Safe Effect Technologies Limited (ACN 099 107 623) v Hood Group Holdings Ltd (ACN 097 778 375)
[2006] FCA 758
•19 JUNE 2006
FEDERAL COURT OF AUSTRALIA
Safe Effect Technologies Limited (ACN 099 107 623) v Hood Group Holdings Ltd (ACN 097 778 375) [2006] FCA 758
PRACTICE AND PROCEDURE – application for order under Corporations Act 2001 (Cth), s 1337H, that proceedings be transferred from Western Australia District Registry of Court to Supreme Court of New South Wales – nature of proceedings – relevance of exclusive jurisdiction clause – connection between relevant transactions and Western Australia and New South Wales – convenience of parties and witnesses – held, weighing up relevant factors, application refused.
Corporations Act 2001 (Cth), ss 1337H, 1317H, 180, 181, 182
Federal Court of Australia Act 1976 (Cth), s 48
Federal Court Rules, 0 10 r 1(2)(f)World Firefighters Games Brisbane, 2002 v World Firefighters Games Western Australia Inc [2001] QSC 164, referred to
Slater & Gordon Pty Ltd v Porteous [2005] VSC 398, referred toSAFE EFFECT TECHNOLOGIES LIMITED (ACN 099 107 623) & SAFE EFFECT PTY LTD (ACN 088 129 917) v HOOD GROUP HOLDINGS LTD (ACN 097 778 375), DOROTA HELENA KIERONSKA & VINCENT CECIL MORLEY
WAD 60 OF 2006BESANKO J
19 JUNE 2006
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 60 OF 2006
BETWEEN:
SAFE EFFECT TECHNOLOGIES LIMITED (ACN 099 107 623)
FIRST APPLICANTSAFE EFFECT PTY LTD (ACN 088 129 917)
SECOND APPLICANTAND:
HOOD GROUP HOLDINGS LTD (ACN 097 778 375)
FIRST RESPONDENTDOROTA HELENA KIERONSKA
SECOND RESPONDENTVINCENT CECIL MORLEY
THIRD RESPONDENTJUDGE:
BESANKO J
DATE OF ORDER:
19 JUNE 2006
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The first respondent’s application that these proceedings be transferred to the Supreme Court of New South Wales is dismissed.
2.The first respondent is to pay the applicants’ costs of the application and the costs of the second and third respondents.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 60 OF 2006
BETWEEN:
SAFE EFFECT TECHNOLOGIES LIMITED (ACN 099 107 623)
FIRST APPLICANTSAFE EFFECT PTY LTD (ACN 088 129 917)
SECOND APPLICANTAND:
HOOD GROUP HOLDINGS LTD (ACN 097 778 375)
FIRST RESPONDENTDOROTA HELENA KIERONSKA
SECOND RESPONDENTVINCENT CECIL MORLEY
THIRD RESPONDENT
JUDGE:
BESANKO J
DATE:
19 JUNE 2006
PLACE:
PERTH
REASONS FOR JUDGMENT
This is an application by the first respondent, Hood Group Holdings Pty Ltd (‘Hood’), for an order under s 1337H of the Corporations Act 2001 (Cth) (‘the Corporations Act’) that the proceedings be transferred to the Supreme Court of New South Wales. The applicants, Safe Effect Technologies Limited (‘SETL’) and Safe Effect Pty Limited (‘SEPL’), oppose the making of such an order. The application is also opposed by the second and third respondents, Dorota Helena Kieronska (‘Kieronska’) and Vincent Cecil Morley (‘Morley’), respectively.
The relevant provisions of s 1337H are in the following terms:
‘(1)This section applies to a proceeding (the relevant proceeding) in a court (the transferor court) if:
(a) the relevant proceeding is:
(i)a proceeding with respect to a civil matter arising under the Corporations legislation; or
(ii) a subsection 1337B(3) proceeding; and
(b) the transferor court is:
(i)the Federal court; or
(ii) a State or Territory Supreme Court;
(2)Subject to subsection (3), (4) and (5), if it appears to the transferor court that, having regard to the interests of justice, it is more appropriate for:
(a) the relevant proceeding; or
(b) an application in the relevant proceeding;to be determined by another court that has jurisdiction in the matters for determination in the relevant proceeding or application, the transferor court may transfer the relevant proceeding or application to that other court.’
Subsections (3), (4) and (5) are not relevant for present purposes.
The nature of the proceedings
The only information before me as to the nature of the proceedings is that contained in the application and the statement of claim. A defence has not yet been filed. The first respondent filed a brief affidavit in support of its application, but all that that affidavit does is prove the underwriting agreement referred to in the statement of claim.
In the application, SETL claims the sum of $943,859 from Hood, and both SETL and SEPL claim compensation or damages (including pursuant to s 1317H of the Corporations Act) from Hood, Kieronska and Morley for breaches of fiduciary duty and ss 180, 181 and 182 of the Corporations Act. In addition, SETL and SEPL claim interest and costs.
The basis of the claims is outlined in the statement of claim and the following is taken from that document.
SETL is a public company limited by shares and it was admitted to the official list of the Australian Stock Exchange on 21 May 2002. At all material times, it has operated a business which undertakes research, development, manufacture and distribution of braking systems.
SEPL is a wholly-owned subsidiary of SETL.
Hood is a public company which was incorporated pursuant to the provisions of the Corporations Act on 9 August 2001.
Kieronska was a director of SETL between 2001 and 2005 and was involved in the daily management of its business. From 2002 to 2005, Kieronska was a director of SEPL.
Morley was the general manager and chief executive officer of SETL between 2001 and 2004, and was a director from 2004 to 2005. At all material times, Morley has acted as a de facto officer of SEPL.
On or about 26 February 2003, SETL and Hood executed an agreement that was amended by further agreement executed by the same parties on or about 28 February 2003. This agreement is referred to in the statement of claim as an underwriting agreement. The underwriting agreement provided that Hood would underwrite a pro rata non-renounceable rights issue by SETL pursuant to a prospectus dated 26 February 2003. It provided that upon certification by SETL, Hood would apply and pay for any underwritten shares and related options which were not taken up by another subscriber, and this is referred to in the agreement as ‘the shortfall’. Hood’s liability under the underwriting agreement would cease when it had applied and paid for the shortfall. Hood was to receive a fee of 8 per cent of the underwritten amount of $5,030,959, to be satisfied by the issue of shares and related options in SETL, a management fee of $125,000, and all costs and expenses incurred by it in connection with the underwritten amount.
On 27 February 2003, SETL issued a prospectus for a pro rata non-renounceable rights issue to its existing shareholders on a 1 for 2.79 basis, to raise $5,030,959 by the issue of 33,539,728 new shares at 15c per share and one free new option for each new share subscribed. On 1 April 2003, the offer under the prospectus closed and on 4 April 2003, the new shares and options were due to be allotted under the prospectus.
On 7 April 2003, SETL issued a shortfall certificate to Hood, pursuant to clause 5 of the underwriting agreement, certifying that 820,697 shares and related options had been applied for under the prospectus and the shortfall consisted of 32,719,031 shares and related options.
On 24 April 2003, and pursuant to the underwriting agreement, Hood lodged an application with SETL for the shortfall and agreed to pay the shortfall on 2 May 2003. On that date, and at a meeting of directors constituted by Kieronska and one O’Brien, the directors ‘in effect’ resolved to issue 33,539,728 ordinary shares and 33,539,728 free options in SETL, including the shortfall, to Hood. Morley was present at this meeting. By 5 May 2003, SETL had only received $437,000 in respect of the shortfall from Hood.
On or about 5 May 2003, Kieronska and/or Morley caused SETL to agree with Hood that SETL would issue 28,569,031 fully paid ordinary shares, 28,569,031 options in SETL to Hood, and Hood would treat these securities as restricted securities, as defined in the Australian Stock Exchange Listing Rules, and would not transfer, encumber or otherwise deal with any of the securities until all application moneys for the securities were delivered to SETL. As a result of that agreement, Kieronska and Morley caused SETL to issue the securities in it on 5 May 2003 and, as a result, an amount of $3,848,355 less underwriting and management fees and underwriting costs became due from Hood to SETL pursuant to the underwriting agreement.
On 5 May 2003 Hood’s obligation to pay the outstanding amount was unsecured, and by 31 May 2003 the outstanding amount was $3,693,545.40. On that date, Hood, a Mr Stanley Holmes, a principal of Hood, and 3D Capital Pty Ltd, executed an agreement which provided that the outstanding amount from Hood to SETL was approximately $3,693,545.40 and at SETL’s request Hood would immediately grant a first ranking charge to SETL over all of its assets and undertaking to secure the outstanding amount, and at SETL’s request Mr Holmes would immediately grant a first ranking charge to SETL over any assets he owned or controlled to secure the payment of the outstanding amount, including certain specified assets. Neither Hood nor Mr Holmes ever granted a charge to SETL, and by 14 September 2004 the outstanding amount was $943,859,000. That amount remains outstanding.
SETL and SEPL allege that Kieronska and Morley owed duties to SETL, including a duty under s 181(1)(a) of the Corporations Act. They allege that, by causing SETL to make the agreement for the issue of the securities and by causing SETL to issue the securities in circumstances in which Hood had not fully paid for the securities and its obligation to make such a payment was unsecured, Kiernska and Morley each breached the duties they owed to SETL to the knowledge, and with the involvement of, Hood.
SETL and SEPL also make claims against Kieronska and Morley for breach of the duties they owed to SETL and SEPL in that they caused expenses to be paid that were not for the benefit of either SETL or SEPL. There is also a claim against them for breach of the duties they owed to SETL and SEPL in causing certain monies to be paid in connection with legal fees which had been incurred. It is unnecessary to mention the details.
The facts relevant to the application
The underwriting agreement was signed by two directors on behalf of SETL, one of whom is Kieronska. The agreement contains a clause which is in the following terms:
‘17.2 Governing law and jurisdiction
(a) This agreement is governed by the laws of New South Wales.
(b)Each of the parties irrevocably submits to the exclusive jurisdiction of the Courts of New South Wales.’
In the underwriting agreement, Hood is said to be a company of 57 Rickard Street, Balgowlah, New South Wales. That is said in Hood’s outline of submissions to be the registered office of Hood and I am prepared to accept that assertion. However, there are a number of other assertions in Hood’s outline for which there is no evidence. It is asserted that the business operations of Hood are conducted in New South Wales, that documents relevant to the dispute are located in New South Wales, that the dispute has been conducted through Hood’s solicitors in New South Wales, and that the majority of witnesses reside in New South Wales. I am not prepared to accept those assertions in the absence of evidence, particularly in circumstances in which there is not yet a defence indicating what the issues in the proceedings will be.
SETL and SEPL, Kieronska and Morley put forward evidence.
On behalf of SETL and SEPL, the chief executive officer of SETL, Mr Kenneth Noel Johnsen, has sworn an affidavit. SETL and SEPL operate out of premises in Balcatta in Perth.
Mr Johnsen states that he has been informed by his solicitors that if the proceedings against Hood are transferred to the Supreme Court of New South Wales, representatives of SETL and SEPL will need to attend conferences with solicitors and counsel in Sydney on a number of occasions and will need to attend any trial proceedings in New South Wales. Mr Johnsen believes that SETL and SEPL will incur substantial additional costs if the proceedings are transferred to the Supreme Court of New South Wales and will be necessarily prejudiced by a transfer of the proceedings to that Court. As I have said, Hood has not yet filed a defence, and it is not possible for SETL and SEPL to say what witnesses will be required at the hearing of the proceedings. It may be necessary for them to incur additional costs in flying witnesses to Sydney for proofing and for the purposes of trial.
Kieronska and Morley have each filed affidavits, which for all intents and purposes are in identical terms. Both oppose the transfer of the proceedings to the Supreme Court of New South Wales. Both say that they were not a party to the underwriting agreement in their personal capacity. Both reside in Western Australia, have employment in that State and have family in that State. Both will incur considerable inconvenience and expense if required to defend the proceedings in New South Wales. Both will need to instruct new solicitors in New South Wales and both will incur the expense of attending a trial in New South Wales.
Principles and consideration
This application is made under s 1337H of the Corporations Act. It is not suggested that there is a residual common law discretion to stay proceedings brought in defiance of the exclusive jurisdiction clause and that concession by Hood is, in my opinion, correct: see World Firefighters Games Brisbane, 2002 v World Firefighters Games Western Australia Inc [2001] QSC 164. The existence of an exclusive jurisdiction clause is a relevant consideration in terms of the discretion to transfer, and in some cases is a very weighty matter: see Slater & Gordon Pty Ltd v Porteous [2005] VSC 398.
In the context of this case, the matters relevant to the exercise of the discretion to transfer are the same as they are under the general cross-vesting legislation and are as follows:
1 The provisions of an exclusive jurisdiction clause, if there is one.
2The connection between the relevant transactions and Western Australia and New South Wales, respectively.
3 The convenience of parties and witnesses.
It is not suggested in this case that there are any differences in the substantive or procedural laws of Western Australia and New South Wales, respectively, which are relevant to the discretion to transfer. Nor is it suggested that Hood has been guilty of delay in bringing the application.
SETL and SEPL claim from Hood an amount of about $950,000, which they say is due under the underwriting agreement. They also make a claim against Kieronska and Morley for that amount, claiming that each of them breached their fiduciary duties or duties under the Corporations Act in issuing securities without requiring payment or security. Their alternative claim against Hood is based on Hood’s alleged involvement in the alleged breaches of duty of Kieronska and Morley. It is not clear what this adds to their primary claim against Hood. SETL and SEPL also make quite unrelated claims against Kieronska and Morley for breaches of duty in relation to certain expenses.
The primary claim by SETL and SEPL against Hood is within the exclusive jurisdiction clause. Clearly, the claims by SETL and SEPL against Kieronska and Morley are not.
The alternative claim by SETL and SEPL against Hood and their claims against Kieronska and Morley are proceedings with respect to civil matters arising under the Corporations legislation within the terms of s 1337H(1) of the Corporations Act.
The exclusive jurisdiction clause is a matter in favour of an order transferring the proceedings. However, it must be noted that not all of the claims made in the proceedings are governed by the clause. It was said that it was significant that Kieronska had signed the clause but I am disposed to place little weight on this point. She signed as a director of SETL, not as a party to the agreement.
The information as to the connection between the relevant transactions and Western Australia and New South Wales, respectively, is quite limited. For example, there is no information as to where the respective parties executed the agreement. On balance, I conclude that there is greater connection between the relevant transactions and Western Australia than with New South Wales. The applicants operate in Western Australia and the shares and options which are the subject of the underwriting agreement are in those companies. The breaches of fiduciary duty and of the Corporations Act appear to have occurred in Western Australia.
As far as the convenience of the parties and witnesses is concerned, the evidence before me suggests that this favours the proceedings remaining in Western Australia.
Weighing up the relevant factors, I think the application should be refused.
I note that this is not an application to transfer the proceedings to the Sydney Registry of this Court: Federal Court of Australia Act 1976 (Cth), s 48; Federal Court Rules, 0 10 r 1(2)(f). Had it been such an application I would have refused it for similar reasons to those given above.
Conclusion
The application to transfer the proceedings to the Supreme Court of New South Wales is dismissed. Hood must pay the costs of the motion of SETL and SEPL and of Kieronska and Morley.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate:
Dated: 19 June 2006
Counsel for the Applicant: Mr J Thomson Solicitor for the Applicant: Q Legal Counsel for the First Respondent: Mr C Gough Solicitor for the First Respondent: Minter Ellison Counsel for the Second and Third Respondents: Mr K E Yin Solicitor for the Second and Third Respondents: Rouphael & Associates Date of Hearing: 15 June 2006 Date of Judgment: 19 June 2006
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