Morris v McConaghy Australia Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Morris v McConaghy Australia Pty Ltd

[2017] FCA 1526

File number: NSD 1195 of 2017
Judge: RARES J
Date of judgment: 13 October 2017
Date of order: 19 October 2017
Legislation:

Corporations Act 2001 (Cth) s 583

Fair Work Act 2009 (Cth) ss 323, 545, 547

Federal Court Rules 2011 r 10.42

Cases cited:

BY Winddown, Inc v Vautin [2016] FCAFC 168

Ho v Akai Pty Ltd (in liq) (2006) 247 FCR 205

Date of hearing: 13 October 2017
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: 23
Counsel for the Applicant: Mr E Cox
Solicitor for the Applicant: Aus Ship Lawyers

ORDERS

NSD 1195 of 2017
BETWEEN:

JONATHAN MORRIS

Applicant
AND:

MCCONAGHY AUSTRALIA PTY LTD

First Respondent

MC2 COMPOSITES LIMITED (A COMPANY INCORPORATED IN THE CAYMAN ISLANDS)

Second Respondent

MARK EVANS (and another named in the Schedule)

Third Respondent

JUDGE:

RARES J

DATE OF ORDER:

19 OCTOBER 2017

THE COURT ORDERS THAT:

1.The applicant have leave under r 10.43 of the Federal Court Rules 2011 to serve the second respondent, MC2 Composites Limited, in the Cayman Islands in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil on Commercial Matters done at the Hague on 15 November 1965 with the following documents:

(a)Originating Application filed 19 July 2017;

(b)Concise Statement filed 19 July 2017;  and

(c)this order.

2.The applicant have leave under r 10.43 of the Federal Court Rules 2011 to serve the third respondent, Mark Evans, in Hong Kong S.A.R. in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil on Commercial Matters done at the Hague on 15 November 1965 with the following documents:

(a)Originating Application filed 19 July 2017;

(b)Concise Statement filed 19 July 2017;  and

(c)this order.

3.The fourth respondent file and serve a notice of appearance in accordance with r 11.01 of the Federal Court Rules 2011.

4.The fourth respondent file and serve affidavit evidence in support of its interlocutory application dated 12 October 2017 on or before 15 November 2017.

5.The applicant file and serve affidavit evidence in response to the fourth respondent’s interlocutory application on or before 15 December 2017.

6.The interlocutory applications filed by the applicant and fourth respondent dated 7 September 2017, 29 September 2017 and 12 October 2017 be listed for hearing on 9 February 2018.

THE COURT NOTES THAT:

7.The appearance by the fourth respondent is to contest jurisdiction and to seek a stay on forum non conveniens grounds in accordance with r 13.01 of the Federal Court Rules 2011 and if the Court finds that it has jurisdiction over the fourth respondent and does not order any stay of the proceedings the appearance will have full effect as a notice of appearance for all purposes in accordance with the Rules.

8.Costs of the interlocutory hearing on 13 October 2017 are reserved.

9.Liberty…

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Details
Case
[2017] FCA 1526
Decision Date

CaseChat Overview and Summary

In the case of Morris v McConaghy Australia Pty Ltd, the dispute involved a shareholders' disagreement over a boat-building business that originated in Australia but had operations in various countries. The case was before the Federal Circuit Court, which was required to determine whether certain parties could be served with legal documents outside of Australia. The primary legal issue was whether the Court had jurisdiction to order service of the proceedings on parties located in Hong Kong and the Cayman Islands, specifically Mark Evans, Tiger Yacht Management Limited, and MC2 Composites Limited.

The Court considered the nature of the dispute, which included claims of unpaid wages and the potential winding up of the company on just and equitable grounds. It found that there was a prima facie case that the relationships between the parties had broken down and that the dispute was sufficiently connected to the claim for unpaid wages. This connection justified the joinder of the other investors in the company and the service of documents on them out of jurisdiction. The Court also noted that the directors and officers of the Australian company regarded themselves as bound to follow the instructions of the foreign holding company, which was a factor in establishing jurisdiction.

The Court granted the applicant's request to serve the second and third respondents, MC2 Composites Limited and Mark Evans, in the Cayman Islands and Hong Kong, respectively, with the necessary documents. It also ordered the fourth respondent to file and serve a notice of appearance and set a date for hearing the interlocutory applications. The Court reserved costs and noted that liberty to apply was granted.

Orders

Orders of the court

1. The applicant have leave under r 10.43 of the Federal Court Rules 2011 to serve the second respondent, MC2 Composites Limited, in the Cayman Islands in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil on Commercial Matters done at the Hague on 15 November 1965 with the following documents:

(a) Originating Application filed 19 July 2017;

(b) Concise Statement filed 19 July 2017; and

(c) this order.

2. The applicant have leave under r 10.43 of the Federal Court Rules 2011 to serve the third respondent, Mark Evans, in Hong Kong S.A.R. in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil on Commercial Matters done at the Hague on 15 November 1965 with the following documents:

(a) Originating Application filed 19 July 2017;

(b) Concise Statement filed 19 July 2017; and

(c) this order.

3. The fourth respondent file and serve a notice of appearance in accordance with r 11.01 of the Federal Court Rules 2011.

4. The fourth respondent file and serve affidavit evidence in support of its interlocutory application dated 12 October 2017 on or before 15 November 2017.

5. The applicant file and serve affidavit evidence in response to the fourth respondent’s interlocutory application on or before 15 December 2017.

6. The interlocutory applications filed by the applicant and fourth respondent dated 7 September 2017, 29 September 2017 and 12 October 2017 be listed for hearing on 9 February 2018.

THE COURT NOTES THAT:

7. The appearance by the fourth respondent is to contest jurisdiction and to seek a stay on forum non conveniens grounds in accordance with r 13.01 of the Federal Court Rules 2011 and if the Court finds that it has jurisdiction over the fourth respondent and does not order any stay of the proceedings the appearance will have full effect as a notice of appearance for all purposes in accordance with the Rules.

8. Costs of the interlocutory hearing on 13 October 2017 are reserved.

9. Liberty to apply.

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

Background

Background to the litigation

This proceeding concerns a shareholders’ dispute involving a boat-building business conducted in various countries, but which originated in Australia.Background On 21 February 2014, Jonathan Morris, who, with the third respondent, Mark Evans, sold their boat-building business called the McConaghy Group, including McConaghy Pty Limited and McConaghy One Pty Limited, both of which were incorporated in Australia, that they had operated since about 2000, to a Cayman Islands special purpose vehicle, MC2 Composites Limited. The sale occurred under a shareholders’ agreement between Mr Morris, Mr Evans, MC2 and Tiger Yacht Management Limited, another Cayman Islands company under the control of Graham Porter. On the same date, 21 February 2014, the four parties to the shareholders’ agreement also entered into an investment agreement with McConaghy Holdings Limited and Mr Porter. The investment agreement related to MC2, which, in both agreements, was called “the company”. The shareholders’ agreement provided that the business of MC2 included, first, any subsidiary and, secondly, the business of designing and manufacturing marine and industrial products incorporating composite technology, whilst preserving the core business of boat-building. The shareholders’ agreement recited that the parties wished to conduct the business as an equal partnership between Mr Morris and Mr Evans on the one hand and Tiger on the other hand. The parties agreed that the business of MC2 would be conducted in accordance with a business plan that would be approved by the board of MC2 at its first directors’ meeting, sound and good business practice and the highest ethical and professional standards. The board of MC2 was to consist of six directors, three of whom were appointed by Mr Morris and Mr Evans jointly, and the other three by Tiger. The board originally included Mr Porter, two of his nominees, together with Mr Morris, Mr Evans and a Richard Hudson who was the latter two’s nominee. The parties agreed that directors’ meetings would be held on 14 days’ notice with an agenda identifying what was the proposed business to be discussed. The shareholders’ agreement provided that, unless otherwise agreed by the shareholders, no fees or other remuneration would be paid to directors in their capacity as such, but that the directors would be entitled to be reimbursed for out-of-pocket expenses reasonably incurred by them (cl 4.5). Responsibility for the overall management and supervision of MC2 and its business was vested in its board, but Mr Morris and Mr Evans were to be its joint managing directors with responsibility for its day-to-day management and supervision. They had to report to the board (cl 5). Only “eligible” persons were entitled to be shareholders and in the event that a shareholder, other than a party to the shareholders’ agreement, being possibly Mr Morris, ceased to be an employee of MC2, then that shareholder had to offer their shares for sale under a pre-emptive rights provision and the shares would be sold at a fair value (cl 11).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

In my opinion, there is a prima facie case that, on the evidence contained in the affidavit of Drew James affirmed on 11 August 2017, the relationships between the parties have broken down and that that dispute is sufficiently connected to Mr Morris’ claim for unpaid wages that the other two investors in MC2, Mr Evans and Tiger, should also be joined and served out of the jurisdiction in Hong Kong and the Cayman Islands respectively, subject to the question of whether Tiger is capable of being, or ought be, joined. That question will be a matter for argument on the return of its application to set aside the anti-suit injunction. Conclusion For these reasons, there is a proper basis for ordering service out of the jurisdiction on Mr Evans and MC2.

Ratio Decidendi

Legal Principle Established

On about 26 June 2017, MC2 removed Mr Morris, without his agreement or consent, as a director of McConaghy Australia and all other subsidiaries of MC2 of which he was a director. That action is part of the foundation for his claim that the affairs of MC2, as a Pt 5.7 body, should be wound up on the just and equitable ground because it conducted operations within Australia by reason that decisions of MC2’s board would govern the conduct of the Australian subsidiaries.Consideration Such an allegation is closely analogous to the situation considered in Ho v Akai Pty Ltd (in liq) (2006) 247 FCR 205 at 219 [62]-[66] per Finn, Weinberg and Rares JJ. There, the Full Court held that, in a situation where there was a prima facie case that the directors and officers of an Australian company regarded themselves as being bound to follow the instructions of a foreign holding company, this Court had jurisdiction to order service out on the foreign holding company and its chief executive officer on the basis that each was a shadow director for the purposes of the Corporations Act. In my opinion, there is a prima facie case against McConaghy Australia that it is in breach of contract to pay Mr Morris’ salary of USD20,000 per month. That case is supported by McConaghy’s Australian taxation records and the minutes of MC2. In the present case, the defence of McConaghy Australia in the Federal Circuit Court denied that it was the employer of Mr Morris and called in aid the minutes of MC2 as evidencing that company’s potential capacity as his employer. If correct, those denials necessitated that Mr Morris be able to bring proceedings against his putative employer for its alleged breach of contract, within Australia, to pay him those wages within the meaning of item 2 in the table to r 10.42 of the Federal Court Rules 2011. Moreover, if McConaghy Australia were able to make out its pleaded defence, MC2 is likely to be Mr Morris’ employer and as such, it is a proper and necessary party within the meaning of item 20 in the table to r 10.42 in circumstances where McConaghy Australia has been served within the jurisdiction. That being so, there is a prima facie case that the Court can order service of the proceeding on MC2 in the Cayman Islands: BY Winddown, Inc v Vautin [2016] FCAFC 168. There is a dispute between the parties as to whether the amount of the monthly salary was varied, as between Mr Morris and either putative employer, McConaghy Australia or MC2, and, if so, on which of those companies the obligation to make the payments fell. Clearly, that dispute can only be finally resolved if both potential employers or parties liable under the contract to pay Mr Morris remuneration for his work and services in acting as a joint managing director or employee are before the Court in the one proceeding. In addition, Tiger and Mr Evans appear to be proper and necessary parties to Mr Morris’ claim to wind up MC2 based on the just and equitable ground. Their joinder will ensure that all four parties to the shareholders’ agreement, that regulated the conduct of the affairs of MC2, are before the Court. The winding up claim is founded on Mr Morris’ allegation that MC2 is a Pt 5.7 body which has assets and operations within Australia and conducted its business here through McConaghy Australia in accordance with the way in which the shareholders’ agreement and investment agreement contemplated the affairs of its subsidiaries would be conducted.