cth) against Australian company and Part 5.7 body – whether prima facie case for relief and jurisdiction to grant the relief claimed under r 10.43(4)

PRIVATE INTERNATIONAL LAW– application by foreign shareholder for stay of proceedings on forum non conveniens grounds under Federal Court Rules 2011 r 13.01 – where shareholders’ agreement confers non-exclusive jurisdiction on Hong Kong courts – consideration of residual discretion to refuse leave to serve outside Australia under Federal Court Rules 2011 r 10.43(4) – whether Australia clearly inappropriate forum – whether claims under Fair Work Act 2009 and Corporations Act 2001 discrete from shareholders’ dispute  – consideration of Court’s duty under Federal Court of Australia Act 1976 (Cth) s 22 to avoid multiplicity of proceedings

PRIVATE INTERNATIONAL LAW – application to discharge anti-anti-suit injunction against foreign shareholder in Cayman Islands and set aside service of interlocutory application for that injunction – application dismissed   
Legislation:

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth) ss 9, 583

Fair Work Act 2009 (Cth) s 570

Federal Court of Australia Act 1976 (Cth) Pt VB, s 22

Federal Court Rules 2011 rr 10.42, 10.43, 11.01, 13.01

Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters 

Cases cited:

Abela v Baadarani [2013] 1 WLR 2043

Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317

BY Winddown Inc v Vautin (2016) 249 FCR 262

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304

Century Insurance Ltd (in prov liq) v New Zealand Guardian Trust Ltd [1996] FCA 376

Costa Vraca Pty Limited v Bell Regal Pty Limited [2003] FCAFC 305

Ebrahimi v Westbourne Galleries Limited [1973] AC 360

Ho v Akai Pty Ltd (In Liq) (2006) 247 FCR 205

Morris v McConaghy Australia Pty Limited [2017] FCA 1526

Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197

Thomson Australian Holdings Pty Limited v Trade Practices Commission (1981) 148 CLR 150

Trina Solar (US) Inc v Jasmin Solar Pty Ltd (2017) 247 FCR 1

Vautin v BY Winddown Inc (No 2) [2016] FCA 1235

Voth…

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Details
Case
[2018] FCA 435
Decision Date

CaseChat Overview and Summary

The case of Morris v McConaghy Australia Pty Ltd involved a dispute between shareholders of a company registered in the Cayman Islands, with business operations in Australia. The primary applicant, Mr Morris, sought relief including the winding up of the company, McConaghy Australia Pty Ltd, and the purchase of his shares by the other shareholders under an alleged implied term in a shareholders' agreement. The court was tasked with determining whether Mr Morris could serve the fourth respondent, Tiger Yacht Management, a company incorporated in the Cayman Islands, outside of Australia, and whether the court had jurisdiction to grant the relief claimed.

The legal issues before the court included whether the foreign shareholders were properly joined as parties under the Federal Court Rules 2011, and whether there was a prima facie case for the relief sought. Additionally, the court considered whether Australia was a clearly inappropriate forum for the dispute and if there was a duty to avoid multiplicity of proceedings.

The court found that the relationship between the parties had broken down, necessitating court intervention. It held that Mr Morris had established a prima facie case for relief, satisfying the requirements of Federal Court Rules 2011 r 10.43(4). The court reasoned that Australia was not a clearly inappropriate forum for the dispute, and there was no basis to refuse leave to serve Tiger outside of Australia. Consequently, the court granted Mr Morris leave to serve Tiger in the Cayman Islands and dismissed Tiger's application to discharge the anti-anti-suit injunction.

The final orders of the court included granting Mr Morris leave to serve Tiger in the Cayman Islands, dispensing with further service on Tiger, making Tiger's notice of appearance unconditional, and ordering Tiger to pay Mr Morris' costs. The proceeding was stood over for a case management hearing.

Orders

Orders of the court

1. The applicant have leave under r 10.43 of the Federal Court Rules 2011 to serve the fourth respondent, Tiger Yacht Management (a company incorporated in the Cayman Islands), in the Cayman Islands.

2. Any further service on the fourth respondent be dispensed with.

3. The notice of appearance filed by the fourth respondent pursuant to order 3, made on 19 October 2017, be unconditional.

4. The fourth respondent pay the applicant’s costs of the interlocutory applications heard on 14 and 15 February 2018.

5. The proceeding be stood over for a case management hearing on 9 March 2018 at 9.30am.

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

Background

Background to the litigation

Relevantly, in order to establish his entitlement to serve Tiger under r 10.43(2), Mr Morris has to satisfy the requirements of r 10.43(4), which provides:(4) For subrule (2), the party must satisfy the Court that:(a) the Court has jurisdiction in the proceeding; and(b) the proceeding is of a kind mentioned in rule 10.42; and(c)the party has a prima facie case for all or any of the relief claimed in the proceeding.Background I set out some of the background facts in my earlier reasons (Morris [2017] FCA 1526), but the parties subsequently added a great deal of material, some of which may have been admissible as evidence, but most of which appeared in the text of affidavits to be nothing more than inadmissible assertions, conclusions or submissions, leaving aside annexures of particular business records that may be relevant. Much of that inadmissible or problematic material involved allegation and counter-allegation that the tendering party wished to advance in support or against the party’s establishment of attempt to prove or disprove that MC2 was a Part 5.7 body for the purposes of the Corporations Act 2001 (Cth), namely, that it was a registrable body that was a foreign company and “is not registered under [Div 2 of Pt 5B.2] but carries on business in Australia” (within the meaning of para (b)(ii) of the definition of a Part 5.7 body in s 9 of that Act). The reason for that was that Mr Morris, as I noted in Morris [2017] FCA 1526 at [12], seeks an order under s 583(c)(ii) of the Act for the winding up of MC2 as a Part 5.7 body on the just and equitable ground. Alternatively, Mr Morris seeks, as against Tiger and Mr Evans, orders that require them to purchase his shares in MC2 pursuant to an implied term in, or alternatively, on the proper construction of cl 11.4 of, the shareholders agreement dated 21 February 2014 between Mr Morris, Mr Evans, Tiger and MC2. Mr Morris accepts that it is possible that, read literally, he may not be a person capable of requiring the other two shareholders to purchase his shareholding in MC2 because cl 11.4, on which he relies, applies in terms, only to a shareholder who ceases to be a full time employee of MC2, but who is not a party to the shareholders’ agreement. Mr Morris, of course, is a party to the shareholders agreement. However, he contends that in breach of cl 5.2, under which “the Business [defined as the business of [MC2], as described in recital B] will be vested in [Mr Morris] and [Mr Evans] as joint Managing Directors”, he has been excluded from the management of the equal partnership between him and Mr Evans, on the one hand, and Tiger, on the other, that is contemplated in the recitals of the shareholders agreement and in its operative terms. Hence, his originating application seeks relief in accordance with the principles in Ebrahimi v Westbourne Galleries Limited [1973] AC 360 at 378B-380F. There Lord Wilberforce said ([1973] AC at 380D-E; see also Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 360 [175] per Gummow, Hayne, Heydon and Kiefel JJ):The just and equitable provision nevertheless comes to his assistance if he can point to, and prove, some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continues he shall be entitled to management participation, an obligation so basic that, if broken, the conclusion must be that the association must be dissolved. And the principles on which he may do so are those worked out by the courts in partnership cases where there has been exclusion from management (see Const v. Harris (1824) Tur. & Rus. 496, 525) even where under the partnership agreement there is a power of expulsion (see Blisset v. Daniel (1853) 10 Hare 493; Lindley on Partnership, 13th ed. (1971), pp. 331, 595).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The fact is that, unfortunate as it is, the relationship between the parties who are presently joined in the proceedings appears to have broken down and requires, in the absence of consensual resolution, a court to finally determine the parties’ rights and make enforceable orders in respect of them.Conclusion This Court is not a clearly inappropriate Court in which to hear the controversy between all five parties and indeed I am comfortably satisfied that it is in the interests of justice and, having regard to s 22 of the Federal Court of Australia Act, that it should be heard in this Court. The anti-suit injunction that Tiger seeks in the Grand Court of the Cayman Islands would, as senior counsel for Tiger recognised, forestall that course were it allowed to proceed uninterrupted by the anti-anti-suit injunction continuing. I am of opinion that Mr Morris is entitled to an order under r 10.43(4) to serve Tiger out of the jurisdiction in the Cayman Islands. It follows that I should dismiss Tiger’s application to discharge the interlocutory anti-anti-suit injunction. In the event that Mr Morris bore the onus of proving that that injunction should continue, I am also satisfied that it should. For these reasons, I will order, first, that the applicant have leave under r 10.43(4) to serve Tiger in the Cayman Islands, secondly, any further service on Tiger be dispensed with, thirdly, Tiger’s notice of appearance filed pursuant to order 3, made on 19 October 2017, be unconditional, and fourthly, Tiger pay Mr Morris’ costs of the interlocutory applications heard on 14 and 15 February 2018.

Ratio Decidendi

Legal Principle Established

Tiger contended that the shareholders’ agreement provided that it would be governed by and construed in accordance with the laws of the Special Administrative Region of Hong Kong in the People’s Republic of China, and each of the parties submitted to the non-exclusive jurisdiction of the courts in that jurisdiction for the purpose of legal action or proceedings arising out of, or in connection with, that agreement (cl 25).Consideration In Ho v Akai Pty Ltd (In Liq) (2006) 247 FCR 205 at 208 [10], Finn, Weinberg and Rares JJ said:As has been observed on many occasions, the prima facie case requirement has to be met at the outset, usually on an ex parte basis, and without the advantage of discovery and other procedural aids to the making out of a case: see eg Merpro Montassa Ltd v Conoco Specialty Products Inc (1991) 28 FCR 387 at 390. It “should not call for a substantial inquiry”: WSGAL Pty Ltd v Trade Practices Commission (1992) 39 FCR 472 at 476; see also Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549. For present purposes it is sufficient to say that a prima facie case for relief is made out if, on the material before the court, inferences are open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 30 FCR 102 at 110. Or, to put the matter more prosaically as Lee J did in Century Insurance Ltd (in prov liq) v New Zealand Guardian Trust Ltd [1996] FCA 376:What the Court must determine is whether the case made out on the material presented shows that a controversy exists between the parties that warrants the use of the Court's processes to resolve it and whether causing a proposed respondent to be involved in litigation in the Court in Australia is justified. The requirement of r 10.43(4)(c), that there be a prima facie case for all or any of the relief sought, will be satisfied if the applicant makes out a prima facie case, to the standard referred to above, in respect of any one of the causes of action for which relief is sought: Ho 247 FCR at 215 to 216 [45] applying Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 in respect of an analogue of r 10.43(4)(c). In BY Winddown Inc v Vautin (2016) 249 FCR 262, Besanko, Middleton and Griffiths JJ refused leave to appeal from my decision (Vautin v BY Winddown Inc (No 2) [2016] FCA 1235) to grant leave to serve, outside the jurisdiction, a manufacturer of a yacht alleged to be defective. I had found that the applicant had established that the manufacturer was a person who had been properly joined as a party, under item 20 in the table to r 10.42, in proceedings against a person, being the manufacturer’s Australian distributor, who had been served in Australia. I found that it was not necessary to prove, relevantly, that the foreign manufacturer was carrying on business in Australia so as to attract a remedy under the Competition and Consumer Act 2010 (Cth), being the foundation of the liability that the applicant (Mr Vautin) wished to assert directly against it. The Full Court followed an earlier decision of the Full Court in Costa Vraca Pty Limited v Bell Regal Pty Limited [2003] FCAFC 305, saying (249 FCR at 272 [44]):Although the previous rule, ie O 8 r 2(2)(c), spoke of “a prima facie case for the relief sought by the party in the proceeding”, and r 10.43(4)(c) speaks of the party having “a prima facie case for all or any of the relief claimed in the proceeding”, this change in terminology does not provide a sufficient basis for not continuing to apply the approach in Costa Vraca. That is primarily because, in both situations, central attention is directed to the question whether the foreign party is involved in the “matter”. It is sufficient in that context that a prima facie case for relief is made out in respect of the local party (significantly, the applicant acknowledged below that Mr Vautin had a prima facie case for relief against Eagle Yachts, as the primary judge himself had also found at [13] in his reasons for judgment on the ex parte application …). This approach to the construction of the relevant provisions of the [Rules] gives full effect to s 22 of the [Federal Court of Australia Act 1976 (Cth)]. (emphasis added)