THE PRINCIPAL PROCEEDINGS : THE NATURE OF THE CASE
100By the First Cross Claim, the Applicants claim relief that includes, expressly, an order that order 5 of the orders made by Gzell J on 9 April 2010 be discharged, and an order that the appointment of the Referee on 9 November 2013 pursuant to order 5 be terminated.
101Although these claims for relief do not, in terms, refer to ss 232-233 of the Corporations Act, they can only be understood by reference to those sections, and as an implicit application for relief pursuant to them.
102It is not necessary, in reaching this conclusion, to read the Cross Claim in light of the pleadings in the proceedings (numbered 05209/2008) in which order 5 was made by Gzell J. Nevertheless, it is not immaterial that: (a) in the proceedings before his Honour, the Applicants explicitly applied for an order (a winding up order) under s 233; (b) both sides of the record accept, in the current proceedings, that it was open to Gzell J to make the orders he made, in lieu of a winding up order, under s 233; and (c) the case advanced by the Applicants in the present proceedings is predicated, at least implicitly, upon a proposition that it is open to the Court in these proceedings, to discharge, vary or confirm a s 233 order made by Gzell J.
103I do not exclude the possibility that the omission of any explicit reference to ss 232-233 in the Cross Claim reflects a forensic strategy adopted by the Applicants (of a type similar to that feared by the First Respondent) in the hope, not so much of obstructing performance of the joint venture, but of inviting the Court to allow them to re-litigate questions about the terms of the joint venture without being compelled, themselves, to submit to the broad remedial discretion for which s 233 provides.
104If that is part of the Applicants' forensic design, it is flawed to the extent that the real issues in the proceedings must be taken (as, in my judgement, they must be) to include an engagement of ss 232-233.
105As in the proceedings before Gzell J, the Applicants' engagement of those sections may, ultimately, operate in a way that substantially departs from their primary case, and it may operate in favour of a case propounded by the First Respondent.
106It is neither necessary nor desirable for me to speculate about the ultimate outcome of the proceedings. However, it is necessary, in the interests of the due administration of justice, to draw to the parties' attention the nature and breadth of the jurisdiction for which ss 232-233 provide.
107If they continue to manifest an inability to work together in management of HCP, relief which could be granted on the Applicants' Cross Claim could, conceivably, include orders for removal of any or all of the joint venturers as directors of the company and for the appointment of an independent board of directors: Re Spargos Mining NL (1990) 3 WAR 166 at 193-196; 3 ACSR 1; 8 ACLC 1218. It could also, conceivably, include orders designed to limit the role of any party to that of an employee of HCP: Re HR Harmer Ltd [1959] 1 WLR 62 (an authority relied upon in Re Spargos Mining NL and approved by Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 360 [175]-[176]).
108One way or the other, by means such as these, the Court may be moved to put an end to the dysfunctional management of the company's affairs arising from the joint venturers' constant preoccupation with "control" and Machiavellian manoeuvres.
109If the parties' inability to work together continues, it would also be open to the Court, conceivably, to make orders under s 233 (eg, for the purchase or sale of shares in HCP at a particular price) designed to ensure that any party who has caused the company, or a member, to incur a loss bears the burden of the loss: Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 143-146; Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; 207 ALR 136 at [70]-[78]; Shirim v Fesena [2002] NSWSC 10 at [12]-[15].
110An undertaking as to damages, given as the price for obtaining an interlocutory injunction, is not the only means by which the Applicants (for example) might have an exposure to a claim for compensation arising out of such (if any) of their alleged acts and omissions as may be found to have obstructed the Hurstville development.
111Equally, any unreasonable behaviour on the part of the First Respondent may operate to his disadvantage on an application of s 233.
112As a matter of jurisdiction, but subject to a discretionary disinclination on the part of the Court to become involved in the making or supervision of commercial decisions, it would be open to the Court under s 233 to direct, or authorise, an officer of HCP to enter the particular contracts which are presently the subject of controversy.
113There may be substantial reasons why such an order should not be made but, on the face of s 233, the possibility that it could be made needs to be borne in mind by the parties in their preparation of the principal proceedings for hearing.
114That possibility also invites consideration whether, in aid of the final hearing and with his consent, an order, or orders, should be made under the Uniform Civil Procedure Rules, Part 20 Division 3, for the reference of particular questions to the Referee (earlier appointed pursuant to Gzell J's order 5) for inquiry and report.
115Whatever operation might ultimately be given to s 233, it has been engaged in these proceedings, and it is incumbent upon each party (obliged by s 56 of the Civil Procedure Act to focus on the real issues for determination) to take that into account.
116Given the complexity of questions that can arise in the context of debates about principles relating to issue estoppel and the like, the parties should also bear in mind the possibility that much of their disputation may, ultimately, be subsumed in a due consideration of s 233.
117Other claims of relief in the Cross Claim include a prayer that the trust declared by the Court pursuant to order 1 made on 9 April 2010 be terminated, and an order that no directors are to be appointed to the board of HCP (other than the Applicants or the First Respondent) without an order of the Court.
118A variety of other claims for relief relate to ownership and governance of the joint venture between the Applicants and the First Respondent (via HCP) and the payment of compensation of one kind or another.
119The allegations of fact made by the Applicants in the cross claim include allegations referable to events before and after entry of Gzell J's orders.
120In granting the Applicants leave to file the cross claim, Black J made the following observations in Reasons for Judgment published as In the Matter of Hua Cheng Property Pty Limited [2013] NSWSC 1869 (16 December 2013), which I editorially adapt, and to which I add emphasis, for ease of reference in the current context:
"[19] [Ms Hong Xia Xia] ... resists leave to file the Cross-Claim on the basis that the issues raised in the Cross-Claim were dealt with in the First Proceedings [by Gzell J], and also contends that an issue of Anshun estoppel arises, so far as the relief sought in the proposed Cross-Claim may be relief that could have been sought in the First Proceedings. Plainly, some of the factual matters raised in the proposed Cross-Claim were the subject of findings in the First Proceedings, and issue estoppels may exist between at least some parties as [regards] those matters. It may be that there will be argument as to that matter, either in an application for a stay or to strike-out the proposed Cross-Claim or at a final hearing, but I do not consider that I can reach any conclusion that all relevant matters were determined so as to warrant refusal to file the Cross-Claim. It seems to me at least seriously arguable that, as [the Applicants submit] substantial aspects of the relief sought are either consequential on the orders made in the First Proceedings or result from subsequent developments. [Counsel for Ms Hong Xia Xia] ultimately accepted, in oral submissions, that the extent of any estoppel or res judicata arising from Gzell J's judgment was not a matter relevant to the motion [for leave to file the Cross-Claim], but instead to any strike-out application which might later be brought in respect of the Cross-Claim...
[22] ... [Counsel for the First Respondent adopted the submissions of counsel for Ms Hong Xia Xia]. He also contended that the matters now sought to be raised by [the Applicants] re-agitate matters that were addressed in Gzell J's judgment in the First Proceedings. In particular, he draws attention to the claim in the proposed Cross-Claim that [the First Respondent] has not contributed funding to HCP, or at least that HCP's accounting records do not demonstrate any such funding, and draws attention to the finding made in the First Proceedings that at least some such funding had occurred.... [Counsel for the Applicants] in turn contests the proposition that the findings of Gzell J in the First Proceedings determine whether [the First Respondent] has in fact made the contributions which [the Applicants] contend that he was obliged to make, and contest the suggestion that Gzell J's findings bind [the Applicants] as to the amounts contributed by [the First Respondent]. He submits that whether the amount of $4.3 million to which Gzell J referred is inconsistent with [the Applicants'] allegations in the proposed Cross-Claim that a first tranche of $2 million and a second tranche of $10 million committed by [the First Respondent] have not been made will be a matter for evidence, not a reason to exclude the Cross-Claim at this point.
[23] I accept that it is at least arguable that there is an overlap between Gzell J's findings and the question of contributions made by [the First Respondent], particularly in respect of the alleged commitment by [the First Respondent] to make a first contribution of $2 million. I should note, however, that Gzell J's findings do not address at least part of the allegation made in the proposed Cross-Claim, that [the First Respondent] was obliged to make a further capital contribution as the basis of the transfer of 20 shares by [the First Applicant] and 20 shares by [the Second Applicant] to him. I do not consider that it is so clear that this matter has already been determined adversely to [the Applicants] as to require that leave to file the proposed Cross-Claim be withheld. ..."
121His Honour continued his consideration of the parties' disputes by reference, inter alia, to the case management principles found in the Civil Procedure Act 2005 NSW, ss 56-58.
122Consideration of the Applicants' current motion does not provide an occasion to re-agitate any determination made by Black J. No party suggested otherwise.
123Nevertheless, for the purpose (at least) of illustrating the nature of the parties' disputation and dysfunctionality that invites consideration of ss 232-233 of the Corporations Act, attention must be given to the nature of the case sought to be advanced by the Applicants on their cross-claim, and (at least insofar as concerns events subsequent to Gzell J's orders of 9 April 2010) the nature of the allegations of fact made in the cross-claim:
(a)The cross claim focuses attention on two classes of allegation about events pre-dating Gzell J's orders of 9 April 2010:
(i)One focuses on an allegation that the First Respondent made a representation (described as "the Xu Secondary Capital Contribution Representation") to the Applicants, in 2007-2008, to the effect that, if they each transferred 50% of their respective shareholdings in HCP to him (thereby giving him the majority of the shares in HCP), he would make further capital contributions of $10 million in addition to his initial capital contribution of $2 million: cross claim, paragraph 10(c). They contend that, but for that representation, they would not have transferred their shares to him and that, he having failed to contribute the promised additional $10 million, he holds the transferred shares on a constructive trust for them: Cross Claim, paragraphs 38-42.
(ii)The other focuses upon an allegation that, in or about early 2008, the three joint venturers agreed to enter into a new agreement to replace the joint venture agreement executed on 29 November 2006: Cross Claim, paragraphs 44-48. The Applicants allege that it was agreed that, in consideration of the Applicants transferring shares to the First Respondent to make him the majority shareholder in HCP, he would contribute $10 million, in addition to his initial contribution of $2 million, and raise the remaining $40 million required to complete the development. They seek an order for specific performance compelling him to perform that agreement.
(b)The cross claim specifically pleads the fact of publication of Gzell J's Reasons for Judgment on 31 March 2010 (paragraph 13) and the orders made by his Honour on 9 April 2010 to give effect to those Reasons (paragraph 15).
(c)By reference to those Reasons for Judgment (and, implicitly, the orders on which any issue estoppel must be based), the cross claim alleges that Gzell J made particular findings of fact which are available to the Applicants in the current proceedings (paragraph 14) and serve as a foundation for allegations (in paragraph 16 and following) about wrongful conduct attributed to the First Respondent in connection with management of HCP, performance of the joint venture and performance by HCI of its obligations as a trustee for HCP.
(d)The wrongful conduct alleged against the First Respondent in the cross claim, post-dating Gzell J's orders of 9 April 2010, focuses upon the following events:
(i)On or about 5 November 2012 HCI (under the control of the First Respondent) served on HCP a lapsing notice to force removal from the title to the Hurstville land of a caveat which the Applicants had, in the name of HCP, lodged on the title on or about 19 September 2012 for the purpose of protecting HCP's beneficial entitlement to the land: Cross Claim, paragraphs 17-18. For his part, the First Respondent says that the Applicants caused the caveat to be lodged on the title without his knowledge, and without notice to him of any meeting of directors of HCP: Defence, paragraph 6. By order of Bergin CJ in Equity on 6 December 2012, the operation of the caveat was extended until further order: Cross Claim, paragraph 19.
(ii)On or about 10 January 2013 the First Respondent purported, on behalf of HCP to transfer three ordinary shares in HCP to the Plaintiff and, without notice to the Applicants or the convening of a meeting of directors to approve registration of the transfer, the First Respondent purported, on behalf of HCP, to register the transfer of those shares: Cross Claim, paragraphs 20-21. On14 August 2013, White J declared that registration of the transfer was invalid: Cross Claim, paragraph 34. The Applicants complain that the joint venturers have not agreed to the Plaintiff becoming involved in the joint venture or a shareholder of HCP and that, in any event, she has not made any capital contribution to the development: Cross Claim, paragraphs 35-36.
(iii)On or about 18 January 2013 the First Respondent purported to convene an extraordinary meeting of shareholders of HCP (on 9 February 2013) at which he (allegedly with a proxy from the Plaintiff) resolved to increase the number of directors, from the three joint venturers, to five and to appoint the fifth and sixth cross defendants as directors of the company: Cross Claim, paragraphs 22-24. On 14 August 2013 White J declared that their appointments were invalid.
(iv)On an unspecified date after 7 March 2013, and without the knowledge or consent of the Applicants, the First Defendant purportedly caused four interrelated steps to be taken by HCP in, or in connection with, the conduct of its affairs. First, he caused HCP's caveat over the Hurstville land to be withdrawn, allegedly in breach of the order for its extension made by the Court on 6 December 2012. Secondly, he caused the mortgage previously granted by HCI to CKM (Mortgages) Limited over the land to be discharged. Thirdly, he caused a facility agreement with Balanced Securities Limited to be entered; and, fourthly, he caused a mortgage over the land to be granted to Balanced Securities Limited: Cross Claim, paragraphs 25-29.
(v)The First Respondent, having limited their access to records, compelled the Applicants, as directors of HCP, to apply to the Court for an order that chartered accountants nominated by them be permitted to inspect the books and records of HCP, which order Brereton J made on 11 March 2013 (Cross Claim, paragraphs 30-31), as a consequence of which the Applicants found that the books and records of HCP do not evidence the First Respondent's initial capital contribution of $2 million or his promised secondary capital contribution of $10 million: Cross Claim, paragraph 32-33.
(e)The cross claim alleges that the First Respondent's wrongful conduct constituted, inter alia, breaches by him of the duties of a director (defined by reference to ss 180-182 of the Corporations Act and the general law), characterised as a failure to exercise reasonable care, a failure to act in good faith, a failure to act for proper purposes, an abuse of the position of a director to gain an improper advantage and to cause detriment to HCP and improper conduct in a conflict of interest situation.
(f)The cross claim also alleges that (by discharging the CKM mortgage, entering a facility agreement with Balanced Securities Limited and granting a mortgage to Balanced Securities Limited) HCI acted in breach of the obligations of trust it owes to HCP, knowingly assisted by the First Respondent and the Fifth and Sixth Cross Defendants: Cross Claim, paragraphs 58-65.
(g)The Applicants contend that, in the context of the findings of fact made by Gzell J, orders 4 and 5 of the orders made by his Honour on 9 April 2010 serve to bar any directors being appointed to HCP (other than the Applicants and the First Respondent) without an order of the Court (Cross Claim, paragraph 50), and they seek an order confirming the correctness of that contention.
(h)The Applicants also contend that the making of orders 1-5 (inclusive) of the orders made by Gzell J, in the context of the findings of fact made by his Honour, serves to prevent HCI from dealing with the Hurstville land without the approval of all of the directors of HCP or, failing approval of all directors, a decision of the Referee (Cross Claim, paragraph 52), and (subject to their claim to be compensated for any loss or damage suffered as a consequence of the removal of the HCP caveat, and the granting of security in favour of Balanced Securities Limited) they seek an order confirming the correctness of that contention.
124If the Applicants succeed in the principal proceedings, they will, even on their own case, be required to continue dealing with the First Respondent. The relief they seek does not include an order for the winding up of HCP or the joint venture.
125To that extent, at least, the First Respondent's apprehension that they are intent upon forcing an abandonment of the joint venture project is, or may be, misdirected.